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    Does big data mean big $$ and big headaches for boards?

    Governance Performance
    One of the hottest tickets in the technology world at present—alongside mobility and cloud—is "big data". The term is pervasive: I hear it mentioned or see it in print almost every day. Technology types—especially software companies and information consultants—are promoting big data as if it is some sort of nirvana, where all of the hassles of processing and making sense of seemingly unscalable mountains of data that pervade businesses simply go away. Consequently, many companies seem to be rushing towards expensive big data deployments. Some are ending up very disappointed.

    It's true that the results of big data analytics can reveal some interesting correlations about various things of interest. The results can be helpful to decision-making, but only if you know what questions to ask. The challenge for the board is to ensure that it is clear as to why big data is important:
    • How does the proposed system expedite the achievement of our agreed corporate strategy?
    • What material benefits will we accrue from its adoption?
    • What is the cost of not deploying the proposed system?

    Boards need to ask these questions before the not insignificant cost of deploying a system is authorised. (Actually, they are no different the questions a board should ask before any major capital decision.) Even if satisfactory answers to these important questions are forthcoming, one crucial limitation remains. A Financial Times article, published earlier this year, sums it up well:
    Big data do not solve the problem that has obsessed statisticians and scientists for centuries: the problem of insight, of inferring what is going on, and figuring out how we might intervene to change a system for the better.
    Big data is not a substitute for critical thinking, the careful consideration of strategic options, or smart decision-making. It is all well and good to buy a system to crunch a (very large) set of numbers. So-called big data systems can be very helpful at this task. But don't expect them to make sense of the answers that they spit out. If you do, there is a fair chance that you will end up disappointed.
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    Know your audience: Should I write in two "languages"?

    Governance Phd Research
    My wife and I had a wonderful dinner last night, with some newfound friends at their home. The four of us have quite different backgrounds, so the evening was primed for a wide-ranging conversation. And so it came to pass: we explored a rich tapestry of business, social, political, cultural and spiritual ideas. 

    During the conversation, Jane asked about my research, because she wanted to understand its practical application to business owners, boards and managers. She had heard a little about governance and boards. However, some of the stories in the media and suggestions that "every one should have a board" were a bit frightening. She said she had read some of my research papers, which she found interesting but hard to read. While she understood the words, some of the concepts and their practical application were harder to fathom. Jane asked why I write as I do.

    "For my audience", I said.
    "OK, that's great; but if you are uncovering some interesting things, to help boards perform better, why don't you write in a way that your audience can understand?"

    Jane perceived that my audience is (or should be) business owners, boards and managers, whereas my papers are actually written for, and to meet the expectations of, the research community. I have long planned to re-write my findings into a book format—after the doctoral journey is completed. However, the question set me thinking: should I write two versions of each paper: one for academic consumption and another, more accessible version, for boards and managers? Would this idea be helpful, or are the musings posted on this blog sufficient until the book appears?
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    How does [strategic] thinking differ from planning?

    Leadership Management Performance Strategy
    The leaders of two different companies contacted me this week to ask if I could facilitate a corporate strategy session for their organisations. Both are both respected, long-standing participants in their respective sectors. One is currently updating its strategy, and the other has some concerns over the performance of an important business unit:
    • Derry*: The board and CEO have recently reviewed business performance, conducted an environment scan, identified options and developed a draft strategy. The request from the CEO is to facilitate a joint board/management session to challenge the assumptions; test linkages between purpose, strategic priorities and action plans; and, help the board reach the point of deciding whether to approve the proposed strategy or not.
    • Terra*: The CEO is concerned about a steady decline in the fortunes of a business unit over several years. "We do good work, and customers like us, but we struggle to win new business. We seem to lack a differentiator." I asked about the purpose of the business as a whole, because steady decline over several years can be an indicator of a bigger problem. The CEO said that the rest of the business was doing well—the implication being that the corporate strategy is correct. It was his view that the problem is purely one of execution within the business unit.

    While these two situations were quite different, they highlight an important dichotomy that seems to catch more than a few people out—the vital difference between strategic thinking and strategic planning, and the importance of doing both:
    • Strategic thinking is the process of finding options. It's about the big picture, casting the net wide, to discover possibilities. It's not about solving problems or picking a winner.
    • Strategic planning is the process of narrowing down options, of selecting the preferred one to achieve the business' goal, and of creating action plans. It's exactly about solving problems.

    Derry has been through the thinking process and the planning process. Therefore, the discussion with the board and the CEO should be a real pleasure, because they have a context against which to conduct the debate. In contrast, the Terra CEO seems to have treated the troubled business unit in isolation from the rest of the company, and jumped to the conclusion that something is wrong within the unit. It could be, but I wonder whether the company has a bigger problem: whether the corporate strategy has some holes in it. Why has business declined? Is the once-strong market for the business unit's services still there? What part does/should the business unit play in the wider corporate strategy? The world may have moved on, so fixing a unit without grounding it in reality can be a waste of time and money. 

    The process of thinking about the wider context, the market within which a business operates is vital. The temptation is to go straight into problem solving mode is powerful—everyone likes the satisfaction of having created a plan to solve a problem. However, this is rarely the best first step. My fear for Terra that any work on the business unit will simply paper over a bigger problem. I've suggested some questions for the CEO to ponder before he goes too much further. The next conversation will be very interesting. In the meantime, the Derry workshop is booked.

    * Usual story: the company names have been changed, to protect the parties involved.
  • Published on

    Corporate governance practices: one size does not fit all

    Governance Performance
    For over forty years now, researchers have been investigating boards to try to understand their contribution to business performance. The dominant logic has been to count things, perform statistical analyses and apply hypothetico-deductive science—to identify this elusive thing called "best practice". The latest group to pursue the "best practice" argument are the proxy advisory firms. Details their modus operandi are summarised in this blog, posted on the Harvard Law School site. 

    A best practice approach—whereby if one does 'x' then 'y' occurs—sounds great. However, the reality is not as straightforward. As most directors know, every situation that a board deals with is, to some extent, unique. Boards are made up of people. The context within which boards exist, the company, is also a construction of people. Board structures and board activities that work in one context may fail in another.

    The blog on the HLS site is helpful because recognises that one size does not fit all. It also exposes some of the practices promoted by proxy advisory firms for what they are: detrimental to performance. Notwithstanding this, boards can influence performance. While the blog on the HLS site has particular relevance to boards and shareholders of public companies, many of the suggestions are useful for boards of private companies as well. I commend it to you.
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    Actual performance trumps promises, actually

    Management Performance Strategy
    Newly-listed Gentrack provided recent and aspiring IPOs with a salutary message yesterday. The investment community prefers solid profitable companies with growth potential. Surprise, surprise.

    In the last year, several companies—including some who are yet to record a sustainable profit—have sought and gained a listing on the New Zealand stock market. The headlong rush to list seems to have been dominated by promises of huge growth and, therefore, good rewards at some point in the future. Some, who entered early, have had an amazing ride but are now getting a reality check, as I mused recently. However, many IPO companies carry a burden of debt into the IPO, which means some of the new capital is needed to tidy up the balance sheet.

    In contrast, Gentrack has been operating for many years, has many customers, and is a proven performer with a track record of profits. It also has a credible plan and has signalled an intent to pay a dividend within twelve months. The company received a warm welcome when it listed yesterday.

    Is the aura surrounding the high-tech sector and hype of stellar returns starting to lose its lustre? Maybe. However, I'm confident that the invisible hand of the market will redress any imbalances that have occurred as a result of the current lemming-like rush to list. It will be very interesting to see which companies come through the current gold rush fever well.

    (Disclosure: I do not hold any shares in any of the companies mentioned in this muse.)
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    Has the IPO supply-and-demand equation reached a tipping point?

    Governance Performance
    I've mused about the steady stream of IPO activity in New Zealand several times of late, most recently this morning. Expectations have been high. However, the soft response to Serko's listing, and nervous chatter on various news and social media sites, suggests that the supply-and-demand equation may have reached a tipping point. Could this be? 

    I'm not convinced. Good investments should—and generally do—attract good support, and weaker ones should be put to the torch. At the risk of being labelled as having a somewhat simplistic viewpoint, I think the market has simply woken up, such that it will not blindly support weak proposals. If this is the case, I'd call the situation by its proper name: common sense.