okr-framework
In this guide, we focus on the critical role of alignment in large logistics organizations. We analyse the consequences of misalignment, its benefits and why many such companies struggle to achieve it. Finally, we'll introduce Outcome Management as a possible solution to facilitate better alignment, improve efficiency and effectively track progress towards defined goals.
How missing alignment leads to higher costs
The current economic climate makes it even more important for logistics companies to improve efficiency and reduce costs. Energy prices, inflation, war, supply chain disruption - all have now created “the perfect storm”.
Thus, all departments or business units along the supply chain must understand what the others are working on and how that pays into the common, overarching business goal, making the whole supply chain more efficient. Unfortunately, this is more than often not the case, especially in large logistics organizations. This lack of a common thread leads to a multitude of problems at the various hierarchical levels
At executive level:
The biggest challenge for upper management in logistics is often a lack of alignment and a lack of support from other business units or support functions. Studies find that companies with high alignment grow 58 percent faster than companies with low or without alignment.
Also, an unaligned logistics organization can create duplicate work or “zombie”projects. If your departments don’t know what the others are working on, they might start working on the same topic, wasting capacity. This is even more likely if responsibilities are not 100% clear. But even if they are not working on the same topic, their projects may not contribute to the company’s top priorities. In times of crisis, when there is a need for strong focus, this mustn’t be the case. Upper management in the logistics industry must therefore prioritize alignment and collaboration across all departments to ensure the company is able to achieve its goals efficiently and effectively.
At business unit level:
Dependencies between business units along the supply chain are often not clear to those responsible. This can not only lead to capacity and priority problems but also to employee disengagement. Studies show that unengaged employees are one of the biggest cost factors of large enterprises – costing US companies up to $550 billion a year.
In this volatile industry, it is mandatory for logistics companies to align all business units and hierarchy levels. Effective collaboration and communication between them not only prevents wastage of resources but also enables organizations to respond promptly and efficiently to any unforeseen challenges. As such, logistics leaders must prioritize establishing a clear and concise framework to manage dependencies between teams to ensure optimal logistics operations, enhance employee engagement, and bolster the overall profitability of the organization.
The benefits of great alignment
Alignment on shared goals sharpens employees’ understanding of the value chain underlying their work and how it impacts other areas of the supply chain. This leads to increased process efficiency, reduced duplication of work, and shortened waiting times. Furthermore, it gives employees a sense of purpose in their work and thus boosts employee engagement. Especially in the logistics industry, where talent shortage is one of the biggest challenges, this can help to retain their talent.
Studies show that these advantages are also reflected in real figures.
It was found that aligned organizations:
Grow their revenue 58% faster.
Are up to 72% more profitable.
Are 2.3x more likely to exceed revenue goals.
Are more agile and 38% more likely to close sales deals.
Proper alignment has a positive impact on almost every area of a logistics organization, from C-level to business unit leads and teams. Thus, alignment plays a central role in reaching your numbers especially during a downturn, because alignment is all about increased efficiency, eliminating waste and making more with less.
Why do so many logistics companies fail at alignment?
Insufficient planning
Logistics enterprises do plan, but often they do not consider all relevant elements.The result is a lack of alignment on both organizational vectors.
At the vertical level
If alignment is not taken into account in advance, it can lead to whole business units working in a direction other than that specified by the corporate strategy. In this way, goals are not transformed into results at all, or not in time. In the current volatile logistics market environment, not implementing goals quickly can lead to severe problems.
At the horizontal level
Often, after departments have drafted their goals, they launch directly into the implementation phase. This can lead to surprising blockers because the dependencies on other business units’ goals were not established in advance. In addition, it often happens that resource bottlenecks arise because there is no clarity in advance about which and how many goals require capacities from the respective departments.
No dedicated stakeholder
One issue that comes up again and again in logistics organizations, is that there is often no one responsible for ensuring that all dependencies are identified as well as capacities are managed accordingly.
Due to the complexity of many dependencies along the supply chain, it is often very time and resource consuming to analyze the alignment structures. In many cases, this prevents careful execution of the process.
Insufficient communication during the implementation phase
In the logistics industry, it is imperative to establish a thorough alignment of all stakeholders prior to the strategy implementation phase, as this will help to identify any interdependencies that may exist between different operational components. Neglecting to do so may result in unforeseen challenges such as blocking points, resource bottlenecks, or operational changes that are not communicated in a timely or efficient manner.
By taking a proactive approach and clarifying dependencies ahead of time, relevant stakeholders can be directly engaged when issues or challenges arise, allowing for rapid resolution and clear communication of any necessary adjustments. This approach helps to avoid operational disruptions and maintain a smooth flow of goods and materials through the supply chain.
What is required to avoid these common alignment issues?
Transparency
Transparency about key priorities helps departments focus. Ideally, each employee gets an overview of the dependencies of their own business unit’s goals on other goals and the influence that their own goals have on higher-level goals. In this way, employees can plan their tasks even more effectively because they know the desired outcome at the organizational level. This plays a special role in big logistics organizations as this can also help to boost transparency along the supply chain.
Real autonomy
In the dynamic and highly competitive logistics industry, creating autonomy within a company is a strategic imperative that can drive both alignment and cost savings. By defining clear responsibilities and shared goals, all departments can understand the organization’s top priorities and how they can contribute to them.This allows for decisions to be made in the interests of everyone, and for projects to be planned without strict top-down control. Clear responsibilities also help team leads identify dependencies and potential resource bottlenecks, enabling teams to work towards goals without unexpected setbacks.
Autonomy will also increase employee motivation, which is crucial as unengaged employees contribute to the intense talent competition in the logistics industry and which can be a significant cost factor in large organizations. By allowing teams to find their own solutions for contributing to corporate goals, and by helping them understand the “big picture” behind the corporate strategy, employees feel more engaged and motivated. This can lead to better coordination, communication, and collaboration across departments, resulting in a more motivated and efficient workforce. For logistics industry leaders, this approach offers a unique opportunity to unlock the full potential of their teams and streamline operations.
Proper planning in advance
By determining in advance what needs to be done during a quarter and planning individuals’ capacity accordingly, departments can prioritize and focus on what matters most. This helps to avoid timing mismatches and ensures smooth collaboration, maximizing efficiency and productivity. Additionally, this can enable teams in large logistics organizations that feel like they are only running from one fire to the next one to finally focus on a long term strategy.
Also, without proper planning, in logistics companies silos can easily form, as business units pursue goals that are not aligned with corporate goals. This results in a lack of contribution to higher-level goals. The alignment process helps to clarify which departments are working on which issues and where support from other business units may be needed, preventing the waste of time or budget. By coordinating dependencies and resources in advance, teams can avoid unexpected blockers and have clarity about their actual capacity. This helps to ensure that relevant contributors and concrete projects, initiatives, or epics are known and that implementation runs smoothly.
Ownership & Support
Your program leads should keep an eye on the alignment of OKRs across the enterprise at all times and own the process. Workpath can be a helpful tool to support them in that.
With the Workpath Graph feature, program leads can track responsibilities at a glance. The Workpath Analytics Suite allows them to intervene when challenges arise and contact the right people.
Also, if you are using OKRs, dedicated Coaches should ensure that your business units uncover the potential of their dependencies and coordinate alignment with other coaches.Next to that, they prepare and conduct alignment sessions, including checking the quality and linkage of OKRs.
How to put best-practices into action - with Outcome Management
Outcome Management supports logistics enterprises in structuring their businesses around their most important goals while always keeping the customer at the core of their efforts.
Company alignment is an integral part of Outcome Management, as it helps to ensure that all teams, functions and business units are working towards the same most important goals and that resources are being used effectively for that.
The OKR framework
A good framework to implement Outcome Management in your enterprise is the OKR (Objectives and Key Results) method. The OKR framework itself is already a method designed for alignment. By setting clear objectives and key results and regularly reviewing and adjusting them, teams can stay focused on what matters most and ensure that their work is aligned with the overall goals of the organization. This can help to improve communication and collaboration, increase transparency and accountability, and drive continuous improvement.
But without internal alignment, even the best formulated OKRs can still fail. Therefore, there are a number of things to consider in order to accurately map the company’s value creation.
Learn more about OKRs on our extensive info page!
Insufficient planning
Already at the time when new OKRs are drafted, business units or departments should first look at the strategic priorities and goals at the organizational level and formulate the OKRs in their teams accordingly (vertical alignment).
The rule of thumb here is: About 40 to 50 percent of the business unit’s or department’s OKRs should have a direct influence on the corporate goals. This ensures that strategic priorities of the organization are implemented and no money is wasted on projects which are not vital to company success.
However, this rule of thumb should be adapted to the logistics company’s reality and culture.
In the current logistics market environment, separate department projects might not be as important as supporting the company strategy. All secondary projects that don’t create value could thus potentially be cut to save costs.
Establish a process for alignment
As is often the case, structured preparation is key. Relying on loose communication in large logistics companies is futile, and alignment in the OKR framework needs a precise plan. In addition to concrete approaches such as an alignment workshop, planning can be roughly divided into three phases:
Phase 1 - Identify the potential for alignment based on the OKRs that have been set
At the beginning, after all OKRs of the departments teams have been written, it is important to get an overview and to recognize where alignment potential lies.
Attention is also paid to whether there are redundancies at certain points that can be eliminated. In this first phase, the departments ideally also pay attention to whether they can or should provide resources for other divisions OKRs and for which of their own goals support from other business units is needed. In addition, preparatory questions and general discussion points can already be noted in order to move on to the second phase in the best possible way.
The OKR coaches can provide good support here and coach department heads as well as explore the alignment potential between individual teams.
Phase 2 - Entering into a conversation with other departments teams about which goals are aligned with each other
Once the potential has been identified and all those involved have gained an overview of where linkage might be useful and capacities needed, the next step is to communicate with other business units and teams.
In the process, dependencies are made clear, resource deployment and other issues are clarified, and the conditions for smooth collaboration are also discussed. The point is to get to know the respective departments and their needs and to understand how to work together on specific goals or how their work can contribute to your own goals. Tasks, deadlines and responsibilities should be agreed upon as concretely as possible. In addition, there may be consideration of whether it makes sense to create cross-functional OKRs together.
Phase 3 - Defining the alignment structure
Visual aids are useful to establish a meaningful structure that helps keep track of the agreed-upon linkages. This is important so that the overview can be maintained and it can also be checked during the course of the OKR cycle whois working on which topics and where coordination is required. This enables the owners of the higher-level OKRs in particular, where those responsible are rarely involved in the concrete implementation and operational work, to explore why a particular contribution to more target progress is missing
Conclusion
Alignment is crucial for logistics organizations to function efficiently and avoid unnecessary costs. Especially in times of volatility like the current economic downturn, this can be critical for survival. While it may take some time to implement these alignment processes initially, this investment will pay off over time as the organization becomes more efficient and effective.
A useful and proven tool for achieving alignment is OKR-based OutcomeManagement. By setting clear objectives and key results and tracking progress towards them, logistics organizations can improve communication and collaboration, increase transparency and accountability, and drive continuous improvement.
Outcome Management with Workpath
Workpath is the leading provider of Outcome Management for large organizations.With a proven track record of satisfied customers such as DB Schenker, Metro AG and Bosch, Workpath has shown its value many times over.
By using Workpath, customers could improve vertical alignment by up to 35% and horizontal alignment by more than 150%. This decreased the risk of not achieving top level targets by an average of 5-8%.
Additionally, Workpath ensures that strategic risks and bottlenecks can be identified 3x earlier. This further decreased the risk of not achieving top-level targets by an average of 5-10%.
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