Chapter 2: Why is organizational alignment important?
Strong organizational alignment is a key differentiator between high-performing and low-performing companies. Through extensive research, we've found that organizational alignment has a tangible financial impact on an organization. It also significantly impacts its ability to remain competitive. These findings include:
- Companies that regularly exceeded revenue goals were 2.3X more likely to report high levels of alignment.
- Aligned companies churn 36% fewer customers each year.
- Aligned companies close 38% more sales proposals.
- Roughly 10% of a company's spending is wasted to misalignment, on average.
- Highly aligned companies grow revenue 58% faster and are 72% more profitable than their misaligned counterparts.
Here are some shareable statistics that help to illustrate the importance of alignment.
- 22% of employees don't understand their company's values or don't know what they are.
- 33% of employees don't feel like they are reminded of their company's mission often enough.
- Aligning sales and marketing can result in a 209% growth in marketing revenue, according to Marketo.
- Highly aligned companies have 36% higher growth than poorly aligned companies, according to SiriusDecisions.
- 60% of respondents in a global research study conducted by LinkedIn "believed that misalignment between sales and marketing could damage financial performance."
What are the benefits of organizational alignment?
Organizational alignment is beneficial to almost every aspect of a business.
One of the main areas of benefit is the company itself. Some of these benefits include:
- Increased focus on high-value activities within a team.
- Reduced ambiguity and confusion about what a team is working on and why.
- Lower payroll costs because a company needs fewer people-hours to get the same work done.
- Faster time to market
- Increased operating margins
- Higher efficiency and less wasteful spending within teams.
- Increased employee engagement.
- Increased employee morale.
- Decreased employee turnover
- Employees are better able to utilize their full range of skills in the workplace.
- Change management is more straightforward because people are bought into the organization's purpose. Many employees in highly aligned organizations feel like they're owners of the company and are willing to give more to its purpose.
In summary, aligned companies are overall more competitive and capable than their poorly aligned counterparts. Aligned companies can also better address new market opportunities and scale because they can move with greater agility.
While companies benefit heavily from strong alignment, they're not the only benefactors. The benefits of alignment extend beyond the walls of the company.
- Customers clearly understand what the business does. They are more likely to understand the company's value proposition, as well.
- Customers are more likely to trust the company and buy from it. Effective leadership, which is underlined by strong alignment, drives greater confidence among buyers (especially true in B2B markets).
- Customers are more likely to rank their experience as positive and refer the company to friends and colleagues.
Companies that master alignment are in a much better position to be customer-centric and operate in a manner that enables them to do more business.
What are the risks of not being aligned?
Not every company gets alignment right. Here are some of the risks associated with not being aligned.
- Lost sales and lower revenue – companies that are poorly aligned are more likely to "drop the ball" with prospective customers, leading to lower sales figures each quarter. The Content Marketing Institute found this was the #1 cost of poor marketing and sales alignment.
- Lost customers – customers have more choice today than ever before, and they are ready to leave at the first sign of trouble. Companies need to align the entire customer experience, from end-to-end, to retain their most valuable customers.
- Risk to reputation – poorly aligned incentives were the root cause of the 2016 scandal at Wells Fargo. Wells Fargo had both an admirable values statement and clear goals that did not stop the bank's employees from creating fraudulent accounts. It is not enough to have goals or stated values; leaders need to actively manage alignment between day-to-day execution and its goals, values, and mission.
- Inability to attract top talent – talented people can spot a poorly run company a mile away. One telltale sign is the lack of alignment between a company's words and their actions.
How much do organizational alignment issues cost?
Misalignment has several tangible costs that directly impact a company's ability to remain profitable and competitive. These costs include:
- $109M is lost for every $1B in project spending due to misalignment, according to the Project Management Institute.
- According to IDC, $100M in potential revenue is lost for every $1B in revenue, as a result of low sales and marketing alignment.
- According to McKinsey, poorly aligned companies have 50% lower returns on invested capital and 18% overall in EBITDA.
- Roughly 43% of an average knowledge worker's time is wasted on non-productive communication issues. Unproductive communication costs employers roughly $26,041 per employee on an annual basis. (Grossman Group, 2015)
What does misalignment look like?
While misalignment can be challenging to address, it is easy to spot. There are numerous telltale signs of a misaligned team and company, including:
- Excessive and unproductive meetings. For example, "there's a meeting, and then there's a meeting after the meeting. And whatever is decided in the meeting, maybe someone doesn't agree on it. Then, there's a meeting after the meeting."
- Decisions take a long time to make.
- Silos form around individuals, teams, and departments. Individuals are focused solely on their work, and they do not communicate with others outside of their immediate team.
- Cultural issues, such as poor decision making. If people exhibit behaviors that don't match the organization's stated values, there is likely a misalignment of purpose.
- Difficulty achieving performance targets and goals.
- Low employee morale. Employees are always focused on the weekend or retirement. They're there because of a paycheck, not because they feel like their work has meaning or value.
- Every decision is political. Individuals are constantly jockeying for power, rather than working together on a common goal.
- Teams refuse to work together because they worry that other teams will get ahead of them, and they'll lose out on budget or recognition.
- Employees are reactionary. They're always "putting out fires" instead of being proactive.
- Your company struggles to innovate. People stick with what has worked in the past instead of thinking about what the future has in store.
- Nobody agrees on priorities. Each person has their own understanding of what the company is trying to accomplish. Or they have no understanding at all.
- Issues and problems are rarely addressed by managers. Instead, conflict is allowed to simmer because it is easier to ignore the problem instead of resolving it.
Why does misalignment happen?
Misalignment occurs in every company and at every stage. Even a company of one can be misaligned to its customers and stakeholders. Misalignment is a natural phenomenon that only becomes an issue if it is left unmanaged.
Alignment itself is not always the goal. As a leader, you need to balance speed of action with alignment. They're often at odds — you cannot maintain 100% speed and 100% alignment in a changing environment. We agree with Amazon, the US Navy SEALs, and Zapier: when in doubt, you should always default to action.
To borrow from the field of aviation, you need to manage your heading (direction). External forces (like wind when flying) will push you off course frequently. Changing heading even slightly will slow you down in the short run, but constant correction will help you reach your destination faster in the long run.
Another way to think about alignment is in terms of vectors. Elon Musk's famously said that "every person in your company is a vector. Your progress is determined by the sum of all vectors." All vectors have direction and magnitude. The goal of a leader is to align those vectors toward a common direction. Dharmesh Shah, co-founder of Hubspot, wrote this excellent article on aligning vectors, which is worth checking out.