Tearing Down the Silos–Why Integrated Companies Perform Best.
Amy Fulford is the Founder and Managing Partner of enlight, a boutique consulting firm working with business founders, multi-generational leaders and owners of family businesses, individual business owners and CEOs of private equity portfolio companies to maximize value creation by integrating strategy, structure and execution. Fulford identifies the most important issues, develops practical solutions and maps out action plans for clients. Fulford honed her skills through roles at The Boston Consulting Group, Alcoa Inc., Procter & Gamble and Huntington Bank.
Christopher P. Skroupa: What are the common signs that a company’s day-to-day operations are not effectively integrated?
Amy Fulford: The number one red flag is when each member of the leadership team has a different definition of what’s most important to the company’s success.
When I ask a leadership team about their company’s greatest opportunities and challenges, it is not uncommon to get conflicting answers from each leader. For example, the head of sales and marketing will point to a new product or customer segment as a great opportunity, but then lament that the manufacturing leader is holding them back. Meanwhile, the manufacturing leader will tell me that the CEO has to do a better job keeping the sales and marketing team focused on finding opportunities that actually align with the company’s ability to deliver on new opportunities. He’ll go on to list the many ways that the latest “opportunities” are not feasible because of the current production capabilities, packaging processes, warranty terms, etc.
In some cases, the head of sales and marketing is right; other times, the head of manufacturing is right. Sometimes, they are both wrong.
Regardless, this dynamic is a clear indicator that the company’s day-to-day operations are not effectively integrated. Integrated teams understand the company’s opportunities and challenges and have shared priorities that drive decision making, especially when the company is adapting to thrive in the face of new opportunities and challenges.
Poor performance on key business metrics such as sales or inventory obsolesce can also be a sign of alignment problems.
Skroupa: How can leadership teams increase integration in day-to-day operations?
Fulford: There are four things leadership teams should do to increase integration in day-to-day operations: embrace a singular articulation of the business strategy, establish a full suite of metrics, conduct management in the context of the business strategy, and engage cross-functional teams to problem solve.
The leadership team needs to achieve shared clarity about the business strategy by answering the following: What are the company’s target customer segments? What benefit do those segments get from doing business with the company? How does the company generate acceptable profits and cash flow from serving these customers? What are the key drivers of revenues? Costs?
There is no “silver bullet” metric for business success. Each company needs a set of both financial and operational metrics that assess the totality of the business performance. The financial metrics typically include a mix of metrics to assess revenues, costs, cash flow and specific balance sheet dynamics. Operational metrics should assess the performance of the key drivers of revenues and costs.
Day to day, leaders need to demonstrate that they are using the strategy as the basis for every decision. There should be no opportunity for individuals to question the basis or rationale for decisions. This will not only maintain alignment across the leadership team, but drive it into the organization.
A lack of alignment typically leads to a raft of unintended consequences that pop up throughout the organization—not unlike a game of whack-a-mole. Engaging cross-functional teams to solve problems will significantly reduce the unintended consequences and further drive alignment into the organization.
Skroupa: What are the specific challenges leaders of support functions face in increasing integration with the enterprise?
Fulford: Support functions such as HR, IT and legal—and sometimes even marketing, procurement and product development—face unique integration challenges because they often lack a “seat at the table” for strategy setting and managing the business. Even if these leaders do have a seat at the table, their contributions may be discounted by their peers.
I can offer three tips for increasing support function integration: engage with the other business leaders to understand the strategy, design the support function’s plan and priorities in the context of that strategy, and focus on the support function’s relevance to business success with the leadership team.
The bottom line is that you need to take the time to deeply understand the business strategy and what success looks like. Craft your functional plan and priorities based on how you can contribute to the business’s overall success. In your interactions with the leadership team, don’t focus on functional jargon or processes—it won’t be clear to everyone else why it’s relevant to them.
Put all of your input in the context of the strategy and business success. They will start to see you as a business leader with functional responsibilities instead of a disconnected peer with technical knowledge.
Skroupa: What are the costs and risks that result when a company’s day-to-day operations are not effectively integrated?
Fulford: When a company’s operations are not effectively integrated, they leave money on the table. This can result either from lost revenue or unnecessary expenses. The following are some examples I typically see: pricing mistakes, untapped products and markets, obsolete inventory, employee turnover and training costs, technology investments and lost business deals. Then there’s the reduced productivity and morale, which are often apparent in companies that aren’t effectively integrated. These impacts are real, but much harder to quantify.
The ultimate risk is that the business fails, either due to poor financial performance or being disconnected from changes in the market. Other risks are that the company suffers extended lackluster performance, struggles to access capital needed to re-establish relevance and/or earns a disappointing valuation when seeking an exit.
Christopher P. Skroupa is the founder and CEO of Skytop Strategies, a global organizer of conferences.