Management; Corporate Strategy- The Role of the Board

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Corporate strategy is the overall scope and direction of an organization and the way in which its business operations work together to achieve particular goals in the short, medium and long term.

The crucial role of the Board of Directors is to provide leadership in the development and execution of a Strategic Plan for the organisation. The Board is responsible for defining the company’s strategic goals and ensuring that its human and financial resources are effectively deployed towards attaining those goals.

This responsibility encompasses setting the strategic destination of the company, providing guidance in the formulation and development of the plan and monitoring the execution of the Strategic Plan. The Board should provide clear input and parameters on matters such as timelines and milestones to guide Management in the articulation of strategy. Whilst the responsibility for articulating and leading the strategy development process is that of Management working in collaboration with the Board, the Board is ultimately responsible for strategy and must therefore be capable of critical and lateral thinking. It must ensure a commonality of purpose and thought, such that it is in sync with Management on the vision, mission, goals, objectives and the organization’s priorities.

The Board’s involvement at a very early stage in the process of developing and articulating strategy is critical. The Board may choose to constitute a steering committee to oversee the process. Also critical to the success of the strategic planning process is the ability and preparedness of the Board and Management to play roles appropriate to their respective experience and skill levels.

The Board’s involvement in strategy development assures its ownership of the strategic direction of the organisation and guarantees the objectivity of the strategic plan. The Board should not limit its involvement to simply reviewing and approving Management’s proposed strategy. An active and engaged Board which is on top of its oversight responsibility will ensure that there exists alignment with strategic direction, realistic expectations, risks and opportunities and that these are appropriately monitored over the life span of the Strategic Plan. Management on its part should adhere to the guidelines and boundaries defined by the Board and provide periodic feedback on execution.

Critical success factors in the execution of a well-articulated Strategic Plan include a pragmatic approach that transforms action plans into tangible operations, efficient control processes and an efficient allocation of resources. A report published in the Harvard Business Review of April 2015 indicates that “companies realise only 40 to 60 per cent of their strategies’ potential value”. Management must strive to ensure that the strategy translates to performance. It must ensure that it gets the buy-in of all employees via effective communication and breaking down components of the Plan to respective Business Units, keeping in view the overall strategic direction and goal.

Strategy is not static. Thus after the Board has approved a 5 year Strategic Plan for example,  it should review the plan periodically within the context of present realities – including market forces, government policies, global trends, etc. – and adapt the strategy as appropriate. A consistent process of dialogue and debate on strategy at Board level is a critical success factor in achieving the actualization of the Strategic Plan.

There is a correlation between strategic planning and corporate performance as effective planning and implementation contributes to improved financial performance and sustainable growth. Companies are bound to face setbacks and growing complexities in the markets in which they operate. A well-articulated corporate strategy enables the Board and Management navigate through turbulent times. Without a clearly defined strategy, a company will have no sustainable basis for creating and maintaining a competitive advantage in the industry within which it operates for the long term. According to Jack Welch, “An organisation’s ability to learn and translate that learning into action rapidly, is the ultimate competitive advantage”.

The absence of a clear strategic direction is a sure sign that the Board has failed to meet one of the most significant obligations of leadership. It is an obligation which it should not delegate to Management.

 

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