Board strategic planning: Roles, process & 6 tips to succeed with strategy
“If you don’t know where you are going, any road will take you there.”
This quote from the song “Any Road” by George Harrison sums up a company’s path when it doesn’t have a well-developed and well-thought-out board strategic planning process.
A strategic plan is a road map, the primary purpose of which is to move a company from its present position to a point where the owners and CEO want to take it. The irony, according to Harvard Business Review, is that while the board is essential to creating this map and the course it charts, this function of the board typically receives little attention. Here, we explain why it’s essential to give board strategic planning its due, including:
- The importance of the role of the board of directors in strategic planning
- What that role entails
- How boards can challenge — and complement — management’s point of view
- Driving board-management alignment in strategic planning
- A typical board strategic planning process
- Board management best practices during strategic planning
Why should the board of directors have a role in strategic planning?
The most important role of a CEO and the C-suite leadership team is to create and successfully execute the strategic plan, the board’s role is equally vital in overseeing and developing the company’s strategy. There is a wide range of views about the preferred extent of a board’s role. A simple gauge of proper allocation of responsibility might be to ask, “If a board is handling the load of developing strategy, what is the CEO, the person most familiar with the company on a day-to-day basis, up to?” On the other hand, if the board plays no helpful role, it may be time to find new board members.
At first glance, it sounds like a trivial observation that boards should be highly involved in corporate strategy. Directors themselves recognize the need: Collectively, they rate long-term strategic planning as the top issue demanding their attention. Shareholders and management are increasingly relying upon their boards to take a more hands-on approach in setting company strategy, as today’s leaders face many new challenges:
- Corporate strategy is becoming more critical to a company’s well-being. A combination of macroeconomic factors, including a downward trend in global investment and productivity and the disruptive effect of increasing technologically driven change, make it abundantly clear that simply extending historically effective strategies won’t suffice. The demise of Sears provides a striking example.
- External political forces are playing a more significant part in strategy. Complex trade disputes, more pressing social expectations in areas like diversity, and rising shareholder activism influence a company’s path to success and require more board oversight.
- Immediate and frequently competing board commitments can crowd out longer-term efforts such as strategy. A board’s legal priorities force more focus on audit, compensation and governance issues. Heightened regulatory challenges, including the Sarbanes-Oxley Act, require a constant eye on compliance. New risks continue to appear, such as cybersecurity, data privacy and harassment.
- The accelerating pace of change requires companies to review and reevaluate their underlying strategic assumptions continually. Globalization, stakeholder capitalism, digital transformation and more have radically reshaped the business landscape. Pulled between strategy and day-to-day tasks, management may struggle to keep up with changes. Boards, on the other hand, are better positioned to stay informed.
Role of board of directors in strategic planning
The very nature of a board’s relationship with its company and the modern corporate environment itself dictate the factors that define a board’s role in strategic planning:
- Long-term focus. As mentioned above, a CEO, by necessity, lives in a day-to-day world, and shareholder pressure often ties the next big goal to the end of a quarter. Boards, on the other hand, exist apart from the company’s daily challenges. The board has the luxury of looking to the future and mitigating some of the negative impacts of short-term thinking. It is from this vantage point that strategy is best contemplated.
- Board (and broad) connections. Research demonstrates that companies frequently highlight external noncompetitive economic and political forces in annual reports. Board members typically have a wide range of connections and contacts in various other political, business and industry settings, which can provide a window to important insights. Again, countering the necessary single focus of the C-suite, boards can and should leverage this connectedness to recognize and respond to emerging threats or opportunities.
- Expanded knowledge. We are witnessing a revolution in companies’ opportunities to expand or cross over industry boundaries quickly. High-technology companies such as Amazon, Apple and Google illustrate how dramatically new business models and technologies allow companies to explore and exploit new sectors and rapidly expand their customer bases. Detailed, sector-specific knowledge only carries a company so far. Board members can bring cutting-edge knowledge about new technologies and competitive opportunities to bear on company strategy and fill management’s skills or knowledge gaps.
- Regular and specific pushback. A board’s natural governance role translates into strategy oversight. The rapid change and more complex challenges place a premium on effective oversight. Boards thus find themselves uniquely situated to test management’s strategic effectiveness in various ways, including regularly challenging key underlying assumptions and ensuring the effective execution of the strategy.
Board strategic planning process
Creating and following through on an effective strategy plan isn’t for the faint of heart. It takes a lot of careful thought, questioning and courage to challenge the status quo, including:
- Continually dedicating time to strategic planning: One of the most significant challenges in the strategic planning process is getting everyone to slow down and take the proper time to do a thorough job. Strategic planning is a process. It wasn’t designed to be completed in the course of a meeting. Most boards find that they need several board or committee meetings to complete the process so that they have confidence in it.
- Analyzing the landscape: Boards should consider doing a situation analysis and a SWOT analysis as part of their strategic planning process. They need to identify the goals and objectives they want to achieve over the short and long term and then outline the company’s strategies to achieve them. A situation analysis considers the economic, competitive, technical, regulatory and societal environment when the company is scheduled to achieve its goals and objectives. It’s essential to recognize the impact of these areas because boards and managers have little or no control over them. By considering the impact of these areas before identifying strategic action steps, the board and managers can adapt their plans to succeed despite any fluctuations in external departments or systems.
- Thinking beyond strengths and weaknesses: It’s not enough to merely identify the company’s strengths, weaknesses, opportunities and threats. Boards should consider and record ways to build on their current strengths. In looking at weaknesses, they must analyze how to minimize the impact. They should consider how to take the best advantage of every opportunity and, perhaps most importantly, come prepared to discuss ideas about how to defend against threats.
- Developing new strategies: After considering the strengths, weaknesses, opportunities and threats and considering the impact of all the areas included in the situation analysis, boards should develop new strategies to meet their objectives.
- Reviewing and improving the strategy: Don’t complete the strategic plan and then just throw it in a drawer. Strategic planning requires ongoing review. Boards and managers have the most experience, so they should keep the strategic plan handy and share their views on it continuously As they review it, they should ask themselves whether conditions have changed and, if so, whether the right strategies are still in place.
Challenging management’s ideas to form the best strategic plan
During strategic planning, board directorsmust remember that they must challenge the CEO’s and senior managers’ ideas. This isn’t easy, especially when the CEO is a strong leader with a powerful reputation and long tenure. The CEO’s reputation counts, but it’s not everything. Consider every idea based on its own merits. Don’t be afraid to reject ideas with a low chance of success,even if senior managers favor them.
Think about the risks that may accompany specific plans. Initiate discussions on whether those risks are worth taking and whether there are any ways to mitigate them. Also, engage in lively discussions about whether the strategies and risks fit with the company’s strategic direction.
Aligning management and the board of directors in strategic planning
How, then, can a board enhance its effectiveness as a strategic partner with management? What are some key best practices that reflect proper board strategic planning?
- Educate management about the strategic process. A board can assist management in understanding and selecting the proper process to develop a strategic plan. For example, a good starting point might be a SWOT analysis to understand the company better. This will help you understand its strengths, weaknesses, opportunities, and threats.
- Assure that any strategic plan addresses all the resources necessary to implement the strategy effectively. For example, identify where additional investment will be required for added personnel and training;
- Create strategic options for the board to discuss with management initially. Introducing options for discussion compels board participation and utilizes individual board members’ skills and expertise. As a by-product of maximizing the use of respective strengths, resulting discussions will foster understanding and long-term agreement;
- Establish channels for regular communication between the CEO and the board to continually keep the board current on the state of strategic plan development and its execution; and
- Identify at the outset and continually be alert for red flags and warning signs that indicate the strategy is not returning anticipated results and may need revision.
6 tips for effectively managing the board of directors and strategic planning
The strategic plan should be a living document with a plan to take the company from where it is now to where it wants to be over the short and long term. As such, managing the plan and the board requires careful, ongoing oversight — especially if the board habitually lets management run the show.
Managing the board and strategic planning successfully requires:
- Expressing differing opinions: Don’t be afraid to acknowledge the elephant in the room. If you don’t believe something will work, don’t just go along with the crowd. Others in the room may be glad that somebody finally called it out. Remember that you were chosen to be a board director so that you could offer up independent opinions and not just go along with everyone else.
- Challenging the status quo: Make sure that strategies are in place for every objective and that they will meet the desired end. Don’t be afraid to speak out about using the same approach the board has used in the past, which has never worked. If this is their first time working, why would anyone think they’d work the next time? Determine if there’s a better approach and whether the goal is reasonable.
- Avoiding weak approaches: Don’t be afraid to ditch a losing strategy altogether. Refocus your planning on things that will work. Factor in your competitors’ potential responses. They’re sure to have one which may impact your strategic plans. Stand ready to revise your plan if the competitor moves in a way that hurts your company’s progress.
- Building a strong management team: Consider whether your current managers and leaders have the skills, experience and mindsets to carry out the strategic plan regardless of past performance. Don’t be afraid to get rid of people now who won’t be a good fit for fulfilling the strategic plan in the future.
- Providing guidance: Remember that the board’s role is advisory. All board directors should ask questions that stimulate thought and provide guidance. Assess the associated risks that may accompany your strategic plan. Ask openly, ‘What issues aren’t on management’s radar?’ It takes courage to raise some issues, and it’s the board’s job to demonstrate their valor.
- Adopting a board management system: The most efficient way to enhance board effectiveness is to utilize board portal technology. This technology can facilitate collaboration and secure communication and empower boards to make better strategic decisions. It’s the perfect tool for collaborating using a highly secure governance platform.
Streamlining strategic planning from the board down
To effectively engage in its role in strategic planning, the board must have a diversity of expertise and experience that brings a strong knowledge of not only the underlying industry but also the external economic, technological, and other factors that will impact the company in the future. Yet, expertise alone isn’t enough.
The board of directors must continually manage and examine itself to ensure that it cultivates alignment with management — an aim difficult to achieve without a board portal. Unifying board and executive collaboration in a single platform provides management with the type of meaningful strategy planning leadership that enhances short- and long-term collaboration — both keys to boosting financial performance and building shareholder value.
Explore Diligent Boards, part of the Diligent One Platform, today to future-proof your board strategic planning.
