Most companies’ operational and management control systems are built around financial measures and targets, which bear little relation to the company’s progress in achieving long-term strategic objectives (Kaplan & Norton, 1996). Companies pour good money after bad, not realising they are funding a poor strategy. Without clear data, executives wait for performance to turn around, instead of acting.
The way strategies have been defined and managed for years is doomed to failure. Multiyear results rarely meet projections. In order to get approved, strategy proposals include unrealistic financial expectations. The budget ends up driving initiatives, rather than the strategy.
- Research suggests that aligning operational excellence and organisation strategy produces significant benefits for the organisation. Where previously project managers might lead expensive projects that may or may not have been compatible with greater business aims, alignment casts spending in a new light. Funds are spent to directly impact a company’s overall performance, thereby increasing profitability and reducing unnecessary expenses.
- Alignment can also help improve transformation success rates and, therefore, the ability for the organisation to address customer needs and expectations. Research has shown a significant increase in organisational financial performance and success rates when initiatives were aligned with business strategies. When each initiative directly contributes to the welfare of the company, the organisation as a whole improves, improving customer experiences and retention rates.
Metrics, performance measures, KPIs, and the accompanying reward, recognition, performance appraisals, and promotions, these must all be made consistent and aligned across departments and functions and across organisational levels. Every employee must be rowing in the same direction for the ship, the enterprise to sail and reach its destination successfully.
To do that:
- There should be a vertical line of sight from individual employees to the highest level in the organisation.
- Every employee should be able to see how his or her performance contributes to how the enterprise succeeds.
- In addition, there should be a horizontal line of sight among individuals between different departments and functions who support the same value stream or end-to-end process.
- Reduce the number of KPIs to the truly key ones that support higher-level KPIs at higher levels of the organisation.
- Create KPI trees that link lower-level metrics up to higher organisational metrics, goals and objectives
Alignment is important because it ensures what is being delivered, is right, and will deliver real value against the business opportunity. Alignment should be enterprise-wide across different functions and up and down all levels of the organisation to consistently drive the right mindset, behaviours, and results.