What Cash are you Leaving on the Alignment Table?
Quantifying the Cost of Misalignment
Achieving and maintaining strategic alignment is the most important capability for every organization and ultimately defines its ability to achieve sustained success over the long term. To achieve this, teams, and members of these teams, must have a complete understanding on what the organization’s strategic priorities are. This is often challenging to achieve as recent research indicates that there is a “Decay Rate of Understanding” where strategic alignment dramatically reduces as you proceed from the top management team to their direct reports and continues to decline as your progress towards the front line managers in an organization.
This lack of understanding of the strategic priorities of the organization and how their work contributes to them results in significant time and effort being wasted on activities which do not contribute to the objectives and success of the organization. Examples include redundant tasks, unproductive meetings and failed projects which result in missed market opportunities, elevated customer churn, reduced organizational synergy realization and suppressed employee satisfaction. This additionally reduces the ability for the organization to focus and achieve its goals. This dynamic has only intensified in the current climate.
However, there are many ways to avoid engaging in these value destructive activities. In this research, we provide a business case for the gains that can be achieved from improving alignment in an organization, examining the costs of such misalignment and the financial benefits stemming from moving in complete unison. We do this by focusing on four real world scenarios where misalignment often manifests itself and efforts to improve alignment can be highly effective:
Increased goal achievement based on improved time allocation
Enhanced meeting productivity
Better and more transformation project success
Improvement in employee retention
Following an investigation into the root causes and levers for relief: consulting only approaches, additional management overhead and agile steering, we have determined the most cost-effective approach to realizing these gains. For an organization of 1,000 people, we estimate that an organization can reduce misalignment by between $1m and $14m (see Figure 1) by using enterprise wide alignment frameworks e.g. OKRs supported
by the appropriate digital platform e.g. WorkBoard. Ultimately, misalignment and its reduction should not be d
elegated to the Human Resources teams, but rather championed by executives as as way lock in long term organizational success.
While the numbers used in this analysis are for a typical organization, we invite you to complete the calculator to estimate your own company’s cash left on the alignment table Here .
Time Switched to Goal Achievement
Every organization’s strategic execution capability is ultimately determined by each individual employee’s ability contribute – and how they are able to really focus on strategic priorities (or not). Consider a franchise company from the restaurant industry: In the wake of COVID-19, all their dine-in locations had to close, bringing the business to a complete and sudden stop. The company’s top management switched to crisis mode and developed a swift plan for action. How well do you think middle management and other ranks were able to grasp the new reality, localize and execute on that new strategic plan? According to research from the Strategic Agility Project at the MIT Sloan School of Management, 49% of top team leaders across industries cannot name their company’s top three priorities. And things don’t get better once we look at other parties of the chain of command: Senior Executives: 78%, Middle Managers: 82%, Front line supervisors: 87%. This significant gap severely limits each individual contributor’s capacity to focus on what truly matters (see Figure 2).
Every employee has a finite number of work hours at their disposal. Prioritization and focus are so critical, and there are significant ramifications of strategic misalignment at scale if time allocation to value adding activities is poorly allocated. For a team member at a typical organization of 1,000 employees (1) time is usually allocated to business as usual, meetings, strategic priorities, organizational slack, and admin time – time allocated to strategy and innovation is only 10% (2). What if we were able to increase the time those employees are able to spend in on real strategic priorities by a very conservative 2.5%? This would leverage and refocus 47,000 work hours per year across the organization that would otherwise evaporate in other, less strategically important activities. In salary cost terms, that is a cost of $2.1m per year.
The shift is more dramatic if we look at the same example from a revenue perspective. For a typical organization with an average annual revenue per employee (also know as the employee’s revenue impact) of $200k (1). Factoring in a direct correlation between strategic alignment and revenue impact, re-focusing the attention of all employees by the same 2.5% would unlock a potential revenue uptick of $5m per year.
Improvement in Meeting Productivity
Unproductive and ineffective meetings are on of the biggest costs of misalignment that a firm incurs. Specifically, status update meetings which are long, frequent and consume the time of many team members in not only attendance, but in preparation, are a significant drain on team members’ time. The numbers put forward by Harvard Business Review in this calculator illustrate the enormity of value lost in unproductive and ineffective meetings. Changing the organization’s meeting dynamic to one of progressing the strategic objectives of the organizations and removing roadblocks, rather than meeting for status, accelerates the goal achievement through not only giving employees additional time back through reducing meeting number or length, but also empowers with the decisions needed to make better use of their non meeting time.
For a typical company (1) 35% (3) of an employee’s time is spent in meetings resulting in each team member spending 658 working hours in meetings. Approximately 67% of all meetings are considered failures (3), resulting in 439 working hours being spent in failed meetings per team member. This results total meeting cost of $47m per year just from team members wasting their time in failed meetings. Merely reducing the amount of failed meetings by 20% (10% reduction in status meetings and 10% increase in quality) would net a gain of $14m per year.
Improvement in Transformation Project Outcomes
Strategic transformation projects are the key to sustaining or regaining a company’s competitive position. While there are many types of transformation initiatives, we will focus on Digital Transformation projects as they are the most common. Generally speaking, strategic (vertically and horizontal) misalignment across the organization when attempting these projects manifests itself in two ways: not realizing the full amount of benefits of the initiative or from a complete failure, which we will now analyze further.
The average company is expected to spend $14m. on digital transformation projects a year. The failure rate of those projects is estimated to be around 84%. This equates to an expected cost of failed projects of $11.8m per year. Reducing the number of failed projects by 30% would save the firm $4m annually. We note that there is considerable debate on failure rate and expected improvements in success but any over estimation in these assumptions in offset by the other transformation project types and the improved outcomes in successful projects which were not analyzed.
Improvement in Employee Retention
Nothing motivates employees more than a clear understanding of the company’s priorities and how their work contributed to these objectives – it enables them to know that they are doing valuable work and they feel valued for doing that work. Considering the inverse, significant employee churn is often attributed to misalignment.
This has significant financial implications. For a typical company, the turnover rate of employees is approximately 10% per year and the cost of such turnover (e.g., re-hiring, re-training, etc)is about 33% of an average annual salary ($27k per team member) Under the same labor cost assumptions, the cost of employee churn from misalignment is $2.7m per year. Reducing 35% of turnover nets a total potential gain of $1m
Easing misalignment pains
Strategic misalignment is a quantifiable and very real business challenge. The following levers and options for relief present leaders with to offset these challenges:
Hire a consulting firm to create alignment on their behalf. A 12-week strategy project with a Management Consulting firm would probably be around $1m. However, this would not guarantee alignment after the engagement has ended, and it would outsource the majority of work to an outside party.
Hire a Chief of Staff. We have seen this role created among many of our clients. Individuals fulfilling this role mediate and orchestrate strategic issues and different teams behind the scenes, and we have seen this role deployed very successfully among many of our clients. Salary data from Indeed.com quantifies the cost for this at an average of $120k annually (6).
Third, decision makers can opt to adopt agile steering and alignment methods such as Objectives & Key Results. These approaches focus on rallying teams around aspirational goals and measurable success metrics, increasing accountability and alignment across the organization.
Fourth, today’s plethora of software based collaboration platforms provide relief through software. While there are numerous enterprise offerings available on the market, managers should evaluate carefully to distinguish between gimmicky tools and true alignment and strategic results platforms.
Conclusion: Know your costs and evaluate your options
What are your true costs of strategic misalignment, and what are the best levers for your company to achieve moving in unison? We invite you to start the discussion here and look forward to hearing your comments.
Appendix: General Assumptions
1. A typical organization consists of one with 1,000 employees, who each work 1880 hours per year (40h/week * 13 weeks, 200 hours of PTO etc) per quarter. The average annual labor cost per employee of $84,000 (factor of 1.4 * $60,000 average salary), average revenue per employee is $200k ($100k if under 1,000 employees with a profit margin of 20% (5% for less than 100 employees and 10% for less than 1,000 employees)
Salary data of $60,000 from https://www.salary.com/research/salary/listing/office-worker-salary and https://www.indeed.com/salaries/manager-Salaries. 1.4 factor from
Revenue data of $100k and $200k from https://smallbusinessmattersonline.com/revenue-per-employee-calculation/
Profit data of 5%, 10% and 20% from https://corporatefinanceinstitute.com/resources/knowledge/accounting/profit-margin/
2. The typical managers spends between 25% to 54% of their time on administration while a very small proportion of time (10% to 12%) is related to innovation or externally facing work and around 30% of their time solving problems and collaborating
Admin time of 25% from https://www.getmoredone.com/how-managers-spend-their-time
Admin time of 54%, Strategy and Innovation time of 10% and solving problems and collaborating time of 30% from https://hbr.org/2016/11/how-artificial-intelligence-will-redefine-management
Externally Facing Work time of 12% from https://hbr.org/resources/images/article_assets/hbr/1309/R1309K_A_LG.gif
3. Employees spend approximately 35% of their time in meetings and 67% of meetings are considered failed meetings from https://www.themuse.com/advice/how-much-time-do-we-spend-in-meetings-hint-its-scary
4. Digital Transformation spend of $14m from https://www2.deloitte.com/us/en/insights/focus/digital-maturity/digital-maturity-pivot-model.html#endnote-sup-12 and failure rate of 84% from https://www.from.digital/is-digital-transformation-worth-it
5. Analysis of why people leave jobs from https://business.linkedin.com/talent-solutions/blog/2015/08/new-research-reveals-the-real-reason-people-switch-jobs-and-it-isnt-money-or-their-boss and data on turnover rate of 10% and turnover cost of 33% from https://www.talentlyft.com/en/blog/article/242/hr-metrics-how-and-why-to-calculate-employee-turnover-rate
6. Cost of a Chief of Staff at $120k from https://www.indeed.com/salaries/chief-of-staff-Salaries
By Bradley Kalgovas & Steven Schepurek