ValuePerform X-ray Report

Alignment Report (X-­‐ray)

Avrora Software A/S September 25, 2013

Table of contents: Summary ........................................................................................................................................................ 2 Sources of Financial Performance ....................................................................................................... 3 Comment ................................................................................................................................................... 3 Value Proposition – TODAY .................................................................................................................... 4 Comment ................................................................................................................................................... 4 Value Proposition – FUTURE ................................................................................................................. 5 Comment ................................................................................................................................................... 5 The Market Situation ................................................................................................................................. 6 Comment ................................................................................................................................................... 6 Achieving alignment and strategic consistency ............................................................................ 7 Global Process ......................................................................................................................................... 7 Deliverables .............................................................................................................................................. 7 Time Schedule ......................................................................................................................................... 8 Methods and Legal Notes ........................................................................................................................ 9 Methods ...................................................................................................................................................... 9 The six sources for financial performance ............................................................................. 9 The Value Proposition TODAY and TOMORROW ............................................................... 9 The Market Situation ....................................................................................................................... 9 Productivity potential ..................................................................................................................... 9 Legal Notes ............................................................................................................................................ 10 The ValueMaker Productivity Potential Research Project ..................................................... 11 The objectives of the Research Project ...................................................................................... 11 Partners in the research project ................................................................................................... 11 Conflict of interest ................................................................. Error! Bookmark not defined.

Number of questionnaires submitted: 10 Number of respondents: 7 Response rate: 70%

The ValueMaker Alignement Check

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Summary The average levels of alignment are shown in Table 1 below.

Table 1. Average alignment in the group of respondents

The table is listing how each member of the group is aligned with the answers provided by the person indicating that he/she is the CEO.

With a total average degree of alignment of 67% the company reaches a score of C:

Cat. Interval Label A 90-­‐100% Well aligned B 80-­‐89% Almost aligned C 60-­‐79% Misaligned D 40-­‐59% Very Misaligned E 20-­‐39% Extremely misaligned F 0-­‐19% Completely misaligned

The lowest degree of alignment (57%) is found in the perception of how the company is going to serve its’ customers in the FUTURE. The highest degree of alignment (75%) is found in the perception of how the company is serving its’ customers TODAY and the Market Situation, although this level is also in the C category labeled “Misaligned”.

Increasing the level of alignment in the group represents a productivity improvement potential of approximately 33%.

The following persons were invited to participate, but didn’t respond within the deadline: Andy Torrence, Mary Bogatti and Tony Svensson

The responses of the missing respondents could pull the average state of alignment in both a positive and a negative direction. They will however have no impact on the current level of alignment in the group surveyed.

The ValueMaker Alignement Check

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Sources of Financial Performance The levels of alignment on the sources of financial performance are shown in Table 2 below.

Table 2. Alignment on the priority of the six sources for financial performance

The level of alignment on the Sources for Growth questions is on average 70%.

There are some fundamental levels of misalignment in the group.

Comment

Each source of financial performance has a specific set of associated action items. It is not possible to pursue all six sources simultaneously.

Example: It is not realistic to have an ambition of penetrating new markets and having to reduce cost at the same time. It is not realistic to have an ambition of pursuing new customers and having to reduce cost at the same time. It is not realistic to have an ambition of developing new products and having to reduce cost at the same time.

A management team, which is having different set of priorities, will be pulling the company in different directions.

The ValueMaker Alignement Check

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Value Proposition – TODAY The levels of alignment on the Value Proposition TODAY are shown in Table 3 below.

Table 3. Alignment on the value proposition of the company TODAY1

The average level of alignment in the group is 75%. The group must be considered “Misaligned” on how to provide value to the customers TODAY.

Comment There is a very strong relationship between a company’s value proposition and the areas requiring management focus. Misalignment in a team on the question of value proposition will cause the individual team member to use resources, which are not synchronized with the overall direction of the company.

Example: A high focus on product leadership requires focus on product development and innovation, which is not the case if the primary focus is on customer intimacy. A vendor will typically have a focus on Product Leadership, while a reseller will focus on customer intimacy and a distributor on Operational Excellence.

1 The percentages for the CEO show how he/she is assigning priority to the three value elements in the value

proposition TODAY. The percentages are calculated using a value of 10 for the 1st priority, 5 for the 2nd priority and 1 for the 3rd priority in the 5 times 3 sets of questions asked. The degree of alignment is calculated using the same scoring system.

The ValueMaker Alignement Check

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Value Proposition – FUTURE The levels of alignment on the Value Proposition in the FUTURE are shown in Table 4 below.

Table 4. Alignment on the value proposition of the company in the FUTURE2

The average level of alignment in the group is 57%, which is a category D score. The group must be considered “Very Misaligned” on how to provide value to the customers in the FUTURE.

Comment There is a very strong relationship between a company’s value proposition and the areas requiring management focus. Misalignment in a team on the question of value proposition will cause the individual team member to use resources, which are not synchronized with overall direction of the company.

Example: Primary focus on operational excellence requires attention to internal operational processes and vendor performance in order to manage levels of quality, average manufacturing cost and competitive pricing. A product leadership position provides the company a price premium taking the pressure off manufacturing cost, however innovation then becomes highly critical. A Customer Intimacy biased value proposition requires focus on individual customer relationships, but then eases the focus on innovation and operational process.

2 The percentages for the CEO show how he/she is assigning priority to the three value elements in the value

proposition TODAY. The percentages are calculated using a value of 10 for the 1st priority, 5 for the 2nd priority and 1 for the 3rd priority in the 5 times 3 sets of questions asked. The degree of alignment is calculated using the same scoring system.

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The Market Situation The levels of alignment on the perception of the market situation are shown in Table 5 below.

Table 5. Alignment on the levels of alignment on the perception of the market situation3

The average level of alignment in the group is 75%. The group must be considered misaligned on the perception of the market situation.

Comment The market situation and the development in the company’s market share is determining for the initiatives and actions required to move the company forward.

Misalignment on the perception of the market situation will cause managers to spend energy and allocate resources to activities, which are addressing conflicting purposes.

Example: The management focus (and skills) of a company with decreasing market share should be completely different from a situation with increasing market share.

3 The scoring used is: Increase Substantially: 5, Increase: 4, Stay the same: 3, Decrease: 2 and Decrease Substantially: 1. The Market Share is the actual share the last 12 months over the previous 12 months.

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Achieving alignment and strategic consistency What is the next step after performing the X-­‐ray alignment test?

TBK Consult recommends a swift and lean process with the following objectives:

1. Review the X-­‐ray report and ensure full alignment of the key strategic issues 2. Map the perception of importance and performance on the 15 key management areas 3. Review the perception maps and ensure alignment on strategy execution 4. Define those actions which will yield the highest return in the short run and in the long run

TBK Consult will provide a senior Strategy Consultant who will facilitate and guide the management team through the process and assist by the interpretation of the outcome including the definition of an action plan.

Global Process The strategy review process can be illustrated as follows: Alignement Survey (X-­‐ray)

Full questionnaire (1 hour)

Strategy dekinition (1/2 day)

Workshop (1 day)

Deliverables

TBK Consult facilitates the process and the workshops and documents the decisions made during the project.

TBK Consult delivers the following documents:

§ Preliminary alignment report (PDF format before the ½-­‐day workshop (the X-­‐ray report) and PPT format at the ½-­‐day workshop) §

A PDF report to each participant with his/her answers to the perception of importance and performance on the 15 key management areas

§

A PDF report to the leading manager with all answers from the full perception survey

§

A PDF report with the main results and conclusion from the full perception survey

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Time Schedule

TBK Consult currently needs 6 weeks lead-­‐time from the project has been awarded to TBK Consult till we can begin the activities.

The time schedule is illustrated in the Gant chart shown below.

Activity/Weeks 0

1 2 3 Project assigned to TBK Preliminary alignment survey ½ day workshop Full questionnaire 1-­‐day workshop

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Methods and Legal Notes Methods The methods used in this report are based on simple statistical principles. The respondents have been asked a series of questions. Each answer is assigned a value.

The answer provided by the person who has identified himself as the CEO is used as the reference point for calculating the deviation, which are interpreted as misalignment. The same answer is assigned the same value for all respondents.

Separate scoring systems are used for the different section of questions, as they need different types of answers.

The six sources for financial performance A simple priority rating from 1-­‐6 has been used. The difference has been calculated as the absolute difference to the rating provided by the CEO. The Value Proposition TODAY and TOMORROW Five sets of three questions have been asked to calculate the composition of the three value elements of a value proposition. A simple ranking from 1-­‐3 has generated values of 10, 5 and 1. The sum of the values has been used to calculate the actual value proposition TODAY and in the FUTURE. The Market Situation A scale from 1-­‐5 has been used for rating the four Market Situation questions.

Increase Substantially: 5, Increase: 4, Stay the Same: 3, Decrease: 2 and Decrease Substantially: 1. The difference between “5 and 4” and “2 and 1” may be subject to interpretation. However, we believe that a group of people working closely together on a daily basis should demonstrate the ability to judge fundamental changes in the environment fairly consistently.

Productivity potential We genuinely believe that the potential productivity gain in improving the level of alignment is exponential with no real maximum from alignment level 0 to alignment level 100. For calculation purposes we define the maximum potential as 100%

A total improvement of 50% is assumed attainable below 80% alignment, while improving from 80% to 100% is assumed releasing the remaining 50%.

The productivity improvement potential estimation is based on common sense considerations and has currently not been validated by scientific research.

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However, to avoid being accused for applying a bias in the conclusions in this report we have used a linear relationship between degree of alignment and productivity potential.

Legal Notes TBK Consult and our partner ValueMaker own the right to the data provided and can use the data for research, reporting, sales and marketing purposes in so far as the identity of the company and the individual respondent is not compromised.

The report is based on the data as the respondents have provided them. Invitation has been submitted to a list of persons, which has been provided by the companies participating in the survey. The deadline for answering the questionnaire has been set to six working days from the day of submission. Notifications have been submitted to non-­‐respondents on the 3rd day and on the 5th day. The survey has been closed on the 6th day and the report generated.

The report has been manually generated based on the survey data. ValueMaker and TBK Consult assumes no other responsible for any errors made than to correct these and re-­‐issue the report.

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The ValueMaker Productivity Potential Research Project Based on more than 175 alignment-­‐consulting projects in the period 2009-­‐13, TBK Consult and ValueMaker have observed substantial degrees of misalignment in all type of companies and between companies and their strategic partners (such as resellers, implementation and service partners).

Misalignment is defined as substantial unrecognized differences in the perception of management priorities and strategic elements in a management team.

The degree of misalignment has been a surprise for top management in all of the alignment consulting projects conducted and the identification of the status has enabled immediate improvement initiatives. Even in situations where organizations had recently completed a strategy definition process did we register substantial levels of misalignment.

Misalignment represents an immediate source for the release of organizational energy and productivity. Moving the differences in the perception of management priorities and strategic elements in a management team from being unrecognized to being recognized enables a process of aligning conflicting activities and pursue more optimal allocation of attention and resources. The release of energy and productivity bound by misalignment requires very little investment and can normally be utilized using the organizations existing resources. Fixing misalignment probably represents the most immediate opportunity for rapid productivity improvement in any organization.

The objectives of the Research Project

The objectives of the research project are as follows:

1. To test if the combination of web based survey platforms and balanced scorecard principles can provide a reliable, inexpensive and fast “x-­‐ray” of organizational misalignment 2. To test if misalignment is a common phenomenon in most companies.4 3. To test the degree of misalignment in the average organization 4. To identify ways of measuring the relationship between misalignment and a productivity improvement potential

Partners in the research project The research project is defined and managed by TBK Consult and ValueMaker.

Invitations to participate in the research project are distributed by ValueMaker and their partners. ValueMaker provides the basic survey frameworks while the partners under the supervision of ValueMaker generate the individual reports.

4 The results from the 175+ projects may have been biased by the suspicion of management that the organizations did suffer from degrees of misalignment.

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