In an increasingly competitive global business environment, organisations need to become more dependent not only on having good strategies, but on being able to implement them well.
Most executives recognise this. Indeed, 88 per cent of respondents to an Economist Intelligence Unit global survey conducted last year, Why good strategies fail: lessons for the C-suite, noted that executing strategic initiatives successfully would be “essential” or “very important” for their organisation’s competitiveness over the next three years.
Sadly, however, 61 per cent said their companies often struggled to bridge the gap between strategy formulation and its day-to-day implementation. Moreover, the study found that an average of just 56 per cent of strategic initiatives had been successful in the past three years.
Similarly, Dr John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School, found that around five per cent of all organisations implemented their strategies successfully, while 70 per cent of strategic initiatives failed to meet their objectives. The remaining 25 per cent had some middling success, but did not meet the full potential of the strategy devised.
So if strategy design and execution is critical, but most organisations do it badly, what is the role of the board?
Particularly, what board practices enhance the chances of organisations developing deliverable strategies that position them well, and of actually delivering those strategies?
Dr. Peter Cebon, a Senior Research Fellow at the University of Melbourne, has been studying this issue for some years, with a particular focus on risky strategies: innovation, mergers and acquisitions, organisational change and the like.
He notes that there are great differences of opinion on the board’s role.
“We have very little idea of what boards actually do - good or bad,” he says.
“At one end of the spectrum are directors who believe that the board should hire the CEO, approve the strategy and get out of the way. Underlying that belief is the recognition that management has more time, better knowledge of the industry and greater relevant skill than any director. So, what can a director add? Furthermore, those directors worry about crossing the line between governance and management.
“At the other end of the spectrum are directors who see a number of reasons why the board should get actively involved. They cite traditional governance concerns – many corporate disasters result from excessively ambitious or poorly executed strategy. They also note that internal politics, hubris and managers’ fallibilities can prevent executives taking appropriate risks and managing them prudently. Further, they point to increased attempts by stakeholders to hold directors accountable for ‘upside’ performance in addition to ‘downside’ problems. Finally, they note that shorter CEO tenures mean they need to step in as the custodians of long-term strategy.”
Indeed, Booz & Company’s latest annual Australian CEO study found that median CEO tenure continues to decline in Australia, down from 4.7 years in 2011 to 4.2 years in 2012.
Cebon’s research consists of two parts – a survey and a set of case studies of how boards and executives work together to deliver risky strategic outcomes.
His case studies have yielded really interesting findings, but Cebon says he is fascinated by how few organisations want to participate, compared to his previous research.
Generally, either the executive team or the board declines politely. “It seems that both executives and board members care about this deeply, but one party or the other is uncomfortable about having its behaviour scrutinised. Perhaps directors are not finding the current practice guidelines very helpful, and are unsure what to do.” says Cebon.
Given the lack of consensus on what boards should do around strategic risk, and lack of understanding of what they actually do, Cebon’s Ph.D. student, Conan Hom, is conducting the survey. It has two aims. The first is to get an understanding of the common practices – good and bad – by Australian boards around strategic risks. The second is to understand why.
Backed by the Australian Institute of Company Directors and the Australian Research Council, the study will examine the role of both management and the board in managing strategic risk – the risks created as a result of an organisation trying to deliver on its strategy.
“Ultimately, we will be looking to understand what is best practice, but first, we need to understand what organisations are actually doing and why, whether there are differences in what they are doing, and how these differences impact their effectiveness.
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