Focus on what counts

CEO Evolution: Big Decisions and The Need for Alignment

November 16, 2015
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As seen on Westfair Communications
Written by: Mark Fagan

Richard Branson, Virgin Atlantics CEO, says he makes two to three big decisions annually. But, once a decision is made, its success involves many more people than those who were part of the decision. As part of this CEO Evolution quarterly column, I am going to bring to you some insights as to how CEOs make big decisions and then successfully implement them.

Some decisions can create such pervasive change for an organization that they affect its entire strategy or business model, which is referred to as a business “pivot.” Pivoting is familiar to those in the startup world where entrepreneurs switch gears when their business strategy/model is not working. Pivoting can also help established businesses that have stopped growing to jumpstart growth.

Examples of big decisions include selling or purchasing a significant business unit; making a significant change to product or service offerings; and restructuring the management team.

Whether a big decision results in a pivot or something less, its probability of success is more dependent on the characteristics of the company before the decision is made than the quality of the decision. In other words, a company needs to be in alignment before a significant change is introduced. Alignment, as defined by Harvard Prof. Jay W. Lorsch, is the creation of organizational practices and structures that simultaneously fit the strategic requirements of a business and the needs of its key employees. Misalignment, on the other hand, occurs when leaders of a company are simply “not on the same page.” For example, the head of sales is operating his/her group based on the belief that only two or three of the company’s products are worth promoting and are valuable to the sales team for lucrative commissions, whereas the head of operations believes the company should have all products in production and available and is managing inventory and capital requirements under that assumption.

A company’s management team and key employees must be in alignment before a significant change is introduced by the CEO. If not, probability for success plummets. Why? Because change is difficult and it requires buy-in and commitment to a common goal from management and key employees. If those characteristics are not present before a change, chances are they won’t be afterward, either.

How is alignment achieved? It depends.

In most traditional corporations (manufacturing, technology and service companies), power and influence is easily identified and essentially follows the organization chart. In these companies, the CEO drives strategy, then creates buy-in and communicates it throughout the organization. Decisions about who reports to whom will follow closely on the heels of strategic decisions. Alignment of strategy can be accomplished by getting the C suite of executives to agree on a strategy and then drive that strategy down through the organization, through department heads and key employees.

Accomplishing the same goal with professional service firms (law, accounting, investment banking, engineers and consulting firms) is more complicated. Power, ownership and influence are more widely distributed than in traditional corporations. In professional service firms influential partners may not hold formal titles, but can be some of the most influential and powerful members of the firm and can disrupt the alignment of an organization.

As explained in a Harvard Business School case study, McKinsey & Co., one of the most successful consulting companies in the world, wrote its first brochure in 1940 to explain the firm’s approach to potential clients. Marvin Bower, its then-managing partner, was against the idea because advertising was considered beneath professional service firms at that time. Eventually he agreed and saw a hidden value to the effort — a way to bring the firm’s thinking together. All of McKinsey’s partners were involved in writing the brochure, approving almost every word. It was a massive effort and took nearly a year to complete, but when it was done, the firm had the beginning of strategic alignment — a genuine agreement on the kind of firm it wanted to be.

Once the key members of an organization agree on where the company needs to be and on the basic steps needed for success, then that message must be communicated throughout the organization. At the second annual CEO Evolution event on June 15, 2015, at UConn Stamford, Denis Nayden, former CEO of GE Capital, said, “If your strategy is believable, if you are consistent, if you follow through in terms of execution and demanding and accountability and so forth, you can even manage the crazy number of businesses all around the world. But then you need a capable team, you’ve got to depend on them because there is no way one person can have any understanding as to what is going on every single hour of every single day all around the world. You need to be able to depend on the whole team wherever they are and then you find a way to talk to them all the time.”