There are two main dangers in failing to align business goals:
- Lack of a common, clear goal and strategic direction. This leads at best to inefficiencies and at worst business failure as decisions become increasingly difficult, especially in reacting to competitive pressure. (Click here for a case study on clear goals)
- Dissent among stakeholders. If the majority of interested parties in a business are not aware (due to a lack of effective corporate communications) or disagree with the board’s view of the business goal, there are likely to be difficulties with stakeholder relations which can disrupt the smooth running of the business.
So our second Golden Rule of corporate governance is that the business should be targeting an appropriate goal which properly reflects the expectations of the stakeholders.
“Properly” in this context means that it has been arrived at after due consideration of all the interests concerned, and an appropriate weighting which recognises that the various stakeholders have different claims on the organisation. A misjudgement of the weighting may do serious damage to the totality of the business, and a lack of understanding of the need for congruence between the aims of the different stakeholders may make the business impossible to run at all.
This article will help you identify these dangers and implement effective remedies to align business goals more successfully. It draws on our Applied Corporate Governance™ methodology developed over nearly twenty years of corporate governance training, authoring and consultancy.
Failure to align business goals is one of the most frequent yet undiagnosed causes of corporate failures. As we repeat throughout this site, every stakeholder has a different perspective on where the business is and should be going. This makes establishing and maintaining a regular review of the business goals essential, not just using the conventional (though often still overlooked) strategic management approach, but employing stakeholder consultation. Without agreement from at least a majority of stakeholders, it is difficult to keep progress towards the goal on the rails. Indeed we would regard stakeholder consensus as the rails, without which the strategy cannot run smoothly if at all.
Decades of strategic business experience and observation have proven to us time and time again the need to align business goals, or as we like to say, achieve congruence of goals. Congruence implies more than a linear, two dimensional alignment but a deeper level of cohesion brought about by effective systems of universal feedback. It should be a key objective of any business to have all interested parties buy in to its vision and mission and so help, rather than hinder achieving its goal. Regardless of how good, and even honourable, the board may feel the goal they established is, if others are ignorant of, misunderstand or disagree with it, problems are likely to arise.
This could be as simple as customers misunderstanding the brand name or concept and so associated it with negative qualities. That is more likely to be picked up by primary research done by the marketing department. But it could be more buried. We once ran parallel corporate governance and strategy projects for a mutual retail client who had a large database of members. On closer inspection, while there were members who were fully aware and bought into the mutual ethic, the reason most people joined was to receive the higher rate on the savings account they offered. Clearly these were very different expectations and goals and identifying this enabled a different approach to be taken to encourage members to shop and retail customers to join.
Most companies would argue that they align business goals instinctively through their relationships with key stakeholders, industry knowledge and management information systems. To an extent this is clearly true or most (well run) businesses would not survive. But history is littered with examples where it is not true and there are very few who achieve stakeholder satisfaction through purely intangible methods.
Achieving stakeholder satisfaction clearly requires consultation, and our methodology has at its heart primary research to deliver an objective view of the organisation and ensure corporate communication is two-way for all stakeholders, not just customers and perhaps employees. Our Stakeholder Survey is the key component of this research and allows for measurable and trackable alignment of business goals.
Through our unique approach we allow organisations to see visually how they are performing. The graph below shows an example of the sorts of simple charts to come out of this research: it shows how over time expectations and therefore congruence of goals can be achieved. In this case it is hypothetical (but based on real past results) to focus on setting objectives for aligning goals across the whole organisation and between specific stakeholder groups. Breaking down the data in this way is essential to highlight particular misalignment and therefore areas to focus on.
The graphs show:
- rating by stakeholders of the organisation’s stated goals (e.g. a difference of 3 represents a 7/10 score for a goal statement)
- the difference between the various stakeholders in valuing goals statements (e.g. a score of 4 in the second graph may represent customers voting 5/10 vs shareholders 9/10 for a goal statement, suggesting the need for a new goal)
A full Stakeholder Survey should be carried out at least once a year, but with the internet technologies now available at low cost, it is possible and desirable to have an ongoing system of feedback in place to allow continuous evaluation of progress.
Having decided to act to align your business goals, think about the following questions – especially how well you are able to answer them:
- Do you have clear business goals, physically (or electronically) documented and distributed within the organisation?
- Are your employees aware of and do they agree with the long term business goal(s)?
- Is the outward expression of the goal a factor which helps or hinders sales?
- Do you establish goals with your suppliers and trading partners?
- Is the community in which you operate aware and supportive of your business goals?
If you had difficulty answering some or all of these questions, you are not alone. Few businesses spend sufficient time in defining and communicating a clear goal to their stakeholders. Sure, you will have a mission statement and perhaps an extended vision document designed to steer corporate culture. Your spend resources on developing and communicating your brand and associated values to customers. And you may even regularly poll customers and employees about what they think of these statements, values and culture.
To fully align business goals, however, and therefore fully commit to good corporate governance, you need to have a formal, well planned and inclusive approach to setting, communicating and monitoring goals. We believe to achieve this requires:
- full support of the CEO and board and for the programme to be linked to the strategy process
- use of an objective, third party research company to ensure results are not distorted by internal assumptions and prejudices
Without this support and independence accurate results cannot be guaranteed. Good corporate governance demands that commitment or it is no more than the lip service paid by a significant proportion of annual reports and account documents we have read in the twenty years since such statements began to appear therein. If you do manage to align business goals, without proper planning it will likely be more down to co-incidence.
This is the second in our series on Best Corporate Governance Practice – the Golden Rules of corporate governance:
Rule 1: The Importance of Business Ethics
Rule 2: Towards a Common Goal – Align Business Goals
Rule 3: The Importance of Strategic Management
Rule 4: Organisational Effectiveness for Good Corporate Governance
Rule 5: The Importance of Corporate Communication