In the article “Corporate Strategy: 5 Critical Alignments To Assess,” discussed was the impact of crisp execution and careful attention on corporate strategy to ensure that business strategies are aligned with methodically planned actions across the organization. This article addresses three more key areas where alignment to corporate strategy are essential to business effectiveness.
1. Alignment of business process to strategy
Business process and strategy execution go hand-in-hand, but natural alignment between strategy and process cannot be expected to occur on its own. Processes must support business goals, integrating organizational capabilities that enable the business to deliver consistent customer value while keeping pace with demands of the strategy.
For instance, a strategy calling for the introduction of new products in a growing market segment may require outsourcing, more modularity and improved standardization in order to meet the goals specified in the strategic plan. There are massive business process implications to each of these. Likewise, acquisition strategies must be thought through in terms of business process congruence and integration. Many organizations fail to do so, compromising much of the expected value from their strategic acquisitions and yielding unintended consequences.
2. Alignment of metrics / measures to strategy
Closely linked to business process considerations are the metrics and measures of process effectiveness. Again, this relationship forces a close alignment with strategy – more specifically with the strategic goals related to the strategy.
Not all strategic goals are going to be financially oriented, in fact they should not be. Regardless, they must still be quantifiable (see item #8 in the linked article to learn more about minimize or increase types of statements) so that they can be measured. Metrics can then be associated with timeframes to accomplish, then measured for management to track progress.
As with the development of strategy, the relationship of strategic goals to metrics and measures can be tricky. For instance, a strategy might have a strategic goal related to “increasing productivity by X% over X quarters” and another related to “increasing profitability by X% over X quarters”. Setting the wrong metrics might help accomplish one goal, but simultaneously compromise the other. How?
Assume the following:
- Volume metrics for production are encouraging managers to seek higher labor productivity
- The contribution of labor to profitability is 10%
- The contribution of materials to profitability is 60%
In this case, a 10% increase in labor productivity will create a decrease in material management efficiency – as inventory levels must increase to address the volume change. That could easily translate to a materials efficiency decrease of 2% or more to support the 10% labor efficiency increase.
Give the profit contribution assumptions above, the net result is as follows:
- a 10% labor productivity improvement times 10% profit contribution equals a 1% profitability increase
- a 2% materials productivity decrease times 60% profit contribution equals a 1.2% profitability decrease
As you can see, net profitability actually decreases when high volume production is encouraged by metrics misalignment – compromising the strategic goal of “increasing profitability by X% over X quarters”.
3. Alignment of governance to strategy
Lastly, governance and strategy are inexorably linked during planning and in the midst of execution – therefore alignment of these two business components is once again critical. Governance must first exist, then it must be aligned to planning in order to build in realistic strategic expectations and to measurement cycles in order for real accountability to exist. These are required in strategic planning and strategy execution.
Governance should address, at a minimum: master scheduling, metrics and measurements, plan rejuvenation, project planning and plan accountabilities.
When strategic planning is done well, with a mature and robust process that guides the effort to ensure completeness – the outcomes can be powerful and position an organization to dominate the competition. Yet only a small percentage of organizations operate with mature planning models that yield complete and comprehensive strategic plans addressing alignment to key dimensions of the business.
As discussed, business process and strategy execution go hand-in-hand, but organic alignment between strategy and process cannot be expected. Closely linked to business process are metrics and measures of effectiveness, again requiring close alignment with strategy and more specifically with strategic goals of the business. Lastly, governance and strategy should be joined at the hip during planning and in the midst of execution – therefore alignment is once again critical.