The Strategic Alignment

Business people have used the term cascading for a long time, and it is still often used today. But when we are talking about Strategy Execution, or even about Strategy in general, there is a better and more complete term that we should be using: Alignment. We'll see in a short while how we define it, but first let me ask you this: Have you ever seen a cascade that runs horizontally, or even upwards? Well, that's unlikely, because the gravity of our planet pulls the water of the cascade downwards. But in business, we have a much more complex context than the one defined only by the pull of gravity. Keep this in mind.

The Strategy Execution Alignment

I'll start from here, because that's the first time when I've personally got in contact with the Alignment, when I have studied the Kaplan-Norton Balanced Scorecard framework, which remains to this day the most insightful and elaborate paradigm for turning the Strategy from drawing board to real life. Actually, you can read a book authored by the two fathers of the Balanced Scorecard, Prof. Bob Kaplan and Dr. David Norton. It's called Alignment: Using the Balanced Scorecard to Create Corporate Synergies.

The BSC Alignment has appeared because the organizational-level Strategy Map and Scorecard, with their objectives, initiatives, and indicators, need to be defined for that place where the Strategy rubber meets the road, for the coalface, as Prof. Roger Martin calls it in one article of his Playing to Win articles series, in which he talks about The Secret of Knitting Strategy Together, Corporate Wide.

The Kaplan-Norton BSC framework's Alignment has been mostly applied in practice for aligning to the top level the value chain's SBUs (Strategic Business Units, those units contributing to Strategy's execution), as well as aligning between themselves, within a particular business or company. But how does Alignment work? Let us take a look at this diagram:

At the top, we have the organizational level Strategic Plan, symbolized here by the Strategy Map. Below, we have the various value chain SBUs, with mainstream or support role, together with their contributions to the top Strategic Plan, symbolized by the departmental Strategy Maps. Let us look at the relationships in the diagram (the arrows).

First, we have the Vertical Alignment, the closest equivalent of cascading. Once defined, the business objectives must be achieved. However, that does not happen at the top of the organization, it happens down below, at the factory floor, at the frontline, at the bottom of the organization. Ultimately, at individual level, by each employee, whether they are part of the Strategic Jobs Families (SJF), those involved in performing or supporting the Strategic Initiatives projects, or those just made aware of the changes mandated by organization's Strategy.

As part of the Vertical Alignment, each SBU must define their contribution to achieving all or some of the top Strategic Objectives derived from the Strategy. But that is not enough. In any business, there are a lot of internal supplier to internal customer relationships that crisscross company's processes map. If one SBU takes a primary role in the achievement of one organizational-level objective, they might not be able to achieve it alone, without its internal suppliers needing to make corresponding changes, as well. That's the essence of the Horizontal Alignment in Strategy Execution. Without it, therefore relying only on cascading, the execution of the Strategy will almost always fail.

Then, we have an External Alignment to consider. SBUs like Inbound Logistics, or Accounts Payable depend on the suppliers to play their roles. If such SBUs change something in their operating model for achieving a Strategic Objective, the external suppliers need to respond with some matching changes. If our top customers are implementing a new Strategy, with modified supplier interface requirements, our Outbound Logistics, Sales, Marketing and Customer Support SBUs need to consider responding with some corresponding changes and create specific Strategic Objectives that are therefore driven by external customers. Something similar goes for externally aligning partners and ecosystem members. This is how the External Alignment works.

Ultimately, since the Horizontal and External Alignment processes determine Strategic Plan changes at SBU level, we need an upwards-directed Bubble-Up Alignment process that synchronizes once again the top Strategic Plan with the SBUs contributions. Obviously, we should expect several back-and-forth iterations within the Strategy Execution's Alignment process.

Strategy's Alignment

The Kaplan-Norton BSC framework's Alignment has been implemented in tens of thousands of organizations (counting only those documented). It is a well-oiled process of paramount importance for those organizations. But let us take one step back, for a moment. Can we do the same thing as described above, but at corporate level? Well, no. And the main reason is that we don't have Strategic Plans at corporate level (!) It wouldn't make any sense to try to have common Strategic Objectives for multiple business lines that may operate in different industries, target different types of customers, customer needs, and markets, with different technologies and different business models. It would only be a sterile, useless, and non-actionable Strategic Plan.

But we do have something to align to, at corporate level: the Strategy. More precisely, we have to ensure the consistency and the cross-support between the Corporate Strategy and the Business Strategies of each business or business line within the corporate group of companies. Yes, we can perform Strategic Alignment, somehow similar to how we align our Strategic Plans, although with specific differences.

But first, let's clarify something. The corporate level in an organization with multiple business lines (something that we call a group) is home to multiple functions that include Business Portfolio Management (which industries should we be in), Corporate Resources Allocation (between different business lines or group companies), Mergers and Acquisitions (M&A), Corporate Finance & Investment (where to attract money from, where to invest them), Spinoffs & Divestitures (streamlining of the business portfolio), Internationalization, Corporate Branding, and so on. But since the corporate level is where the economic and. financial results of the whole organization add up, we must have a Corporate Strategy to manage them. And we need it to coordinate and synchronize with the Business Strategies of each business line, or company within the group.

It was 1987 when Prof. Michael Porter has described in a Harvard Business Review article /* the difference between Business Strategy and Corporate Strategy, in this clear way:

"A diversified company has two levels of strategy: business unit (or competitive) strategy and corporate (or companywide) strategy. Competitive strategy concerns how to create competitive advantage in each of the businesses in which a company competes. Corporate strategy concerns two different questions: what businesses the corporation should be in and how the corporate office should manage the array of business units."

This is a good moment to look at a modern Corporate Strategy approach, something that I have called Corporate Strategy on Steroids. It is about Geoffrey Moore 's Zone to Win /**, a theory that instantiates in a very practical way the concept of Ambidexterity, briefly defined as the ability to handle the exploitation and defense of the Current Competitive Advantage (the Performance and Productivity zones) in parallel with the exploration and turning into reality of the Future/Next Competitive Advantage (the Incubation and Transformation zones).

What this theory says is that ambidexterity requires businesses within a corporation or group to be engaged in both domains (exploitation/execution and exploration/search), and in all four zones. In their article A New Era of Competition Calls for Co-Ambidexterity, Martin Reeves and Adam Job, PhD push the concept even further, involving the customer in the processes of search (new Jobs to Be Done and JTBD solutions discovery) and execution (solving current JTBD).

Between the Corporate Strategy and the Business/Competitive Strategy of each business line, the Alignment is based on "a thin layer of choices at the top of the organization", associated with "crosscutting capabilities and management systems" that are relevant and valuable for all companies or business lines within the group. The Vertical Alignment aims to "charter the next level to make upward consistent choices" and to develop specific capabilities and systems consistent or complementary with the ones specified at the corporate level.

For understanding the Horizontal Alignment of Strategy between business lines or companies within a corporate group, we must regard it from a Zone to Win perspective. Those contributing to the increase of Performance and Productivity are the core businesses that generate the revenue resulting from the exploitation of the current Competitive Advantage. At the same time, they provide around 10% of their revenue, according to Geoffrey Moore, to the businesses that manage the Incubation of the future business lines and the Transformation of the most advanced of them into the next Competitive Advantage. But not all incubated business innovations advance to the Transformation zone. Some of them find a good use at the core business, helping the effort to increase the performance and productivity.

Finally, the Bubble-Up Alignment helps the corporate level adapt the top thin layer of choices and the crosscutting capabilities and management systems to the bottom-up feedback and changes resulting from the Horizontal Alignment and from the evolution of the transition from the current to the next Competitive Advantage. The diagram below illustrates these Alignment processes.

The purpose of this article has been to discuss the similarities between the Strategic Alignment (Strategy's Alignment), a work-in-progress concept, and the more mature organizational Alignment employed within the Strategy Execution processes that are based on the Kaplan-Norton BSC framework.

As always, your questions, observations, suggestions or bricks are more than welcomed. Thank you for reading this article!

/* HBR: From Competitive Advantage to Corporate Strategy, Michael Porter (1987) https://lnkd.in/ee77mqNh

/** Zone to Win: Organizing to Compete in an Age of Disruption, Geoffrey Moore (2015) https://lnkd.in/dZbFbsGe

Other Strategy Clockwork newsletter articles:

Strategy Skunk Works

Don't Rely on a Single Strategy!

Without a Plan, Strategy is a Fairytale

Design Thinking inside Strategy

Beyond [static] Balanced Scorecard

The Deeply Integrated Strategy

The Game inside Strategy

The Balance of Strategic Choices

The Corporate Balanced Scorecard

The Strategy Clockwork (Intro)