Part 2

In Part 1 we noted the distinction between a Strategy and a Plan and provided some backdrop for the development of a Strategy.  We noted that there is a necessary exercise to know the company- why does it exist, what does it really do, what are the opportunities (and the risks) that surround the business, and no less important, what are the risks to the Strategy?

Here, we will now ask the existential question, “what will the company be when it grows up?” and lay out some of the actions that can help answer that question.  Reminding ourselves that the Board has a duty to make certain the company has a Strategy, Management has the responsibility of developing the Strategy and ensuring the Board agrees with and will support the Strategy.  Management, then, has the further responsibility of developing the Plan to implement the Strategy, and the Board has the oversight role to consider if the Plan is feasible, supportable, and acceptable within known constraints and will deliver on the Strategy- reaching the waypoints earlier described.  Management has the enduring responsibility of making that test before the Board does, and to develop and implement any corrective actions needed to maintain the trajectory of the Plan.

All this sounds simple enough for those who have been engaged in developing a Strategy as either a Board member or as Management.  What if you are a Board member for a company that has never developed a Strategy or are at a point of evaluating a failed or poorly performing operating plan?  You likely are confronted with considering some strategic alternatives to the business or face any number of associated issues that say, “this isn’t working, and we need to rethink how we do this.”

The Authors’ objective here is not to lay out a set of templates to be used in the development of a Strategy or the Plan for its implementation.  Rather, to provide something of a framework that should guide a Board to building their own set of “templates” that can assist the Board and by extension, Management, in the development of a Strategy and Plan that can be specific to the company, its industry, and the nature of its business.  There is no “one size fits all” here.

Thoughts Around the Board

If we imagine a company that does not have, and may never have had, a Strategy it’s appropriate to consider just how the process might be started.  The first step is the recognition of the need for a Strategy which may come from the CEO, the Chairperson, or perhaps any one of the Board members.  It’s possible that the idea might be pushed upward from a member of Management; however, the Board, in discharging their fundamental governance duties, would ask the question, “Do we have a strategy?” and not assume that one exists.

Now, if we presume that the answer is either, “No, we do not have a strategy,” or “We have a strategy but it’s not working,” we could step into the process to create a new or recraft an existing strategy. The choice to create new or retool an existing strategy can often be a point of contention depending upon stakeholders involved.  It might be safe to take the position that a strategy which is not working is effectively no strategy and with that, commit to a fresh start and avoid the temptation to follow the sunk cost bias.  There will be organizational inertia to keep the core of the existing approach with minor adjustments.  Each circumstance must be evaluated.  However, discarding a strategy en toto without understanding why it is weak or failing is unproductive toward framing the path forward and could also be costly- market position, technology development, R&D costs, internal (and external) resources, customer and employee fatigue all need some consideration before making that sort of commitment.

This opens the door to the Board considering the reality of the situation and possibly undertaking a wholistic review of the business and its surrounding conditions.  This demands self and organizational awareness to surface underlying bias and assumptions that constrain critical thinking.  We might see this sometimes as “considering strategic alternatives” and it is an entirely different dimension to the concept of Strategy and Planning.  Alternately, it presents an opportunity for the Board to perform a mid-stream assessment to refresh, to validate, or dismiss earlier assumptions and processes that no longer enable success.  Such course corrections can accelerate or delay certain tasks and objectives, and generally retest the strategy.  The other option, of course, is to discard the current strategy and a do a clean-sheet exercise. 

But how does a Board know which is the best option?  Much time and energy can be expended here, even wasted, with the potential for damaged relationships and further damage to the enterprise.  It is important to note that discarding a strategy does not necessarily mean it was ineffective when adopted.  Perhaps the internal and external conditions have evolved in a way that make it invalid.  The failure of the strategy could also be in poor planning, implementation and weak oversight by the Board.  Most likely a failure in strategy is the outcome from a combination of causal factors shared by the Board and Management. 

As we’ll discuss at a later point, disruption and alienation can develop at the Board level with high potential to have cascading impacts beyond senior management deeper down into the organization.  The environment and circumstances need to be considered early in the decision-making process that this will require a structured initiative to bring change.  This not the time to find the barriers or weak points (the strategy is not known, or has not been fixed, so the resources and/or changes are not likely to be obvious at this stage) but to recognize and begin to communicate – bring to life – the necessity for some formalized Change Management process.  The Board should be keenly aware of that potential and understand how it can be addressed.

While there are no one-size fits all solutions to these organizational strategy challenges, there is a starting point, and it is common to practically every board environment.  Just as a Board will have standing (or ad-hoc) committees- think Nom/Gov, Audit, Compensation- where the members have a certain and necessary set of experience and skills qualifying them for that committee, it is reasonable to stand up a Strategy Committee.   The process will benefit greatly from a committee charter that describes the guidelines and processes to be employed in developing or evaluating a strategy.  It is not necessarily the responsibility of the Strategy Committee to develop the strategy alone, or to guide its development, but it is the responsibility of the Committee to provide the framework that the Board- and by extension, Management- will use to do both.  In some companies the Strategy Committee may develop the initial draft of the Strategy for Board discussion, refinement, and eventual approval.  For others is a collaborative process between the board and selected management.  Again, the Committee could be seen as developing a rule book for the entity’s Strategy, but not the playbook, and certainly not acting as the referee.

A standing or ad-hoc Strategy Committee is not different than other Board-level committees which have charters that describe the scope of their actions and authority, as well as express how they go about their duties.  Although less common, more companies are establishing Strategy Committees.  The committee could be a place where an external resource is brought in, if the Board does not have the necessary skills and experience to stand up the committee or develop the charter.  There certainly would be no shame in retaining an outside consultant or advisor with particular industry or company knowledge and experience to aid in the development of the charter, and even in the selection of committee members.  In fact, it might be first step in eliminating the very probable biases and to establishing a more efficient and effective work process.

It's not the intent of the Authors here to discuss the selection of an external consultant or advisor, nor to provide a checklist to be used in the selection of committee members.  This is a discussion to be undertaken at the independent director level, perhaps in an executive session, and then with the participation of the entire Board.  The composition of the committee will be unique to the circumstances of the company where the type of business organization might determine who must be part of the discussion.  The critical outcome is that a Strategy Committee is stood up, and it has clearly outlined tasks and responsibilities for development of both its charter and the initial strategy framework.

It's likely that many readers have participated in a similar process, either with formal or informal standing or ad-hoc committees, and with a wide spectrum of members and participants.  Again, the Authors are not prescribing a method or providing a template; rather, expressing the importance in recognizing that each Board has unique composition and dynamics.  As such, each Board will need to find the right combination of people and process to deliver the answers.

With the seating of a Strategy Committee, we can consider what might be elements of its charter and responsibilities.  Some initial questions include deciding on whether this should be a standing or ad-hoc committee, the major responsibilities, and the degree of autonomy to set guidelines and constraints for strategy development.  In many cases this might be driven by the very nature of the enterprise.  ESOPs will be different from “B” corporations, and so on, so there are constraints likely contained in the company’s articles of incorporation and these must be understood.  While an “S” Corp might choose to convert to a “C” Corp, the inverse is not possible- the charter might state that (for any good or other reason) the company structure is not to change, that control of the company stays in the hands of the founder(s) or set some other limiting factor.  On a similar plane, issues around capital structure and ownership might need to be addressed.  Again, at this point the committee is providing a set of guidelines, identifying constraints and limits, and should be describing a future-state of the enterprise. 

An effective strategy development process recognizes that it must ensure there is a connection between the past, the present, and where the company wants to go.  The desired future might be well known and precise while in other instances more divergent.  Part of this may include stating some objectives, goals, or aims within some defined time horizon.  Perhaps there is an agreed upon ultimate endpoint (a reasonable strategy endpoint might be the sale or dissolution of the company- this is up to the Board and Management to define as THEY build and execute the Plan to deliver on the Strategy).  In other cases, it might be a goal that is a range rather than a finite point.  It’s important to note that in revisiting a strategy, or testing it for results, there are both internal and external influences that are not static and evolve over time.  While it may not be the original strategic objective to sell the company such an eventuality could arise.  Determining and setting strategic objectives is again a broad topic, worthy of discussion in another forum.

The Strategy Committee is not developing Strategy, but they are outlining the rules, tests, limits, expectations and such that would be considered when the Board evaluates the enterprise’s Strategy.  Lines can be blurred and even crossed, but consider the Audit Committee, and most readers will be aware of a typical charter for that committee.  The Audit Committee does not perform the accounting or the audit process, nor evaluate individual risks to the enterprise, but they do state how those activities will be performed, how they will be tested, and how they will be reported. 

With a Strategy Committee charter developed, the next step involves the entirety of the Board, and this is where the guidelines and constraints/limits, the objectives and timeline, and other elements need to coalesce so that the task of developing the actual Strategy can be handed to Management.  But wait, before we move to issues and processes around the strategy development workflow, we need first to consider some other board-level matters.

It could be argued that the very first task is to assess if the Board is correctly sized with appropriate skills, talent and experience, to even shepherd an enterprise strategy initiative.  The reader can agree that if the Board truly has no idea about strategy (as we’ve worked to describe the term in this article) then they are not likely to succeed in any of the aspects of its development or implementation.  The authors leave that evaluation to the reader in whatever capacity they serve, but it is reasonable that beyond the Strategy Committee, the Board itself undertake an evaluation to determine if they are capable of driving the overall strategic process.  Perhaps it goes without saying, but there would be a further evaluation once the Strategy is deployed: Is this the correct Board to oversee and guide that Strategy through its implementation and to its endpoint?  It is logical and in keeping with good governance for the Chairman and/or Lead Director to evaluate the existing board matrix as well adopt its own strategy to evolve the board composition to ensure oversight of the new enterprise strategy.

It's appropriate to reflect on what we’ve discussed so far, before venturing further:

• Is this the RIGHT Board for an enterprise strategy initiative?
• What is the correct Board composition and structure for the initiative?
• What are the required experiences, skills, and attributes?
• Does the Board matrix provide sufficient expertise to enact the initiative?
• What is the specific catalog of qualifications?
• Are changes to the Board make-up necessary?
• Should external resources be employed for any phase?
• How are Board duties distributed and does this support the initiative?
  • E.g. President, CEO and Chair roles in particular
• If changes to the Board are necessary, how will they be accomplished?
• Is this the RIGHT Board for the future?
• Are gradual changes needed as the implementation advances?
• What skills and talent are needed and when?
• Is there a human capital management process in place?
• Where will the company get the future talent?

The conception, development, and implementation of a strategy may seem linear but in reality, is non-linear comprised of necessary iteration, reflection and interaction.  Learning is messy.  While a Board should operate with the “noses in, fingers out” doctrine first and foremost, an appropriately skilled and sized Board exists to oversee the governance of everyday activities of the enterprise, but also of enterprise strategy (and risk) initiatives.  The evolution of the enterprise and its strategy will drive the level of necessary and reasonable Board engagement.  Once again there is no template or universal answer.

Some Thoughts About Change

Once the Strategy Committee presents and gains consensus from the entire Board on the charter, it is both appropriate and beneficial to start engaging the CEO and the senior management team to introduce the initiative.  Such an approach seeks to affirm Board expectations from Management and cultivates the trust necessary to work together to manage resistance to anticipated changes.  It is human nature to resist change and sustain the status quo; however, one of the Authors here is fond of saying, “Change is possible when the cost of doing nothing exceeds the value of status-quo”- basically there is, or will be, a cost to do nothing.

At this point in the process stream the deployment of a formal Change Management process might be most effective, particularly if the old strategy is deeply embedded, or that behavior needs to change, or even that the enterprise structure might have to be revisited.  The Authors’ own experience in utilizing Kotter’s “Leading Change” in a “strategic alternatives evaluation” situation showed that there are effective ways to engage an enterprise and build the necessary support for meaningful and lasting change.

Some Thoughts About the Process

Avoiding yet the temptation to be prescriptive or offer a template solution, a workflow as follows can be considered.  It is an iterative, collaborative and reflexive process without rigid siloes and boundaries.

For clarity, the Strategy Committee and full Board engage to expand the Committee charter into a framework that provides more detail on the essential rules- limitations, constraints, objectives (if those are to be stated- a sale or dissolution, a merger, etc.) and possibly timing.  This might be considered a first pass but certainly is a suite of principles and aspirations formulated by the Board and in support of the essential responsibilities of the Board to the shareholders.  Again, the actual structure and organization of the entity will greatly influence this first step, but it is offered as an example.

Thoughts Around Management and the Roadmap

Once the Board has reached consensus on these strategic fundamentals it necessarily engages with the CEO and Management, and this is where the real effort has to be expended to develop the broad Strategy, aligned with the Board’s directive, and in support of their responsibilities to the Shareholders. There must be congruence with the earlier stated need for a Purpose and a Vision and bounded by the realities and unknowns of the market and industry where the enterprise operates now and into the future.  As with other aspects of the strategic initiative, it would not be unusual for the Board and Management to take on outside advisors or facilitators to work through what can often be an emotional and divisive process, especially for family and closely held companies.  Often, this part of the initiative requires detailed financial analysis, potentially transaction advisors or investment banks, market research resources, human capital planning, legal and regulatory expertise, and more- all in order to answer the string of questions that arise.  Moreover, the company must also guard against not delegating outsourcing their thinking to others, thereby building the capacity to do this work in-house.  However, when an enterprise first starts thinking about where it wants to be, and when, and how it will get there, it likely will need help.

While an enterprise that has routinely worked through the strategy development process might be able to create a complete package quickly and confidently, it still could be wise to engage with the Board to do some process checking.  Additionally, this part of the workflow could lead the Board to revisit some initial conclusions and subsequently redirecting efforts.  This is part of the strategy development which as we’ve stated should involve iterative and frequent consultation between the Board and CEO/Management to be productive.  Whether using outside facilitation and external resources, or completely with internal resources, or a hybrid, the Strategy will reach a point where it is ready for implementation.  The CEO and Management have co-created a viable and agreed-upon Strategy, following the guidance set forth by the Board, and jointly will have established a set of attributes that will be monitored to gage the progression of the Strategy.

Certainly, the reader could say, “Wait a minute, how does this produce a strategy?  Are there not some specific steps and actions needed as part of this process?” and the reader is correct in asking that question.  However, it is not the Authors’ intent to describe all of the steps that naturally would take place at this stage; rather the Board needs to appreciate that there is a great deal of work to be done at this point, and it perhaps is the most important phase in developing and implementing a Strategy and it is deserving of the full commitment from both the Board and Management.

It's worth noting that at this point strategies can begin to crumble before they even are formed.  A gap in understanding between the Board and Management, assumptions on either side, and a lack of clarity can mean that the Strategy can fail even before execution.  Understandably, this can lead to unnecessary work and wasted effort, as well as the delivery of a Strategy that cannot be implemented, or as noted earlier, fails.  Even if the Strategy is well understood, the inability to develop and deploy the implementation Plan usually leads to the whole process turning into an annual planning exercise- a budget- and denying the enterprise the benefits of a real Strategy.  This article seeks to share some insights and proffer some broad ideas to avoid this outcome.

To condense these ideas, the work of Management is to expand the strategy outline provided by the Board and turn that into well-formed and actionable steps, to develop the Plan that describes how the Strategy will be implemented in the enterprise.  The iterative and engaging process should at least provide considerable detail around the following:

• What are major drivers of continuity and change?
• What’s the future state of the enterprise?
• What potential obstacles exist to evolve the company?
• What priorities are needed to get there?
• What might be added or subtracted?
• What Key investments and divestments?
• What’s might be, or must be, changed along the way?
• Where do resources originate?
• Capital
• Technology
• Talent
• Customers!
• How is success measured?
• What could be anticipated or known risks, and how does Management intend to monitor and manage their consequences?
• What provisions/mitigations might be required?
• Does it demand a transaction or transactions?
• When?
• How is that identified?
• How is it prosecuted?
•  Is the Plan recalibrated at certain points?
• Who scores the results?
• How is the annual operating plan constructed to support strategy?
• Realistic budget/plan that does not obstruct strategy
• Alignment of effort and resources

A key task of the Board related to the strategy process is to evaluate if the Management team is up to the challenge in the Strategy development, implementation planning, and execution.  This evaluation should go beyond the CEO to include other critical functional areas that are required for the contemplated Strategy.  It is important to consider that past success and existing expertise from across the management team as demonstrated in effectively running the business may not be the same expertise required for the future.  This greatly depends upon the anticipated change.

Is this the RIGHT management team for the Plan?

• Expectations set and understood
• Management skills and experience
• Management succession
• Future leader development
• Talent acquisition and development
• Human capital plan
• Financial capital plan
• Technology development plan
• Market development plan
• Cyber & IT Infrastructure

Conclusion

The Board’s role related to strategy is dynamic.  Once the Board approves a Strategy, reaffirms the management team is the right one, it eventually approves a management Plan for implementation.  When Management undertakes the implementation Plan the Board’s key role in the initiative shifts to oversight.  From day one of execution the Board must not abdicate its governance responsibility to test and recalibrate the strategy and management actions as needed.  A key test of the Board’s resolve is the healthy yet purposeful tension between Board oversight and operations.  A CEO’s true leadership and management acumen is most often revealed in times of change such as the adoption of new Strategy.  

Although the Strategy development was collaborative, its execution is the prime responsibility of the executive Management.  As such, the Board must judiciously and dispassionately evaluate performance and hold the CEO and Management accountable.  Accountability includes the Board providing consistently honest feed-back and when necessary, taking decisive steps to remediate deficiencies.  Beyond a shift to oversight the Board needs to look inward on itself.  This introspection deserves of a more detailed discussion in another article that focuses on evolving the Board composition and skills with the strategy if deemed insufficient.

This two-part series was designed to first stimulate reflective thinking about the roles of Board related to strategy formulation, planning and oversight.  Second, our intention was to offer some practical ideas related to strategy, planning and boards.  We also offer some directions and preliminary meta questions to help Boards on the strategy development journey as well as offer our perspective to clearly delimit the roles and responsibilities for the Board, committee and management.  Perhaps most importantly our purpose is to be a catalyst for discussion and debate among our members to improve private company governance, especially as it relates to the critical function of strategy.

ABOUT THE AUTHORS:

ABOUT NIGEL LAKEY

Nigel Lakey, P.Eng. is CEO of Reservoir Drilling Solutions, Inc., an energy services and technology provider, as well as co-founder of DWA Consultants FZCO, an energy services software developer.  He has more than 45 years of global diverse industry leadership experience in marketing, technology development and enterprise management.  He holds a BSc in Mechanical Engineering and is currently the Editor of the PDA Governance Insights Blog.  

ABOUT CHARLIE BLACK

Charlie Black, PhD is Co-Founder and Managing Partner of Xundis Global, LLC a bespoke consultancy that partners with both private and public entities to successfully navigate complexity and change.  He has over 35 years leading organizations from across industry and domains in times of turbulence and crisis.  He currently serves on the board of advisors for two privately held companies.  He has co-authored a book and numerous peer reviewed publications on social complexity, leadership, and culture and routinely delivers keynote speeches on the same.