Organizational Considerations

The purpose of this book is to align strategy with finance. A second level of alignment needs to occur to link these two disciplines, and that is the alignment between the valuation framework and the organization. This begins with an assessment of the value proposition for the individuals involved. If the individuals have something to lose, then expect resistance to the adoption of the framework on a corporate basis. If the staff has something to gain, they will welcome the process. Let's discuss perceived loss, as it will often create barriers to success.

The senior management team may feel a perceived loss of power resulting from the adoption of the SWAV. This perception is fueled by removing attributes of power advancement for managers. These attributes of power are:

• The number of direct reports

• The reporting structure

• The budget under management

• The ability to make decisions

Why are these attributes important? They are the drivers that determine further career advancement, organizational influence, and the money an executive can command in the marketplace. The number of reports and the size of budget under management are directly related to power. The higher up the organizational chart a person reports, the more power she has. If these attributes of power are diminished across the management team, then resistance to the SWAV will be high. Resistance may occur even with subtle changes such as creating a cross-reporting relationship with employees when forming an evaluation team. Evaluation of reengineering projects may meet resistance because they involve head count reduction. Another point of resistance may occur if operating unit budgets are tapped to fund the Strategic Alternative. These type of objections to the SWAV can be offset by having representation from every organizational level on the evaluation team.

Many managers feel that their decision-making ability is challenged by deployment of these techniques. Executives feel that if they need to use a specific framework as a justification of investment, their power as a manager is diminished. Many managers feel that their gut instincts are superior to quantitative justification. After using the framework they will find that they will get better results from using the method.

Another way of offsetting resistance from erosion in the attributes of power is to link compensation to success of SAs. This involves tying compensation to performance-based metrics for a specific initiative.

In addition to the perception of erosion of power, executives may feel that past decisions will be perceived as wrong. Since managers did not have the more advanced tools to make decisions in the past, there is a possibility that the same decision would not be made using the SWAV. It is important to stress that the deployment of these techniques represents progress in the way decisions are made. Of course there have been bad decisions made in the past because management did not have the proper instrumentation to properly gauge value.