CHAPTER 17

A Simple Way to Test Your Company’s Strategic Alignment

by Jonathan Trevor and Barry Varcoe

There is no universal or one-size-fits-all prescription for a winning business. But corporate leaders today seem to agree that strategic alignment is high on the list.

Strategic alignment, for us, means that all elements of a business—including the market strategy and the way the company itself is organized—are arranged in such a way as to best support the fulfillment of its longterm purpose. While a company’s purpose generally doesn’t change, strategies and organizational structures do, which can make chasing “alignment” between strategy and the organization feel like chasing an elusive will-o’-the-wisp.

As if that weren’t tough enough, another challenge for corporate leaders is how to make sense of strategic alignment at both the team/business-unit level (or division or department, however it is classified) and at the enterprise level. (See the sidebar “Is Anyone in Your Company Paying Attention to Strategic Alignment?”)

Yet it is possible. For example, as it grew, Facebook found that its early “move fast and break things” culture had to be funneled into focused technical teams and product groups to make its product development process faster and less erratic and for it to have a chance of meeting the demands of its new public shareholders following its IPO. The current mantra is “move fast with stable infrastructure,” which speaks to the organizational design challenge of operating at scale in a fickle and volatile world.

There is a simple test you can perform to start an honest conversation about strategy and organizational effectiveness where you work. Think of your company in its entirety or perhaps select a strategically important element of it, such as a growth area upon which future success depends or its primary source of income, and consider the following two questions:

1. How well does your business strategy support the fulfillment of your company’s purpose? Purpose is what the business is trying to achieve. Strategy is how the business will achieve it. Purpose is enduring—it is the north star toward which the company should point. Strategy involves choices about what products and services to offer, which markets to serve, and how the company should best set itself apart from rivals for competitive advantage. Think of your own business and ask yourself, using a scale of 1–100, How well does our strategy support the fulfillment of our purpose? (If you are unclear on your company’s strategic priorities, or its purpose, then the likelihood is that it does not.)
2. How well does your organization support the achievement of your business strategy? “Organization,” as we’re using it here, includes all of the required capabilities, resources (including human), and management systems necessary to implement your strategy. For instance, if your company seeks to beat competitors through superior customer service, is this reflected in the day-to-day behavior of staff and their interactions with customers? If innovation is a key strategic priority, does your organizational structure enable creative collaboration, risk-taking, and knowledge sharing? To maintain strategic alignment, a company’s people, culture, structure, and processes have to flex and change as the strategy itself shifts. The symptoms of poor alignment are often obvious, especially to those who work in the company, but also to customers who do not experience the service they expect from a company’s branding and advertising. Using the same 1–100 scale, ask yourself: How well does our organization support the achievement of our strategy? If your organization is incapable of delivering its strategy, the strategy is effectively worthless and your company’s purpose will go more or less unfulfilled.

Your answers to both questions can be plotted on the matrix in figure 17-1. Each state poses a different leadership challenge. (Across all four, however, we’re assuming that the purpose itself is viable and has the potential to be successful.)

Very best chance of winning: Companies that score highly on both scales stand the very best chance of winning in their competitive field. But alignment manifests itself in more than just superior financial performance. It also leads to a more positive work climate, above-average staff engagement, a strong commitment to values, and few(er) energy-sapping turf wars and in-fighting. There is a buzz, no matter what the type of business, because people value being part of a company that is winning.

ARM is possibly one of the best-performing companies you’ve never heard of. Its microprocessors are used in over 95% of the world’s smart devices, including iOS and Android smartphones and tablets. Superior technical innovation is at the heart of its strategy and its organizational design. ARM organizes purposefully for innovation by maximizing opportunities for knowledge sharing and collaboration throughout its entire ecosystem comprising thousands of external partners. Its core staff of only 3,500 based mostly in Cambridge (UK) shares a singular purpose and set of values that supersede functions, occupations, and roles. There are few barriers to spontaneous collaboration among technical teams.

Best of intentions, but incapable: Companies that score highly on the purpose and strategy alignment scale, but low on the strategy and organization scale, are more or less incapable of implementing their strategy as intended. The performance penalty may be manifest in poor customer attraction and retention, higher-than-expected costs, organizational dysfunctions, or simple financial underperformance.

Like many leading international banks in recent years, Barclays has been subjected to strong criticism of its culture, governance, and risky behavior that contributed to the 2008 financial crisis. A series of scandals, such as foreign exchange fixing, has resulted in it receiving record fines, regulatory scrutiny, and highly negative publicity. A report commissioned by Barclays in 2013 revealed a corporate culture that wasn’t fit for purpose, tending to “favor transactions over relationships, the short term over sustainability, and financial over other business purposes.”¹ It further revealed a complex and siloed organization, with competing operating assumptions, values, and practices across the group. The result was a fertile environment for reckless and risky employee behavior running contrary to the overarching vision and values of the enterprise.

Boldly going nowhere: Businesses that have strong alignment between their strategy and organization but weak alignment between strategy and purpose are classed as “boldly going nowhere.” In our experience, there are many capable businesses with great people that lack a coherent, overarching purpose that helps guide shifts in strategy. The result is a company that becomes less and less capable over time as customers move on and talented employees depart for new pastures. Kodak is a famous example of a terrifically capable blue-chip business brought low by confusion about how best to fulfil its purpose in the digital world. Although it developed digital photographic technology, too many people in the company focused on the core organizational competence of film. Instead of seeing digital cameras as a new way to execute on the organizational purpose of capturing “Kodak moments,” they hewed to their existing, film-centric strategy. That left them out of sync with the changing preferences of consumers for digital media and instant sharing.

Not long for this world: Companies that score low on both scales are in crisis, even if it isn’t immediately obvious. Their strategies do not—cannot—fulfill their larger purpose, because they fail to effectively address customer preference, market conditions, and competitor capability. Equally significant, their organization is incapable of delivering against strategic priorities.

The fall can come quickly. Royal Bank of Scotland (RBS) was a flagship bank, feted for its stellar financial performance. It grew rapidly in the late ’90s and early 2000s, transforming itself from a regional Scottish bank into a national British bank with the acquisition of National Westminster Bank in 2000, finally and fleetingly becoming a global universal bank with the acquisition of ABN Amro in 2007. At its peak, RBS employed 170,000 people and operated in more than 50 countries with annual profits of £10.3 billion. In 2008, however, RBS failed spectacularly and was nationalized by the UK government to prevent its collapse.

Many have speculated since about failures of its leadership under its bullish former CEO, Fred Goodwin. Goodwin was notoriously combative, with a “Fred says” autocratic management style. RBS was also famous for its “strategy of not having a strategy,” being largely opportunistic and relying upon aggressive plays, agility, and audacity to outpace peers. Supercharged inorganic growth—especially the acquisition of ABN Amro—meant that RBS grew very large, very quickly, with multiple different operating structures and subcultures. RBS outgrew the ability of its command-and-control leadership structure to effectively govern complex and diversified activities across international operations. Many poor business decisions resulted in an accumulation of unsustainable toxic debt. Almost a decade on from its nationalization, RBS still remains on life support provided by UK taxpayers and has yet to return to sustainable profit, posting yet another loss in 2015 that has more or less wiped out the equivalent of all the public money invested since its downfall.

How does your company score? What does it tell you about how you perceive the effectiveness of your strategy, or your organization? Consider further: Why have you rated your business the way you have, and, if accurate, what are the consequences for performance in future?

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Jonathan Trevor is an associate professor of management practice at Oxford University’s Saïd Business School. Barry Varcoe is global director of real estate and facilities at the Open Society Foundations.

NOTE

1. Anthony Salz, “Salz Review: An Independent Review of Barclays’ Business Practices,” April 2013, https://online.wsj.com/public/resources/documents/SalzReview04032013.pdf.

Adapted from content posted on hbr.org, May 16, 2016 (product #H02VVA).