A Better Blueprint for Strategy

Mar 08, 2017
One of the most important roles of a board is to guide an organization’s strategy, and yet there are few standards or accepted processes for doing so. John Caldwell, a seasoned director and experienced CEO, together with Ken Smith, a strategy consultant and director, have created a new framework and tool box that they
say will allow directors to do a better job of overseeing strategy. Their report was commissioned by Chartered Professional Accountants of Canada (CPA Canada) and is entitled “Overseeing Strategy: A Framework for Boards of Directors.”

The Institute of Corporate Directors is working with CPA Canada to develop a one-day course based on the framework. Sessions are expected to begin by the end of the year. John Caldwell recently sat down with Director Journal to discuss the origins of the initiative and some of the report’s details.

Why is strategy in the boardroom an important issue today?
A key role of a corporate board of directors is to oversee long-term value creation for the enterprise. This function has grown increasingly challenging with the continual pressure for short-term results. In this environment, conventional board review of strategy is not enough. Directors offer long-term perspective and they need to be more involved overseeing strategy development and execution.

If you ask board members what are their top five board priorities, you will find that they rank strategy as No. 1 or 2. Unfortunately, even though strategy ranks as one of a board’s most important functions, what you find is that there are no standards for oversight nor the management methodology for strategy development and execution. Every organization decides differently what it wants to provide its board in the way of a strategy process.

From my experience this leads to significant gaps; strategic oversight is an area of weakness for many boards. Just about every plan I’ve seen is different in everything from strategy development, plan format and content as well as executional process. During my career, I’ve sat on 13 boards, and I’ve been frustrated by the difficulty in getting management teams to adopt a more rigorous strategic process. The annual review of strategy, for example, is too little, too late. Oversight of strategy should be a continuous process.

The objective of this project is to provide directors with a set of tools and a framework to allow them to do a better job of overseeing strategy. In addition, it provides management with some guidelines as to what boards should expect to see in the way of strategy development and a strategic plan.

So there’s some frustration from the board’s side, but what is the sentiment among members of the management team – how will they receive this framework? My expectation about how this will work is that the board will send the framework to management and likely put the onus on them to determine how it may be applied in their enterprise. I suspect there will likely be two diametrically opposed responses. One will say: “Gee, this is great. We understand now what the board wants.” The other will say, “We’ve got our own processes and a strategic plan that we’re comfortable with, and we don’t see it being changed.”

Can you give us an outline of the framework?
There are four buckets, if you will, and the roles that management and the board should play, as well as the tools needed to assist directors, are clearly set out for each of these.

The first part is procedural. It asks what is the methodology that your organization is using to develop strategy
and what is the environment in which the enterprise is operating? It also identifies key issues and data needed to begin to build the plan. This is the phase where you lay out the groundwork to start building the strategic plan.

The second part is plan formulation. This phase begins by asking what the business should look like at the end of the period covered by the plan. This is where strategic options get prioritized. Key questions at this point include what should be in the strategic plan and what should be the board’s role in overseeing each element of the plan? Directors should be heavily engaged in reviewing the strategy and not tolerate an incomplete, unrealistically ambitious or unconvincing plan.

The third part is execution. Even though this is where the rubber meets the road, director oversight of implementation is frequently unstructured and sparse. Boards need to participate more in this phase, asking what are the processes to ensure the strategic plan is implemented – including the appropriate deployment of
people and capital.

My experience on boards is that members typically spend about 95 percent of their time on overseeing
strategy formulation and only 5 percent on strategy execution. I don’t know for certain what the proper split should be, but I would say at least 50-50 would be a good split between formulation and execution. I look at the execution side as an ongoing board process. You are monitoring how strategy is being implemented and understanding what’s working and what’s not.

The fourth phase ties back to execution, asking what are the benchmarks, the metrics, or early-warning signs that allow the board to really understand how the enterprise is performing against the strategy. This phase should include a formal mid-cycle review of strategy to assess performance. Directors also need to know that
there are processes in place to initiate corrective action if things are running off course, and they need to be able to determine when it is time to refine or create a new strategic plan.

The emphasis of this whole document is on keeping things relatively simple and very practical. This is not some theoretical exercise. We want to make this as useful as we can to help guide management and to
provide the board what questions it should be asking and what information it should be receiving to do a better job overseeing strategy.

From a practical point of view, what would this four-part framework require of directors that is different? Would a greater role in strategy, for example, demand greater industry expertise?
Not all directors have the same level of industry experience. What’s important for those board members who have less industry experience is they should be brought up to speed and made as knowledgeable as they possibly can. One of the best ways to do that is to have the contextual information for the strategic plan provided by management.

So will the framework lead to a greater demand of board members’ time?
Not necessarily, because a much better structure will allow directors to use their time more efficiently. The
whole issue of strategy runs over an annual cycle, and literally, in every board meeting, there are going to be issues of strategy that are going to be discussed in a more structured way than perhaps in the past. So I don’t know if it’s more time; it’s just better use of time.

This is a new concept you have created. Is the framework in use anywhere yet?
We are actually implementing it right now at one of the companies where I serve on the board. We have spaced it out through an annual cycle and right now we are going through the implementation phase, which I think will probably take a full year. The board is comfortable with the process, and we have said to management, “Let’s do this in bite-sized pieces so it’s a little more manageable.” If I’m realistic, I suspect it will take two or three years to become a well-ingrained process in the organization.

John Caldwell is the chair of the board for Advanced Micro Devices Inc. He is also a director of Faro Technologies Inc., a leader in three-dimensional manufacturing measurement systems; the mid-tier miner
Iamgold Corp.; and Samuel Son & Co. Ltd., a metal processor and distributor. He has served on 13 boards of directors and over a period of 18 years, led three public companies as CEO. He attained his CPA, CA designation with PricewaterhouseCoopers.

Source: Director Journal (March/April 2017)