Strategy Alignment with a Business Value focus is a key element in creating and sustaining value in business. Yet there is still no standard for recognizing, developing, managing, or measuring this intangible asset. It's not enough for OD professionals to be able to explain why and how they implement their approach. They need to be able to transcend the SOI mentality, measure performance, and link Strategy Alignment contributions to the mission of the organization and define its impact in financial terms.
Calculating the Business Value of Strategy Alignment Interventions
Most organizations today focus on creating value through improving the efficiency of organizational processes. They measure their success through changes in mass-manufacturing economies of scale, savings benefits garnered through hyper-efficient distributions systems, Six-Sigma quality control programs, and so on which all contribute to enormous value creation in organizations. Organizations will get progressively better at designing and managing processes to improve efficiency, but such initiatives no longer have break-through value-creation potential. They are already witnessing diminishing marginal returns when it comes to the incremental value creation possible through improving efficiency.
Measuring the business impact of interventions such as Strategy Alignment Interventions is based on understanding business value and its implications, which is always financial. Business Value can be defined as: "The financial contribution of an individual or team that is measured as a return on investment and that achieves the strategic goals of the organization." For a Strategy Alignment Intervention, there is only one reason the investment is made: The value of the benefits the intervention produces for the organization exceeds the cost to the organization of having the team produce those benefits. Defining the formula for the business value of strategy alignment is deceptively simple:
Direct cost of intervention
However, calculating the benefits produced is difficult to obtain because there are often intangible outputs, it's hard to measure in dollars, costs more apparent than revenues. But the implications of not measuring the business impact are greater than the difficulties and with the advent of new analytics software tools available on the market, statistically isolating the business impact of soft interventions such as strategy alignment is becoming easier and more economical.
Many employees don't believe that their leaders truly want them to act strategically-to view their organization from the third position. Whenever a choice needs to be made between strategy and short-term cash-and it always does-most people feel irresistible pressure from management to go for the cash. They settle for an SOI definition of themselves because usually the message from leadership is clear: strategy can wait for tomorrow. Rather than leaders encouraging strategy perspectives among employees, they are often the biggest obstacles to the implementation of strategy. They need to realize that short-term paybacks, if not aligned to a long-term strategic value, will be short-lived. In "The Balance Scorecard" by Kaplan and Norton, they emphasize organizations needing to link their investments to long-term strategic priorities rather than tying them to narrow financial measures such as payback and discounted cash flows. Though senior executives deny it, most organizations allocate financial resources using incremental, tactical, capital-budgeting mechanisms that stress easily quantified financial measures of near term cash flows. A lot of this has to do with not being able to measure the impact of strategic initiatives, including the strategy alignment process itself. The metrics tend to be elusive, vague, broad, or inaccessible. These excuses are not longer valid as the need for demonstrating and maximizing business impact has become the new factor in determining competitive advantage.
What are the metrics to be used for measuring the business impact of Strategy Alignment Interventions?
Measuring intangible assets such as strategy alignment and their relationship to the overall strategy of a firm will inherently transform traditional accounting procedures that are bases on tangible assets. Most of the impacts of the strategy alignment process will be linked to financial goals of workforce performance and behaviors of the firm. Strategy alignment can't help but be held accountable to the performance outcomes of the participants of the process. In fact, true strategy alignment implies that leaders must identify and be involved with those strategic implementation elements that create those results and the measurement system should provide a clear view of how each employee contributes to success and express those measures in terms everyone understands.
Data for these outcomes are usually stored in corporate legacy systems. Productivity data may be stored in one system that includes product output, error rates, and cycle time. Sales data may be stored in a financial software package that includes sales volume, time to close, and numbers of calls made per day. The human resources database stores all of the necessary employee information to help isolate those who received an intervention and those who didn't in order to statistically isolate the business impact of those interventions. Firm must move from measuring only lagging indicators that tell what happened in the past such as previous performance metrics to including leading indicators that assess the status of success factors such as R&D cycle time and customer satisfaction.
The ideal metrics for Strategy Alignment Initiatives include four themes cutting across any or all of the core areas of the firm including Mission and Vision, Customers and Markets, Products and Services, Unique Competencies, and Values & Cultures. The four themes include: Identifying the Strategy Alignment deliverables, identifying and measuring the processes and interventions that generate those deliverables, developing a validated competency model that will focus on outcomes, and identifying Strategy Alignment efficiency measures that link costs and benefits.
Possible metrics to be collected:
- Survey of those whose behaviors the intervention is designed to influence. Performance data of participating members in the intervention that could include:
- Changes in value of specific processes that are directly impacted by the intervention.
- Explore employees' perceptions of alignment by identifying the key strategic drivers, identify the key elements that enhance the strategy implementation, and a paired alignment evaluation for all elements in the first two steps.
A new vision is required to demonstrate the business value of strategy alignment to move from a "line item", cost containment, and "service provider" mentality towards being more strategically aware, involved, and focused on contributing to the overall success of the company, not merely their function or department. The main outcome of such a vision is to empower leaders and staff to become aware of their role as "Business Value Analysts", learning how their unit's business impact is proposed, delivered, measured, and reported more effectively to their clients and to management.