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    Beyond 'unique' and 'different': Is your strategy impactful?

    Decision Making Governance Performance Strategy
    About 25 years ago, I remember seeing, for first time, a rather compelling video on competitive strategy. Michael E Porter, a Harvard professor, spoke about competitive strategy and sustainable competitive advantage. He said that competitive advantage (and, therefore, business success) was largely a matter of deciding whether to pursue a cost (price) or differentiation strategy. More recently, others have suggested that every product/service/company needs to have a unique selling proposition (USP) or a point of difference.
    Fast forward to 2016. Is this pathway still viable? In a crowded world, new entrants come and go, all the time. Barriers to entry for new products and services are getting lower. In this environment, how realistic is it to think that any USP might actually be unique, let alone sustainably so? Also, a product that is different or cheaper is of little consequence if no one buys it.
    Difference is important, but not in the way most people think (unique features &c.). Difference works only until someone copies you. Then you are the same. Your difference, your USP, is no longer unique. Further, at a population level, product or service success doesn't depend on price or feature set. ​Most customers don't care what products or services do. They do care about the what difference it will make to them.
    This challenge is arguably even more important at a company level (i.e., corporate strategy). So, next time your board and management team convenes a strategic thinking workshop, as part of a strategy development process, change the playing field. Ask you facilitator to write these two questions on the whiteboard—and to keep coming back to them throughout the session.
    You might be surprised at the result.
    ​
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    What does the Age of 'self(ie)' mean for business?

    Decision Making Governance Leadership Performance Strategy
    One Saturday morning, about fifteen years ago, my elderly father-in-law and I sat in the morning sun, sharing a few stories over a cup of tea. He was asking about my then burgeoning advisory business and family life. I was interested in hearing him reflect on his experiences in business, particularly his career-long journey with the same employer—from a junior staff member to, eventually, chief executive.
    As he spoke, Bill reminded me that he only ever had one employer, and that although he had been blessed to contribute at many levels he had only ever completed one job interview, that being when he first got a job. He went on to talk about the power of team over individual, and of loyalty to both your employer and your own principles. Much has changed since he retired in 1984, not the least of which has been the erosion of the values that served as Bill's North Star throughout his career.
    Today, most things are negotiable. For many, the motivation has changed, from providing service (to the employer) to self-service. Never has this been more apparent in the everyday behaviours of staff, particularly the younger generation. If we don't get want we want, or if we get a better offer elsewhere, we act. That staff and customers are more interested in self(ie) has huge implications for productivity and value creation in the longer-term. While team productivity is a matter for the chief executive, value creation is the responsibility of the board on behalf of the shareholder. How is your board wrestling with this? Does your board regularly allocate time to understand the changing environment, consider strategic options and make strategic decisions? Companies that expect to thrive in the future need to address the emergent challenge of 'self(ie)'. 
    The best place to start the discussion is in the boardroom.
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    Directors: Are you alert and active, or snoozing at the wheel?

    Accountability Decision Making Governance Performance
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    The recent collapse of one of Stonewood Homes' franchisors has placed the conduct of directors squarely in the spotlight once again. The company collapsed owing about $15 million. This article makes the issues plain, and it serves as a warning for other directors. 
    The Companies Act 1993 specifies the duties of directors, including that they must act in the best interests of the company and not allow the company to trade recklessly. That a company collapsed owing such large debt suggests that the company may have been trading near, at or beyond its means for some time. Whether the directors of the collapsed company were negligent or not will be determined in due course, I'm sure.
    The role of a director carries much responsibility. If you are a director, you must know and understand your duties and responsibilities under the Act, and whether you are discharging them correctly. If you have any doubt, discuss the matter at your next board meeting and seek independent advice from a competent lawyer. Don't forget to ask about related legislation—you may have responsibilities under other pieces of legislation and you may not realise it. An independent governance review, to review the operation of the board as a whole might also be in order, to assess the board's performance especially in relation to value creation. Another consideration is professional development, to ensure all directors are adequately trained and knowledgeable.
  • Published on

    Board size and composition: the Goldilocks effect

    Decision Making Diversity Governance Management Performance Research
    Board diversity and board size are common topics of conversation in governance circles these days. Hardly a week goes by without one or both topics being mentioned. Most commonly people ask about board diversity and the relationship with firm performance, and the 'perfect' board size. Typically, my responses have been "Yes, diversity is good" and "No, there is no such thing as a perfect board size". Beyond that, context kicks in because every board, governance situation and even every decision is, to some extent at least, unique.  
    I have happily shared these responses and offered other supporting commentaries to all who ask—until now. What's changed? This article has set me thinking. Here are some insights that bear further consideration:
    • On team (read, board) size: Many boards of directors have five to fifteen members (the largest board I have advised had eighteen members—what group dynamics disaster). Contrast that with the research cited in the article and elsewhere, which suggests that six is pretty close to optimal. Beyond six, cliques emerge and the likelihood of free riding increases. Have you seen any of these characteristics? It might be time to review the size of your board.
    • On diversity: Diversity has been heavily promoted amongst the governance community in recent years. While diversity can be great for ideation, it can also be bad for cohesion. That's because the board needs to operate as a team. The research suggests that some similarity is good (i.e., shared understandings not same physical attributes) because it enhances effectiveness in performing complex and unpredictable tasks (like board decisions!). The point here is that sameness is good in some ways (operating basis and purpose) and diversity is better in others (ideation and debate). Striking the balance takes maturity.
    So, food for thought. The article was published by the Wharton School at the University of Pennsylvania—not by some backyard consultant or agency trying to sell services. This means we can rely on the commentary. While it may or may not be 'right', it certainly has substance. I would love to hear what you think about these matters after you have read the article and pondered the ideas and suggestions.
  • Published on

    Making smart decisions in the boardroom, on less-than-complete information

    Decision Making Governance Leadership Research Strategy
    One of the enduring challenges that directors face every time they meet together as a board concerns decision-making. How do directors make smart decisions when 1). they often lack crucial information, and 2). the environment is fundamentally both complex and dynamic? The answer lies in the group of directors' (the board's) ability to make decisions, as one.
    Why so? Legally, the board is a collective of directors. Individual directors make contributions to discussions and debates, but not decisions. It is the board that makes decisions. This transition—from the singular (individual directors, contributions, inputs) to the collective (the board as one whole, decisions, outputs)—occurs when directors meet (i.e., in board meetings, when the board is in session). If the transition is to occur well, all of the directors must be actively engaged their work—working together towards the decision, as one. 
    Group decisions are much harder to make than individual decisions. Reaching agreement can be a minefield, especially if information is missing, trust is low or if directors are more interested (sometimes covertly) in pursuing multiple agendas or representing constituencies rather than acting the best interests of the company (as the law requires).
    How can boards get past this challenge, to make effective decisions on a reasonably consistent basis?
    Recently, CGMA (Chartered Global Management Accountant, a joint-venture between AICPA and CIMA) tackled this question head on. Their report has just been released. You can read a copy of the executive summary here, or the full report here.  ​The authors make eight key recommendations for effective group decision-making:
    • Build greater trust
    • Value the non-financial data
    • Extract relevant data
    • Promote collaboration
    • Incentivise the medium- and long-term, too
    • Engage external stakeholders
    • Review the outcomes
    • Be patient
    I commend this report to you, especially if effective decision-making has been a challenge for your board over the past year or so. Share it with your board colleagues and ask the chairman to schedule a discussion at an upcoming board meeting. If nothing else, you'll bring the expectation of effective decision-making out into the open. Or, the board may find that some behaviours or expectations need to be adjusted, and that a formal board review is appropriate. The discussion may also expose some larger but hitherto hidden issues including that the board may not be clear on the purpose or the strategy of the organisation. If this is discovered, some external advice and assistance may be in order. 
    Regardless of the discussion and the outcome,  I suspect it will time well spent.
  • Published on

    The 'call' of the digital boardroom

    Decision Making Governance Performance Time Management
    Much has been made of the value of board 'going digital' in recent years. Many software-based systems have been produced including offerings from Boardpad, Diligent, Boardpacks and Board Management, amongst others. The benefits of these systems are reasonably self-evident: improved coordination and management of board reports, reduced administrative costs and improved security, not to mention far less weight to carry to and from meetings.
    However, 'going digital' is not without its challenges. Some perhaps less credible claims have been made about software-based systems for boards, leading to misplaced optimism. Take the promise of increased engagement for example. Glance around the table at your next meeting. How many directors are listening intently, fully engaged in the discussion, and how many are covertly checking their devices for messages? Engagement with devices and systems has certainly gone up, but what of engagement between directors and with the topic at hand?
    In my experience (hundreds of board meetings over the last fifteen years, as a director or an observer), the task of direction is a full-time commitment requiring total concentration, especially if the board is large and/or the topic at hand is complex. It's a tough job, with a hidden twist to boot. While directors attend board meetings, they don't make decisions—boards do. If directors are to do their job well, they need to express their opinions and concerns; ask questions; debate topics; listen carefully (to hear both what is being said and what is not being said); and, depending on arguments raised, they may need to gather more information and modify their opinions. Messages on electronic devices can wait.
    ​While computer- or tablet-based board productivity systems can improve the administrative aspects of board meetings (and greatly so), directors cannot afford to be at their beck and call. They provide no substitute for discussion, debate and collaboration as directors meet together to carefully consider important matters and make decisions. Let's not forget that.
    [Postscript: Technology and devices are appealing. I get that. I'm happy to support the introduction of any system that improves director effectiveness. The challenge for directors is to learn how to use systems well, so they can concentrate on what they are actually there for—to make decisions.]