Boards, Strategy, and Planning: Part I

Why Have a Strategy?

We all are familiar with the old adage of Boards being “noses in, fingers out” and can appreciate that the primarily responsibility of a Board is to NOT run the company.  Far too many boards blur the line between management and oversight.  Here, we present the concept that It is critical to differentiate between strategy and strategy implementation.  Rather, the Board is responsible for ensuring an appropriate strategy and to ensure the executive team is running the company correctly and following the path outlined in the strategy.  Moreover, there is the enduring obligation to represent and protect the interests of shareholders - we know this as a fiduciary responsibility.

We also know that the Board has a responsibility to ensure that governance is discharged effectively.  One element of the governance spectrum of duties is to oversee the development and execution of a strategy for the enterprise.  Depending upon the company, Board composition and industry, the development of Strategy can often be delegated to a Board committee or a hybrid model that includes corporate membership.  There is not clear agreement about who makes the strategic choices that will shape the trajectory of the company.  To clarify, the “noses in, fingers out” doctrine suggest that the Board is not responsible for the development of the implementation plan.  They are, however, responsible to ensure one is developed, and then to evaluate the progress of the enterprise against that plan within the context of the strategy.

One thing to make clear early in this discussion is that a Strategy and a Plan are not the same, and the terms should not be seen as interchangeable.  A Board engaged in a Strategy initiative should be very much concerned with the macro issues and should deliver not only “Will Do” statements and affirmations, but also- maybe more importantly- “Will Not Do” statements and affirmations.  A Strategy will make clear the starting point and the aspirational future position in the company’s journey, describe a timeline to get from Now to Then, and state the waypoints that are to be used to determine the progress- or lack thereof.  A Plan will speak to the very specific activities that will be undertaken to get from one waypoint to the next- the implementation of the Strategy.

The necessity for strategy and an implementation plan would seem clear enough, but why, then, do so many companies seem unable (or unwilling) to actually develop and execute one?  Rather, what we often find is a collection of tactical choices that do not effectively chart a clear path toward an advantageous position for the company in a future that is different than today.  It is important to recognize that approaches to past success does not assure future success.  In fact, there are many examples of successful companies from across industries and time suffering from this very fallacy.  Often, claims of a strategy and implementation plan are merely annual operating plans, or more commonly, a Budget.  Why is this?  In this article we’ll discuss some of the barriers to Boards guiding development of a strategy, its implementation plan, and contemplate some solutions that can make a difference.

Strategy is not Planning

First, let us clearly frame and present what we mean by both Strategy and Planning.  These words have many meanings and are often used interchangeably.  For our purposes, they are very different yet interrelated and interdependent concepts.  We conform to Michael Porter’s assertion that strategy is increasingly displaced by management tools leading to the conflation of the two terms.  Strategy at its core is about achieving a competitive thus different position relative to the competitors within the context of a rapidly changing markets. What is the viable value position?  What are the associated tradeoffs that result in investment and divestment?  These are key questions for a Board as it considers the trajectory for a company formulated into a coherent, clear, and well-articulated strategy.

Planning is about the series and sequence of supporting and enabling activities undertaken by Management.  Borrowing from Henry Mintzberg’s work, planning is a process to create results “in the form of an integrated system of decisions.”  These decisions by Management seek to integrate the conduct of functional activities toward common goals.  The Strategy is the map from which Management must navigate toward the desired future.

The roadmap context is especially important and is a good metaphor.  Planning and implementing strategy are a journey, with a starting point (today, here and now) and an aspirational future condition (the future state), all bound by time and resources and necessarily including activities, directions, and certainly options or contingencies.  The time and place elements are critical in developing the Plan- they show the desired or anticipated progression from one state to another, describe the initiatives or actions that are expected to be deployed, possible key external forces or variables, as well define the resources needed and available to get from A to B.  Absent the “markers” analogous to roadside signs it’s impossible to assess the progress when the Plan is implemented, and more importantly, impossible to assess the viability of the Plan when it is first developed.

The development of a plan demands a set of skills, knowledge, and experience that might not exist at either the Board or Management level.  This may especially be true when the company is considering a response to shifts in the market or industry.  Without those attributes at both levels, the development of Strategy is often reduced to tactics, a budgeting exercise that addresses near-term efforts and results.  Such a short-sighted approach does not evidence a longer-term transition of the business within the context of change.  While it is clear that Management of the company must have the skills, knowledge, and experience to operate the business day-to-day and to deliver the results of the period operating plan, it should also be clear that the attributes for Strategy development must exist at the Board level. Moreover, it should be clear that the period operating plan is developed and actioned by Management must be congruent with and align with the business strategy.

Where to Begin

Before one considers a strategy, they must first know themselves.  While it can be easy to say what the company does (“we sell X”, “we fix Y”, “we deliver A”…) in its business activities, expressing the purpose of the business within a specific context often demands more insight and consideration.  The purpose may not even state the business, or the product, or the industry.  Development of a Purpose Statement can be part of the broader initiative of developing the entity’s Mission and Vision statements.  Much can be and has been written on this subject, but for the purposes of this discussion, we can say that questions should be asked around:

  • Why does the business exist?
  • What opportunities does it pursue, or what problem or problems does it solve?
  • Why do those opportunities or problems even exist in the first place?
    • Is it weak or overly strong competition where the market is looking for alternatives?
    • Is it a novel and unaddressed need?
  • What does the company actually DO?
    • What are the activities and markets where the company operates
  • Who are the company’s customers?  Its competitors?  How does the business make money (that’s a reasonable expectation, putting aside altruism)?
    • What activities or processes generate revenue or costs?
  • What does the business want to be in (say) 5 years, 10 years, in relation to anticipated external forces and change?

In addressing the “what does the company do?” it’s important to be able to identify the actual things that are done or would be done.  Some specificity and nuanced results will spring to life here, as it’s entirely understandable that “selling cars” is not the same as “selling cars”- one of the “selling cars” businesses could be simply selling cars, any cars, to any customer; and the other could be the business of delivering high-performance luxury vehicles to a very specific demographic who enjoy a certain lifestyle in a particular market, and presumably, providing after-sales service.

It's appropriate to restate that the strategy is a high-level framing for the trajectory of the company. Usually this is explained by the what rather than the how, which is outlined in the implementation or operating plan.  It is about choices about what will and will not be done.  Returning to our example, if one considers selling automobiles there are many factors to be considered in establishing a business and building the attending strategy.  We’re not trying to note each and every step but will say that in developing and overseeing a strategy, the Board should be aware that those details must be identified and addressed.

Preliminary Thoughts on Risk

Beyond considering the purpose of the corporation and ability to speak to just what it does in its operations, along with describing the underlying facts and conditions that enable a business to be viable, it is similarly important to consider risk.  What are the risks the business faces or may face, balanced against the opportunities or possible gains it intends to pursue?

How do we think about and define risk?  What are those things that exist or might emerge that could prevent the company from executing its strategy?  Let’s use a sailing analogy where we want to make it across a large river to our favorite hiking spot.  What are some risks?  There of course is our own skill in sailing and the actual boat itself.  Many companies tend to focus their efforts on those things they are familiar with and thus feel some sense of control.  What about the tides, the current, wind and other weather factors that we don’t control and cannot reasonably predict?  What about other boaters?   In our world these include dynamic regulations, consumer expectations, supply chain, politics, and social change.  What about obstacles under the surface, hidden from view and discovery?  Have we sought to identify the widest range of factors that might influence us achieving our goal?  Do we recognize that there are things we don’t know, and perhaps even don’t know that we don’t know?

Second, how do we define and evaluate Enterprise Risk?  If, for a moment, one agrees that Strategy, Planning, and operations are all part of the larger system, then how one assesses (identifies, defines, mitigates) risk must follow the same logic that risk is inherent in the larger system- the Enterprise.  However, risk to a particular project, program or activity is NOT the same as risk to the Strategy itself.

Enterprise Risk Management deserves a standalone review and discussion as to how risks are identified, graded, monitored and their consequences managed.  We will leave that deep discussion for another time and place.  However, in this article, we do want to open the door to risk assessment and management and provide some food for thought.  Questions to ask certainly will depend on the nature of the business, its industry, and a plurality of other factors, but some starting questions are:

  • What market(s) will the business operate in as it pursues its strategic journey?
  • Are these markets, or the business activities, seen as being “regulated?”
  • Why do those markets exist, or will exist, and are they durable and sustainable markets?
  • Are there Regulatory issues to address now and will they spring to life at some point?
  • Will the business face technology risks from disruption or innovation, particularly if the business is creating opportunities by being disruptive or innovative?
  • Will the business face social risks, i.e. will it fall from grace as have others?
  • Are there geopolitical risks associated with supply chain, clients, industry?
  • Is the company at risk from sanctions or geopolitical unrest?
  • Are there risks association with Export/Import activities, or banking and currency?
  • As an example, is the company engaged in activities that may have “Dual Use” designation?

Again, the focus of building strategy is not to develop the long list of enterprise risks; rather, it is to identify and consider those things that pose real or potential risk to the strategy.  The above is by no means an exhaustive list, but hopefully shines some light on the need to spend time and resources to identify, define, and address the range of influences and factors that can manifest as risk to the Strategy. 

It is important to remember that business and markets are composed of thinking and acting humans that exercise agency or choice.  It must be understood that risks can be individual or systemic in nature and consequence.  They may also be temporal, enduring, growing, and diminishing.  Some risk can even be existential - the risk that threatens the existence of the entire business, enterprise, or even industry.  Again, the Board level in its role of ensuring a strategy is developed, has the duty to understand the distinction in risk species, and how the consequences of that risk can be effectively (and legally!) managed so as to not derail the Strategy.  As such, it is important to look beyond the near term and the boundaries of the company to anticipate what the future might bring – either risk or opportunity - and account for that in the Strategy.

Risk assessment as much as anything can also deliver null results, indicating no such risk exists or is reasonably expected to exist.  The oversight role of the Board in developing the Strategy includes making certain the right questions are asked and answers provided.  It is patently unsafe, and demonstrates poor governance, to make assumptions around risk issues.

To conclude Part 1 of this 2-part series, we can state with both confidence and emphasis that a Strategy is not a Plan, and the two should not be conflated.  Plans are necessarily granular and specific in description, action, and time; whereas, Strategy could be said to be more abstract and demand working at a theoretical level.  Strategy provides guidelines, sets limits and constraints, defines these on a certain time continuum, and may be thought of as a rule book.  A Plan, perhaps, could be seen more as a playbook.

In Part 2 we’ll introduce thoughts around how the Board might start a Strategy initiative, what elements are mandatory and what elements may be appropriate and nice to have, but impractical to deliver.


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.

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