Execution requires vertical alignment and horizontal integration

Strategy execution requires two types of fit within the organisation.

Vertically fit — Strategic or vertical alignment is the systematic synchronisation of organisational levels, people, processes, systems, plans, objectives, incentives, and relationships that align the business, budgets, and operations to the corporate strategy.
Horizontal fit — Integrate and synchronise individual components across core processes, value chains, and boundaries of the organisation for the key purpose of aggregated alignment with the corporate strategy. A value chain is a chain of activities that delivers a valuable product or service for the stakeholder.

Fit (or congruence) is “the degree to which the needs, demands, goals, objectives, and/or structure of one component are consistent with the demands, goals, objectives, and/or structure of another component. […] Other things being equal, the greater the total degree of congruence or fit between the various components, the more effective will be the organisation.” (Nadler and Tushman, 1980)

Taken together, the sum of parts must integrate seamlessly and work together cohesively as one to achieve the objectives and key performance indicators. An analogy of this would be an orchestra. Every musical instrument must work in harmony with each other to produce a musical piece.

Vertical alignment

Based on three cascading options, cascade (or ‘breakdown’) longer-term strategic goals and key performance indicators into the shorter-term operational, project, and programme goals and key performance indicators which are set for each level of the organisation, right down to every individual in the organisation.

These goals and key performance indicators will form part of the individual’s personal accountabilities as documented in their personal performance scorecards.

The three cascading options:

Adoption — Sub-level adopts the exact objective and/or key performance indicator as to its parent.
Distinctive — Sub-level develops objective and/or key performance indicator that is completely unique and cannot be explicitly or directly attributed to its parent.
Shared (relative or absolute) — Every child at the same level shares or contributes to the parent’s objective and/or key performance indicator, either on an absolute or relative basis.

A hierarchy of objectives shows how the corporate strategy is driven top-down and aligned across organisational levels and strategic initiatives. Strategic initiatives may consist of any number of portfolio, programmes, and projects used as effective management tools for executing the organisation’s corporate strategy.

Everyone across all levels of the organisation and throughout the organisation should understand and be ultimately accountable for the achievement of longer-term strategic goals. Individually, they have clear measurable shorter-term goals that strategically align with and fully support or complement each other. To achieve longer-term strategies, manage the short-term performance of all employees at the individual level.

Employees must understand how they can personally influence strategy execution and how their work is important to the overall execution outcomes. Develop appropriate incentive and reward programmes, as well as clearly articulated career progression and succession paths. Align and synchronise all personal performance scorecards towards achieving the corporate strategy. The right organisational design, structure, and culture can effectively facilitate this.

Cascade multi-year activities or projects into manageable pieces of yearly activities, funded by a rolling annual budgeting process. Allocate and link resources to strategy execution across the organisation.

Budget Air has a formalised cascading process.

Budget Air’s executives post personal objectives beneath the relevant strategic objective during the Strategic Alignment Workshops to assess objective quality. Support all strategic objectives and key performance indicators by aligning individual executive objectives.
Small groups ‘vote’ on executive objectives using colour-coded Post-ITs(TM):
- Green notes — Support individual objectives with the greatest outcome.
- Red notes — Individual objectives that belong under a different strategic objective.
- Yellow notes — Individual objectives that are unclear, requiring further review or clarification.
Assign small breakout teams to each strategic goal to assess for clear and comprehensive alignment with personal goals. The team first responds to green notes on objective impact. Thereafter, yellow notes on clarity. Finally, red notes on realignment.
Each breakout team finalises the wording for its assigned strategic goal.
Teams determine if an executive’s own goals support the strategic goal. If further revisions are necessary, the original owner will review new or amended objectives and key performance indicators.
Each team presents the final wording of its strategic goal and corresponding executive’s goals and key performance indicators.
As a whole, the group discusses risks, controls, and overall budgets that are linked to the achievement of each strategic goal and identifies next steps.
Strategic goals and key performance indicators are subsequently cascaded throughout the organisation level-by-level for all employees, totally embedding the corporate strategy as personal goals and key performance indicators for the entire workforce of Budget Air.

The composition of employees’ personal goals may include:

One financial performance goal (when appropriate: not everyone has financial accountabilities).
One performance management or talent goal.
Two to five functional, team, individual, personal, or stand-alone local level goals.

Responsibility for personal objective and KPI setting and alignment rests with the individual.

Executives act as ‘checks and balances’ and agree to direct reports’ goals and key performance indicators to ensure that strategic and individual goal alignment is obtained with clear performance line-of-sight towards the achievement of the corporate strategy.

This transparency or goal-to-goal alignment helps employees understand how individual actions will positively contribute to the achievement of Budget Air’s strategic goals and provide employees with clear guidance and performance line-of-sight that will help them set effective and aligned personal goals.

Dynamic goal-to-goal adjustment speeds Budget Air’s response time to external changes, enabling the entire workforce to refine or redefine personal goals at the moment as changes occur (agility).

Periodic goal reviews between executives and their direct reports help ensure continuous enterprise-wide alignment by guaranteeing that each employee discusses personal performance and goal adjustments with full support and guidance of their supervisor.

Employees and executives meet quarterly to review performance progress against personal goals, and development and training plans, making all necessary changes in a timely manner.

Horizontal integration

Apart from vertical alignment, organisations should horizontally integrate and align objectives and key performance indicators to optimise work-flows, collaboration, and teamwork across processes, value chains, functional areas, and organisational boundaries, with the aim of minimising the silo effect that plague organisations into inefficiencies and in-fighting or finger-pointing.

Customer-focused performance measures provide value from the customers’ perspective. Customers do not see the process boundaries, but they care about the attributes or features of the final product or service delivered to them. They really do not care about what goes on in the organisation.

After the deployment of scorecards (especially after the vertical integration), executives need to re-examine their existing core processes and determine if they are also linked to the corporate strategy. If such linkages are not found, the collective end-to-end processes and scorecards should be reviewed and amended if required.

For example, a procurement function may measure cycle times to improve customer satisfaction with the procurement process only. However, from the customer’s viewpoint, all of the processes (end-to-end), beginning with the need identification to the actual product delivery, represents the complete procurement cycle. To capture this entire end-to-end cycle, many business units (i.e., computer services, mailroom, procurement, receiving, property management, and transportation) may all need to be involved to complete the organisational-wide procurement value chain for the customer.

Horizontal integration is about synergising and synchronising:

Goals and key performance indicators of business units, departments, and support functions at the same organisational level or value chain using tools like service level agreements and lean management (e.g., 6-sigma).
Cross-boundary processes and activities that create value for the customer across particular value chains where:
- Activities are strategically reinforcing (i.e., aligning all activities that support the corporate strategy).
- Enterprise-wide collaboration, communication, and integration breaks down organisational boundaries and silos.
- Individuals and teams cooperate and collaborate with each other to deliver the required value to the customer or stakeholder.
- Waste or non-value adding activities are minimised or eliminated, where waste is whatever that does not deliver value.

Policies and procedures across organisational boundaries. They must work in concert and harmony with each other to fully support and drive performance and value creation (or preservation). The concept of consistency or fit implies that there are integration and alignment of policies and procedures with the organisation’s strategic positioning, and customer and stakeholder requirements.
Risk tolerances and appetites and controls across the value chain and organisational boundaries.

Budget Air’s corporate key performance indicator of ‘86% 0-min on-time punctuality’ is cascaded vertically and horizontally across the following are processes that are parts of a larger value chain:

‘96.53% 0-min on-time punctuality for ground operations’
‘96.16% 0-min on-time punctuality for flight operations’
‘98.16% 0-min on-time punctuality for engineering and maintenance’.

Strategically align support functions to create value

Support functions like HR, finance, and information technology should clearly articulate how they can contribute positively to the value-creation activities of the organisation and business units they serve and support.

“Instead of striving to be “best in class” in everything they do, functions can become fit for purpose: changing their portfolio of activities to focus primarily on those that are strategically important to the enterprise or that add high value.” (Booz & Co, 2012)

Functional performance scorecards that are strategically focused and based on business requirements, agreed on service levels and deliverables contain no more than 20 key performance indicators.

For example, if the business unit is expected by management to collect monies from their customer within 45 days of product delivery, they may expect Finance to generate accurate invoices within two business days of the receipt of an acknowledged or signed delivery order. The two business day (or service level) target shall be one of many targets contained in Finance’s performance scorecard. If the manager in Finance cannot meet this two-day service level as initially requested by the business unit, aim for a mutual compromise, with each manager giving reasons for their expectations, requirements, and limitations. Apart from coming to a mutually negotiated position, this two-way communication process facilitates learning and understanding of each other’s processes and issues, all guided by a common goal of meeting customer requirements and expectations, thus reducing elements of self-interest. This promotes open measurement, feedback, and collaboration, eliminating or minimising potential blame culture or silo-effect between support functions and business units.

Cross-check and fine-tune support function’s objectives, key performance indicators, and action plans against each element of the corporate strategy, strategic objectives, and key performance indicators for consistency and alignment, using cross-referencing techniques.