Insights
Boardroom Enterprise Development and Strategy Management
By Tim O’Hanlon
PART 1: COMPLEXITY AND DECISION HORIZON
In the world of organisation design that I studied many years ago, Elliott Jaques put forward his Stratified Systems Theory (SST) in an article published in the Harvard Business Review called “In Praise of Hierarchy” (1990).
The article describes how the complexity of the problems encountered in a particular strategy is a function of the number of variables involved, their ambiguity, the rate at which they change, and the extent to which they are interlinked. Also, that as you move up the hierarchy, the problems you must contend with become increasingly complex and the time horizons involved get longer.
To quote:
“The biggest problems faced by the CEO of a large corporation are vastly more complex than those encountered on the shop floor. The CEO must cope not only with a huge array of often amorphous and constantly changing data but also with variables so tightly interwoven that they must be disentangled before they will yield useful information.
As we go higher in a managerial hierarchy, the most difficult problems that arise grow increasingly complex, and, as the complexity of a task increases, so does the complexity of the mental work required to handle it.
It is this suddenly increased level of necessary mental capacity, experience, knowledge, and mental stamina that allows managers to add value to the work of their subordinates. What they add is a new perspective, one that is broader, more experienced, and, most important, one that extends further in time.”
The issue of time is key – the higher up you go in the organisation, the greater the impact horizon becomes for decisions taken. Boardroom efforts to develop the enterprise and drive it strategically have timeframes that go way beyond the annual financial reporting cycle that listed companies are bound by.
Strategy and enterprise development is one of the key pillars of the Integrated Governance Framework, and the challenge for this pillar is how to track and measure the quality of decision-making that gives rise to the changes the organisation goes through. So, it is not just about plotting a course and tracking how well the company delivers against these plans year on year.
There must be a boardroom brains trust of enterprise learning that goes beyond the term of any board or executive team member that can track how well the organisation has considered the longer-term impacts on it and how well it has navigated these.
The quality of decision-making that drives the company’s long-term strategy is a key determinant of the sustainability of that company and that means finding a way to measure this and reward it. This is a very different culture that needs to be embraced to what still prevails today, notwithstanding major disasters like the subprime crisis that were caused by a short-term mentality in the boardroom driven by share prices and annual bonuses.
Digitising this evidence and using it to improve decision-making will help.
PART 2: HAVING A BOARDROOM BRAINS TRUST
Captains of industry must ask themselves where their companies need to be in the long term. These are highly complex challenges involving significant uncertainty and a vast number of variables.
Competitive advantage does not come from being a follower, and every boardroom knows their choices can be the difference between leading the pack or being overtaken.
So, one of the many challenges for this pillar of the Integrated Governance Framework (IGF) is how to capture these decisions and how to measure how effective they were.
This is not just what gets put in the annual report. This is the collective wisdom of the board and executive team looking well into the future and represents the company’s intellectual property on its long-term positioning.
It has information about sustaining its competitive advantage through long-term strategies that are a closely guarded secret. It is the value that the boardroom is accountable for producing, maintaining and monitoring.
In some industries, this is a mission critical area of their business. There cannot be a single oil company today that has not got a thirty-year planning horizon to deal with massive global disruptions that challenge their very existence in the medium to long term.
The IGF uses the concept of a brains trust to hold this intellectual property and is a fundamental principle of any learning organisation. You keep the history in a way that can be easily reused and applied for growing the business using a cycle of continuous improvement not dissimilar to Deming’s plan-do-study-act model.
I have applied these concepts in this pillar of the IGF and it is where the term “enterprise development” in the title of this post comes from. To embark on a strategy of enterprise development in the boardroom you need a brains trust that holds this collective wisdom on the long-term future thinking of the boardroom. You then need the metrics to assess the success of the boardroom with its long-term direction.
It starts by needing to have an enterprise development breakdown structure that key details can be mapped against.
I like to use an engineering example to illustrate my logic here. So, what is the first thing we check when buying a second-hand car? It’s the service manual. How well has the car been looked after? So, what did the car manufacturer have to do to achieve this? They had to provide a breakdown of all the components in the car so that maintenance details could be provided for each component and any work done, easily captured per component.
We need the same approach for boardroom enterprise development. A standard framework to capture all pertinent detail for referencing in the boardroom throughout the life of the business.
