As we wrap up our blog series about strategic alignment, we cover how to identify and address misalignment by aligning objectives and rewards.
In our Strategy and Leadership Alignment blog series, we’ve explored how to execute strategy, effectively use different communication styles, and interpret strategic priorities.
To successfully implement your strategy, you also need to align objectives and rewards to the desired behavior.
Misaligned objectives and rewards lead to a plethora of challenges within an organization, undermining the success and effectiveness of your leadership, strategy, and the organization as a whole. To address this misalignment, you must be able to identify where and how it happens.
Understand How Misalignment Occurs (and Identify It)
Aligning objectives and rewards goes beyond setting targets and defining incentives. You must ensure these align with your organization's broader structure, goals, culture, and context. When misalignment occurs, it often manifests in subtle and interconnected ways.
Let’s explore some of the common causes of misalignment.
Competing Functional Areas
One common form of misalignment occurs when functional areas have competing incentives or rewards. For instance, consider your organization’s sales team and customer success team. The sales team focuses on new client acquisition, while the customer success team prioritizes stability, retention and satisfaction.
Over time, misalignment can result if these teams perceive each other as adversaries. Customer success members might complain, “If only sales would stop focusing on short-term targets.” Meanwhile, sales members might grumble, “Why does customer success keep wasting my time with happy clients who don’t need new work?”
This friction reduces your teams’ willingness to work together toward a shared strategic outcome.
Different Perspectives and Measures at Different Levels
We also see misalignment occur because of different perspectives and measures at different levels of the organization.
For example, an individual call center rep may focus on metrics like the number of calls per hour or call duration, while the call center leadership may wonder why their customer satisfaction and service efficiency metrics are declining.
The disparities between these measures and their related incentives can lead to practices where your high performers are, in fact, diminishing the effectiveness of your strategy.
Lack of Shared Understanding of Current Challenges
In sectors like technology, we often see a misalignment relating to a shared understanding of the company's current state. Leadership might set forward-looking goals focused on innovation and new development, unaware that legacy platforms or previous shortcuts may have left behind a significant amount of architectural and technical debt that teams must resolve first.
Without a shared understanding of current challenges, it’s very easy to end up misaligned on goals teams cannot achieve or do not provide the greatest strategic value.
Compensation Tied to Performance
It’s also critical to align your compensation structure with your strategy.
When compensation is tied solely to individual performance, it can encourage competitive behavior in places where you need collaboration. And when compensation is tied solely to group performance, it can discourage individuals from pursuing difficult targets they know will be overshadowed by losses in other areas.
To attract and retain the talent you need to be effective, you need to understand the needs of your strategy and align your compensation accordingly.
6 Steps to Address Misaligned Objectives and Rewards
- Conduct a comprehensive assessment and review of your current objectives and reward structure.
- Encourage collaboration between departments and levels to help identify conflicts and areas where your incentives don’t align with your strategy.
- Review the needs of your current vision and goals to determine what behavior you want to incentivize or reward.
- Revise your compensation, incentive and reward structures to align with the desired behavior. Pay special attention to areas where you currently incentivize something else.
- Implement regular monitoring and feedback systems that allow you to continuously review your alignment to strategy as part of normal business operations.
- Invest in leadership development and training programs that help your leaders understand their role in maintaining strategic alignment.
Conclusion
Aligning your strategy to your reward structure is a critical and often overlooked aspect of successful organizational leadership. It requires a nuanced understanding of the current environment and the ability to steer your organization in the direction that you need to go. When you align these systems, you’re better equipped to focus on real strategic challenges instead of tripping over internal failures that prevent you from achieving your company’s long-term goals and aspirations.
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