• Categories: Strategy and Planning
  • Published: Dec 15, 2022
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Graeme Nahkies and Terry Kilmister

Good Governance #53, September-October 2006

We frequently hear boards and directors, individually, expressing their desire to ‘be more strategic’. In our experience, boards vary greatly in what they mean when they express this aspiration. 

For some it means a very active role indeed. For others it may mean little more than a chance to ‘sign off’ on a management-produced ‘strategic plan’. Our own view is unequivocal and entirely consistent with that expressed by Henry Bosch who said:

The board's first responsibility is to ensure that the organisation has clearly established goals, objectives and strategies for achieving them; that they are appropriate in the circumstances and that they are understood by management. [1]

The process of conceiving goals, objectives and strategies is commonly referred to as ‘strategic planning’. In this article we examine just what strategic planning is—or should be—in relation to the evolution of the organisation and the development of a board’s role and responsibilities relative to that of its chief executive.

What is strategic planning?

According to Henry Mintzberg [2] (who has described several different ways people think about planning) it can be seen variously as:

• future thinking—simply taking the future into account
• controlling the future—acting on thinking about the future to achieve a desired outcome
• decision making—determining in advance what actions and resources are needed to reach a goal
• integrated decision making—when the decisions to achieve a desired future state are interdependent
• a formalised procedure—when to produce a defined result, an integrated and articulated system of decisions is needed.

Mintzberg also lists the main arguments commonly made as to why organisations must plan: [3]

• to coordinate their activities—to ensure that the activities of different parts of an organisation are consistent with a common set of goals. The planning process is thus seen as a means for communicating across an organisation.
• to ensure the future is considered—to understand the future implications of present decisions
• to be ‘rational’—planning represents a superior form of management
• to control—planning is inherently about the control of those whose work is ‘coordinated’.

To this list should be added concepts related to the idea of the ‘learning organisation’:

• to ensure relevancy. In this sense, planning is learning about and making sense of the organisation’s operating environment—to ensure that what the organisation does is relevant to its stakeholders’ needs and aspirations and acknowledges the realities of the environment in which the organisation operates.
• to ensure effectiveness and ‘ownership’. The process of preparing a plan embraces those whose commitment and effort is essential to effectively implementing some desired direction.

A different way of looking at this is to consider a possible set of criteria for deciding what is ‘strategic’. Typically, matters can be considered strategic (and thus the appropriate subject of strategic planning) if they:

• go to the heart of why your organisation exists
• would involve a significant commitment of resources
• might move your organisation into a whole new area of business
• require a decision, the results of which would take a long time to become evident
• will have lasting impact.

Taking these lists together and synthesising their essence leads to the conclusion that, in a governance context, ‘strategic planning’ primarily means addressing matters ‘of relative consequence’.

This useful summary concept goes to the heart of the governance challenge—how can a board get an effective focus on, and get to grips with, that which is truly ‘strategic’—ie, of real consequence to the organisation. Strategic planning then would also seem to be a process rather than a product (a plan) which addresses the need for an organisation to continually take deliberate steps to identify and deal with issues which have real consequences for it.

Why is the board accountable for active (and effective) strategic planning?

The actual role played by the board and the effectiveness of its contribution in relation to this responsibility varies greatly from one organisation to the next. In some cases, the board’s ineffectiveness has proved fatal. For example, Cyril Houle has commented that:

Many boards have so indefinitely postponed the task of stating or reviewing what they want to achieve that their programs have stagnated, decayed or died. [4]

The board is accountable for active (and effective) strategic planning simply because, in the overall chain of accountability, ‘the buck (for organisational relevance and achievement) stops’ with the board.

The governing board of any organisation is accountable directly or indirectly to some other broader group or interest. Most commonly it is accepted that these are the owners—whether legal (eg, shareholders or members) or ‘moral’ (eg, residents in relation to their local government). The board acts as ‘trustee’ for the owners’ interests in seeing that the organisation continues to fulfil some need or purpose and does so in a manner that is economically acceptable and sustainable.

The key point is that a board does not act in isolation. There are other, higher interests to be served than its own.

The board’s role in strategic planning

Mintzberg’s definition of strategic planning is a “formalised procedure to produce an articulated result in the form of an integrated system of decisions”. [5] While few would argue that this is not a ‘good thing’, it is clearly unlikely that a board comprising part-timers—often lacking expertise in the operations of the organisation—would be able to produce the type of plan Mintzberg’s definition implies. It suggests planning activity that is highly structured and at the task-oriented management end of the continuum.

Before detailed management planning can begin, however, there must be a context. If the board has not done its job at the front end of the strategic planning process to determine where the organisation is heading (ie, organisational purpose, direction and priorities), the chief executive and other executive planners are effectively forced to do their more detailed implementation planning in a vacuum. To the extent they are forced to guess what they are expected to achieve, it is a risky business for executives and board alike.

A simple distinction can and should, therefore, be made between the board’s role and that of the executives and others participating in the planning process. The board’s principal responsibility should be defined as determining—through a process of strategic thinking—the fundamental questions: Why does this organisation exist? What is its future? Where do we want it to go? What are the trade-offs we must make?

The essence of the board’s role in strategic leadership

…most of what the majority of boards do either does not need to be done or is a waste time when the board does it. Conversely, most of what boards need to do for strategic leadership is not done. [6]

There is a large measure of truth in this generalisation. The challenge for each board, therefore, is to organise its time, the content of its meeting agendas, and the process of its deliberations, to ensure that it has the type of continuous strategic dialogue needed to give direction.

• Finding time—nothing should be more important to a board than the ‘design of the future’. A board can learn from but cannot change what has happened. It can only influence matters that lie in the future. Most of the time of any board meeting should deal with anticipating, understanding and influencing the future.
• Getting the ‘right’ focus—regardless of the length of a board meeting, its content should predominantly deal with matters that have substance, are ‘strategic’, and are relevant to the board’s governance responsibilities.
• Applying the right processes—giving effective direction requires a board to engage in a continuous conversation that is effectively a collective search for meaning about the direction of the organisation. While the board must lead this process and ultimately decide what to do with what is learned, it must actively seek out and embrace others (management, staff, customers, suppliers and other important stakeholders).

 

Many boards are relatively unprepared and unskilled in the last of these. So, let’s concentrate on some of the activities central to a board’s effectiveness in conducting the type of strategic conversation required.

Five key activities will help this. The first three are central to the real work of the board. [7] The final two are likely to be delegated, to varying degrees, to the management team, although the board has a continuing interest in these as well.

• Scanning—the board organises its meeting agenda so it can routinely consider what is going on in its operating environment. We often refer to this as the ‘radar screen’ discussion (eg, What are the new blips on our radar screen? What is their significance? What further attention should we pay to them?). The purpose of this process is to build and maintain an objective awareness of the organisation and its environment—looking, for example, to the words and actions of key stakeholders for signals of changes that could have strategic implications.
• Thinking—what Thomas and Roberts have described as “the activity of pressure testing current explanations of reality and models of the business and developing and exploring alternatives.” [8] Using scenarios is invaluable in this process. A board with a diverse membership has a great advantage in this and the scanning process because they find it easier to look at things from a variety of different angles. Input from management is also important, as is deliberate action to tune into what important stakeholders know and think.
• Choosing—deciding on a view of the future operating environment and how best the organisation might fit into that environment. This involves making decisions about the high-level outcomes and more detailed results the organisation will attempt to achieve and how it will allocate resources to the different strategies that must be designed to achieve those outcomes. The board's ability to engage in a dialogue that includes detailed scrutiny of preferences, assumptions, etc. is critical to this process.
• Planning—or operationalising the choices. It starts with the type of conversation that says, ‘we know we are we going but how will we get there?’. This is where the strategic choices made by the board are translated into action. In many organisations this will be the principal responsibility of the chief executive and his or her team, with the board engaged to varying degrees—most likely according to its assessment of the risks involved in different strategies.
• Implementation—intelligently executing the actions the organisation has agreed to and that have been documented in the strategic plan. Things are unlikely to turn out exactly as planned. In fact, when strategic planning fails, it tends to be less a failure of conceptualisation than of execution. [9] The plan’s implementation must be monitored carefully to determine whether intended results are being achieved and, if they are not, what corrective action should be taken. Assumptions and action plans must be continually questioned even though great care was expended on these in the earlier stages. This process leads straight back into the 'scanning' activity.

If the board is to do its job well, it must be ‘strategic’. It takes the lead in providing clear direction for its organisation. It also plays its part in the overall ‘strategic planning’ process by continually scanning the environment, thinking about possible alternative futures, and making decisions that take those into account as it seeks to achieve defined outcomes. It also keeps a close watch on plan implementation.

These activities must be deliberate and continuous. No board will become truly ‘strategic’ if it relies solely on its own wishful thinking and the efforts of its management team. The latter, in any case, needs the board to provide its strategic thinking framework first.

 

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Notes

 

[1] Henry Bosch (1995) The Director at Risk. Pitman Publishing, Melbourne. p 93).

[2] Henry Mintzberg (1994) The Rise and Fall Of Strategic Planning. Prentice Hall, Hemel Hempstead, pp 7-15.

[3] Mintzberg (1994) op cit., pp16-21.

[4] Cyril O. Houle (1997) Governing Boards. Jossey Bass, San Francisco. p. 128

[5] Mintzberg (1994) op cit., p 31

[6] John Carver (1997) Strategies for Board Leadership. San Francisco, Jossey-Bass.

[7] These are derived from Andy Thomas and Charlotte Roberts (1999). ‘Strategy as Conversation’. In Peter Senge, Art Kleiner, Charlotte Roberts, Richard Ross, George Roth and Bryan Smith, Eds. (1999) The Dance of Change: the Challenges of Sustaining Momentum in Learning Organisations. London, Nicholas Brealey Publishing.

[8] Op cit, p.520

[9] Jeffrey Pfeffer and Robert I Sutton. (2006) Hard Facts, Dangerous Half-Truths, and Total Nonsense. Boston, Harvard Business School Press