What Almost Every Board Misses About Strategic Planning
We work with many Boards on governance effectiveness. All Boards talk about their strategic plan.
Here’s what almost every Board is missing about strategic planning and their strategic plan: the strategic plan is NOT JUST ONE of the things the Board should be providing oversight on – the strategic plan is literally the definition of EVERYTHING the Board should be providing oversight on.
What We Observe About Boards and Their Strategic Planning
Boards treat their strategic plan like a separate priority from everything else they are doing. For example, Board meetings always include important updates – from the Chair, CEO, Committees, Leadership team, consultants, etc. Sometimes (in some cases consistently), there are also updates on the strategic plan. But. These updates are seldom if ever linked, as in – ‘the reason this update on facilities is important is because it helps us achieve a priority defined in the strategic plan’.
It’s the same with important decisions. We’ve observed Boards making important, often expensive decisions on systems, hiring, services, consultants, expansion, contraction and just about everything else, WITHOUT EVER LINKING the decision back to strategy or the strategic plan, ie, ‘the reason we need a new financial system is to mitigate the tax accounting risk that was identified as a priority in the strategic plan’.
Why the Strategic Plan is Everything to a Governance Board
The role of every governance Board is simple:
Identify risk to the organization
Validate and approve (in some cases, develop) a strategic plan
Performance manages the CEO who is responsible FOR EXECUTING THE STRATEGIC PLAN approved by the Board
The purpose of a strategic plan is also simple:
Mitigate risks that the Board has identified to the organization
Define what priorities the organization will focus on to execute its mission
Everything a governance Board does is related to its strategic planning.
Identification of risks (a critical Board role) drives strategy. Achieving the organization’s mission (a critical Board role) drives strategy. Execution of the risk mitigation and mission achievement strategies (the CEO’s role), drive CEO performance objectives (a critical Board role).
Also, everything the operational part of the organization does is related to strategy. The operational priorities are what come together to mitigate risks and achieve the mission.
What this means, is if the organization is seeking to fill an important position, that position is necessary to execute a strategic priority (either risk mitigation or mission achievement). Or, if the organization decides to implement new CRM system, the CRM system is necessary to execute a strategic priority (either risk mitigation or mission achievement). Or finally, if the organization decides to expand internationally, expansion is necessary to execute a strategic priority (mitigation or mission).
However, that is not how most Boards think or operate. We observe Boards sitting through days of updates, education and decision making. We measure the links and the time Boards spend discussing risk, strategy development, strategy execution and CEO performance. Compared to everything else the Board discusses, the time spent HAS NEVER exceeded 50%. Generally, the only reason it’s even close to 50% is if the Board is engaged in its strategic planning process.
The Implications of De-Linking Strategy and Operations
When organizations are busy doing work that is not strongly linked to the strategic plan, the risk that they are working on something irrelevant is huge.
The Implications of De-Linking Strategy and Governance
When Boards are busy doing doing work that is not strongly linked to the strategic plan, the risk that they will miss an important risk, fail to mitigate an important risk, and/or fail to achieve the organization’s mission is huge. We believe it is one of the most common reasons that corporate governance fails.
Taking Action – Linking Boards and the Strategic Plan
Here are the actions we recommend to help Boards link corporate governance to strategy.
Review the role of the Board. Make sure everyone on the Board understands the purpose of strategy (risk mitigation, mission achievement) and the role of the Board in approving strategic direction and measuring execution of strategic priorities.
Simplify the output of strategic planning. No Director has the time or inclination to absorb a five hundred page strategic plan. What Directors do need to internalize are the following:
The mission of the organization (who the organization serves and how it serves them; note that many organizations are shockingly confused on this)
The critical risks the organization is facing (updated every Board meeting)
The strategic pillars of the organization (those five-seven things the organization does to execute its mission (eg, pricing, destinations and schedules are key airline pillars – these five to seven ‘pillars’ will only change over time slowly)
The work required on each pillar to either mitigate risk or execute better (eg, better customer tracking; more social media visibility; expanded distribution – these get identified every couple of years)
The work that will be done annually on each (this is the annual operating plan, eg, hire a new VP by X date; issue the RFP for new CRM system by X date; etc.)
Adjust the agendas of Board meetings and the information the Board receives to:
Focus regularly on updating risks
Receive clear, precise updates on the achievement of the three-year strategic and annual operating priorities
Measure the performance of the CEO versus the strategic and operating goals the Board has laid out
Ensure that the presentation of every agenda item fits the strategic context “here’s why we’re talking about this; “here’s what was planned agreed”; “here’s what has been achieved so far”
Eliminate the random discussion of topics not clearly related to the strategic plan
There are many important benefits that accrue to Boards that understand the close link between governance and strategy. Sustainability and success of the organization are the most important. However, Boards that remain strategy-driven also save time. They avoid the waste that is incurred debating random topics that have no strategic context. If we can help your Board get clear strategically, we promise that your Board will be more effective.