Can organisational alignment boost profitability?

Savvy CEOs know that companies perform better when their values, skills, structures and systems align with a shared strategy and purpose. Now, fresh analysis of data from PwC’s 26th Annual Global CEO Survey lends statistical support to that belief. To explore the relationship between organisational alignment and performance, PwC zeroed in on responses to five survey questions: one asked CEOs to assess their employees’ overall alignment with company values and direction, and four others asked CEOs to assess their adherence to a behaviour associated with strong organisational alignment: obtaining candid forecasts of financial performance; tolerating small-scale failures in pursuit of innovation; delegating strategic decisions; and encouraging dissent and debate. 

By aggregating those responses, PwC created an index that ranks respondents in terms of organisational alignment. PwC then plotted scores on that index against CEOs’ assessment of their company’s profitability—specifically, the extent to which respondents said they were outperforming competitors over a two-year period. As the chart above shows, a higher score on the index corresponds to a higher likelihood that CEOs reported outperformance. Indeed, CEOs who scored in the top quartile of the index were 1.76 times as likely as those in the bottom quartile to report outperforming competitors by at least 10%. 

All the more reason for CEOs to make organisational alignment a top priority. They should start by focusing on three actions:

• Invite feedback, debate—even failure. Although 85% of CEOs in the survey said that employees were often or usually aligned with their company’s values and direction, only around half said their companies encourage dissent and debate or tolerate small-scale failures—practices that indicate strong alignment and are associated with innovation and growth. This suggests a perception gap, and the potential for misalignment, between executives and employees. To close that gap, create effective incentives and feedback channels that remove barriers to dissent and disagreement, and encourage innovative risk-taking on small-scale projects.
• Seek better forecasting. Projects often over- and under-perform initial financial forecasts for reasons other than sugar-coating or sandbagging. CEOs need to look for a broader pattern of forecasting across projects to weigh the potential for misalignment, which can inhibit efficient allocation of capital and other resources. They should encourage candid, direct discussions with individual project leaders to test the reasoning behind financial forecasts of specific projects as well as their alignment with a company’s mission and values. 
• Consider the context. Curiously, some CEO Survey respondents who reported strong performance also said they never tolerate dissent, small-scale failures, or the delegation of strategic decisions. This suggests that in certain contexts—a full-scale transformation requiring a retooling of mission and values, say, or an industry (like aviation) where even small-scale failures have huge consequences—organisational alignment might take a back seat without negatively affecting performance. Before making a push for alignment, assess whether the conditions and timing are right.

Data analysis by Shir Dekel