Fact or fiction?: A multibillion-dollar service organization with 100,000 employees in two dozen states and a double-digit share of a highly fragmented marketplace could grow to that point without ever deciding what kind of company it wanted to be.
Surprisingly, this company’s situation is not an anomaly. Companies achieve blue-chip status all the time — dominating their industries and outwardly projecting prosperity, stability, and competence — despite serious operational misalignment. For all their outward put-togetherness, every organization experiencing such misalignment inevitably finds itself at a competitive disadvantage and more vulnerable to external shocks.
In an economic environment unlike any in living memory, against the backdrop of a once-in-a-century pandemic, these weaknesses no longer dwell in the abstract realm of risk analysis. They pose a clear and present danger to their sufferers’ long-term viability. They demand urgent attention.
Operational misalignments occur when organizations fail to understand themselves. These misunderstandings often grow out of executive-level disagreements over how to organize and share three core types of work functions: advantage creating, strategic support, and essential support. The internal distribution of these three types of work functions define the organization’s structure, whether the organization functions as a holding company that exercises minimal control over a network of loosely affiliated subsidiaries, as an allied network of semi-autonomous units, or as a fully integrated organization characterized by strong, centralized leadership and shared work functions. Problems arise when an organization’s behavior is not consistent with its structure — when an allied-structure organization pursues an integrated strategy without first integrating its work functions, for example.
This is the central issue for our subject, the multibillion-dollar service company. Like many organizations that grow mainly through acquisition, this one retained a decentralized structure with characteristics of the holding company and allied models. Unfortunately, it operates in an industry where size matters. To achieve the fiscal and competitive benefits of growth through acquisition, it badly needed to integrate key work functions.
That process continues apace thanks to a shared understanding among C-level leaders that integration — operational realignment — is in the organization’s best interest. In the following sections, we’ll use the experience of our subject, cues from other well-aligned organizations, and input from top HR experts to:
- Make the case for organizational alignment
- Identify common reasons for misalignment and their likely consequences
- Lay out a road map for successful organizational alignment
If you preside over an organization performing below its potential, this last bit — a successful realignment — might seem remote. But it’s well within your ability to achieve.
The most persuasive answers to this question come from well-known organizations whose success is directly attributable to effective operational alignment.
Take McDonald’s. A 2017 Harvard Business Review article peers under the hood of the progenitor of the modern fast-food industry to find an incredibly well-aligned multinational. According to HBR, McDonald’s success is down to “fanatical attention to the design and management of scalable processes, routines, and a working culture by which simple, stand-alone, and standardized products are sold globally at a predictable, and therefore manageable, volume, quality, and cost.”
Specifically, McDonald’s has optimized the five “enterprise value chain” links responsible for effective (or ineffective) alignment:
- Enterprise purpose. This is the organization’s mission: what it does and why. Nonspecific answers like “to earn a profit” are not acceptable here.
- Business strategy. This is what must happen for the organization to fulfill its purpose — what the organization must “win at,” according to HBR.
- Organizational capability. Organizational capability supports effective business strategy execution. It’s “what you need to be good at” to achieve your strategy, according to HBR. Without adequate capability, that strategy isn’t realistic.
- Resource architecture. This is the wireframe of organizational capability: the people, internal relationships and networks, operational processes, and organizational culture. Their strength and quality determine the organization’s capability and everything else upstream.
- Management systems. These define how resources are allocated and managed, and how their performance is defined and measured.
Our subject has a clearly defined mission that, in theory at least, is at the center of everything it does. Its misalignment arose out of a fundamental strategic miscalculation — that a dispersed structure, a mix of the holding company and allied models, put it in the best possible position to “win” at its strategic objectives.
As the organization grew, its acquired subsidiaries retained substantial autonomy on the assumption that local leaders already in place knew how best to serve their markets. Many were resistant to oversight and insisted on continuing the pre-merger status quo. Among other undesirable outcomes, this insistence resulted in an unacceptable duplication of essential support work — work that is normally ripe for consolidation after a merger.
Customers don’t care who stocks your toilet paper, right? So what do they care if you replace five regional vendors with a single national partner that promises a much better price per pallet? Similarly, are they likely to care if you replace five regional CEOs with a single national head?
Is Your Organization Aligned?
Our subject’s predicament is just one of many possible misalignments. Without oversimplifying, we can say that it has characteristics of two of the five common types of organizational misalignments identified by RBL: function optimization and standardization versus customization.
Let’s delve into each common type of misalignment and its possible precursors. Often, leaders have difficulty grasping the scale of their own misalignments until they recognize their organizations in these scenarios.
- Misalignment #1: Optimization of function. In complex organizations, it’s tempting (and, therefore, common) for discrete units or functions to implement structural or operational changes that simultaneously make their work easier while hampering the performance of the larger organization. In the past, units within our subject organization have cut costs by relying on contract labor to perform advantage-creating work — the organization’s competitive lifeblood. That contract labor is often shared with (and sometimes entirely lost to) direct competitors.
- Misalignment #2: Standardization versus customization. Large organizations routinely standardize essential and strategic support functions to reduce overhead and complexity. The danger lies in failing to recognize when standardization is not appropriate; the distinction is not always clear. Our subject learned the difficult way that standardizing or centralizing functions that should remain customized or distributed erodes competitive advantage.
- Misalignment #3: Utilization versus availability. Most organizations grapple with the tension between the need for resources to be available and the cost-cutting imperative to fully utilize those resources. The key to resolving this tension is a clear understanding throughout the organization and within work-producing units of what work functions actually create value and how to prioritize value-creating work.
- Misalignment #4: Solutions in search of problems. The tension between availability and utilization may give rise to make-work campaigns, often driven by “solutions in search of problems.” When there’s no clear business case for the work being performed, and when that work addresses issues that don’t really need to be fixed, misalignment occurs. Proper categorization of work and its attendant business cases is the antidote.
- Misalignment #5: Accountability confusion. Like many large organizations that grow by acquisition, our subject suffers from internal confusion around accountability. The organization’s geographically distinct units are vertically accountable and often well run, but there’s a deficit of horizontal accountability between these units. They’re not always rowing in the same direction and don’t particularly see the need to.
Operational misalignments don’t arise in a vacuum. The 2017 Harvard Business Review article identifies four common causes of misalignment:
- Precursor #1: Lack of awareness of the dangers of misalignment. This was certainly a challenge for our subject organization, whose C-level leaders and regional heads were comfortable with the misaligned status quo in part because they were used to seeing their own fiefdoms as the organization’s primary units of value production. In reality, the growing value chains connecting and synchronizing these units were and are the true units of value production.
- Precursor #2: Lack of global accountability for enterprise alignment. The throughline from lack of global accountability for enterprise alignment to RBL’s fifth misalignment is clear. In this context, “global accountability” does not necessarily mean a single process owner (and their team) taking responsibility for all things alignment-related. It’s more about culture. Are all of the organization’s disparate process owners and teams rowing in the same direction, toward the same goal, ensuring they’re synced up along the way? If no, then misalignment likely follows.
- Precursor #3: Enterprise complexity. Big, complex systems, left unchecked, tend toward disorder. HBR identifies “large, diversified, and geographically dispersed enterprises” as those most at risk of misalignment and most in need of strategic corrective action by leadership. With dozens of distinct and at-times minimally aligned business units in dozens of states, our subject knows this well.
- Precursor #4: Chaotic “business as usual.” “Business as usual” should not be overwhelming; chaos is not an acceptable baseline. When the imperative to align isn’t part of “business as usual,” misalignment is a natural outcome.
Toward a Successful Organizational Realignment
Rectifying operational misalignment demands thorough organizational self-knowledge, which in turn demands a perhaps-uncomfortable degree of introspection. HBR outlines a number of key questions, all tied in some way to the enterprise value chain, that leaders should ask at the outset of this process. This is a selection of the most important:
- Is our enterprise purpose clear enough that our customers and investors can articulate it? Senior leadership had better be able to articulate your enterprise purpose, but what about marginally attached stakeholders, like your customers and retail investors? Something approximating your elevator pitch should be on the tip of everyone’s tongue.
- Are your present offerings consistent with your enterprise purpose? For various reasons, it’s common for organizations that grow by acquisition to cling to the holding company model, retaining offerings that are not consistent with the larger organization’s purpose. If the organization isn’t willing to alter its purpose, those offerings should fall by the wayside.
- What do you need to “win” at or differentiate at to gain competitive advantage? Put another way: what does your organization need to do to out-compete the competition?
- What are your existing strengths as an organization? Every organization, no matter how poorly aligned, does certain things well. By themselves, they may not be enough to “win,” but they’re a start. They deserve attention, cultivation, reinforcement.
- What do you need to be good at or improve at to “win” (execute your strategy)? Competitive, well-aligned organizations know what capabilities they need to improve to exceed the expectations of their markets and customers (present and future). These capabilities-in-progress demand greater attention than the organization’s existing strengths.
- What type of work and work processes are essential to creating your competitive advantage, and who is responsible for them? Clearly defining advantage-creating work and the people and groups responsible for it is a prerequisite for operational realignment. This is the work that directly creates value, cannot be commoditized, and is functionally impossible for competitors to replicate (likely because it’s treated as proprietary to a greater or lesser extent).
- Are your management and executive teams focused on what’s needed for you to execute your advantage-creating strategy? In other words, are your organization’s priorities in the right place? Our subject organization’s geographically siloed structure shows the dangers of prioritizing the local over the global.
With these questions to anchor us, let’s move on to RBL’s five principles for executing organizational realignment. These principles share a common goal: creating an “unsiloed” organization with minimal internal friction.
- Take an outside-in approach. Begin by identifying the “external target” for your alignment and gathering benchmarking data that will help track your progress toward it.
- Clearly define your goals and parameters. Moving inside your organization, determine precisely what needs to be optimized to achieve your alignment objectives. To do this, you’ll need to answer many of the questions outlined by HBR, such as what you need to “win” at and what needs to be improved internally for you to win. Among other outcomes, clearly defined optimization goals and parameters are vital to ensuring buy-in from stakeholders affected by the realignment.
- Distinguish between efficiency and effectiveness work. Next, distinguish between work that must be optimized with an “efficiency” lens and work that must be treated from an “effectiveness” perspective. As you might guess, the former is supportive in nature and can be streamlined safely. The latter is advantage-creating, must be treated as proprietary, and should never be at the mercy of support functions. Following this principle helped our subject regain its competitive advantage — reintegrating advantage-creating work into its internal human resources infrastructure and reducing reliance on contractors for core functions.
- Design strategically. Many leaders of purportedly integrated enterprises see their organizations as amalgamations of value-creating units rather than integrated systems. In an integrated environment, true alignment occurs only when “strategy [drives] process, systems, roles, and structure,” according to RBL.
- Properly sequence and scope the alignment. Like clearly defined goals and parameters, this principle — succinctly summarized as “no surprises in realignment” — is vital to securing buy-in from stakeholders whose roles, positions, and employment status may change as a result.
We’ve covered a great deal of ground in a fairly brief overview of a topic about which many books have been written. We’ve discussed:
- The importance of a properly aligned organization. Properly aligned organizations are more likely to execute successful business strategies — to “win” what they need to win to realize their enterprise purpose.
- The signs and consequences of common reasons for operational misalignment. Misalignment takes many forms. It is not always easy to recognize. Sometimes, leadership can’t even reach a consensus that it’s happening or that it’s a problem. But it’s often down to lack of awareness of the risks of misalignment, lack of “ownership” of the alignment function, and the tendency of complex organizations to pursue action for action’s sake.
- Best practices for leaders working toward a successful realignment. Realignment depends on an outside-in, strategy-driven approach that’s well-organized, clear about what it’s trying to achieve, and clear-eyed about what must happen to achieve its objectives.
Let’s be clear: Rectifying a serious organizational misalignment is not something that can be done in a week, or even a quarter. It’s an incremental, iterative process that demands difficult decisions from those responsible for it. Despite much progress toward its ultimate goal, the national organization we’ve followed through this narrative continues to work through its realignment.
Don’t overinterpret the unvarnished truth of organizational realignment: that it’s a deliberate and sometimes drawn-out process. If you take one lesson from our subject’s experience, let it be that good things happen when decision-makers row in the same direction. Successful realignment is absolutely achievable — but you have to want it to happen.