Strategy : Aligning Departments with your Strategy

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Over the years, several companies have asked me how I would go about getting departments of their organizations to support the vision we created in the strategic planning process. To begin with, it's important to recognize that this is a good idea: any department in your organization can either support your strategy by being aligned with it, or block your strategy by pushing against it. To see how, let's take a look at how several different departments might affect strategy.

Purchasing — In many purchasing departments, performance is measured strictly by how well the department cuts costs. This is clearly useful for a company that is pursuing commodity customers, but it can be highly counterproductive when your target customer is a specialty buyer. The problem of measuring other values — such as the impact the purchase has on our operations or on our customers — sometimes makes purchasing a difficult department to align with the organization's strategy.

Accounting — Accounting typically gives the company a way of measuring performance (financially) after the fact, as well as managing cash flow and, usually, budgeting. Some accounting departments also focus a good deal of effort on cost measurement and management. Naturally, the measurements that come out of accounting in most organizations are likely to be the easiest measurements to use for management. Since much of value creation is difficult to measure (except where it is efficiently translated into higher pricing), over-reliance on the easiest financial measurements for management can lead to commodity thinking, which is a potential disaster for companies who are targeting specialty customers. A general tendency caused by the ease of financial measurements is that accounting people like to focus on cutting costs and raising prices, which in turn can make the job of selling harder and harder.

Operations — Naturally, since your operations lie at the heart of creating the product or service that your customer is paying for, the way operations is managed can greatly alter the way customers experience doing business with your company. Commodity customers should be supported by operations that focus on efficiency even at the expense of some value, while specialty customers are best served when operations add costs in order to gain even greater value. In addition, companies that are seeking to move into specialty markets may need to improve their effectiveness with lower volume operations, while commodity markets are usually dominated by high volume operations.

Sales — Sales is often seen as the "front line" in strategy, since people in sales usually have the majority of customer contacts in many organizations. The nature of your sales force and its processes will greatly affect the success of your strategy. As a rule, people in sales find their jobs easier when the company is pursuing a commodity strategy. This is because selling something for a lower price takes far less sales skill than selling it at a higher price. Expensive, skilled, knowledgeable salespeople are a necessity when you are pursuing specialty customers, while commodity customers — who are selecting vendors predominantly on price — are much more effectively served by low-pay telemarketing people, or even a simple website.

Human Resources — In some industries — especially services — human resources is appreciated as a strategic area. Even in manufacturing, we can see that a significant portion of value added must come from our people. What is sometimes harder to see is that some of the things that we do to keep our employees happy — such as HR, payroll and benefits — can dramatically affect employee retention and even what types of employees are retained.

Customer Service — Customer service —as a department — is sometimes treated as non-strategic because the customer contact here is not driving sales. The nature of this interaction can have a significant impact on customer perception of the value or your product or service. In addition, customer service should always be viewed as a key source of information about possible improvements to make in your products or services.

Research and Development — Since R&D is often responsible for innovation in a company, it's easy to see how it can support strategy. Strategic alignment in R&D may go even farther than we think. For example, the way the R&D department works may affect whether it develops a few big innovations, many small one, or nothing at all.

It should be clear from these examples that you can find support or hindrance for your strategic vision in almost any department of your organization. As a general rule, the nature of this interaction boils down to five things:

  • The department has direct contact with the customer, or affects the employees who do.
  • The department has a direct impact on the attractiveness (quality, features, etc.) of your product or service, or affects the employees who do.
  • The department affects our ability to measure and/or manage any of the above.

In most of the examples above, I've pointed out that you will see marked differences between departments that serve specialty customers well and those that serve commodity customers well. Clearly, this means that departments must support strategy by being aligned with the type of customer you are targeting. This also means that, in those unusual cases where a company is pursuing both specialty and commodity customers under one roof, you may well need to separate some departments into specialty and commodity support units. Let me illustrate this point with an example.

For years, I have done business with a company that specializes in driving businesspeople to the airport from my hometown. They run a fleet of nice cars and vans which, for about the price of a cab ride (or two days' parking at the airport), will reliably deliver you to the airport on time. Recently, this firm merged their phone lines with a taxi company that services a much broader clientele. As you might expect, the telephone service for the cab company was far below what one might expect from an airport limo service. Long waits on hold, dispatchers who didn't know which customers had corporate accounts and mix-ups where cabs were sent in place of vans became common. While this was a slight headache for the taxi business, the limo business lost a significant number of their customers to a competing firm because the operational change was made strictly on the basis of financial merits, rather than strategic ones. Did this have a financial impact on the company? People at the competing firm — the only other one in town — reported significant growth in sales during a period when business travel was declining. I can only assume that this increase was the result of many specialty customers voting with their feet.

So how about your company? Are your departments looking at optimizing just one result, or are they asking how they can support your strategic vision? Here are a few steps that can help them move in the right direction:

  1. Share the relevant strategies with each department.
  2. Ask each department to enumerate how they are supporting your strategies
  3. Ask each department to identify ways they might fail to support your strategies, and how to avoid such failures
  4. Ask each department to think about ways to measure how well they are supporting your strategies.

Each of these steps can be as involved as you like. I have seen companies productively create separate strategic plans for individual departments, and I have also seen good results come from a two-hour coaching session where we asked the above questions. Clearly, you should match the effort here to your resources, as well as the potential payoff from increasing strategic alignment. The underlying concept — that increased alignment with strategy can improve the effectiveness of your strategy — will work either way.

Ó Copyright Robert Bradford, 2005

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