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Strategy: the often-neglected core

Wednesday, 27 March 2019   (3 Comments)
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Exercising strategic oversight is a key board responsibility, but chances are your board is missing some important elements of the process.

Strategy is one of those business buzzwords everybody likes to roll off his tongue, but setting an effective strategy is a highly complex matter. Boards are responsible for setting strategic direction and for overseeing its effective implementation. But all too often boards can fail to appreciate just how to go about discharging this responsibility effectively.

Principle 4 of the King IV Report on Corporate Governance for South Africa states “The governing body should appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.” The recommended practices outline the specifics of the board’s responsibilities and the actions it should take but, given the fact that an organisation’s success hinges on its strategy, it’s worth delving a little deeper to understand all the issues more fully.

We should never forget that getting the strategy wrong will ultimately spell disaster. Strategy malfunctions include sticking with what is currently working, dismissing new competitors too quickly, and overanalysing everything.

So what are some of the aspects boards should consider?

Getting the mix right

An important consideration is board composition. It is critical that the board has the diversity of outlook and experience needed in an increasingly complex and ambiguous world. Well-meaning diversity exercises are intended to achieve this, but all too often they degenerate into racial and gender formulae that do not deliver the multiplicity of views that are desperately needed.

Many boards lack members with a deep understanding of technology – a grave drawback considering technology’s ability to spawn new competitors and even redefine whole industries. Additionally, as companies move towards more digital business models, their risk of cyber-attacks rises dramatically. Cyber risk needs to be integral to any strategy discussion in today’s business environment.

Then there is the question of ensuring there is a mix of directors with short- and long-term outlooks to complement each other. PwC says in “The board’s role in strategy: getting the process right” that directors find balancing short- and long-term focus to be the biggest challenge when it comes to strategy oversight  ̶  getting it right depends on having the right people.

And, finally, boards need contrarian and fearless voices that will challenge both groupthink on the board and management’s comfortable assumptions. All of these factors need to be incorporated in the board’s succession planning process.

Not a one-off thing

Board agendas are full, time is short: is the board spending enough time talking about strategy? Most directors would say not. Beware the annual strategy indaba or lekgotla that takes the board away to focus on strategy  ̶  such events can be valuable, to be sure, but strategy creation can never be an event. In a fast-paced world, it must be revisited continually.

Nor must it be seen in isolation: boards must consciously introduce strategy – both current and likely future strategy – into all their discussions.

Part of the board’s ability to keep on reassessing its strategy is the way in which it measures progress. Directors must ensure there are ways to establish exactly how well the strategy and the implementation thereof are doing in reaching its goals. It goes without saying that these checkpoints must also serve as opportunities to reconsider a strategy and its underlying assumptions, and change.

Another critical factor is executive compensation  ̶  always a hot topic. Executive performance targets must be aligned with strategy goals. It is a complex topic but getting this right will also go a long way to defusing acrimony relating to perceived excessive executive salaries and bonuses.

Finally, boards should give thought to how they communicate their strategy to all stakeholders. Communication efforts have traditionally focused on investors, but it is increasingly important that other stakeholders – customers, employees and  regulators – also understand where the company is headed and what its long-term value-creation plan is.

Every strategy exposes a company to risk. And the achievement of strategy can be impacted by risks. It is thus important that directors understand what those risks are, and the opportunities they might bring. We will be looking at risk next month.

Parmi Natesan Dr Prieur du Plessis

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and Chairman of the Institute of Directors (IoDSA). 

Better Directors. Better Boards. Better Business


Lomalanga V. Matsebula (Dlamini) says...
Posted Thursday, 09 May 2019
This is indeed, an insightful article to boards / governing bodies, who are expected to approve business strategy and monitor its implementation by management. I find significance in the last part of the article which relates to understanding strategy as exposure to risk and that achievement of the same can be impacted by risks. This approach, talks to the point of 'well meaning' diversity, in governing bodies raised in the article. Indeed, diverse views during strategy debates, help the board differentiate between the role played by management at implementation level, and that of itself, at policy level.
Siphesihle Gumede says...
Posted Thursday, 18 April 2019
Getting the mix right This will be increasingly challenging in the next few years with the rate of generation of disruptive technologies. Younger entrepreneurs are changing conventional business at an unpredictable rate with business models and processes that are quite different. Getting the mix right as mentioned in the article indeed needs to go beyond the race and gender rhetoric. Innovation may challenge the current board membership experience requirements and therefore lesser experienced, younger but innovative board members may bring more to building a successful and relevant strategy that will give companies competitive advantage.
Andrea Papadopulo says...
Posted Tuesday, 09 April 2019
Insightful article. Often "strategy" is discussed in the boardroom but very little attention is actually given to the formulation thereof. For most companies, the purpose of strategy is to remain relevant when, strictly speaking, strategy should create or try to maintain competitive advantage. If the mindset is totally risk averse to remain relevant, then these companies deserve to be displaced. There will always need to be some calculated risk for their to be any substantial reward. Some reading material on Ikea's latest strategy.