The Strategic Agility Project
The CEO of a large technology company (let’s call it Generex) recently reviewed the results of her company’s annual employee engagement survey and was delighted that strategic alignment emerged as an area of strength.1 Among the senior leaders surveyed, 97% said they had a clear understanding of the company’s priorities and how their work contributed to corporate objectives. Based on these scores, the CEO was confident that the company’s five strategic priorities — which had not changed over the past two years and which she communicated regularly — were well understood by the leaders responsible for executing them.
We then asked those same managers to list the company’s strategic priorities. Using a machine-learning algorithm and human coders, we classified their answers to assess how well their responses aligned with the official strategic priorities.2 The CEO was shocked at the results. Only one-quarter of the managers surveyed could list three of the company’s five strategic priorities. Even worse, one-third of the leaders charged with implementing the company’s strategy could not list even one.
These results are typical not just in the technology industry, but across a range of companies we have studied. Most organizations fall far short when it comes to strategic alignment: Our analysis of 124 organizations revealed that only 28% of executives and middle managers responsible for executing strategy could list three of their company’s strategic priorities.3
When executives see these results, their first instinct is to schedule more town hall meetings or send another email blast describing the corporate strategy. The impulse to double down on existing corporate communication strategies is understandable, but unlikely to solve the problem. Our research has uncovered three nonintuitive causes of strategic misalignment and concrete steps that top leaders can take to improve how well the strategy is understood throughout the organization.
1. Acknowledge you have a problem. The first step in solving a problem is recognizing you have one. C-suite executives often assume that the entire company is on the same page when it comes to strategy, but this assumption is usually wrong.4 Our strategy execution survey includes a series of questions designed to measure whether a company has a shared set of strategic priorities, how well those objectives are understood, and whether they influence resource allocation and goal setting throughout the organization.5 Top executives rate their company higher on all of these dimensions than managers lower down the organization do.
The exhibit “Top Teams Overestimate Alignment” summarizes the strategic alignment gap. To interpret this chart, start with the first assessment statement, “Our organizational priorities support our strategy.” If supervisors, managers, and executives outside the C-suite assess their company as average (the 50th percentile in this figure), the typical top team will rate their company at the 67th percentile — well above average. The pattern repeats across every single measure of strategic alignment.6
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2. Agree at the top. Lack of strategic alignment often starts at the top. In developing strategic priorities, the top team should agree on a single set of objectives for the business as a whole, rather than each leader pursuing his or her own agenda. Unfortunately, most top teams we have studied fail to agree among themselves on company-wide priorities. For the typical organization we studied, just over half of senior executives converged on the same list of strategic objectives. Bear in mind, we did not measure whether the team members were committed to achieving the strategic priorities; we measured only whether they agreed on what they were.
The results from Generex were typical of the companies we have studied. Just over half of the top team could list all or all but one of the company’s five official priorities. But the other half of the team was completely out of touch. (See “Lack of Agreement on Strategy at the Top.”) Three of the top team members could list only one of the company’s strategic priorities, and two executives did not get a single objective correct — despite having five tries. Between them, these C-suite members listed a total of eight additional priorities that were not among the company’s official objectives.
Of course, not every top team shares Generex’s problem of half the members flying blind. Some teams we have worked with produce a more normal distribution, where most of the senior executives know some of the priorities with a few executives (usually including the CEO) knowing all of them, and others who can name a few or none. The Generex example does, however, underscore the importance of checking whether everyone in the C-suite is on the same page strategically. If executives are not aligned, it is critical to understand why not and address the issues before communicating the strategy more broadly throughout the organization.
3. Bring level two along. Strategic misalignment often starts at the top, but it doesn’t end there. Managers’ ability to correctly list their company’s strategic priorities continues to drop as you move further down the organization, but the rate of decline is not what you might expect. You might predict a steady decrease in alignment as you move down the organizational hierarchy, or perhaps a sharp drop-off among the frontline supervisors who are furthest from the C-suite. In fact, our data suggests the opposite — the sharpest plunge in alignment occurs between the top team and their direct reports, and is more gradual thereafter.
“Alignment Plummets Between Top Executives and Their Direct Reports” plots the average number of managers, at each level in the organization, who can list the company’s top priorities. For the typical company, just over half of top team members can do so. It is pretty bad when only half the C-suite agrees on the same objectives, but things look even worse for their direct reports. Strategic convergence drops off a cliff between the top team (51% agreement) and senior executives who report to the top team (22%).
The gap between the top team and its members’ direct reports is less surprising than it seems at first glance. Top team members oversee their own function, business unit, or geography, but also serve on the enterprise-wide leadership team that charts the course for the company as a whole. Their direct reports, in contrast, are not privy to discussions in the C-suite, and tend to view the world through the lens of the organizational silo they are charged with managing.
Rather than hosting another town hall, top executives should focus first on their direct reports, making sure they understand the company’s overall strategy and how their function, geography, or business unit fits into the bigger picture. One powerful way to do this: Each top executive should consistently explain why his or her unit’s objectives matter for the team and for the company as a whole.
In our sample, half of executives who reported directly to a top team member said that their boss consistently explained how their goals supported the company’s overall agenda. Of the rest, 37% said their boss framed their activities in terms of their team’s objectives without reference to corporate strategy, or their boss struggled to explain why their priorities mattered (12%). Many top team members need to do a better job explaining to their direct reports how their department, function, or regional goals fit into the company’s overall strategy.
To communicate strategic priorities throughout the organization, leaders at every level in the hierarchy should explain why their team’s goals matter — both for their team and for the organization as whole. Across 69 items included in our execution survey, the single best predictor of strategic alignment was how consistently managers — from top executives to frontline supervisors — explained their team’s priorities in terms of their unit and the entire company.7
To quantify the impact of this behavior, imagine a company that is average on every survey item except for one — all the managers explain why goals matter for their unit and the company. A high score on that single item would propel an average company to the top quartile in terms of strategic alignment.
A shared understanding of strategic priorities among key leaders does not guarantee successful execution. But it is a good first step. Widespread confusion and disagreement about what matters most undermine the prioritization and coordination across teams necessary to implement strategy. If managers do not understand what the company as a whole is trying to achieve over the next few years, they cannot align their actions with the organization’s overall direction.
To increase the odds that their strategy is understood throughout the company, top executives should acknowledge that they may have a problem with alignment, agree as a team on strategic priorities for the entire company as a whole, make sure their direct reports understand these objectives, and ensure that leaders at every level in the organization communicate what corporate priorities mean and for the company overall.
1. These are actual results of an anonymized U.S.-based technology company with more than 10,000 employees. As part of this research, the CEO and chief human resources officer identified 132 leaders who they deemed most critical for executing the company’s strategy. The leaders they selected included 11 members of the top team, their direct reports (52), a selection of middle managers (51), and key frontline supervisors (17). These executives represented 1.2% of the company’s total employee base.
2. Over 80% of companies we studied had between three and five strategic priorities. To accommodate different numbers of top priorities, each respondent in our survey could list up to five. We defined strategic convergence as a respondent listing any three of the five top strategic priorities. This approach produces higher estimates of strategic convergence than if we had required a respondent to list all of the top objectives. In a company with three strategic priorities, respondents had five tries to list those three. In companies with four or five strategic priorities, respondents had to list only three correctly.
3. See D. Sull, S. Turconi, C. Sull, and J. Yoder, “Turning Strategy Into Results,” Sept. 28, 2017, https://sloanreview.mit.edu.
4. Our findings are consistent with other research that has found managers tend to overestimate their own effectiveness. See R. Sadun, N. Bloom, and J. Van Reenen, “Why Do We Undervalue Competent Management?” Harvard Business Review 95 (September-October 2017): 120-127. McKinsey & Co., “How to Beat the Transformation Odds,” exhibit 4, April 2015, accessed Jan. 2, 2017, www.mckinsey.com.
5. This data is from a survey on execution developed by Donald Sull and Rebecca Homkes and designed to assess how effectively an organization’s strategic alignment, structured practices (for example, resource allocation, incentives), and culture support strategy implementation.
6. These differences in means were highly significant, with p-values less than 0.001 for all variables.
7. Because many of the 69 survey questions were correlated with one another, we used lasso regressions to identify which questions best predicted strategic alignment. We ran a series of lasso regressions using randomly selected combinations of eight variables at a time, and selected those features that consistently added predictive power independent of what other variables were included in the model. Two questions were robust predictors of strategic alignment across alternate model specifications: “My boss consistently explains why our priorities matter for the company as a whole and also for our unit or team” and “Top leaders communicate strategy clearly and consistently.”