The 3 keys to powerful earnings improvement through business alignment are alignment of leadership, alignment of business processes, and alignment of business systems. A company can perform at optimal levels only when the entire enterprise is aligned behind a common vision of future operations, with progress measured by consistent and appropriate goals, and commanding a common set of processes and systems to ensure minimal redundancy and waste. That sounds pretty lofty, but it is quite true. In this article, we'll break these areas down so that a clear assessment of the company's current position can be made.

Companies of substantial size (with multiple operating sites, for example) move through a series of three stages in their life cycle. All such companies experience pressures that push them toward decentralized operations, including idiosyncrasies of specific market niches served, the uniquenesses of isolated business processes, unusual needs of specific customer populations, and natural organizational entropy. At the same time, most of the companies that are successful in achieving the financial performance objectives established for the newly merged enterprise manage to overcome those challenges, electing to pursue the advantages of leverage, including:

• broad synergistic brand recognition, enabling cross-selling, bundling of products and services, and improving revenue
• interchangeability of business process resources, enabling the company to reduce its asset base
• commonality and scalability in equipment / skills / facilities, facilitating innovation and growth into additional markets
• higher utilization of business assets, reducing unit cost
• lower levels of redundancy, resulting in reduced operating costs

These companies also typically find that maintaining compliance with financial reporting standards are enhanced as a result of strengthened internal controls.

Some companies make a deliberate decision to remain "holding companies", which simply buy and sell diverse businesses that have only marginal relationships with one another. These conglomerates prefer to manage the portfolio through buying and selling components, and allowing the leadership teams at the individual companies to manage ongoing operations from strategy through execution. A few of them have been quite successful, and this article is sometimes not as directly applicable to those at a corporate level. It works very well, however, for their major divisions. The assessment methodology outlined here is targeted at companies who have decided to focus on a single core industry - Aerospace & Defense, Automotive, Chemicals and Polymers, Textiles, Electronics, Telecommunications, Consumer Products, Medical Equipment producers, Healthcare providers, and Financial Services providers are all good candidates.

Stage 1

Companies in the first stage of maturity are usually focused on revenue growth, and capturing market share. They are characterized by high levels of autonomy in management, in the reporting of site-level data to the corporate parent, and in the design of their business processes and systems. Companies who remain in this stage for long periods of time following acquisitions usually act as holding companies, with the corporation allowing individual divisions or sites to operate almost as independent companies with their own P&L, strategic plans, and market-facing branding. Often, companies in Stage 1 lack a common vision of the future of the overall business, and tend to operate at cross-purposes among the operating units. They sometimes even compete against one another for the same customers. They share little operating information, making it nearly impossible to coordinate and deploy "best practices", effectively distribute work load, utilize general market intelligence, and grasp other elements that could provide corporate-wide leverage of the businesses' assets and resources.

Stage 2

Companies in Stage 2 of their life cycles have usually awakened to the value of focusing on Return on Net Assets (RONA) and Return on Invested Capital (ROIC). In order to begin to capture improvements in these areas, companies in Stage 2 often turn to shared service models of operations for selected business processes and systems. Strategies and performance measures begin to crystallize around common themes that span multiple operating units or divisions. Among the areas of focus for a shared service model in this stage are Finance (A/R, A/P, General Ledger, and Financial Reporting), Human Resources (Payroll, Benefits, and Employment Records), and Information Technology (Computer Hardware, Network Administration, and selected Software Applications Management). Some companies in Stage 2 also move Procurement and other aspects of Materials Management to a shared service model, enabling the corporation to more effectively leverage its broadest possible purchasing power.

Stage 3

Companies in the most advanced stage, Stage 3, are usually embarked on a fierce drive toward adding real value. They are relentless in their efforts to fully utilize the assets of the entire corporation, driving out redundancy and its associated costs. They are then able to pivot on the fulcrum of those more agile processes and systems to implement innovations that foster organic growth resulting in greater market share, greater revenue, and improved earnings for their shareholders. Stage 3 companies also establish a structured and repetitive process of assimilating new businesses, gathering and incorporating market intelligence into company-wide strategies, and innovating on the basis of these new combinations to capture additional market segments. These companies are characterized by coordination and centralization of major business functions such as the planning and allocation of R&D, production work, inventories, raw material purchases, personnel, and factories & equipment. They centrally manage a broad spectrum of common business processes and systems, including customer requirements management, product data management, enterprise requirements planning, manufacturing execution systems, and logistics management. They are constantly changing, evaluating and configuring business assets to meet future market needs, acquiring and developing new businesses, and shedding assets that no longer fit their evolving model.

The best of these companies, regardless of what industry they occupy, utilize their common platform of processes, systems, and information to understand the needs of their customers in unique ways, and fluidly translate those needs into the features of their products and services. A few, at the very top of the game, come to understand the customers' needs even before the customer recognizes them, and when necessary they reconfigure their entire business to meet those needs, gaining unassailable competitive advantage. The enterprise-wide leverage they achieved as a result of carefully and skillfully handling the integration of processes, systems, and data provided the platform from which innovation launched them to new levels of performance. Examples could as easily be provided for companies in pharmaceuticals, retail operations, or the food & beverage industry. The lessons learned and the techniques vary a little, but the principles are the same.

A company who has already moved to a shared service model in some areas, for example, typically will not need to focus as heavily on alignment of the organization structure, and in many cases, will not need to focus as heavily on commonality in processes and systems in those areas, because much of that work has been done. Conversely, companies who have not moved to a shared service model for even their most commoditized processes (such as financial reporting) usually realize substantial benefits by moving in that direction. They usually find that they can perform the processes involved more quickly, utilize fewer resources to perform those activities, and achieve higher levels of consistency and quality by employing a shared service approach. Of course, the shared services approach is just one example, but it is a characteristic commonly found in those companies who perform the best in terms of assimilating new acquisitions, and achieving projected synergies as a result of their combined operations.

My own experience has shown that there are three distinct areas of company operations that should be reviewed in order to achieve an accurate assessment of a company's alignment maturity. Improvements in any of these areas will heighten the effectiveness of the enterprise's financial performance. However, an intelligently planned initiative that aligns and strengthens all three areas in a coordinated fashion is the most powerful tool for accelerating enterprise-wide performance. It is essential to understand the current situation in each of those three areas in order to develop such an initiative.

Enterprise Leadership

The first area is Enterprise Leadership. For purposes of our discussion here, Enterprise Leadership encompasses three topics: Vision & Strategy, Organization, and Performance Measurement. Those companies who are most effective in achieving their performance objectives are those whose objectives are clearly defined and communicated, enabled by an aligned organization structure, and reinforced through directly supportive performance measures linking top corporate strategies all the way down through day-to-day staff level work activity. Conversely, those companies who under-perform to their objectives typically exhibit the following characteristics:

• Leadership at individual business units are focused on market niches, market share levels, and general business categories that do not align with the overall corporate vision of future operations. This often stems from a natural desire on the part of individual business units to operate independent of strict corporate oversight, and control their own destinies. It is especially common in cases where business units are geographically distant from corporate headquarters, and not consistently tied in to enterprise-wide operations. There is a very high incidence of this situation in recently acquired business units who are accustomed to more entrepreneurial cultures, and failing to address this effectively very early in the acquisition sequence can be catastrophic.
• Leaders at business units undertake substantial initiatives that are not aligned with corporate direction in terms of building or retaining business process capacity, developing or procuring information systems, and major product development activities. Operating under the auspices of "controlling their own P&L (profit-and-loss)" statements, business units and/or divisions in these under-performing companies make investments in facilities, equipment, staffing, and inventories that are not consistent with the corporation's envisioned role for the future of that business unit. In other cases, individual business units simply fail to comply with corporate direction in terms of reducing the number of those assets as a part of post-merger or post-acquisition consolidation activities. In either case, when corporate management fails to prevent these activities it allows the asset base of the corporation to swell, diluting the earnings of the enterprise.
• Individual business unit performance measures do not flow from - and in some cases do not even align with - enterprise-wide performance objectives established for company financial performance. This situation is particularly insidious. It is often masked by the best intentions of intervening staff members who "rationalize" the numbers from the various business units to bring them into a meaningful picture of comparative performance, without understanding that the very nature of the information may be quite different. This became rampant during the broad application of "balanced scorecard" style reporting in the late 1990s. When it occurs, the visibility of true business unit performance levels is obscured, and a great deal of management's ability to focus corrective action and identify best internal practices is lost.

Enterprise Processes

The second area is Enterprise Processes. For purposes of our discussion here, Enterprise Processes encompasses three topics: Business Processes, Facilities & Equipment, and People & Skills. Those companies who are most effective in achieving their performance objectives are those who achieve commonality among their major business processes, so that process capacity and capability are well understood. That clarity and visibility enables management to accurately respond to requests from customers, centrally allocate and deploy work across the enterprise, and minimize redundancy and waste among facilities, equipment, and staff. Conversely, those companies who under-perform to their objectives typically exhibit the following characteristics:

• Poor responsiveness to customer requests for quotes, and long turn-around times on customer orders. This generally stems from duplication in customer service and order entry organizations, lack of visibility of the capability and capacity at all the work centers that could produce the desired product across the enterprise, and a tendency to load all available work against the local business unit, even when it results in delays to the customer and potentially lost orders. I have actually seen situations where customers who were savvy enough about the organization would call multiple customer service representatives within and between business units to play them against one another in order to drive down their price or improve delivery.
• Redundant inventory and excessive staffing levels. When orders are not centrally accepted and allocated, each business unit typically maintains its own stock of both raw materials and finished goods. This means, of course, that each of these business units maintains staff to receive, store, retrieve, package, and ship all of that inventory as well as accounting for it through its life cycle and disposing of excess. Very often, multiple business units utilize the same raw materials, and should be able to gain efficiencies from centralized procurement as well as inventory management practices. Even in those companies that do not manufacture such as banks and hospitals, their supply levels are significant, as are the opportunities. The key here is to get processes common enough to leverage information, training, staffing, and other business assets to optimize the base on which earnings are produced.
• Redundant equipment and facilities. Whether the company is a manufacturing business, where the bulk of value-adding processes involve heavy machinery and many square feet of high-bay factory space, or the business is a system of hospitals and urgent care centers where the critical elements are operating rooms, treatment rooms, and diagnostic equipment, facilities and equipment represent a substantial part of the business' cost. Achieving commonality and alignment of these business resources is critical, and it is seldom done well. In most companies of significant size, individual business units (divisions / sites) do not communicate about the capabilities or capacity levels of their critical resources. Even fewer have actually inventoried comparative processes and taken steps to align and rationalize them to eliminate redundancy or increase flexibility. Rarer still are those who have deliberately implemented a plan that coordinates and fully utilizes all of these expensive business resources across the enterprise.

Enterprise Systems

The third area is Enterprise Systems. For purposes of our discussion here, Enterprise Systems encompasses three topics: Information Systems, Data, and Networks & Infrastructure. Those companies who are most effective in achieving their performance objectives are those who establish enough commonality among their information systems and data to provide a common lexicon for enterprise-wide communications, establish enterprise-wide visibility of company inventories, capacity, and other business resources, and provide timely and effective performance reports on all critical business processes. Conversely, those companies who under-perform to their post-acquisition or post-merger objectives typically exhibit the following characteristics:

• Uncommon data. Many times, the same information is reflected differently from system to system between business units within the same enterprise. I recently encountered a manufacturing company who had the same raw material listed under completely different part numbers with completely different descriptions at several business units, even though it was purchased from the same suppliers. As a result, it was literally left on the shelves of some business units in excess quantities for years while it was purchased over and over again - often at higher prices - by sister business units. This was a company built through acquisition, where data and systems had never been brought into alignment between the business units as they were acquired or at any time thereafter. The level of waste in these situations can be enormous. Consider too the potentially urgent need for information availability from site to site in a health care organization or in a banking institution. It is no surprise that these types of service organizations are working so hard to ensure a seamless interface among all of the business units who need that information, and the enormous effort being made to align the data so that it means the same thing from user to user.
• A general lack of systems integration. Most companies who fail to meet their projected performance targets have never fully integrated the information systems from business unit to business unit and from site to site. In the example sited previously, even if the inventories had exactly the same part numbers and descriptions it wouldn't have mattered since the business units all operated on completely different systems with no cross-business-unit visibility of inventories. Especially when companies are acquired or merged, unless there is a consistent effort made to knit together the fabric of the systems used to operate the different business units, substantial losses will occur in the form of redundant and underutilized business assets.
• Unrationalized portfolios of major software application suites. Large companies are particularly vulnerable to this problem. Major corporations often have software applications such as Oracle or SAP infused into their business processes and even their business cultures. These systems each have a vernacular that is somewhat unique, and handle information differently. When one company acquires another, and the acquired company is both large and strongly tied to software applications, it is common for the merged entity to fall short in terms of adopting a single standard for even the most fundamental systems. The results of such failures are higher than necessary software licensing fees and maintenance fees, diminished clout with the software suppliers in terms of influencing the direction of the applications' development, redundancies in internal systems support staff, and so on. In both private industry and consulting, I have encountered dozens of situations where basic concepts such as "master schedule" were defined differently from business unit to business unit. Getting to a common view of more complex mechanisms such as sales forecasts across the business units of these companies is an even more daunting task - most of them revert to normalizing the end data at a gross unit level or dollar level without regard for consistency (or even accuracy) between business units. Without common software systems in the major business operations areas, operating environments degrade in terms of their ability to perform basic business processes such as turning around customer orders, closing the financial books, and generating forecasts in an accurate and timely manner.
• Multiple redundant data centers and major computing platforms. Underlying all the information systems that support a company's business processes are computer and telecommunications networks and computer data centers where the physical servers reside that perform the major computational work and data storage. These are usually fairly expensive pieces of the company's real estate, because they are closely controlled and heavily secured environments with very stringent temperature and cleanliness requirements. They are also typically "backed up" or "mirrored" for purposes of disaster recovery, sometimes essentially doubling much of the data center related costs. Especially in a post-acquisition or post-merger environment, individual business units are often reluctant to relinquish control of their data center operations. This exacerbates the existing challenge of data center costs, effectively multiplying them with a corresponding reduction in earnings or return on the company's net assets.

The majority of companies find themselves in this situation, experiencing many of the challenges described above. It is an almost universal challenge for companies that are built largely through acquisitions and mergers. Unfortunately, these individual problems are nearly always amplified, as they interact upon one another. For example, the lack of clarity and consistency around corporate goals and objectives can (and often does) enable individual divisions or business units to duplicate investments in equipment, staffing and facilities. Then, while acquiring the additional assets that contradict overall company direction, it may be that the equipment or other assets are available and in surplus at another business unit, but that information is invisible to the business unit that needs it due to a lack of systems and data integration. The possible scenarios of one problem amplifying another are almost endless - and they occur every day. Hence, the assertion made earlier in this article: Improvements in any of these areas will heighten the effectiveness of the enterprise's financial performance. However, an intelligently planned initiative that aligns and strengthens all three areas in a coordinated fashion is the most powerful tool for accelerating enterprise-wide performance.

Given that these three areas are critical to assessing the current position of the business then, we will turn our attention to the elements of these three areas (Leadership, Processes, and Systems) that should be examined.

Assessing Enterprise Leadership

Companies displaying characteristics such as lack of clarity in company vision and mission, market-facing strategies that are inconsistent or ill-defined, and whose performance targets are not aligned with overall company goals reside at the far left of the Leadership Operating Model Continuum. Conversely, companies at the far right side of the continuum display characteristics such as an enterprise vision & mission that are embraced by all sites and divisions, detailed market-facing strategies that are developed with division-level participation and coordination across the enterprise, and clear enterprise-wide linkage in the organization structure that is consistently and effectively measured in terms of its performance. Companies at the right-hand side of the Leadership Model Continuum are generally much more responsive to customers and to changes in the overall market. They are nimbler, because they are better aligned throughout the levels of the enterprise, with greater visibility of internal operations as well as the external marketplace. Breaking this area down to perform an adequate assessment of the company's current position requires an examination of several elements, including: Company Vision & Mission, Strategic Planning, Performance Measures, and Organization.

Assessing Enterprise Processes

Consider an operating model where the three maturation phases of a company are parts of a continuum stretching from least mature on the left to most mature (advanced) on the right. Companies displaying characteristics such as poorly defined business processes, undefined process capability levels, poor process quality, poor accountability and utilization of facilities and equipment, uncoordinated and disparate compensation approaches among similar roles at various sites, and a general lack of detailed operational performance visibility from the sites to corporate leadership reside at the far left of the continuum. Conversely, companies at the far right side of the continuum display characteristics such as accurate and consistent process identification and process capability documentation, effective, coordinated management of process capability and quality levels, effective centralized management of facility and equipment utilization, uniformity in role definition and compensation approach across the enterprise, and well-aligned and centrally managed organization structure across divisions including all geographic, product-line, and disciplinary reporting structures. Companies at the right-hand side of the continuum generally gain and maintain higher percentages of market share as a result of better and more consistent quality levels, and deliver much higher operating earnings, as a result of lower cost structure due to lower levels of redundancy in equipment, facilities, and other business resources. Breaking this area down to perform an adequate assessment of the company's current position requires an examination of several elements, including: Business Processes, Facilities & Equipment, People & Skills, and Business Unit (Division / Site) Leadership.

Assessing Enterprise Systems

Companies displaying characteristics such as autonomous and redundant service resources among divisions and sites, redundant software applications used to perform similar functions from site to site, few standards defined for infrastructure, and generally decentralized systems management reside at the far left of the alignment maturity continuum. Conversely, companies at the far right side of the continuum display characteristics such as centrally staffed and managed service resources, broad commonality in those software applications that support major business functions, centralized development and enforcement of architecture standards, and generally centralized information systems management across the enterprise. Companies at the right-hand side of the continuum usually experience a significant reduction in systems-related costs stemming from commonality in data, and the elimination of redundant software licenses, maintenance fees, and data processing equipment such as servers. In addition, companies on the right-hand side of the continuum usually find that there is a substantial savings opportunity resulting from improved visibility of enterprise-wide resources (especially finished goods and raw material inventories). Breaking the area of enterprise systems down to perform an effective assessment of the company's current position requires a careful review of the following four elements: Resources & Services, Applications Coordination, Prioritization & Standards, Architecture & Infrastructure, and Systems Leadership.

Conclusion

Assessing the company's position along the three lines described in this article, where does your company rank? Of course, all companies are more mature in some areas than others - having a better handle on systems than on processes, stronger management of processes than performance measurements, and so on. Generally though, as you have read through the description of those characteristics in all three stages of the alignment maturity continuum, you have probably gained a sense of where your company stands. Hopefully, this insight has also provided you with some great ideas about the most important "next steps" in each of the three areas of business operations (leadership, processes, and systems) to achieve heightened earnings performance in the years ahead.