The business strategy game has certainly changed. It used to be that a company’s management and board would come together annually to set a strategic plan. The executive team would carry out the plan and the board would oversee the process.
Events of the past few years—the global financial crisis, stricter regulations, upheaval of supply chains across a number of key countries and the increase in overall business volatility—have forced many boards to rethink their role when it comes to strategy. Specifically, that includes the scope, frequency and governance of the strategy-setting and strategic dialogue process.
Many factors can wreak havoc with a company’s strategy. For example, management needs to continuously monitor any supply-chain disruption (as we saw in Japan and Thailand) and understand what it might mean to the launch of new products in the United States or Europe. Just as important, management needs to keep tabs on moves or market signals from existing and, even more so, new competitors. It also needs to understand if the company is getting the most out of its technology investments, especially the scope and impact of its social media, cloud and mobility strategies.
We’ve witnessed changes to traditional strategy setting in the way management responds to disruptors and adapts the strategy execution process. Effective companies develop a unique ability to learn real time from what is happening while carefully monitoring progress and continued relevance on prior strategic priorities. These companies are also able to rapidly adjust performance indicators, targets, and operating plans and budgets.
Given the complexity and the number of moving parts, how should the board respond and engage? This evolving—some say 24/7—world is indeed forcing a number of boards to change their approach to strategy setting. They realize they have to adapt to this higher clock speed, or risk becoming less relevant. In the PwC 2011 Annual Corporate Directors Survey, 59 percent of board members say they would like their board to devote more time to strategy.
Despite this volatile environment, directors recognize a good integrated strategy still requires a differentiating vision statement, mission statement, a list of credible strategic goals and business strategy priorities. They look for the strategy to answer three main questions:
- Where are we going? (Takes into account the product marketplace, type of business and geographical market.)
- How are we going to get there? (The manner in which the company goes to market, including talent management and expenses.)
- Why are we going to be successful? (A credible articulation of the company’s unique source of competitive advantage and how well its strategy stood up to stress testing.)
To adequately answer these questions in a timely fashion, directors are increasingly expected to:
- Bring deep and relevant industry insight and knowledge to the discussion while collaborating with management.
- Focus on critical issues across an entire industry.
- Encourage appropriate risk-taking. Remain positive, but skeptical. The board plays a key role in ensuring the strategy is based on a realistic view of a company’s unique skills and assets.
- Understand the potential disconnect between company culture and the strategy.
Many boards are increasingly allowing time and dialogue throughout the year for “course correction” in their companies’ strategic plans. Such oversight is needed as certain events dictate, such as a competitor’s moves to acquire a company or release a new product platform. Directors are also prepared to address issues between board meetings, since they understand a situation can go from green to red in a matter of hours.
Ideally, boards will have a few directors who have business strategy experience. Many times boards have members with functional strategy experience, but little business strategy experience across the relevant industry value chain. As part of the regular strategy-setting process, some boards will meet more regularly (every six weeks) to stay on top of these issues.
Using such measures to oversee the strategy-setting process, boards can be better prepared to help their companies ride the storms of volatility prevalent in today’s world.
Roger Wery is a principal in PwC Advisory Services. He leads the Business Strategy practice.