Establishing Alignment Between Distributed Businesses
Past a certain growth stage, many companies launch supplementary businesses, both to augment total business activity and to take some pressure off their existing business(es). Running a company consisting of many different lines of business is advantageous for a variety of reasons — but it also comes with its share of risk.
Fundamentally, the risk surrounds the question of whether to view the collection of businesses as one overarching operation or as many interconnected but disparate units. There is no one-size-fits-all answer to this question, and whatever answer each company settles on will have ripple effects for all businesses in a company’s ecosystem.
How to sustain alignment among distributed businesses was the subject of a recent Outthinker Strategy Forum. Strategy officers from multibillion-dollar global companies convened to discuss the topic. Below is a summary of their conclusions.
4 Strategies for Sustaining Alignment Between Distributed Businesses
1. Start with high-level alignment
Multiple participants in the conversation reported that they’d had success when starting with high-level alignment among the executive team. The purpose of this alignment is to take an audit of the company from a bird’s-eye perspective, agree on overarching strategic goals, and then extend these goals down into individual lines of business.
Strategy officers suggested that the best way to establish high-level executive alignment is with an annual executive meeting, as opposed to having each individual business unit come up with its own strategic goals then having the executive team review and synthesize those goals.
2. Establish steering committees to guide high-level goals in specific business units
Following the high-level alignment, the next step is translating overarching objectives into specific objectives for individual business units. For this purpose, multiple strategy officers recommended the formation of steering committees to oversee strategic implementation.
One Outthinker Network chief strategy officer recommended two tiers of steering committees:
1. An Executive Steering Committee (ESC), responsible for creating space and time for conversations around company objectives and business unit performance.
2. Regional Steering Committees, responsible for monitoring and guiding strategic goal progress within specific lines of business.
3. Decide on centralized services for distributed businesses to use.
Eventually, companies must decide which resources to centralize (make accessible to all businesses), and which to keep decentralized (remain the sole domain of each individual line of business). This will likely be the most complex and nuanced part of the process for most companies.
There is no universal rule for which resources to centralize and which to decentralize. But a general framework is that overarching corporation functions — accounting, tax, legal — are often best to centralize, whereas more granular functions can be made the sole domain of individual businesses.
Whichever resources you decide to centralize will require more brain power and human power, as all lines of business will be calling on them for support. Thus, whatever you decide to centralize will impact your headcount and personnel planning.
4. Adopt a capital allocation framework
When you have multiple lines of business within one overarching company, the company inevitably has to decide which businesses get what amount of capital allocation. There are some simple frameworks for determining capital allocation.
One chief strategy officer’s recommended framework:
1. Determine which businesses are most profitable (more profitable = more capital allocated).
2. Determine which businesses are largest (bigger = more capital allocated).
3. Make ad-hoc adjustments to this framework (e.g., an innovation-oriented company will tend to be less profitable than a well-established company, and capital allocation methods should reflect that).
This framework will not be universally applicable. Its decision-making criteria should serve as an example of how companies might begin to think through capital allocation challenges.
Conclusion
The transition from one centralized line of business to multiple separate lines of business — especially if these separate businesses exist in far-flung geographic zones — will be an especially challenging process. Keeping this processual framework in mind and preparing for the challenges inherent to large-scale growth will put companies in the best possible situation to succeed.
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