Alignment and Coordination Drive Bottom Line



Daniel Lock
01/20/2014

The reasons organizations are productive also makes them unstable. Alignment and coordination are critical to driving organizational performance.

Alignment of organizational goals is one of the buzzworthy phrases of the modern management lexicon. Speakers often use the phrase without really qualifying what they mean and why it’s important.

The current state of alignment in organizations can be summed up by a quote from the Global Innovation Leadership Study conducted by Capgemini Consulting and the IESE Business School. Based on a survey of 260 innovation executives around the world, the report concluded that "large organizations create so much distance between the executives and those that are tasked to innovate, that a disconnect exists between them."

The reason creating and driving alignment is hard in today’s work environment stems directly from the reason the modern world is so productive. The division of labor and specialization, pioneered centuries ago, continues to allow us to improve productivity in the workplace, but can also spark alignment issues.

Why division of labor and specialization makes management harder.

Prior to the industrial revolution, the economy was made up of artisans, such as blacksmiths and bakers, who worked individually or in small groups to create the end product. Little coordination was required.

Adam Smith explained why division of labor and specialization can drive productivity with his famous pin factory study as explained in his book, The Wealth of Nations. In that study, he found the productivity of the pin maker increased 4,800 fold when the task was taken from a single laborer to something completed by more than a dozen workers with ultra-specific tasks.

But the division of labor and specialization has some negative effects. Namely it makes the production process unstable. Whereas artisans of the pre-industrial world could keep their process under one roof and entirely in their head, workers in the pin factory example cannot do the same. And thus, the industrial revolution ushered in the age of the manager.

The age of the manager

To see how important effective managers are, and just how much value they drive, consider research by Wharton University Professor Ethan Mollick. He investigated IT projects to examine just how much value middle managers drove. The results were startling.

"After controlling for many factors, such as the genre of the game and the size of the project, I found that individual producers account for 22.3 percent of the variation in company revenue. Designers, by contrast, account for just 7.4 percent of the variation — a relatively marginal impact. For comparison, everything else that’s part of the firm, whether it’s senior managers or strategy or marketing, accounts for just 21.3 percent of the variation in firm performance."

Driving alignment in bedding

To understand how successful organizations go about driving alignment, consider Sealy, the mattress company. Faced with sagging sales after the 2008 financials crisis, the company set out on a strategy of innovation and new product development. Realizing that mattress making has a lot of individual specialists, Sealy created a cross-functional organizational structure, pulling employees out of a hierarchical and siloed work environment, and tasked them with designing the mattress of the future.

The biggest challenge for Sealy was not mattress technology, or sales or distribution. It was leadership and management. Organizations may try to create "focus groups" or "task forces" like this all the time, but 70 percent of these types of strategy implementations fail. The difference was that Sealy aligned everyone on the goal to create a mattress that the customer would love even more. Sealy’s leadership learned a new way to arrange its organization, which enabled employees to break through the barriers they hit every day within the hierarchical environment.

Finding transition points

Walgreens is another example of a company that has taken pains to drive organzational alignment and succeeded. Tim Theriault, the company’s CIIIO (Chief Information, Innovation, and Improvement Officer), coordinated his improvement programs via the IT department. Given the separate work practices IT required to enable its respective processes, he aligned IT with each program.

Theriault is also personally involved with the creation and implementation of roadmaps to ensure the alignment of management up and down the hierarchy. So far the increased revenue of $50 million speak for themselves.

It’s important for managers to understand that what makes organizations productive also makes them unstable. It’s common for managers to focus on reducing "span of control" in an effort to reduce inefficiencies, but these steps often reduce the effectiveness of the organization. Instead, management should focus on alignment and coordination, which Sealy and Walgreens found can drive significant improvements to the bottom line.