In the dynamic landscape of modern business, the importance of strategic alignment can’t be overstated. A well-aligned organization is better equipped to achieve its goals, respond to market changes, and foster a culture of collaboration and innovation. Two of the most important concepts in strategic alignment are horizontal and vertical alignment.
In this article, we'll explore the differences between horizontal and vertical strategic alignment, shedding light on how they contribute to organizational success and which you should choose for maximum effectiveness.
Choosing Between Horizontal And Vertical Strategic Alignment
Let’s get something important out of the way first:
Ultimately, you don’t actually need to choose exclusively between horizontal and vertical strategic alignment. A perfectly aligned organization will blend both of these concepts to achieve the best overall outcomes.
That said, you do need to have a strong grasp of the differences between them and how to apply each particular flavor of strategic alignment.
If you’re implementing a systemic strategy for your organization for the first time, you’ll probably want to choose one core style of alignment to get started with and then blend in the other as you become more comfortable with managing strategy at an organizational scale.
Understanding Horizontal Strategic Alignment
Horizontal strategic alignment refers to the harmonization of activities across different business units or departments within an organization. It's about ensuring that various parts of the organization work seamlessly together to achieve common goals. Horizontal alignment is an important process for preventing silos and promoting collaboration, both of which are essential for the overall success of the organization.
Shared Focus Areas: a catalyst for horizontal alignment
Focus Areas are specific thematic areas that organizations identify as critical for their success. These can sometimes be fairly generic, like ‘Customer Experience’, ‘Innovation’ or ‘Operational Excellence’. However, the most powerful Focus Areas tend to be very specific to the challenges being experienced by the organization at that point in time, such as ‘Product Market Fit’ or ‘Increase Profit Margins’.
An excellent way to drive an organization towards strong horizontal alignment is by requiring all individual business units to adhere to a set of shared Focus Areas. That is to say that the centralized strategy function would define, say four Focus Areas, and then require every single business unit to do their strategic planning directly within those shared Focus Areas.
Shared Focus Areas make reporting on horizontal alignment extremely easy, as you can simply pull up a report in whatever strategy execution tool you’re using to ask ‘how are each of our business units directly contributing towards Focus Area XYZ’.
Breaking down silos: the superpower of horizontal alignment
One of the primary challenges organizations face is the existence of silos. Silos occur when departments or business units operate in isolation, focusing solely on their own objectives without considering the broader organizational goals. This lack of communication and collaboration can lead to duplication of efforts, inefficiencies, and missed opportunities.
Horizontal alignment is an excellent way to approach breaking down those silos. The reason is that it forces cross-functional alignment (often with shared Focus Areas) at the same time as giving broad visibility as to what other departments are working on.
Vertical alignment doesn’t do this, and if used without some aspects of horizontal alignment, can actually exacerbate organizational silos.
Challenges with horizontal alignment
All organizations should embrace some degree of horizontal strategic alignment. However, over-reliance on horizontal alignment can also be a challenge. In particular, larger organizations with several layers of management often struggle to adopt exclusively horizontal alignment. The same is true for larger organizations that try to enforce alignment against a single set of shared Focus Areas.
This is because larger organizations tend to have much more highly specialized functions and roles. In this case, the shared Focus Areas set at the corporate level of the organization can become quite distant and disconnected from the day-to-day operational reality of a highly specialized function in the business.
For example, a shared Focus Area of ‘Digitization’ might be set at the corporate level of a business. A larger organization might have a team, let’s say in marketing, that specializes in outdoor media. Requiring the outdoor media team (who have nothing to do with ‘Digitization’) to align their goals to the ‘Digitization’ shared Focus Area is likely to be a difficult or fruitless exercise, which will stretch the credibility and relevance of the strategic planning process for that team. In this example, vertical alignment is a better way to connect the activities of the outdoor media team to the broader goals of the organization.
Another challenge with horizontal alignment and using shared Focus Areas is that it can actually stifle innovation and empowerment within an organization. If horizontal alignment becomes overly forced (by using shared Focus Areas for example) then teams in the business who have great ideas to do new things might forgo those ideas because they don’t fit into the pre-defined shared Focus Areas to which they’ve been asked to align. Again, in this example, vertical alignment is likely to produce better results and allow more room for individuals and teams to ideate in the strategic planning process.
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Understanding Vertical Strategic Alignment
While horizontal alignment focuses on collaboration across different business units, vertical alignment is about ensuring that everyone in the organization is working towards the same overarching goals. Vertical strategic alignment is about cascading down objectives so that they all ladder up to the same set of broader strategic objectives set by the organization.
As you can start to see, vertical alignment and horizontal alignment are not mutually exclusive.
The role of objective-to-objective alignment
Objective-to-objective alignment is a powerful mechanism for achieving vertical strategic alignment. It involves linking individual or team objectives directly to the strategic objectives of the layer above them in the organization. This ensures that every task, project, or goal at the individual level contributes directly to the achievement of broader organizational goals.
Cascade Effect: aligning objectives from top to bottom
Objective-to-objective alignment often follows a cascade effect, starting from the top levels of leadership and cascading down through the organization. Leaders set strategic objectives, and these objectives are translated into specific goals for each department or team. As a result, every employee's objectives are ultimately aligned with the organization's strategic direction.
A slightly different take on this approach is to allow individual business units to set their objectives without directly aligning them to the layer above them, and then following an alignment process that connects things together, removes duplication, fills in gaps, and even iterates the organizational strategic objectives to accommodate for some of the great ideas that come from the business units being allowed to do more free-form planning.
📚 Recommended read: Top-Down Vs. Bottom-Up Approach: A Comprehensive Guide
The benefits of vertical strategic alignment
Vertical strategic alignment offers several benefits to organizations. Firstly, it provides clarity and a sense of purpose for employees at all levels. When individuals understand how their work contributes to the larger organizational goals, it fosters a sense of meaning and motivation. Secondly, it enhances organizational agility by ensuring that every decision and action is in line with the strategic direction.
Challenges with vertical strategic alignment
Vertical strategic alignment is arguably a more common form of alignment for most organizations. It works very well in theory, but it does have some drawbacks.
The first is that it can actually leave a lot of room for interpretation, which might not be entirely desirable depending on the business context at the time. For example, an organizational strategic objective might be set as ‘Grow our margins by 20%’. Under a purely vertical alignment model, each business unit would then be able to ideate how they are going to do this. The marketing team might opt to do this by trying to increase the volume of sales very aggressively, thus lowering unit costs. Whereas the manufacturing team might try to do this by reducing the working hours of the factories to reduce costs in an entirely different way. Both of these goals individually will reduce costs, but at the same time they are actually in conflict with each other (one is trying to increase sales whilst the other is trying to reduce capacity).
A related challenge with vertical strategic alignment (at least when used in isolation) is that it doesn’t actually provide much guidance for where the goals of a business unit should be focused. It allows for arguably a greater degree of empowerment than using shared Focus Areas under a horizontal alignment model. But the negative of that is that resources might be spread too thinly across an already stretched organization. This is where the introduction of a horizontal alignment model can be extremely beneficial.
Striking The Right Balance: Horizontal And Vertical Alignment
Achieving organizational excellence requires striking the right balance between horizontal and vertical alignment. While horizontal alignment ensures collaboration, focus, and efficiency across different business units, vertical alignment provides the necessary empowerment and contextualization for the entire organization.
As you start to systemize your own organizational strategy—it’s probably a good idea to select one primary approach between horizontal and vertical alignment that best fits your use case. But then quickly start to think about how to layer the two approaches together.
Case Study: balancing horizontal and vertical alignment
Let's explore a hypothetical case study to illustrate the importance of balancing horizontal and vertical alignment:
XYZ Corporation identified ‘Innovation’ as a crucial Focus Area. The Product division was assigned the primary responsibility for generating innovative ideas and solutions. Within the Product division, the R&D team then aligned their objectives directly to those of the Product division, which in turn were directly linked to the broader organizational goal of becoming a market leader in cutting-edge technology. This is an example of vertical alignment.
Simultaneously, the marketing and sales departments were each given the shared Focus Area of ‘Innovation’. Marketing created objectives focused on communicating the innovative features of products to customers, while sales worked on understanding market needs and preferences to guide R&D efforts. This is an example of horizontal alignment.
This example illustrates how a shared Focus Area (Innovation) can be shared horizontally among different business units while maintaining vertical alignment by linking individual objectives to the overarching organizational goal.
The Path To Strategic Success: Cultivating Horizontal And Vertical Alignment
In the complex and ever-evolving world of business, achieving strategic alignment is a continuous journey. Organizations must actively cultivate both horizontal and vertical alignment to thrive.
Through the careful allocation of shared Focus Areas among business units and the implementation of objective-to-objective alignment (either within or outside of those shared Focus Areas), organizations can create a robust framework for success.
By breaking down silos, fostering collaboration, and ensuring that every individual's efforts contribute to the larger strategic goals, organizations can navigate the challenges of the modern business landscape and emerge as leaders in their industries.
Discover how Cascade can help you achieve horizontal and vertical strategic alignment. Book a demo with one of our Strategy Execution experts.