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    Making sense of strategy

    Phd Research Strategy
    I can't remember how many times I've heard company leaders, directors and, to a lesser extent, owners say they don't formulate strategy nor have a strategic plan "because everything is changing so quickly, any plan would be out of date". Statements like this are akin to saying we are too busy running (the company) to look where we are going or plan where we might head. Is this smart or is this dumb? I think the latter.

    The problem with simply responding as the environment around you emerges—with not planning for the future—is that a competitor may do something that catches you completely off guard. To be caught flatfooted like this could spell disaster for your business.

    A reasonable middle ground between a long, highly detailed strategic plan that probably won't get read or actioned, and no plan at all, is a succinct plan. I'll call it a smart strategy. A smart strategy has several defining characteristics:
    • A smart strategy ties directly and explicitly to your company's core purpose. (If you don't have or can't describe your company's core purpose, sort that out first.)
    • A smart strategy is succinct—no more than 3–5 pages in length. It should contain the company's core purpose, the strategies to achieve the purpose, objective measures (so progress can be monitored) and high-level actions required to achieve the strategies.
    • A smart strategy takes a medium-term view. Five years is too long, too much can change (and probably will). Three is better. One year is too short (too tactical and operational).
    • A smart strategy is built with the input of several key groups of stakeholders. The Board and management and selected customers and selected industry experts should work together. No one person or one group has all the answers. However, by working together, robust debate can take place and strategic options can be subjected to vigorous challenge.
    • A smart strategy should not contain pages of SWOT tables, competitor positioning, product detail, organisational structure and names of key staff. This detail should be recorded elsewhere. It is input to the strategy, not the strategy itself.
    • A smart strategy is read and reviewed regularly. The Board and management should sit down, together, and review the strategy every six months—to identify what's changed and what changes are needed. Flexibility is crucial—particularly in fast-paced, high-change environments.

    I've seen this approach work well in many different organisations. If you'd like to explore how it might work for you, please contact me.
  • Published on

    Should Boards engage independent advisors directly?

    Governance Research Strategy
    This might sound like a rather odd question to ask, because an affirmative answer seems so obvious. Yet in my experience, many Boards do not exercise the option of seeking advice directly, despite the benefits of doing so being clear. Generally, Boards turn to the CEO to fill information gaps, because they are well-placed to provide the additional information required. However, the CEO is not always the best source of information.

    In what situations should the Board engage independent advisors directly? Whenever independence is crucial, or there is a conflict of interest. Three areas emerge as prime candidates to engage independent advice (although there may be others as well):
    • Risk management: To do otherwise is to rely on management's view of risk—akin to asking a rustler to report on the number of animals lost. I wrote about this recently.
    • Legal advice: Leading governance expert, Dr Richard Leblanc, recently made a strong case for Boards to engage legal advisors who are not conflicted by also providing advice to management.
    • Strategy: Several researchers (*) have suggested that the provision of independent contributions (to supplement contributions from management and Board members) is extremely helpful, because it exposes the Board to a more diverse set of trends and options as strategy is developed.

    If Boards are truly committed to acting in the best interests of the company (or the shareholder, depending on the jurisdiction), the answer must, unequivocally, be "yes".
    My hope for 2013 (and beyond) is that more Boards will start to walk the talk.

    (*) contact me for references.
  • Published on

    What does "becoming tech-aware" actually mean for Boards?

    Governance Management Research Strategy
    Over the last 6–12 months, a steady stream of articles, blogposts and on-line discussions calling for Boards to become more "tech-aware" have appeared. I've read many of these, and have concluded that the drivers for many can be grouped into one of two categories:
    • IT Managers and technology professionals have become frustrated that their reports and their proposals to implement new systems are not understood or approved by the Board.
    • Boards have been caught out (often at considerable cost to the company through project failure, customer impact or balance sheet stress) because they've approved technology programmes or investments that fail to deliver as promised, or simply are not aligned with agreed corporate objectives.

    The time to bridge the chasm between what the Board needs from IT and what IT delivers has long-since past. Calls for Boards to become tech-aware need to be addressed. However, there appears to be a problem that needs to be called out: what does "becoming tech-aware" actually mean? And how does a Board achieve such a state? Rather than simply call out the problem, or brow-beat directors with standards (ISO 38500, for example), companies need to make progress on these questions. Several options are available.

    Seek IT-expertise when making new Board appointments: The recruiting of IT-experts (former CIOs for example) can provide an immediate gains, particularly to help Boards understand trends, and reports and proposals from management. However, this option can backfire if appointees are inclined towards detail, jargon-laced statements, and the ardent promotion of the latest trends and fads.

    Require the CEO and management to ensure all papers (reports and proposals) explicitly state business and strategic impacts: This is an outstanding option, and one that all Boards and CEOs should actively pursue. If management wants support for investments, then it is their responsibility to package proposals in such a way that the risks are made plain, and that impact on business performance and strategic goals is made explicitly clear. Boards have a role to play, by specifying how information needs to be presented in order to be most useful.

    Boards request and schedule presentations from external specialists: The pace of technology change—and the business and strategic impacts that follow—continues unabated. If Boards are to maximise the value of the organisation effectively, they need to understand emerging trends and developments. Rather than secure this knowledge from staff (and run the risk of only hearing what management wants to say), Boards should seek contributions directly, just as they (should) seek any other strategic market comment, risk or audit advice. The goal is to gain a broader perspective, to inform the debate and the selection of strategic options.

    It should go without needing to be said, but for completeness, these options are not mutually exclusive. In fact, a combinatory approach, with all three options in place, is likely to raise the chances of a strong outcome.
  • Published on

    The governance intent–reality gap (trap)

    Governance Management Research Strategy
    I've been conducting an informal survey in recent weeks—asking directors and managers about the importance of strategy, and the extent to which the Board of their company is involved in strategy formation.

    The overwhelming majority of respondents have told me that the Board has a key role to play in [forming] strategy. However, after listening further and checking, I've discovered what appears to be a yawning gap between what respondents claim and what actually occurs in practice. Surprisingly few Boards actually spend much time on strategy at all. Rather, they concentrate on monitoring and controlling the past, on managing risk and on ensuring compliance.

    Why is there an intent–reality gap when it comes to governance and strategy? And why is it so large? Surely, if Boards have a key role to play in forming strategy, they would be directly and heavily involved in the process? When pressed, Board members said they expect management to form strategy, for consideration and approval (or otherwise) by the Board. In reality, they spend the bulk of their time reviewing business performance. Is this smart? Looking backward is hardly a good technique when the goal is to drive forward.

    If Boards are serious about maximising the performance and value of the organisation they govern, you would think they would spend the bulk of their time on strategy and the consideration of strategic options. What do you think is going on here? Is this another case of board members offering the so-called "correct" answer because they don't want to be shown up? Or does "consideration and approval" equate to "appropriate involvement"? Or is some other psycho-social interaction driving behaviour? I'd love to hear from you!
  • Published on

    Governance in sport: the same or different?

    Governance Research Strategy
    What role should governance (especially Boards) play in sport? Should sporting codes be governed any differently than commercial businesses or not-for-profit agencies? 

    These questions are raised from time-to-time—often by the media and commentators, and especially when a team or code is not doing so well. Yet another case was reported today, this time concerning New Zealand Cricket. Dion Nash is reported as saying "the board is failing in its duty to lead the game in the right direction." Such criticisms are not new. The challenge is in finding and implementing the remedy.

    The moving parts that make up a sporting code are familiar—a board, administration, management, players (called workers, employees, volunteers in other contexts), spectators (customers, consumers). In my view, sporting codes are just another form of organisation, albeit with goals specific to their context. Therefore, they should embrace [sound] organisational constructs and practices, including governance.

    Dion Nash's call for the NZC Board to take control of the sport's destiny (and ultimately the Black Caps' performance) via sound top-level planning (strategy) has much merit. The development of strategy is now widely accepted in academic circles to be a major task of the Board. To do this effectively, Boards need to be comprised of people who understand the market and emerging trends, and understand and participate in the development of strategy. In NZC's case, that means appointing suitably knowledgeable and competent people to the Board, and soliciting well-structured contributions from various specialists.

    The time to act is now. But will the NZC Board be so bold as to make the necessary governance adjustments—for the good of the game?
  • Published on

    On Boards and the management of risk

    Governance Management Strategy
    I've been involved in several discussions about risk management recently, including one at a Business Leaders Forum hosted by Grant Thornton. Most of the discussions have centred on the struggles that Boards face in managing risk—and more specifically, ensuring they are adequately informed. In listening to people, I've discovered many Boards struggle in this area. 
    • How do Boards know all relevant risks are being notified?
    • How big (or small) should risks be before they are reported? What is relevant?

    Let's tackle the second question first. In most organisations, management has the responsibility to implement strategy. Therefore, they also have the responsibility to identify and manage risk. In doing so, management should raise (with the Board) all risks that have the potential to compromise their implementation of strategy—together with mitigation plans. Anything with a strategic impact should be reported. If Boards are not receiving relevant risk information, they should go looking for it.

    That leads nicely to the first question. In my [direct though anecdotal] experience, most risk information tends to arrive via management. Though the common pathway, it is not without its problems. Many Risk Managers report up though the CEO. Even external Auditors tend to be retained by the CFO and report via the CEO. And therein lies the problem. Who decides what gets reported to the Board? Why would a CEO notify a risk that exposes him/her to extra work and/or uncomfortable questions from the Board? Oh, the foibles of human nature... 

    Whereas most Boards receive risk information via the CEO, several of the high performing Boards that I've worked with seek and debate risk information directly—from staff, customers, outside advisors. They also do so in the context of strategy. Boards that open several channels are more likely to be adequately informed and, consequently, be better positioned to assess strategy implementation and ensure risks are managed effectively.

    Boards need to ensure that they are adequately informed, and the best way to do that is to work directly with a range of internal and external sources. While this approach sounds straightforward, it has the potential to cause angst amongst management if not handled well. The CEO should be kept fully informed of risk discussions, and, ideally, be present when external advisors make presentations to the Board.

    One final point. If risk mitigations are not being implemented effectively, and the achievement of strategy is being compromised as a result, then the Board should replace the CEO.