Updated: Jan 23, 2022
Start by understanding reasons why misalignment occurs and how
Part I – Strategic Direction and Alignment of a revised six-part series on the internal audit value chain (IAVC).
As of March 2020, most private and public-sector organizations quickly developed remote collaboration capabilities as the first step to react and adapt to the prolonged COVID-19 uncertainties. However, they are not addressing the root cause - misalignment between the organization's strategy and departmental priorities.
Timely resolution of misalignments between the enterprise strategy and business unit priorities helps an organization to avoid the following:
Long-term financial losses and poor performance.
The inability to meet expectations.
Reputational damage and lack of responsiveness to the changing business environment.
This blog presents approaches Management, and internal audit can use to recognize the misalignment misfortune. It also provides an End-To-End (E2E) agile internal audit approach to identify and quickly resolve misalignments. Finally, we conclude with eight primary reasons why strategic misalignment occurs and why Management and internal auditors fail to fix the disconnects.
Achieving alignment in a common goal is critical to the success of any group endeavor. Unfortunately, even one person marching to the beat of a different drummer can threaten the entire group's success. This dynamic plays out in all facets of business activity.
The first IAVC link, alignment on strategic direction, enables the Chief Audit Executive (CAE) to build a value-oriented internal audit department. It also provides a platform for Management (CEO, C-Suite, and Business Leads) and the CAE to develop the collaborative foundations towards creating value, capturing value, and sustaining value.
Without a robust and agile value-oriented internal audit framework, the CAE and Management might not be aligned towards a common objective, resulting in strategic misalignment. Strategic misalignment is a recipe for disaster. It negatively impacts the organization's ability to plan and execute its strategy—the inability to "create value." It also fails to "capture value" and "sustain value" and eliminate potential fraud, waste, and abuse.
A systemic approach to achieving strategic alignment is ideal towards avoiding misalignment misfortune. Strategic alignment is an in-depth knowledge and application of the organization's direction and priorities and agreement on its validity by all the primary and secondary business functions. A misalignment occurs due to a lack of awareness or misapplication in departments or operations executing the strategy.
One could argue that this misalignment is at the root of many recent corporate blunders that have resulted in costly and embarrassing public scandals and reputational damage. However, it is also possible that unresolved strategic misalignments over time created significant losses for organizations impacted by the unprecedented COVID-19 pandemic.
Disaster is often not far behind when an internal audit or other assurance functions and business units have different or misaligned approaches to executing the strategy. Moreover, strategic misalignments further complicate the ability to develop and implement a plan to respond to the COVID-19 challenges and future events in the short term and long term.
Between 2013 and 2020, the Institute of Internal Auditors (IIA) Magazine and the Journal of Government Financial Management – Association of Government Accountants (AGA) published segments of the IAVC. A six-part series on Internal Audit 360° outlines details about each component of the IAVC.
When all are appropriately executed and working together, these six links enable agile internal audit, elevate internal audit, and provide an excellent collaboration platform between the CAE and Management to plan and execute audits and reviews that matter and when it matters. As a result, the IAVC can act as a blueprint for building an agile and robust internal audit function to assist Management to not only "create value" but to successfully "capture value" and "sustain value."
The IAVC includes "the enterprise-wide initiatives impacting business functions, involving a combination of people, processes, technology, and corporate culture to drive the achievement of strategic goals and sustain profitability and performance." Click here to learn more about the IAVC.
Causes of Misalignment
There are eight primary reasons why strategic misalignment occurs.
1. Policies and procedures are not updated to align with enterprise objectives, strategy, and mission priorities. Complex policies and procedures designed to support siloed operations often deviate from enterprise objectives. As a result, stakeholders might not be aware of applicable policies, including the appropriate interpretation and consistent application across business units and locations.
2. Lack of awareness. Executive management, board and committees, and internal audit missed the boat. No one recognized the misalignment between the enterprise strategy and departmental goals.
3. Rapid changes in leadership roles and expectations. Shifts from traditional roles driven by transformation initiatives, the need to provide more tech-enabled solutions, and pressures to deliver have created frequent changes in leadership roles, creating unidentified misalignments over time.
4. Management is aware but can't resolve misalignments. The inability to resolve misalignments is a combination of weak leadership, lack of appropriate processes, inadequate internal controls and oversight.
5. Competing and often conflicting priorities. Improper resource allocations and lack of sensitivity towards resource constraints (capacity).
6. Inappropriate tone and culture. A combination of leadership turnover, lack of consistency and continuity; a frustrated and burnout workforce; and the inability to implement sustainable change.
7. Continuous process improvement (CPI) projects are not in sync with the strategy. As a result, investments to improve efficiencies not linked to strategic objectives create more disconnects.
8. Inability to identify and mitigate emerging and evolving risks. Managing strategic risks (and achieving alignment on them) is impossible if they can't be identified, including the ability to identify and prioritize emerging risks.
The IAVC provides the CAE and internal auditors the agility required to maintain that "value creation" objective as a starting point. In addition, it offers a framework for the CAE and Management to collaborate across the value chains enabling the organization to "capture value" and "sustain value" and thrive during periods of uncertainty. Success requires the following:
An end-to-end value chain mindset,
expectations identifying and resolving misalignments timely to avoid long-term financial losses and reputational damage, and
improve responsiveness to the changing business environment.
To learn more, contact us today. email@example.com
Jonathan Ngah, CISA, CIA, CFE, CGFM, is a principal at Synergy Integration Advisors, a professional services firm providing internal audit outsourcing and internal audit co-sourcing services to government institutions, private-sector, and not-for-profit organizations in the US and the Asia Pacific (APAC) regions.