As a shareholder, what would you think if a company you invested in produced poor results through lack of a strategy or by adopting an obviously mistaken strategy? Who would you blame? And who should get the credit for success if that company spectacularly succeeded through a brilliant strategy?
(The article was first published in "Boardroom" by the Institute of Directors in New Zealand and is under copyright. If you use or quote from this material please attribute it to the author and publisher.)
The answer to those questions has shifted over time. Twenty years ago, the most common answer would probably be "the Chief Executive" or "the management". Of course the Board would get some blame or credit too, if only for appointing the wrong or right people to run the company. But development of business strategy was primarily a management responsibility, with the Board taking mainly a review and authorisation role. If things went wrong, then the Board’s fired the Chief Executive and hired another one.
Today we see directors, not just Chief Executives, biting the bullet when business strategy goes wrong. I believe that is entirely correct. So do participants in Institute training courses on business strategy. When asked "Who is accountable for the success or failure of the enterprise?" most groups firmly state "The Board!". They typically expect the Board to play some more active role in strategy development than just review and authorisation.
But getting business strategy right demands more than just the right ideas and plans. That splendid strategy also needs effective implementation. So if the Board is accountable for the success or failure of the enterprise, then it also needs to take responsibility in some way for strategic implementation. That is harder than it sounds...
Many under-performing companies have a stream of strategic thinking and planning that makes good sense, and a stream of operational processes and activities that make equally good sense -- but the waters in those two streams just don't mingle as they should. Studies repeatedly show that strategic initiatives designed to drive strategic thinking through to operations fail more often than they succeed.
Because strategy is usually about change, implementing strategy means implementing change. So having decided what should happen -- as part of its role in development of the strategy -- what is the Board's role in making that change happen? And what tools can directors use to fulfil that role?
Here governance effectiveness often breaks down. Implementation of the strategy is an ongoing management activity that will not occur at Board meetings, and (in most respects at least) not directly involve directors. And these days we know well the peril of not distinguishing clearly between governance and management roles. But if directors only find out too late that things are going seriously wrong, major damage has already been done. More typically, directors find out progressively that the strategy has had only limited impact. The "hockey stick" phenomenon, where performance breakthroughs are repeatedly predicted but never achieved, is all too common!
Key responsibilities of directors in the strategic implementation process include:
Yes, we may nod. True. Of course. But how often do we hear stories like these?:
There is formidable evidence that New Zealand companies -- of all sizes -- tend to under-perform in strategic management, especially when the competitive playing field extends to Australia and beyond. It's no dearth of ideas that holds us back. In fact we seem good at generating ideas, and ambitious strategies. But with lean management teams often fully occupied with operations and limited resources to invest in strategic change, we need Boards who are enterprising and skilled in ensuring strategies are feasible and effectively implemented.
A new one-day Institute course -- "Deploy and Monitor your Business Strategy" -- will focus particularly on those directorship skills. The course has no prerequisites. It specifically targets three groups: