We’ve all heard the many clichés describing when segments and teams within an organization are aligned in their goals and strategy: “We’re all in this together,” “we’re on the same page,” “we’re rowing in the same direction.” And there are plenty more.
Since we all realize that achieving alignment in a common goal is critical to the success of any group endeavor, why is this so hard to achieve?
Several recent business headlines point to one area where this is all too common: the misalignment executing enterprise-wide strategy and Line-of Business (LOB) priorities.
Alignment between strategic direction and operational tactics is crucial to any successful organization and requires strong leadership from the top and commitment from all LOB functions. Lack of strategic alignment is a recipe for disaster. Consider Facebook: the social media giant ran into problems when a third party improperly gained access to the data of millions of users – the strategic objectives of reputation and growth conflicted with LOB objective of maximizing revenue. Wells Fargo experienced a similar conflict between reputation and LOB revenue maximization when employees opened millions of accounts without the permission of customers. On April 12, 2018, Starbucks offered another example of the damage towards achieving strategic goals caused by a LOB policy decision to remove guests that sat down at a table waiting for a friend without purchasing anything.
I define strategic alignment as an in-depth knowledge and application of the organization’s strategic direction, and agreement on its validity, by all the major LOB functions and processes of the organization. A misalignment occurs when there is a lack of awareness understanding importance of the strategy, or miss-application in executing the strategy by various departments or LOB’s.
Sun Tzu, author of the Art of War, captured the difficulty in achieving success without getting what we call in the modern age “buy-in” from all those involved in the endeavor: “Unhappy is the fate of one who tries to win his battles and succeed in his attacks without cultivating the spirit of enterprise; for the result is waste of time and general stagnation.”
Why does strategic misalignment exist and remains unresolved for many public and private sector organizations?
What is the actual cost if not resolved over time?
The costs can be very high, as we have seen with Facebook, Wells Fargo, and many other examples too numerous to recount here.
Eight Causes of Misalignment
There are eight primary reasons why strategic misalignment occurs and why management and internal auditors fail to resolve those imbalances when they do occur.
- Lack of awareness: Executive management, boards and committees, and internal audit all failed to identify risks. No one within the organization recognizes the misalignment between strategy and specific departmental goals. This often occurs when overall strategic goals are poorly communicated throughout the organization. What steps should management implement to prevent this from happening?
- Management is aware and unable to resolve problem: If management is aware of the misalignment, do they have adequate processes and controls to resolve the disconnects? Adequate processes and controls alone without commitment will not resolve the problem.
- Commitment to resolve misalignment loses out to competing priorities: Even when executive management is committed to strategic goals and has adequate policies in place to resolve issues, without the proper emphasis and sensitivity towards resource constraints (capacity), the LOB will simply evaluate requests for corrective actions in the context of other competing priorities. This minimizes the effectiveness of resolving strategic misalignments throughout the organization.
- Tone at the top (business-as-usual attitude): With the proper tone, the issues articulated in causes #1 to #3 could not have occurred, or would result in minimal impact to the organization. The opposite is true for organizations lacking the appropriate tone. The business-as-usual attitudes and sub-cultures within LOB segments override enterprise-wide goals, exposing the organization to increased risks and significant losses, including financial and reputational damage.
- Quantifiable costs of misalignment: Over time, management will identify and probably resolve symptoms from causes #1 to #4, such as missed delivery deadlines, quality and product recalls, increased costs, loss of market share, customer complaints, employee turn-over, lack of innovation, and other problems. Whatever losses that can be quantified at this stage are typically minor when compared with compliance and regulatory issues or sustained reputation damage.
- Risks implication (unable to identify and mitigate risks): Managing high-level strategic risks (and achieving alignment with operational processes) are impossible if they can’t be identified. It’s best to keep this brief with a recent example. Starbucks recognized and reacted quickly to their LOB inappropriate actions, whereas Wells Fargo was slow to formulate an effective response to LOB actions resulting in significant negative publicity that began in 2016 and will require years for the bank to overcome.
- Compliance implications plus added costs: Unchecked LOB actions that conflict with strategic goals can result in executives testifying to congress or European Union committees and courts, resulting in increased regulatory pressures. This is often a significant cost that can’t be adequately quantified in the short term. A combination of regulatory fines and seizure, class-action-law suits, and loss of top customers can accelerate the demise of the most profitable organization. In April 2018, for example, Wells Fargo accepted a fine of $1 billion related to auto insurance and mortgage abuses. Most organizations would choose the smaller costs of enhanced controls and compliance with strategic goals over steep fines and regulatory restrictions.
- Inability to execute mission and impact to customers: For any business and government agency, the ability to execute mission and keep customers happy requires alignment between the enterprise-wide strategy and LOB priorities. Skilled employees working on cross-functional and collaborative teams focused on the mission and customer are imperative. Facebook and Wells Fargo will be dealing with the fallout from LOB’s failing to adequately execute strategic goals for a long time. In such case, customers have a choice. They can simply reject a brand or minimize how they use a product or service.
Executives and Managers should be proactive in anticipating and resolving problems related to misalignments between enterprise-wide strategy and line-of-business priorities. These must be identified and resolved as soon as possible to avoid long-term financial losses and reputational damage. I welcome any suggestions you can provide on this topic.
Jonathan Ngah, CISA, CIA, CFE, CGFM, is a Principal at Synergy Integration Advisors, a consulting firm providing Audit, Governance Risk and Compliance (GRC) solutions to Federal Government Agencies, private-sector and not-for-profit organizations.