Strategy Development for Business Growth 

This article, based on a discussion at Egon Zehnder’s Directors Development Program, explores the role of boards in the development and revision of corporate strategy. It centered around an online presentation and conversation with thought leader and professor of Harvard Business School, Dr. Ashish Nanda. Dr Nanda is the Senior Lecturer and  C. Roland Christensen Distinguished Management Educator at Harvard Business School. The session revolved around strategy for business growth and answering questions from the online participants during which many of the basics of strategy development were iterated and examined. The major points are outlined below and offer a solid premise for board involvement in corporate strategic development.

The most obvious is that strategy gets lost in the quarter-to-quarter market pressures. As such, the bulk of board work tends to focus on routine items like quarterly financials, auditors reports and Audit Committee briefings. Because of this, it is necessary to look for dedicated sessions detached from this quarterly cycle, like going away for a day or two to think freely about the company purpose, future direction, who the stakeholders are, etc. The tendency to do this varies widely from company to company.  Of course, this issue is far more prevalent on public sector boards where board work tends to be working backward to meet the growth numbers. As one director commented, “It’s just that the numbers are something that have been given to us and we have to work towards those numbers. That’s the way it is.” In addition, boards so often get bogged down by compliance issues and responding to regulators which also makes strategy take a back seat. The ever-present reality is that boards end up having so many things to discuss regarding the short term, like compliance issues, what is happening in the markets, a complaint, or the latest guidelines, that they do not have much time to actually oversee the effective implementation of the strategy goals. And if you do want to change things, especially in a big organization, it takes a long time and a lot of effort. 

In any kind of an organization, private sector or public sector, the board owns the firm strategy.  Of course, executives and CEOs come and present what the strategic views are and they create a strategic plan of implementation, but the board approves it. In fact, the board holds management accountable for the firm strategy. It's extremely important that every board member has clarity around what the strategy is, and that the whole board has a way of gauging and judging whether the organization is moving in a direction that is consistent with that strategy. It is important for boards to have a sense of where the institution is going.  What is it trying to achieve. And where is it headed.

If a board owns the strategy, the first key question is, “what do we mean by strategy?” It is a popular term and because of that it has often lost its meaning. It is often confused with vision, where a company wants to go. But this is not strategy. This is a company’s North star, not strategy. It is also often confused by the short-term goals in front of it. These are often tactics, the things we do to achieve strategy. Strategy is not just setting a goal, it is not just the nitty gritty things that we are going to do, strategy is actually something in between these two. It is basically telling you where to go, but also saying what are the steps it will take to get there. 

Basically, strategy says three things. First, it says what is the valued place of the enterprise. Next, what are the choices needed to occupy that space? And finally, how do we get there? These are the elements of a good, solid strategy.  Harvard Business School defines strategy as “an integrated set of choices that positions your organization within your environment to achieve your vision over the long run.”  A few things in this can be highlighted. In order to have a clear strategy, you need to have a clear sense of what your vision is. Also, strategy cannot be conceived in isolation. It must take into detailed consideration the environment in which it is being enacted. This means understanding that environment itself and also the organization’s positioning within that environment. Finally, strategy is not necessarily responding to the small, nearsighted opportunities; strategy addresses sustained success, long term success. Put another way, strategy has three parts: talking about what’s happening in the external environment, how you are positioned relative to your peers and rivals and, finally, over the long term, how you can be successful. 

Since the board does not create the strategy (this, again, is a management job), it is their job to make time to review the strategy and to call attention to when and where it may be lacking. Usually, boards set aside one meeting each year for a careful review of the strategy, what is called a “strategy refresh.”  During this time, the board reviews what occurred that year, how the company has done, and considers whether they are still moving in the same direction. This touches on an important point of clarification. Too often people confuse strategy review with evaluating business performance. It is not that. It is saying these were our three, or five, strategic goals and asking how much have we progressed. Are these still the right goals? Should the goals change? Performance is, of course, an important lens for answering these questions but not the total picture. In other words, a strategic review is not a performance assessment.  

It is important that the strategy does not change as board members change, that there is a continuity of strategic thinking from one board to the next. Of course, every now and then there are dramatic situations. Sometimes these might be incited by major macroeconomic change or by major technological developments. Then it is the board’s job to go to management (or for management to come to them) to respond to the massive changes in the environment and propose revisiting the strategy accordingly. So, neither boards or management have to be prisoners to their preset cycles. They both need to keep looking at what developments are happening and ask for an off-cycle review if necessary. 

What is most important through this all is that both boards and management stay sensitive to which aspects of strategy they need to be monitoring and asking people about. These will revolve around the three most important elements of strategic viability.  

Professor Nanda stresses the importance of his Harvard colleague Michael Porter’s famous Five Forces. Porter has emphasized that a mistake a lot of people make is that, in thinking about their industry, they focus too much on direct rivals and peers. Or they only focus on the macro environment, the government regulations and the macro economy. In fact, according to Porter, if you want an integrated view of your industry, you actually need to focus on five forces: competitive rivalry, supplier power, buyer power, threat of substation, and threat of a new entry. Therefore, when evaluating the overall “value pie” of your organization, consider each of these five and determine which is helping and which is hurting your organization at that point in time. Casting the net widely to consider all of these is what Porter explains constitutes a thoughtful strategic analysis of a particular industry.

Here, Professor Nanda called attention to the creation of a “value map.” What a value map does is, first, to identify a client segment. Then, within that segment, it is necessary to identify how they value different attributes and to gauge the different things they value altogether.  This helps to understand your clients better and helps you to become more client-centric. Then you rate yourself compared to competitors. This exercise helps executives better grasp both their clients’ needs and ask the question, how am I distinctive, different than other peers?  Here, Professor Nanda brought up the work of another Havard peer, Francis Frye. Frye emphasizes that companies need to choose what they are going to focus on so that they can really concentrate with laser attention on what they are deciding is their distinction. When organizations try to be reasonably good on all dimensions, they often end up not being excellent on any dimension. There are many examples of this happening. One famous example in retail in the U.S. in is seen comparing Walmart to Kmart. Walmart concentrated on low pricing (and ease of parking), they eschewed all concerns with ambiance and did not offer on the floor sales help. Kmart, on the other hand tried to keep delivering on all these fronts. What ended up happening is that it could not deliver as low on pricing as Walmart or as pleasant an atmosphere or helpful sales assistance as other more “mom and pop” stores. Kmart ended up going bankrupt. The lesson is that it is important to choose how to distinguish yourself and be willing to give up competitiveness on other aspects of the business. 

So, in developing and revisiting their strategy, Professor Nanda stressed that every board should ask management to perform this exercise: first to identify their segment, then list what the customers care about, rank them in order, and compare how you deliver on these things vis a vis the competition. From there, this should lead to choices: to highlight those things which should be focused on, as well as call attention to those other things which should receive less prioritization. 

The biggest challenge to sustainable performance comes not from rivals but from what are known as “substitutes.” These are people that come from outside the industry with new solutions and shock you, bringing disruptive innovation. This is the biggest challenge. It is extremely important to be constantly vigilant. To remain successful over time, it is necessary to keep an eye on the outside market, to be particularly sensitive to likely disruption and to be reactive to that. All the while, companies need to keep running innovative experimentation. So, one of the important things for boards of especially large institutions to do is to build an “ambidextrous organization.” Here, most of the organization is trying to run the existing business well. At the same time, however, there are experiments being done utilizing radical approaches. It is the board’s responsibility to keep encouraging this experimentation and not let the organization kill them. Staying sustainable means safeguarding the means to stay innovative. 

In summation, the board’s responsibility for owning and evaluating the company’s strategy requires that they focus on three key areas. Number one, that they take a wide-angle view of the external environment (looking at the five key influences there). Number two, to fine tune the positioning, have management create a value mapping exercise with target customer segments. And finally, number three, to deliver a sustained business over time, build ambidexterity—while keeping the legacy business performing, encourage ongoing experimentation. And all of this depends upon making time for your board to address longer term issues, beyond shorter term, quarterly responsibilities.