One view is that a strategic plan is so central to organisational success the board should be actively involved in its preparation. The opposing view is that the board has neither the expertise nor the time available to add value in strategic plan preparation. Its proper role is to review and critique but, ultimately, approve the plan proposed by management.
It matters little which of these views has won out in your organisation. Even if the board has been actively involved, the result of most strategic planning exercises, is a plan for the management of the organisation, not for the governance of it.
What is wrong with strategic plans from a governance perspective?
- They are about the producer rather than the receiver.
Most organisations exist primarily to meet a need that exists outside the organisation. Even a small company established to create an income for its owner must have customers who receive a benefit worth paying for. Both the organisational entity itself, and any activity it undertakes, are simply means to create and deliver that benefit.
Ends distinguish purpose from path, results from process, and where one is going from how one is going to get there? (1)
The problem is that strategic plans seldom start with an explanation of the 'why?' of organisational existence or state the most important outcomes that must be produced to justify that existence. Nor do they clarify who will benefit from the organisation's existence and the respective priority of different stakeholder needs.
- They are unrealistic.
Although the terminology varies, most strategic plans lead off with 'vision' and 'mission' statements followed by goals and objectives. Too often these high-level strategic planning statements are unrealistic. Mission statements, for example, tend to be replete with ambition and wishful thinking but are unlikely to be achievable in any reasonable timeframe given typical resource constraints.
- They are about actions inadequately connected to impact.
Typically strategic plan statements are also full of active verbs that describe proposed actions (e.g. examining, viewing, celebrating, facilitating, maintaining, improving, contributing, etc.). It is problematic that the intended outcome or impact of those actions is seldom made explicit. A proposed action without an intended result being stated is no more than a solution to an undefined problem. There is no reference point against which to choose between different actions. Plans framed in this way are not the fault of management. To expect executives to prepare a worthwhile 'strategic plan' without an explicit board-defined context is like expecting an architect to design a building without knowing who the client is and the intended function of the building.
Strategic plans expressed primarily as a series of actions an organisation will take, make it difficult for a board to hold its executive team accountable for producing results. Management reports to the board are likely to describe what staff have been doing and what effort they have applied rather than what they have achieved.
- They confuse roles and are weak on accountability.
The governance of an organisation reliant on such strategic plans is weakened fundamentally in other ways. For example:
- When managers are allowed to report mainly on what they have been doing the board can do little more than observe management from the sidelines. The board is constrained to an inherently passive and reactive role. This makes the board, in a practical if not a constitutional sense, subordinate to management.
- The board has no basis for either organisational or executive performance evaluation. It is usually not possible for a board to tell whether and which organisational activity has achieved anything worthwhile.
- The lack of direction given by the board leaves a vacuum that forces management to make judgements that are the board's to make.
- They reflect the existing patterns of power and reinforce the status quo.
This approach also causes harm to the management process. In the absence of a starting point set by the board, strategic planning tends to be a 'bottom-up' process of the kind that encourages empire building and fosters intra-organisational competition and political gaming of the planning process. The resulting strategic plan is likely to be little more than an aggregation of divisional ambitions that pay little mind to what is desirable at a corporate level or are practicable with available resources.
Such a plan is also more likely to preserve the status quo than fulfil a change or even an organisational performance improvement agenda.
What does the board (and management) need?
For effective governance (and management) there must be a 'top-down' process starting with the creation of a framework within which properly dimensioned, purposeful and realistic operational planning can be carried out. When a board produces a statement of organisational purpose and strategic intent, it will have created:
- A statement setting out the primary reason for the organisation's existence. This would explicitly articulate the need(s) that the organisation exists to meet and define the beneficiaries (including client category, market segment, etc.) to be served. Unlike the generic rhetoric and application of most mission statements, it is a statement that could only relate to that organisation.
- A series of outcome statements (but perhaps no more than five or six) that break the purpose statement down into more specific components achievable in the medium to longer term.
- For each outcome statement, a series of even more specific results prioritised and realistically achievable within a short to medium timeframe. An important part of the annual planning cycle would be to allocate resources to these planned results according to the relative priorities the board has set between the different outcomes.
- A statement of organisational values to condition the selection of appropriate means or strategies for achieving the desired results.(2)
Directors and their boards tend to struggle to express themselves in outcome terms because they have been socialised to be action-oriented. Prioritising is even more challenging. Making hard choices and trade-offs are difficult and uncomfortable, but resource constraints demand it. Judging what is 'doable' must be a vital part of any board's strategic dialogue.
A plan that is unrealistic or unbelievable will also fail to stimulate the right kind of action within the organisation. Boards and management alike must balance, where necessary, the competing demands of short-term and long-term priorities. They must make judgements about the significance and relevance of emerging issues and opportunities. With the starting point of a clear organisational purpose and a careful specification of the most important outcomes to be achieved and for whom, decisions about what to do are much easier to make.
Those who will be responsible for achieving the results prescribed by the board (i.e. the chief executive and other key staff) must also be involved in this dialogue. The final judgements must, however, lie with the board. It is the board that is ultimately accountable for organisational performance.
What to do about these shortcomings?
Given the unavoidable conclusion that the board needs an entirely separate document to deliver effective organisational direction and control, how might this be achieved?
One approach might be to simply apply a governance 'makeover' to an existing strategic plan. The most relevant content could be extracted and converted into the kind of outcome-oriented document the board needs. This may require little more than the board going through and asking (and insisting on a satisfactory answer to) the question "what is this planned activity expected to achieve?"
However, a fresh start means a prior, management-framed strategic plan is less likely to constrain the board's thinking. The primary need for a board-led strategic thinking process is to provide a framework and a context for the management-led strategic planning to follow. Our experience is that only a relatively brief document (perhaps only 3 to 4 pages long) is needed for the board to set out a clear 'statement of organisational purpose and strategic intent' containing the components described above.
What are the benefits?
When supported by a formal delegation of authority this kind of brief statement of strategic intent should be sufficient for a board to be able to hold its chief executive accountable for effective performance. It should also be sufficient for the chief executive to be able to confidently design and implement strategies for the achievement of outcomes consistent with board-set priorities.
Other benefits from the changes suggested are also likely to prove significant. For example:
- The board's attention is freed up from unproductive engagement in what is essentially a management process. It can be far better spent seeking to understand what is going on outside the organisation where the justification for its very existence exists.
- Current activity and expenditure that is inconsistent with the achievement of specified results would be thrown into sharper relief making resources easier to divert to more productive uses.
- Reporting to the board would be simplified and more easily focused on the board's need to evaluate both organisational and chief executive performance and to express accountability to stakeholders for organisational achievement.
(1). Carver, John and Caroline Oliver (2002). Corporate Boards That Create Value. San Francisco, Jossey-Bass. Pp.20-21
(2) The other important and complementary task for the board is the creation of a delegation framework that specifies limits to the chief executive's decision making authority. See 'What's So Hard about Saying 'No'? Revisiting Limitation Policies'. Board Works #4