Strategic Alignment: Why Is It Important to the Survival of a Company?

During this quarter, many companies probably have laid out plans, strategic directions, and operating plans to be used as frameworks toward sustainable growth.  With ongoing COVID-19 pandemic together with uncertainties from political instability, trade war and so on, Boards of numerous companies have to seriously review existing corporate directions and strategies or set new directions in collaboration with management to ensure rationality and feasibility under ever-changing business environment.  Therefore, we have heard terms like Purpose and Direction rather often recently.  The Board of Directors has key roles in determining Purpose and Vision of the organization to set clear objectives and directions that they would lead.  Besides, the Board has a role to collaborate with the management in determining strategy and operating plan to ensure they are in sync and will drive the organization to achieve the purpose and vision. 

However, challenges that held back many organizations from achieving purposes or directions were not from the failure to align directions, visions, and strategies with the changing business contexts.  Instead, lacking of connection and strategic alignment between the strategies and organizational capabilities were root causes that prevent companies from materializing their purposes, visions, and strategies.

There were abundant examples of companies facing such challenges. The recent one was Expedia, an integrated travel booking service website that operated several brands including Hotels.com, Trivago, Vrbo, and Travelocity etc.  An unexpected event emerged when the management disagreed with Board’s reorganization proposal to integrate all brands under Expedia in a bid to streamline operations.  However, the planned reorganization made the management lose their focus on normal operation, which has already faced a number of challenges.  The challenges ranged from new competitors like Airbnb, higher marketing expenses from utilizing media via Google, which turned to emphasize on marketing its new travel services through its own channels.  Consequently, sales of Expedia in 2019 softened and dragged net income to fall 22% on year.  The incident caused the management to dissatisfy and disagree with the direction determined by the Board. It eventually led to sudden resignation of CEO Mark Okerstrom and CFO Alan Pickerill.  As a result, Chairman Barry Diller and Vice Chairman Peter Kern had to step in and oversee day to day operations themselves and let other directors take care of corporate strategy and long-term planning.

This example reflects the significance of strategic alignment between the Board (guidance and direction provider) and the management (who brings the direction into implementation).   Failure in this aspect derives from two main reasons including:

1.     Management understands the predetermined direction but unable to implement and yield effective results.  This may be caused by inadequate competency of the management or insufficient capability of the organization, either of which make the management unable to push strategy into concrete desirable outcome.

2.   Management wants to drive the organization toward purpose and vision but unable to do so because their focuses were diverted to day to day operations by immediate factors.

To avoid issues mentioned above, the Board must provide directions and supports to the management to ensure Strategic Alignment.

The article “A Simple Way to Test Your Company’s Strategic Alignment” published in Harvard Business Review in 2016 reiterated that it is crucial for Purpose, Strategy, and Organizational Capabilities to be in alignment.  The article provided a simple guideline that the Board and management must jointly consider if strategy and operating plans they jointly developed are in alignment with the purpose and organizational capabilities to make them materialize. 

Figure 1: Alignment between strategy, purpose and organizational capabilities.

First scenario: If the strategy aligns with purpose and organizational capabilities, we call it “Very Best Chance of Winning” zone. The Board and management should not hesitate but push forward to make the strategy materialize.  This simply means “Support”.

Second scenario: If the strategy aligns with purpose but not with organizational capabilities, we call it “Best of Intentions, But Incapable” zone.  The Board and management should jointly consider the appropriateness and value of the strategy as the organization needs to “Invest” to boost its capabilities (in personnel, machinery and equipment, technologies etc.) to drive the strategy.

Third scenario: If the strategy is not in alignment with purpose but aligns with organizational capabilities, we call it “Boldly Going Nowhere” zone.  Although the organization is capable to implement the strategy, doing so would not respond to the purpose.  In this case, the Board and management should “De-prioritize” this strategy.  However, this strategy can still be implemented if it does not derail attempts to achieve purpose and vision of the organization. 

Fourth scenario: If the strategy is neither in alignment with purpose nor organizational capabilities, we call it “Not Long for This World” zone.  The Board and management should not consider implementing this strategy.  Should there be any part of the strategy that has already been implemented, it should be “Killed”.

The Board and management may use the guideline above in making strategic decision to ensure it aligns with purpose and vision of the organization.  Afterall, strategic alignment can never exist without collaboration between the Board and management.  Solid foundation derives from effective collaboration, communication, clear work process, and particularly trust between the Board and management.  These are factors that could lead to complete and material Strategic Alignment.

                                                                                               Tanakorn Pornratananukul
                                                                                                     Assistant Vice President
Thai Institute of Directors Association (IOD)

Source:

Expedia bosses resign in bust-up over strategy, Peter Wells and Alice Hancock, Financial Times, 2019
https://www.ft.com/content/ba67dcb0-16a3-11ea-9ee4-11f260415385

Expedia is replacing its CEO and CFO over a strategy disagreement, Jordan Valinsky, CNN Business, 2019
https://edition.cnn.com/2019/12/04/investing/expedia-ceo-cfo-barry-diller/index.html

A Simple Way to Test Your Company’s Strategic Alignment, Jonathan Trevor and Barry Varcoe, Harvard Business Review, 2016