Strategy and execution are the 2 critical elements that drive a business. However, leaders often struggle even with defining—let alone devising and executing—an effective strategy. Many of those who are responsible to deal with it fall short of describing how they typically employ it. This failure takes its roots from the fact that there is no clear path associated with strategy.
Strategy is about making sound decisions about unforeseen problems. It’s about selecting the right options—about matters that are often quite ambiguous today but have great significance in the future—based on thorough contemplation, detailed analysis, and creative ideas. Broadly speaking, strategy encompasses these 3 main elements:
- A vision and direction
- A certain position or pattern
- A deliberated Strategic Plan to achieve strategic goals and vision
Great strategists execute their plans, analyze the results, evaluate their actions, and perform course correction based on the outcomes. They are not afraid of even revamping their approach entirely. Senior leaders should clarify their understanding of the concept of strategy and draw attention to the importance of differentiating between the 3 distinct types of strategies before formulating their own course of action:
- General Strategy
- Corporate Strategy
- Competitive Strategy
Let’s delve deeper into the 3 types of strategy.
General Strategy indicates how a specific objective will be achieved, with well-thought-out plans. The focus of this type of Strategy is on ends (objectives and results) and means (the resources we have to achieve the objectives). Strategy and tactics combined bridge the gap between ends and means; where Strategy deals with deploying the resources at our disposal while tactics govern their utilization. A pattern of decisions and actions marks progress from the starting point to achievement of objectives in General Strategy.
Senior executives need to deliberate on the following questions before devising their General Strategy:
- What do we do?
- Why are we here?
- What kind of business are we?
- What kind of business do we want to become?
- What is our purpose? What are the results we seek?
- What is our existing Strategy, is it explicit or tacit?
- What Strategy and plans may bring about the results we want?
- What resources we have at our disposal?
- Are there any constraints in terms of resources that limit our actions?
Corporate Strategy describes what a company does, the purpose of its existence, and what it aims to become. Corporate Strategy focuses on choices and commitments concerning the markets, business, and the organization. Corporate Strategy classifies the markets and the businesses in which a company will operate. This type of strategy is typically decided in the context of defining the company’s mission and vision.
A detailed assessment of the existing strategy, market, competition and environment is critical for devising the Corporate Strategy. Strategists indicate that there are critical elements that should be factored in while formulating Corporate Strategy. These elements include product or service offerings, resources, marketing and sales approaches, manufacturing capabilities / capacity, customers, distribution channels, technology, type of market and its requirements, and revenue and profit goals.
While formulating Corporate Strategy, senior executives should consider and seek answers to the following questions:
- What is our existing Corporate Strategy?
- Is our Corporate Strategy explicit or tacit?
- What are the critical assumptions that make our existing strategy viable?
- What is going on in the market—in terms of social, political, technical and financial environment?
- What do we seek to accomplish in terms of our growth, size, and profitability targets?
- What markets we are eyeing to compete in?
- What businesses we intend to operate in?
- What locations and geographies will we compete in?
Competitive or Business Strategy specifies for an enterprise the core reason on which it contests its rivals. It depends on an organization’s competences, advantages, and disadvantages compared to the market and the rivals.
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In the modern age, organizations are striving to form a sustainable Supply Chain system to cope with the challenges that are arising. Such issues include the emission of hazardous substances, excessive resource consumption, Supply Chain risks, and complex procedures.
Through Strategic Planning, organizations around the globe are adopting strategies to become a sustainable organization. In fact, there is an increasing trend towards organizations adopting sustainable Supply Chain Management practices.
Gaining a Foothold on Supply Chain Management
Supply Chain Management is the design, planning, execution, control, and monitoring of Supply Chain activities. It addresses the fundamental business problem of supplying products to meet demand in a complex and uncertain world.
Looking at Supply Chain Management, we can see that it draws on the value chain concept of business strategist, Michael Porter. It looks at supply issues at the multi-company level. It creates net value, builds a competitive infrastructure, leverages worldwide logistics, synchronizes supply with demand, and measures performance globally.
The need for Supply Chain Management came about when shorter product life cycles and greater product variety has increased Supply Chain costs and complexity. And as outsourcing, globalization, and business fragmentation became a common practice, there was now the need for Supply Chain integration. This was further emphasized with the advances in emergent technologies. which created more opportunities for Digital Transformation within Supply Chains.
The 4 Levels of Supply Chain Management Strategies
There are 4 Levels of Supply Chain Management Strategies. The first 3 strategies are foundational Supply Chain Strategies.
Before any Supply Chain can be considered sustainable, there are 3 foundational Supply Chain Strategies that need to be undertaken.
- Legal Supply Chain Strategy. There are a number of legal rules and regulations that need to be followed by organizations. The Supply Chain Strategy must cater to all legal rules. An example is a ruling according to the Restrictions of Hazardous Substances Directive (RoHS) wherein an organization must not rely on the mercury, cadmium, and chromium as they result in huge emission of hazardous substances.
- Ethical Supply Chain Strategy. To become an ethically strong organization, it is required that the organization operates with integrity and focus on what is right. The organization could develop a policy that governs the organization’s operations. It is also essential that the Supply Chain quality assurance team that is built complies with ethical sustainability.
- Responsible Supply Chain Strategy. To become responsible, the organization could spend resources in compliance with sustainable rules. The organization could set up training and development programs to drive sustainability within the organization. It can also focus on environment-friendly activities to boost its social responsibility.
Before an organization can become sustainable, significant efforts must be exerted to put the 3 foundational Supply Chain Strategies in place within the organization.
Reaching the Level of Sustainability
Sustainable Supply Chain Strategy has become increasingly important as more and more organizations are focusing on putting it in place. According to the MIT Slogan Review, over 75% of organizations listed in the S&P 500 reported sustainability reports where it shows that catering up to the responsibility is becoming highly challenging and important. There has been a significant increase and inclination towards sustainability and this depicts the importance of becoming sustainable.
With the passage of time, it has become evident that organizations around the globe are becoming fond of sustainable considerations.
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Strategic Supply Chain Planning is the “Pegasus of Strategy.” It can soar, but it also needs to keep its feet on the ground.
Companies with a global supply chain now need to introduce its strategic left hand to its operational right hand. To make planning more valuable, its strategic supply chain planning needs to combine strategic planning with its tactical supply chain planning. The importance of aligning strategic direction to the supply chain has become of utmost importance.
Senior Managers formulate strategies to maximize shareholder value. Supply chain planners run optimization models to minimize costs. If scenario planning is combined with supply chain planning, the best of both worlds is achieved. The company can expect to achieve a long-term competitive advantage.
Strategic Supply Chain Planning provides the framework in selecting projects that best support the organization’s supply chain objectives and strategies. It plays an essential role within the Planning Spectrum.
The Planning Spectrum
Within the Planning Continuum are 3 decision-making models of importance to the business.
The range of Strategic Planning approaches across the Planning Spectrum depends on the fundamental changes it is focused on. Strategic Planning, Strategic Supply Chain Planning, and Tactical Supply Chain Planning differ in terms of scope of decision making, decision horizon, flexibility to act, and possible tools to use.
Let us take a look at Strategic Planning. In Strategic Planning, its scope of decision making covers the entire nature of the business. This means that the planning scope covers the reevaluation of the business model.
When undertaking Strategic Planning, there are several tools that can be used. Organizations may use the Framework Analysis or lower-level analysis that may entail the use of spreadsheets. Dynamics tools and other simulation tools may also be used.
If we look at the Strategic Supply Chain Planning, its scope of decision making is more focused or directed. This is undertaken to determine whether there is a need to open or close plants and distribution centers. It is used to determine whether there is a need to modify capacity, change product offerings even the decision to manufacture in-house or to outsource it. Strategic Supply Chain Planning is more directed towards a specific area.
Once Strategic Supply Chain Planning has been undertaken, it is appropriate to follow this up with Tactical Supply Chain Planning. It is at this point wherein organizations now have to plan out and determine which plant should produce what product over the coming months depending on the demand forecast.
When undertaking the Planning Spectrum, it is best to understand the scope of decision making of each planning approach for organizations to achieve the best results.
Other Organizational-based Tools
The 3 Planning approaches have demonstrated effective use of organization-based tools to maximize results and impact. One is the use of Optimization Models for Strategic Supply Chain Planning. The Optimization Model has been known to have been applied effectively by corporations such as Baxter International, Inc., Pet Inc., and GM.
Baxter International, Inc. has been successful in using SAILS or Strategic Analysis of Integrated Logistics Systems. It has been used to evaluate consolidated approaches. Pet Inc was able to used SAILS to assess supply chain synergies from 2 potential acquisitions.
The use of the Optimization Model in Strategic Supply Chain Planning and Tactical Supply Chain Planning differs both in design and use. Hence, it is essential for organizations to have a good understanding of the Planning Spectrum to effectively integrate to use the Optimization Model.
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Supply Chain Resiliency is the capability of the Supply Chain to be prepared for unexpected risk events. It is the Supply Chain’s ability to respond and recover quickly to potential disruptions. It can return to its original situation or grow by moving to a new, more desirable state in order to increase customer service, market share, and financial performance.
Resilience is currently an increasing concern in the Supply Chain caused by globalization. The Supply Chain is globally being subject to diverse types of disturbances. The largest disruption so far in the global Supply Chain in modern history was the earthquake and tsunami in Japan in March 2011. With the rising level of logistical complexity, the resiliency of the Supply Chain has not kept pace. These disturbances need to be handled in the right way, compelling the use of tools and approaches that can support resilient Supply Chain decisions.
With the onset of the COVID-19 pandemic, resiliency in the Supply Chain is further emphasized.
Understanding Supply Chain Resilience
The risk of Supply Chain disruption is increasing. A recent study by Aon Risk Solutions showed that the percentage of global companies reporting a loss of income due to a Supply Chain disruption increased from 28% in 2011 to 42% in 2013. The MIT Scale Network Study further showed that many large companies are unable to create contingency rules and procedures for operations during a complex, high-risk event.
According to the MIT study, approximately 60% of surveyed managers either do not actively work on Supply Chain risk management or do not consider their company’s risk management practice effective. Managers have been found to be lacking in a framework that will guide them in the deployment of risk management practices. In fact, it has been noted that there is little understanding of risks resulting in a lack of knowledge of what kind of framework fits a particular Supply Chain dynamics.
For Supply Chain Management to keep up with the increasing level of logistical complexity, there is a need to reconfigure the Supply Chain.
The 5-phase Approach to Supply Chain Resilience
In 2005, Cisco had difficulty coping when Hurricane Katrina struck. The Supply Chain performance level was not maintained to cope with the sudden surge in orders for new equipment to replace damaged telecommunication infrastructure. The Cisco teams cannot locate all products in the Supply Chain or understand the financial impact of emergency sales. However, in 2011, that was a turning point for Cisco. Cisco had deployed a very solid Supply Chain resiliency program that addressed the impact of external vulnerabilities and the aftereffects it caused to the Supply Chain.
Cisco has succeeded by executing a 5-phase approach to Supply Chain Resiliency.
In reconfiguring its Supply Chain to make it more resilient, Cisco first identified its strategic objectives.
Phase 1: Identify Strategic Objectives. The first phase is focused on identifying competitive priorities for particular product categories. It matches priorities with Supply Chain capabilities.
Through Strategic Planning, Cisco was able to build its competitive advantage which depended on its ability to match global opportunities to outsource production with global market opportunities. This is known as the Cisco Lean Model.
Phase 2: Mapping Supply Chain Vulnerabilities. This focused on understanding the company’s vulnerabilities. Supply Chains are vulnerable on many fronts—political upheavals, regulatory compliance mandates, increasing economic uncertainty, natural disasters, etc. Being aware of the vulnerabilities will enable the organization to come up with the appropriate design to achieve Supply Chain Resiliency.
In undertaking the second phase, Cisco focused on supporting a responsible global Supply Chain characterized by product differentiation, high value, and high margins. Mitigation measures were also implemented to make a resilient Supply Chain.
With the 5-phase approach, Cisco was able to achieve a resilient Supply Chain capable of effectively managing disruptions. It has also prepared them in addressing risk management warning signs and deploying the appropriate reactive tools to every kind of significantly disruptive event.
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Our framework Post-merger Integration (PMI): Financial integration is every organization’s guide to achieving the financial alignment of both Buyer and Target.
Post-merger Integration is a highly complex process. It requires swift action as well as running the core business activities simultaneously. There is no one-size-fits-all approach to a successful PMI Process. However, careful planning focusing on the strategic objectives of the deal and the identification and capturing of synergies will help maximize deal value.
Another critical factor in PMI is pursuing Financial Integration. Financial Integration is the alignment of the finance functions of the Buyer and Target.
Why Financial Integration?
Immediately from the start of the deal, the new organization gets to be dependent on the Finance function to ensure a successful integration process. Synergies must be captured in order to maximize deal value and provide combined organizations with the flexibility to grow.
When pursuing Financial Integration, there must be an integration of business operations, streamlining of the internal control environment, provision of accurate and consistent financial reporting, ensuring tax compliance jurisdictions if the deal is cross-border, and the founding of interim legal structure and business processes. When setting the right direction for a streamlined finance function, it is important that the organizations must already tackle critical matters while still in the early stages of a deal.
The establishment of clear reporting lines must already be agreed upon and set up. Accountability for financial operations, management reporting, control of expenses, and accounting closing procedures must already be established and clear between the Buyer and the Target. These play a vital role when the organization undertakes a Strategic Planning geared towards the development of a Financial Integration Strategy and Plan.
The Financial Integration Strategy: What We Need to Know
The Financial Integration Strategy can only be defined and crafted only when immediate areas that require action have already been identified. The Strategy must be developed based on 8 key areas of focus.
- Overall Organization. As the first key area, this focuses on the overall set up of the Financial Integration processes. This starts with establishing the reporting lines from Day One of the PMI process. This also includes the establishment of a transition plan that is aligned with the process and systems migration plan.
- Internal Controls Environment. Once the overall organization has been set up, it is important that the internal controls environment is established. This will entail setting up the control procedure from Day One. It is of importance that the controls environment is established since this will mitigate risks and ensure regulatory compliance.
- Cash/Treasury. This is the third key area that looks into the cash position of the organization. It is at this point wherein the organization must be able to plan out its cash flow requirements and be able to gain assurance over adequate funding. This key area is very critical when it comes to the financial sustainability of the organization as it ensures that treasury policies are aligned, cash controls are established, cash forecasting and cash management have commenced, and there is an alignment of investments, foreign currency, and any hedging arrangements.
Aside from the 3 focus areas, the development of the PMI Financial Integration Strategic Plan must also give serious consideration on Financial Statements, Procurement, Financial Planning, Cash Controls, and Tax. These 5 focus areas are essentially important as it ensures that Financial Integration essentials are met.
When this is achieved and the 8 key areas of focus are integrated into the Financial Integration Plan, the new organization gets to prepare itself towards a larger scale Business Transformation in the future.
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In today’s digital age, organizations are faced with the changing nature of the demand curve and the element of uncertainty in the supply chain. For operations teams, the challenge and competitive advantage have become: How well do you respond and execute against ongoing uncertainty.
With the world being so unpredictable, chaos is now the new normal. Timetables and priorities have shifted. A supplier fails to deliver. Demands on supply chains are increasing exponentially. A few years ago, supply chain performance was all about batch quantities, timetables, and lead times. Today, millions of packages are shipped in a day, with many with just only a few items.
In the face of this upheaval, supply chains try to predict what will happen, then optimize performance against plan. Most often, those plans are not met. The path forward demands a bold leap in supply chain performance.
Business in the Midst of the Digital Age.
Chaos is the new normal. This is the central challenge companies have to contend with today. Demand on the Supply Chain is increasing exponentially whereas Supply Chain performance before used to be all about batch quantities, timetables, and lead times. Today, times have changed.
Business Transformation has become pertinent. Timetables and priorities have shifted and, in fact, suppliers are now finding themselves unable to deliver at the required time demanded by the market. Whereas before deliveries were in batch quantities, today millions of packages are shipped every day with many having just a few items. Customers are now encouraged to order multiple sizes and colors of the same items, choose what they like best and return the rest.
In this upheaval, Supply Chains must respond accordingly. There have been attempts to predict what will happen with performance being optimized against the plan. Companies are increasingly investing in Supply Chain capabilities. Yet, these have triggered nonproductive finger-pointing and disappointing results.
Something is missing. A Supply Chain Strategy, as part of Strategy Development, is now essential to be able to pursue a bold leap in Supply Chain performance.
The Digital Supply Chain Strategy
The Digital Supply Chain Strategy is the new approach to Supply Chain resilience. This is best undertaken using a 2-prong approach.
- Sense and Pivot. A Supply Chain Strategy, Sense and Pivot focuses on building adaptability of Supply Chains. When this is undertaken, it will allow organizations to create greater flexibility across the Supply Chains. New processes, governance, and ways of working will be developed that will leverage technological capabilities being advanced. Significantly, it will make planning, manufacturing, distribution, and logistics more adaptive toward demand volatility, customer expectations for personalization, and an increasingly unpredictable operation environment.
- Digitize and Automate. Digitize and Automate is another Digital Supply Chain Strategy that is focused on building the capability of the Supply Chain to execute against the plan. When this is undertaken and effectively executed and implemented, organizations can expect a better informed, more frictionless, more cost-efficient, and capable Supply Chain. Further, it will enable organizations to undertake more informed Strategic Planning as more accurate forecasts are achieved.
The Digital Age calls for a new approach to Supply Chain Resilience.
The Importance of Supply Chain Resilience
Why is Supply Chain Resilience important today? In today’s digital age, companies can expect to encounter potential disruptions. These potential disruptions can effectively be addressed using the best strategy. Automation and smart software are effective tools for minimizing disruptions on business operations. Embracing digital advancements will provide organizations real-time data for a more reliable supply value chain. Definitely, there will be integration challenges. But the use of Digital Age Supply Chain Strategies will guide companies to counter these potential disruptions and challenges.
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The amount of time the Board of Directors spend on their work and commit to strategy is rising. Directors say they dedicate more time now to their Board duties than ever before. In fact, since 2011, the directors have cut in half the gap between the actual and ideal amount of time they spend on Board work.
In the newest McKinsey Global Survey on Corporate Boards, the results showed that strategy, on average, is the main focus of many Boards. Yet, directors still want more time for strategy when they consider their relative value to their companies. This is more than any other area of the Board work.
The Evolving Trends Influencing Board Work
In recent years, the amount of time the Board of Directors spends on Board work has increased. Compared to 2011, directors now spend five more days per year on Board work. Another trend that is happening is the increase in time. As the number of days has grown, so has the amount of time spent on strategy.
Based on the survey, a total of 772 days was spent on Board work in 2013. This has increased to 1,074 in 2015. Subsequently, 8.91% was spent on strategy in 2015 compared to 7.85% in 2013. With an increased focus on strategy, directors are dedicating more time on Strategic Planning and to discuss strategic issues.
In the next three years, directors would like to dedicate more time to Strategy Development and on organizational health and talent management. Directors want to increase the time spent on strategy due to its relative value to their companies.
The 3 Types of Boards
Performance of Boards based on overall impact, performance, and operation showed that there are 3 types of Boards.
- Ineffective. Ineffective Boards report the lowest overall impact and non-performance of tasks. They have the lowest overall impact on long-term value creation. Ineffective Boards are least effective at the 37 tasks required of the Board and they do not execute some of the tasks at all. Only a few are found to be effective at any one task.
- Complacent. Complacent Boards have a much more favorable view of their over-all contributions. Half of the directors considered their Board having a very high impact on long-term value creation. Complacent Boards have been found to be effective in the performance of tasks on management review of financial performance, setting the company’s overall strategic performance, and formally approving the management team’s strategy.
- Excellent. Excellent Boards are the most well-rounded of the 3 types of Board of Directors. Their overall impact is very high. Significantly, they project greater effectiveness in the performance of tasks than peers on every single task. Further, they are effective in strategy and performance management.
Achieving Board Excellence: What Does It Take
Those boards that reach Excellence are found to be effective at 30 of the 37 tasks undertaken by the Board. Compared to others, they stand out in the ways they operate. They have an especially strong culture and mechanism for feedback. They are more than twice as likely to conduct regular evaluations and ask for input after each meeting.
While this may sound daunting, achieving a value-creating Board is achievable. There are just fundamental principles that the Board needs to follow to achieve Board Excellence. One of these guiding principles is spending more time. Across-the-board increases are often achieved with more time spend on Board work.
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Many large corporations depend on M&A for growth and executives can boost the value that deals create. But poorly executed M&A can saddle investors with weak returns on capital for details. In fact, the margin between success and failure is slim.
Many Boards are reluctant to cross the line between governance and management. The level of engagement is often outside the comfort zone for some executives and directors. As such, they miss opportunities to help senior executives win at M&A.
There is a need to modernize the Board’s role in M&A. Modernizing the role of the Board in M&A can result in the alignment of the Board and management on the need for bolder transactions with more upside potential. Further, this is essential in achieving a competitive advantage.
The 3 Core Opportunities in M&A
There are 3 core opportunities for the Board to play an impactful role in M&A.
- Potential for Value Creation. The first core opportunity, potential for Value Creation enables the Board to challenge the executive’s thinking on potential transactions. This is an opportunity for the Board to maintain constant touch with the company’s M&A strategy, the pipeline of potential targets, and emerging deals.
- PMI Plans. This is an essential core opportunity that enables the Board to boost value creation to as much as 2-3x the net value. Post-merger Integration (PMI) Plans representat an opportunity to pressure test against stretch growth and cost goals before and after a deal. Greater variation in the quality of post-merger plans exist compared to financial analysis and pricing of transactions.
- Competitive Advantage in M&A. Competitive Advantage is a core opportunity that is unrelated to a transaction’s deadline. This is an opportunity to create a competitive advantage through M&A skills. These are corporate assets that can be difficult to copy. Making that decision to create a competitive advantage through M&A can lead to bolder decisions with more upside results.
The 3 core opportunities can promote greater Board engagement. When this happens, discrete deals can be converted into ongoing deal processes and dialogues that can deliver greater value from M&A.
Maximizing Core Opportunities to Attain the Greatest Deal
The potential of the 3 Core Opportunities to embolden the role of the Board in M&A is great. Organizations just need to have a good understanding of each core opportunity and the underlying key areas or dimensions of each key area. Let us take a look at the 1st Core Opportunity: Potential for Value Creation.
The Potential for Value Creation has 3 critical key areas that can challenge that lead opportunistic transaction to succeed. One critical key area is Strategic Fit.
Strategic Fit is key to determining why a company is a better owner than competing buyers. Deals driven by strategy succeed more often when they are part of a stream of similar transactions that support that strategy. This is a key element in Strategy Development.
How can we enhance the role of the Board relative to this key area? The Board can play a vital role in clarifying the relationship between a potential transaction and strategic planning. They are also in the best position to define how the deal will support organic-growth efforts in target markets and provide complementary sources of value creation.
The other key areas under the Potential for Value Creation are Financial Statements and Risks vs. Rewards. The Financial Statements is a key area that can correct the Board’s tendency to put emphasis on price-to-earnings multiples which can be limiting. The Risks vs. Rewards, on the other hand, is a key area that challenges the Board to acknowledge uncertainties in pro forma.
The other 2 Core Opportunities also have their own essential points or dimensions the Board must focus on. Only then can these core opportunities be of the maximum potential of modernizing the Board’s role in M&A and gaining the greatest value.
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The pressure on Boards and Directors to raise their game has remained acute. A survey of more than 770 directors from public and private companies across the industries around the world suggested that some are responding more energetically than others.
There is a dramatic difference between how directors allocate their time among boardroom activities and the effectiveness of the Boards. One in four directors assessed their impact as moderate or lower, while others reported as having a high impact across Board functions.
Today, the call to become more forward-looking and achieving Board Excellence is further highlighted. This is further emphasized when the Board and Management are pressured to find the best answers to global business concerns and issues. In Strategy Development, this becomes invaluable. It does not only lead to clearer strategies but also the creation of alignment essential in making bolder moves.
While these are essential, there is a need to raise the quality of engagement on strategy between the Board and Management for each group to achieve smarter options. This is possible only if organizations have high impact, strategic Boards in place.
High impact, strategic Boards have a greater impact as they move beyond the basics and face increasing challenges.
The Challenges that Today’s Board Face
Business is fast-changing and rapidly transforming. The global economy is increasingly pushing businesses, as well as the Board to face a gamut of challenges.
What are the 2 main challenges facing Boards today?
First is Time Commitment. Working at a high level takes discipline – and time. In fact, the greater time commitment is expected on high impact activities. The Board often have 6 to 8 meetings a year. As a result, they are often hard-pressed to get beyond the compliance-related topics to secure the breathing space needed for developing a strategy.
Often, it is the very high impact Directors who invest more time compared to moderate or lower average Directors.
Who are your very high impact Directors? They are those spend a total of 40 days a year working for the Board compared to 19 days of low impact Directors. An extra 8 workdays a year is invested in strategy and an extra 3 workdays a year are spent on Performance Management, M&A, Organizational Health, and Risk Management.
High impact Directors who believe that their activities have greater impact spend significantly more time on these activities compared to low impact Boards.
Second is Strategy Understanding. Why is Strategy Understanding a challenge for the Board? Limited understanding of the organization’s strategy can result in the Board’s limited engagement with the organization. Based on the survey made, only 21% of the Directors have a complete understanding of the current strategy. Often, Board members have a better understanding of the company’s financial position rather than its risks or industry dynamics.
If we look at high impact Directors, they invest more time in dealing with strategic issues. In fact, they invest 8 extra workdays a year on Strategic Planning and discussing strategy compared to low impact Directors. High impact Directors center on Strategy Focus Areas which can, in turn, spur high-quality engagement from the Board on strategy development. The quality of Board engagement on strategy is enhanced, both when the engagement is deep and during the regular course of business.
The Board just needs to focus on 3 areas of discussion for the Board to enhance Strategy Development. One of them is Industry and Competitive Dynamics.
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Technological innovation and intensifying competition are forcing leaders to rethink how they use Key Performance Indicators (KPIs) to manage and direct organizations. Digitization has reinforced the importance of Key Performance Indicators not only in enhancing employee performance but driving the overall organizational productivity.
The role of KPIs is becoming more dynamic. KPIs are getting demonstrably flexible, smarter, and valuable in achieving strategic advantage. Leading technology-driven organizations—including Amazon, Airbnb, and Uber—rely on metrics considerably and utilize KPIs to steer their strategy and evaluate success. They perceive KPIs quite differently than traditional-focused organizations, and employ them as an input for automation, and to guide, regulate, and improve their machine learning tools.
To make the most out of these dynamic and strategic KPIs of this Digital Age, leaders need to be more insightful and knowledgeable. They should be able to thoroughly determine which KPIs to analyze, how to measure them, and how to effectively improve them. Understanding the value of selected KPIs and their optimization is key to aligning strategies; making the right decision to invest in data, analytics, and automation capabilities; and create a link between people and machines.
KPI Virtuous Cycle
The relationships and dependencies that clarify, educate, and enhance KPI investment are demonstrated by “KPI Virtuous Cycle.” By digitally linking KPIs, data, and decision-making into virtuous cycles, companies can align their immediate situational requirements with long-term strategic planning. The KPI Virtuous Cycle has 3 key components, and it demands active cross-functional collaboration:
- Data Governance
- Decision Rights
The way these 3 components impact—and support each other—keeps changing. Organizations aspiring to become digital-savvy should embrace, value, and relentlessly invest in the KPI Virtuous Cycle.
The first component of the KPI Virtuous Cycle is about employing authority and control (planning, monitoring, and enforcement) through a set of practices and processes to manage organizational data assets. Leading digital organizations consider data as a strategic resource, a valuable tool for measurement and accountability, and a mechanism to facilitate meeting strategic KPIs. Data Governance frameworks are guided by strategic KPIs. Organizations should know what data sets would be ideal to predict and rank—for instance, customers’ lifetime value and their propensity to leave—to prioritize preemptive and preventive action. Data and Analytics serve as a component of Data Governance.
Strategic KPIs shape and govern enterprise Data Governance models. These KPIs include financial, customer, supplier, channel, and partner performance parameters. For instance, Data Governance initiatives in customer-centric organizations are prioritized to facilitate in realizing customer-focused KPIs—e.g., Net Promoter Score (NPS) and Customer Lifetime Value (CLV). Enterprise Data Governance frameworks are strongly influenced and informed by strategic KPIs.
Decision Rights ascertain the decision-making authority required to drive the business and strategic alignment. Making decisions in such a way that it boosts organizational performance involves identifying the individuals explicitly involved in making decisions, charting an outline on how decisions will be made, reinforcing with appropriate processes and tools, and defining various decision rights scenarios to facilitate in automation. It is, however, quite tricky to determine and assign decision rights when an enterprise is aspiring to empower its people and making machines function better.
Imperatives for Creating Dynamic and Strategic KPIs
For the KPIs to be strategically defined and become truly dynamic, the leadership needs to provide the required support by getting thorough data sets compiled and meaningful analytics performed. At the same time, there is a need to:
- Decide whether the decision rights needs to be assigned to individuals (rather than machines or vice versa.
- Enhance the capabilities of people and machines.
- Apply decision rights to generate data to identify and gauge productivity.
- Identify the delays and bottlenecks between KPIs, data, and decisions.
- Verify the diligence in the way KPIs, data, and decisions are mapped and monitored.
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