Return On Strategy-Customer Alignment

A common belief among academicians and practitioners is that a company’s strategy should be aligned with its customers' value drivers to deliver superior financial performance. Yet, extant literature lacks 1) an objective measure of strategy-customer alignment, 2) empirical research linking strategy-customer alignment and objective financial performance 3) an understanding of how strategy-customer alignment affects senior executives’ attitudes and behaviors. We define strategy-customer alignment to capture four types of alignment between a company’s business strategy scope and its customer value drivers. In Study 1, we combine data from 17,251 customer surveys of 127 publicly traded companies to estimate customer value drivers and deep learning of text from annual 10-K filings to estimate business strategy scope. These are used to measure strategy-customer alignment at the company-year level. A 10% increase in strategy-customer alignment: (1) increases revenues by 25%, (2) reduces the cost of selling by 20%, and (3) increases gross profits by 18%. In Study 2 we measure strategy-customer alignment for five private companies. We combine 152 surveys of senior executives to measure strategy scope and 1,122 customer surveys to estimate customer value drivers. Results show an increase in strategy-customer alignment reduces senior executives’ coordination costs and increases their perceived effectiveness of accountability metrics