Senior executives often agree about the overarching strategy of their company—sales growth, innovation, sustainability, technological superiority, or geographic expansion. Frequently, the agreement ranges from 70-90% in a company.
Yet, agreement about the specifics of the same company’s strategy and its implementation is very low ranging from 10-30%.
The gap between the high perceived agreement on the abstract concepts and the low actual agreement about the specifics reflects the strategy alignment gap. In a typical company, this gap can be as big as 60-80%, and it severely disrupts strategy implementation.
Stratonomics-B2BTM Study
Since 2017, Stratonomics-B2B™ has measured perceived and actual strategy alignment among 4,361 frontline employees, middle managers, and senior executives at 53 national and global companies with $2 million to $6 billion in annual revenue and 20 to 20,000 employees. They claimed to have 80-90% agreement on the overall strategy.
But we wanted to measure if they agreed on specifics of their company’s strategy. Trouble is, if you ask executives directly, you will get an inflated measure that simply reflects the impulse to conform to peer pressure. To get around this problem, we asked each executive to confidentially write down their company’s strategy. Using natural language processing techniques borrowed from computer science, we analyzed their responses for the level of agreement or disagreement.
To the surprise of the CEOs involved, executives showed a very low level of actual agreement: 20% or less. In other words, executives had an 20% agreement rate about the specifics of their company’s strategy, even though the perceived agreement was as high as 90% (a 70% strategy alignment gap).
As Jeanie Daniel Duck, author of the book The Change Monster, states, “the lack of alignment among leaders is the most common cause of failure.”
OVERCOMING THE STRATEGY ALINGMENT GAP
How can CEOs reduce the strategy alignment gap and get all executives on the same page? Will financial objectives or operational goals help executives come together on strategy? Not reliably, our research shows.
Financial objectives cannot unify senior leaders. A strategy driven by sales goals ignores customer value. Take the example of a wholesale company that set strategy based on the twin financial goals of increasing sales and cutting costs. The CSO kept signing up customers, promising in-person service and support, while the COO and CIO independently sought to increase margins by automating service and support.
In the short-term, sales and margins shot up. But after two quarters, service and support declined and many customers defected. Increased sales can be the consequence of a successful strategy but cannot be the goal-driving strategy.
Operational initiatives don’t unify senior leaders. Executives at an industrial solutions company with $800 million in sales had 97 strategic initiatives costing $31 million. Senior executives participated in a retreat to pare them down. The result: a proposal to increase the budget to $40 million to hire additional staff for better oversight.
All five CEOs in our study were fed up with this all-too-familiar playbook. Well-meaning senior executives keep adding initiatives based on intuitive leaps. They lack evidence, but strongly believe their favored initiative will increase customer value.
Customer focus unites senior leaders. Customers are a company’s largest source of cash—this is a universal truth behind which all senior executives can unite. Customer value can provide a unifying framework for all executives. The CEO of an outsourcing company united his C-suite using customer value. How?
- Sales and marketing identified the most important customer value drivers. A customer assessment identified the two most important drivers of customer value that created over 72% of customer value: timely updates and problem resolution. As a first step, senior executives agreed to craft a strategy to focus on and excel at those.
- Operations focused on customer retention by excelling on customer value drivers. The COO developed a consistent approach to provide weekly updates to each client and resolve any issues to the clients’ satisfaction. Within six months, the company provided over 2,000 client updates and resolved 100% of the issues to clients’ satisfaction. The COO supported sales and marketing through a tracking system that led to timely updates. Satisfied clients gave more business to account executives, provided leads for new business development and were even receptive to a price increase.
- Sales attracted new customers by developing a resonating value proposition. The sales team developed a resonating value proposition that was truly differentiated. The new pitch became: “We are committed to providing peace of mind—we will update you weekly and resolve every problem to your satisfaction.” It replaced the tired sales pitch of “better quality, lower price.” To the CSO’s delight, the new value proposition resonated with prospects, leading to new business.
- Finance and human resources set goals and incentives that aligned the C-suite. Executives’ goals and incentives were tied to excelling at providing customer updates and problem resolution (COO), communicating that approach (CMO), incorporating it into the sales pitch (CSO), training a workforce that excelled at customer service (CHRO), and allocating financial resources to support them (CFO).
Over time, the CEO used this four-step strategy to unite senior executives, reduce disagreement and politicking, and grow sales by more than 20%.
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