The Return on Alignment
Until now, it has been difficult to make alignment-based changes. They can be tough and disruptive, and there hasn't been a way to quantify the financial benefits.
So even though executives have recognized the need to make changes in the spirit of "better alignment," they have been unwilling to take actions that can't be measured.Return on Alignment changes that.
Now the direct impact of alignment-based decisions can be measured. ROA combines the potential impact from multiple projects, weighted by risk, and expresses it as a single number.
The metric can then be used to determine which "bundle" of projects to implement, as well as provide an ongoing calibration tool to monitor and control the plan's overall effectiveness.
This gives you a way to directly attribute business success to the impact of improved alignment.
Changing the Traditional View:
Alignment is a goal that has been referred to in aspirational terms, as a journey rather than a destination. Because alignment is generally considered an intangible asset, there has been little done to measure it objectively.
Although there are ways to subjectively calibrate the degree of alignment between organizational units, there hasn't been a way to express it in purely financial terms.
Conversely, an organization's success can be limited by its measurement.
ROA Differs from ROI:
Return on Investment (ROI) analysis is the most commonly used approach for evaluating the financial consequences of business investments, decisions or actions.
ROI is the primary financial metric for purchase decisions of tangible assets, projects and programs as well as more traditional investments such as the management of stock portfolios and the use of venture capital.
However, there are three limitations to using ROI as the sole basis for realignment decision making:
- ROI by itself says nothing about the likelihood of expected results, the potential risks of an investment, or whether the outcome will be as predicted.
- ROI does not address the cumulative impact of simultaneously making a number of interdependent strategic decisions. Therefore, it is not a useful way to simplify decision making when the alternative courses of action are comprised of multiple initiatives.
- While ROI is a useful tool to predict the potential benefit of individual investment decisions, it is not useful for determining the value of organizational or process changes when there is no financial outlay.
Return on Alignment addresses these shortcomings in two ways.
First, it is an aggregate number, based on the sum of two or more realignment initiatives, each of which carries a risk factor as well as cost and benefit estimates.
Second, each initiative can also be weighted to reflect the projected length of time needed to return positive results. The sum of the weighted projections for financial advantage (or exposure) divided by the total cost, results in the Return on Alignment ™.
Furthermore, performance against these objectives can be measured on an ongoing basis to confirm the delivery of anticipated benefits. This method has a particular advantage during the course of a project, enabling organizations to easily adjust risk factors.
Theoretically, risks will decrease during the life of a project, increasing the Return on Alignment. However, if unforeseen problems are encountered, the specific risk factor can be increased, effectively reducing the overall impact of the ‘bundle’ of realignment projects undertaken.
The result is a very valuable management tool: the ability to see and understand the impact of individual components to an overall plan. We'd love to tell you more.
The Power of Alignment
Learn about the power of an aligned organization and the way we help executives benefit from previously invisible information about the deeper workings of their organization.