Many companies put a lot of effort into developing their strategy. But many of them lack a template to define the skills and resources they need to set and execute strategy.
Often the board and management do not understand the roles and responsibilities expected of them. The result? Lack of alignment between the board and management and within the management team—and failure to create a sound strategy and accountability for its execution.
Effects of Strategic Planning Misalignment
My experience as a board member of a $60 million privately held software company illustrates these challenges. The company was in transition as the owners deliberated whether to sell the business or grow it to create more value. Shareholder expectations and risk tolerance were not clearly defined. Management and the board had competing priorities.
The resulting uncertainty limited the time and focus required for a robust strategy development process. The findings of the strategy team were not fully synthesized into a clear strategic direction for each line of business and the company as a whole. The management team didn’t rigorously and quantitatively connect the strategy with the company’s objectives for profitability, growth and long-term shareholder value creation. The management team hadn’t fully identified the key programs and resources required to execute the strategy.
Importance of Defining Roles in Strategy Development
To move toward developing a clear strategy, the board first clarified the objectives, process and roles for completing and approving a strategy. We made it clear that the management team had the primary responsibility to develop the corporate strategy and obtain board approval. We established that management was also responsible for developing plans to implement and communicate the strategy to the company and its key stakeholders including customers, suppliers and business partners. Management would regularly update the board on its execution and propose changes to address shifts in the marketplace and moves by its key competitors.
The Role Of The Board
The board’s primary role in the redefined strategy development process was to evaluate the strategy proposed by management. We actively challenged the underlying assumptions and substance of the strategy until we agreed with management on a strategy we could support.
Too many companies do “textbook” strategic analyses but don’t identify the key programs, capabilities and resources required to execute it effectively. An active board will force the management team to make tough choices like how much to invest in the growth of new versus old product lines and how to build the skills required to realize full potential of new business. The board must ensure that the strategy will produce returns adequate to compensate investors for the risks taken—and that the company has adequate financial resources to execute the strategy.
Responsibility of an Active Board
Finally, an active board will engage with management in an ongoing strategy review process. Strategy is largely about commitment: what the company will do and, just as important, what it won’t do. The board must hold management accountable for following through on tough choices. It must help management understand changes in the competitive environment and the mid-course corrections they require.
Boards must understand both their responsibility to oversee strategy development and execution and the limitations of their role relative to management’s. Finding the right balance will optimize a company’s chances of success.
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About the Author
Jim Zierick has a prestigious history of leading technology companies to improved performance by solving complex business problems and meeting challenging targets. As a CEO, Jim repositioned a Sequoia Capital-funded software company, leveraging its embedded controls product technology and negotiating sale of the company to Oracle. Contact or learn more about Jim here.
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