Strategy and governance
Every organisation exists to fulfill a fundamental purpose, embodied in its vision, mission, values and goals. Organisational strategy involves clarifying this core purpose and determining how the organisation will achieve its goals in light of internal capabilities and external market forces.
Strategy is characterised as being long-term in orientation and fraught with uncertainty. It is an iterative process of conceiving plans, executing them, measuring effectiveness, and refining approaches to outperform competitors. Strategy is not just a fixed, long-term plan but rather an ongoing process of learning, adaptation and growth.
As the governing body, the board is responsible for supervising organisational performance and legal/regulatory compliance. When it comes to performance, the board may focus on three interdependent areas: strategy, risk management, and outcomes such as financial performance.
Specifically, strategy in a governance context refers to the high-level decisions made by both the board and senior management to chart how the organisation will fulfill its purpose and goals amidst an ever changing context. This strategic guidance includes determining where to allocate resources and capital to maximize long-term competitiveness.
While management spearheads day-to-day strategy implementation, the board plays an oversight role in shaping the strategic course of an organisation, and providing high-level guidance. There is a clear division of duties – the board sets strategic direction while management drives execution.
Board engagement in strategy
It is a critical mistake for a board to take a hands-off approach to strategy and see it as the job of the CEO and management team. An engaged board provides insights that enhance strategy formulation and oversight that improves execution.
The board possesses objectivity, wisdom and experience that management should leverage in crafting strategy. Directors provide diverse perspectives from multiple industries, functions and backgrounds. This breadth of view can challenge assumptions and identify blind spots. The board also understands shareholder needs and oversees risk management.
By contributing to the strategic dialogue, the board helps ensure the strategy aligns with the vision, mission and values of the organisation. Directors with independence from management can ask tough questions to sharpen strategies before they are implemented.
Oversight from the board also enables improved strategy execution. The board monitors metrics and results, holds management accountable to the strategic plan, removes roadblocks and aligns executive incentives properly. This governance discipline increases the likelihood of successful implementation.
In today’s rapidly changing world, no competitive advantage lasts forever. Boards play an essential role in fostering a culture of agility, innovation and learning so the organisation continually evolves its strategies with new insights.
Best practices for organisational strategy
For boards to provide effective strategy evaluation and guidance, there are certain best practices to follow:
- Understand the strategic context. The board should have a strong comprehension of industry dynamics, competitive forces, market trends, disruptions, regulatory climate and other external factors comprising the strategic context. Sharp understanding enables insightful strategic dialogue.
- Review missions, values and goals. The board periodically reviews the foundational vision, mission and values that underpin strategy, proposing changes to keep them relevant amidst external shifts.
- Collaborate on strategic priorities. The board collaborates with management to identify 3-5 priority strategic goals for the company to focus on over the next 1-3 years based on internal and external analyses.
- Support management in execution. While avoiding micromanagement, the board receives regular briefings on strategy execution progress, risks and results. They remove roadblocks, align incentives and provide resources to enable success.
- Foster a culture of innovation. The board shapes a culture that can respond rapidly to change and new strategic insights. This includes encouraging measured risk-taking, innovation, and continuous learning.
- Conduct regular strategy reviews. The board has candid, constructive strategy review sessions with management every 6-12 months to assess effectiveness, competition, risks and needed course corrections.
- Guide major strategic decisions. For fundamental moves like mergers, acquisitions, market expansion, new technologies, the board utilizes wisdom and experience to guide management.
- Assess competitive advantages. The board assesses current strengths and capabilities that differentiate the company, providing guidance on reinforcing them. Gaps are identified for improvement.
- Benchmark performance. By benchmarking against competitors, industry peers and best-in-class organizations, strategic gaps and opportunities become apparent.
- Oversee risk management. The board continually evaluates risks tied to strategy, ensuring appropriate mitigation measures are implemented. Risks are balanced against potential strategic rewards.
- Recruit strategic thinkers. The board recruits independent directors with diverse strategic thinking aptitude who enhance discussions with fresh perspectives and expertise.
- Evaluate CEO and succession planning. A key duty of the board is to hire and evaluate the CEO based on how well strategy is executed. Robust succession planning is critical to long-term strategic success.
The strategic value of an engaged board
By embracing these practices, the board can have a pronounced impact on organisational strategy. Sharp questions from directors strengthen the strategic logic and rigor. Oversight improves the quality of execution. An engaged board also builds trust and transparency with management.
Thoughtful yet active oversight enables the creation of strategies that fully leverage the organisation’s core strengths and advantages. By diligently fulfilling its strategic governance role, the board provides guidance that drives growth, competitiveness and the sustainable fulfillment of organisational purpose amidst a complex, rapidly evolving business environment. There is no substitute for the wisdom and experience an engaged board brings to strategy development and implementation.