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strategy misalignment: the symptoms, dangers and treatment

Strategy Misalignment: The Symptoms, Dangers and Treatment

Posted by admin on April 5, 2010

Strategic misalignment is insidious. It creeps into organizations silently, tenaciously takes root and over time begins to undermine successful organizations. There are tell-tale symptoms to watch out for and many dangerous implications when it goes untreated.

This article reviews the symptoms to watch for; evaluates the damage that occurs over time if left unchecked and reveals methods to correct the ailment and reverse the damage that occurred.

What Do We Mean by “Strategy Misalignment”?

Corporate strategy is an amorphous term. There are countless definitions available, so let’s start with defining this term for the purposes of our discussion. Corporate strategy is the amalgamation of an organization’s defined strategic key outcomes (strategic goals) in support of the mission and the vision of its business.

In recent years, “alignment” became a popular topic when referring to Information Technology (IT) vis-à-vis business. This is not the topic we are referring to here. In this case, “alignment” is a much broader issue involving all aspects of the organization’s business eco-system. Strategy alignment is the synchronization of key outcomes (strategic goals) with operations and execution tactics. Strategic misalignment occurs when operational initiatives are not in sync with the defined key outcomes of the organization.

Early Detection

It is critically important to identify strategic misalignment early. Uncorrected, problems compound quickly and lead to serious issues within the organization that will exact damage. Precisely what damage will occur and where is difficult to predict, not only because business organizations behave much like living organisms, but also because they are made up of inter-dependent systems that cause reactions to differ from case to case.

According to the Chaos Theory, small differences in initial conditions yield widely diverging outcomes for chaotic systems. Strategic misalignment introduces a dangerous dose of chaos into an organization’s eco-system, leading to chaotic reactions. The business eco-system is the sum of internal and external functions of an organization’s environment. The complexity of the environmental conditions, according to the principals of Chaos Theory, play a role in the unpredictability of the outcomes when random elements are introduced. The deterministic nature of the many sub-systems within the business eco-system does not make them predictable at all. Following this thought process, when one or more of the effects of misalignment combine forces, the degree of organizational chaos increases dramatically.

Let’s next examine the symptoms of strategic misalignment, which can help lead to an early diagnosis.

Symptoms

When an organization suffers from the malady know as “strategy misalignment”, the door opens for mission drift within the operations of the business. The organization’s ability to protect itself from erroneous behavior is compromised and, while there may be strategic planning occurring, most organizations inherently suffer from some amount of immaturity and unsophistication in their planning process. Goals can be ambiguous; tactical operations may not be synchronized; the strategic plan may not be supported by overarching governance or underlying linkages to execution.

Take Dell’s attempt at a turnaround strategy for example. The company’s strategy has been to improve profitability and not focus on market share, moving away from the practice of deeply discounting computers to capture business. Unfortunately for Dell, they’ve struggled with misalignment by failing to link their strategic goals to their operations, derailing the successful execution of their strategy. They have so far been unable to break free of their old habits within the business divisions.

A recent Wall Street Journal article noted this point:

“Dell said profit dropped 4.8% in its fiscal fourth quarter even as a surge in holiday computer demand lifted revenue 11% from a year earlier. The decline can be traced to the steep discounts that Dell is offering customers. In particular, Dell's consumer division—which accounts for about a quarter of the company's revenue—saw sales increase by 11% from a year ago to $3.5 billion, but its profit dropped more than 80% to $9 million.”

Justin Scheck - Wall Street Journal, February 18, 2010

The missing component of Dell’s strategy was the lack synchronization of operational plans, objectives and incentives to align the business divisions to the corporate strategy. When measurements and compensation are not aligned with strategic goals, why would we expect to accomplish them?Strategy misalignment is subtle and sometimes difficult to spot. Here are a few symptoms to watch out for:

Missed Financial Projections:

As indicated in the Dell example cited above, misalignment ultimately will result in poor performance, which leads to missed quarterly, semi-annual or annual projections. Dell’s strategy was to improve profitability with less emphasis on growing market share. Instead, Dell managed sales increases across its divisions during its most recent quarter and their gross profit margin fell to 16.6% from 17.2% just a year ago.

While missed projections can be traced back to an array of different issues, often the root cause is strategic misalignment. This is because different areas of the organization are reacting to different stimuli that managers and workers see in their parts of the business. Non-strategic efforts ensue, aimed at organizational redirection or adaptation. This sometimes leads to redundant grass root efforts of non-strategic initiatives spawned within operations. Those non-strategic initiatives are not only redundant, but are often contra-indicated to the enterprise strategy. Non-strategic initiatives at the grass roots level sometimes work at cross purposes from one division or department to another. As deadlines are not met within operations due to the extraneous activity occurring in the environment, product launches or service lines can be delayed - directly impacting projected revenue streams.

Stalled Growth:

When organizations begin to misfire due to misalignment, initiatives required to support and sustain profitable growth get into trouble. It’s not that the leadership and rank-and-file employees don’t want to see growth occur. It is that, despite their best intentions, they cannot sufficiently coordinate efforts on their own to right the ship. Unfortunately, spotting this symptom is difficult in situations where governance is already lax or missing altogether. Righting the course of the business requires the efforts of all parts of the organization, but they must be working in concert together to do it. Such a feat requires the ability to align strategy and execution through and through.

Reactive Spending and Duplicity of Initiatives:

Without clear visibility into the corporate strategy and into the operational plans across the business, company divisions can drift into a self-directed mode that stray further and further from the enterprise goals. This happens absent of any intention on the part of operational managers, but is naturally occurring when strategic alignment is missing.

Remember that chaos takes unpredictable turns, making the events and sequencing of issues associated with strategic misalignment differ from case to case. Reactive spending and duplicity of initiatives might occur as a result of lackluster quarterly or annual results being posted. In other cases, it could be part of a chain reaction, due to inter-dependent initiatives fighting for limited resources. These unsynchronized initiatives begin to impact each other and desperation sets in. The cascade of problems results in additional dollars being invested as managers try stemming the damage of delays, resulting in even more time and resources being consumed. It is especially troubling when you consider that these extraneous efforts are focused on trying to correct discretionary spending gone bad and related to non-strategic initiatives that do not push strategic goals forward to begin with.

This is not to say that operational management should not have discretionary budget dollars to invest in non-strategic initiatives that seem important enough to address. Empowered managers and employees should be able to make the right call and take action when needed. However, when strategy alignment is present and governance provides the framework to allow for good decision making, this problem becomes a mitigated issue. The problem with such actions is only apparent when looking at the organization globally. Redundancy of initiatives is another costly symptom of misalignment. To know that the symptom exists requires visualization into the rest of the organization so that it is possible to determine if and where the problem you are trying to solve has already been addressed or is already in the process of being solved. Misaligned organizations generally lack the sophistication in governance to allow this to be spotted easily.

Cultural Erosion and Morale Problems:

Leaders and workers alike share in a profound dislike of organizational chaos. Such chaos takes a toll on the endless heroics required to pull off yet another 11th-hour miracle in order to meet routine deadlines or project timelines. Clearly, human nature is such that we thrive on stability, predictability and feelings of accomplishment and success. Yet, when our work expands to encompass the total of all cycles that can be expended on normal job duties, pressure mounts with the increased workload and stress of failure. Morale among workers is infectious. When it is good, the good feelings spread to others. Unfortunately, the reverse is true as well. This makes the morale symptom damaging to the organization’s culture and overall performance.

Decreased Revenue / Profitability:

The organization’s wallet will ultimately be impacted by the chaotic events that unfold related to strategy misalignment. Revenue decreases can occur for a variety of reasons, most of which trace back to misalignment. When new services or products are delayed in roll-out because the initiatives to bring them to market are unsuccessful, revenue takes a hit and overall competitive positioning can be eroded. Profitability suffers as a result of any of the symptoms discussed thus far. In the Dell example, profits suffered because of strategy misalignment in the operating divisions with the enterprise strategy of improving profits by avoiding deep discounting on their computers. Couple that with a related retrenchment in the push to further extend their market share so that they could focus on profitability, and you have a double whammy to profits.

Causes

There are many ways that strategy misalignment can creep into an organization. We’ll list only a few here, but this is by no means an all inclusive list.

The Planning Process:

A big cause of strategy misalignment is an underdeveloped strategic planning process. An underdeveloped process does not adequately define plan goals to make them concise and measurable. Underdeveloped planning processes also neglect detailed planning at the operations level and overlook communications and change management.

In short, the strategic planning process is crucial to avoid strategy misalignment. Organization’s do not steer themselves on vision alone, nor will strategic goals alone ensure crisp tactical execution. Enterprise strategic key outcomes must drive planning and execution downward, through business operations. This requires that plan goals that are well defined, well understood and well communicated. It also requires a process to guide the planning activities.

Governance:

Plan governance must be a part of the planning process. When plan governance is missing, strategy misalignment has room to creep in.

Plan governance ensures that plan goals relate to a set of metrics that are repeatedly measured over time. An active and healthy governance function will take action to bring initiatives under control when they stray from anticipated deadlines or intended results. Having strong governance instills leadership and worker accountability to plan goals. Governance helps avoid strategy misalignment not only be defining accountability, but by empowering employees.

How does strategy governance help create employee empowerment? It does so by directly defining or defining through coordination with the organization’s Human Resource function clearer job parameters related to action. Examples include:

Who can do what?
Under what circumstances?
What are the metrics for evaluation?
What are the consequences either way of positive or negative impacts the organization?

To practice “strategy misalignment avoidance”, governance can and should be broad enough in scope to orchestrate the many programs that support plan goals. Orchestration involves managing and tracking the budget allocations related to the strategic goals. It involves coordinating planning at the operational levels. It also
involves managing the overall strategic plan and the operations plans below that. Proper governance will guide the organization firmly away from strategic misalignment and towards plan goal achievement.

Communication:

Strategic plans must be communicated very effectively. Failure to do so almost guarantees misalignment down the road.

Common communication issues related to strategy misalignment include failure to determine:

Who needs to know about plan information?
What do they need to know about the plan?
When do they need to know it?
What should the information mean to them?
What is it that the organization expects them to do with the information?
How will they be communicated with?

This means that during planning, these topics and many others must be addressed initially during strategic plan development and throughout operational planning. During plan refresh cycles, the communication strategy should always be reviewed and updated as necessary.

Treatment

Thus far, we’ve covered many common symptoms of strategy misalignment, the causes and the long-term effects.

So How Do We Correct Strategy Misalignment When It Occurs?

Just as it takes time and effort to see results from strategy, re-instilling strategy alignment and correcting misalignment requires time, work and discipline. The situation didn’t occur overnight, and won’t disappear overnight either.

Even though it does take time to address strategy misalignment, the following actions and planning philosophies will begin to get things back on track.

Plan Bi-directionally

Strategy misalignment begins to occur when there is a disconnect between the strategy-making body of the organization and the business operational managers whom are responsible for tactical execution and making day-to-day decisions within the business. Misalignment between strategy and execution is more common when organizations take a one dimensional approach to planning that focuses primarily on strategy but fails to plan operationally as well. A bi-directional planning process better assures that hard links exist between goals and tactics. To conduct a top-down only planning process creates a default communication chasm to be overcome or an “us against them” mentality that also must be overcome somehow. Regardless, such an approach tends to set up operational miscues in strategic implementation.

Instead of a perpetuating that scenario, consider adopting a top-down / bottom-up (bi-directional) planning approach that involves operational leaders in the planning process. Bi-directional planning leads to more realistic and measurable goals because a healthy amount of disagreement enters into the strategy process, due to the mix of perspectives offered from the managers now providing input. Operational plans that have the buy-in of all levels of managers will result.

Implement a Plan Governance Office

In the graphic below, a governance model is depicted showing the major components of strategy alignment. On the right-hand side, the strategic key outcomes (e.g. strategic plan goals) become the “vertical stabilizer” against with organizational initiatives will be filtered.

All manner of projects, initiatives, optimizations, innovations, etc. must be filtered through the strategic key outcomes “sieve” to make it into the active portfolio. The program execution management and initiative management functions serve as “horizontal stabilizers” in this governance model.

Plan governance is the string that must thread through the many beads of planning elements. The causes of strategy misalignment discussed in this article can all be mitigated through a comprehensive plan governance office.

Conclusion

Strategy misalignment can be a serious problem, and likely exists to some extent in almost every organization. Getting control of the problem now will allow organization’s a chance to accomplish their goals and function at a higher level.

Learn More

Does this leave you curious about Method Frameworks and the effectiveness of your own planning process? Plan4^SM is our proprietary business planning process that involves an integrated set of actions designed to help companies gain sustainable advantage. Download our brochure to learn more about Method Frameworks and our services or download our Plan4 Planning Process Overview.

You can contact Method Frameworks at 877-317-5264 (877-31PLAN4) or follow this link to request a meeting with a planning consultant. Check our articles and blog often at www.methodframeworks.com to get many more planning tips and information about our Plan4 process.