Strategy dialogue: The role of the board of directors

Strategy Dialogue at Board Level

Should corporate boards get involved in strategy dialogues? If so, to what extent and how often? How deep should the board get involved in their strategy dialogues with senior management?

These and many other similar questions are at the forefront of many board members and boards, in their quest to make sure that they provide stewardship for their businesses in a manner that truly creates wealth.

To set the stage, let’s begin by trying to define a framework for strategy dialogues. A dialogue is a written or spoken conversational exchange between two or more people, including a group. It will be directed towards a particular topic or subject. For instance, we can use dialogues effectively to ask probing questions which could reveal respondents unsupported assumptions and misconceptions. 

The goal, in a dialogue, therefore, is to “elicit a clear and consistent expression of something, supposed to be implicitly known by all rational beings” (Mariam Webster Dictionary). Thus, we could state that strategy dialogues are about conversations between two or more people including groups, to elicit a clear and consistent expression of the overall strategic direction of the organisation and its relevance in the futuristic context of industry and markets.

One of the most pressing issues in directing and managing your organisation is to keep the strategy-execution gap to the minimum. The process of strategy formulation, strategic planning, strategy execution and managing change requires strong alignment and should not be treated as independent, ad-hoc processes. 

Rather, the whole framework must be cohesive and work in tandem to achieve the desired results. Therefore, dialogues on the overall strategy process across the organisation at all levels are a ‘sine qua non’.  

Importance of strategy communications  

The strategy formulation process (for new businesses) or a review of existing strategy (for ongoing businesses) is heavily dependent on a system of hypothesis development, based on projections (trends) regarding the future evolution of industry-market parameters. Such drivers will impact our strategic choices regarding ‘where to compete’ and ‘how to compete’. 

Execution is built on the premise of this hypothesis, supported by information, insights and intuitions of decision makers. Validating this hypothesis through a series of robust debates are, therefore, crucial to the future directions of the organisation.

Engaging in dialogues, which are either too narrow or broad, end up with strategy being kept out of focus. Such dialogues hamper the firm’s ability to make strategic decision within the right time frame and risks losing the exploitation of a given opportunity. This slows down the growth of the organisation which eventually filters down to employees, who begin to lose faith in the decision making process of the organisation.

“Strategy-making is an immensely complex process involving the most sophisticated, subtle and at times subconscious of human cognitive and social processes,” writes Mintzberg. 

Strategy making stems from a synthesis of intuition and creativity. Whilst this is a highly cognitive process, the fruition of such thoughts come from discussions, conversations or dialogues, viz., structured, purpose driven, articulated dialogues guided by competent leadership. Strategy involves making effective decisions and such decisions will arise through robust dialogues. 

In managing a firm’s strategy top management is constantly dealing with volatile, complex and ambiguous situations and require making decisions that shapes the course of action that is most appropriate. Such decisions arise no doubt through dialogues. The goal of such dialogues should therefore be, to collaborate in creating a shared space, where ideas are generated, debated and tested against one another. Such dialogues must be thoughtfully orchestrated and facilitated to make it truly productive and meaningful. From a participation perspective, strategy dialogues in organisations must not be confined to top management only, rather must be held at middle and operational levels as well. 

In my previous article in this series (‘The Myth of Strategic Planning,’ Wickremesooriya, 2019), I elaborated on a process where, firms can engage on ongoing strategy debates in a structured manner that will bring about results. Here, I will focus on three key elements, as articulated by Bourgoin, Marchessaux and Bencherki (2018),that will help executives engage in sound, result generating strategy dialogues.

Decision purpose

First and foremost is the need to have a clear decision purpose. Dialogues without a purpose ends up as mere discussions with no results being achieved. Strategy dialogues must be centred round pre-determined themes. 

Such themes should not be confused with tactics, a common flaw amongst executives. Carl Von Clausewitz, a former Administrative Director of the Military Academy in Berlin, (1815 to 1830), defined strategy as the “use of the engagement for the purpose (object) of war”. 

Note two important words, ‘engagement’ and ‘purpose’. As Clausewitz goes on to explain, the conduct of a war by itself includes planning and carrying out fighting. In a war, several such fights (or acts) are conducted which are referred to as engagements. 

The planning and coordinating of different activities for each engagement, in order to achieve its purpose (object of war) is called tactics. In other words, tactics refers to the use of armed forces in the engagement; strategy is the use of engagements for the purpose of war. 

Drawing parallels, we know that every business is directed by its purpose, the raison d’être for its existence and firms engage (strategy) in several mini battles (tactics) to achieve its purpose. The planning and coordinating of these mini battles must be aligned with the main purpose and hence structured debates with a clear decision purpose (what decisions do we have to take and why?) is critical. 

Structured debates should be based on facts, argumentative and logical with an objective reality in mind amongst those participating. This individual, his qualifications, position in the organisation is not important singularly. In drafting the purpose for strategy dialogues, the framing of the issue/challenge is very important. Such question should elicit a strong debate based on facts and be able to raise a multiplicity of perspectives. 

Through a rational process, one can zero into the most appropriate/effective decision that mitigates any future risks associated with such decision(s), where the firm will be engaging with resources towards implementing the chosen decision. Ideally, strategy dialogues must be centred round the future. This is certainly true when firms are proactive. 

Strategy dialogues can be arranged around themes based on trends that are projected, with a distinctive purpose to understand the impact of such trends on the future of the organisation. We then ask questions such as; what should we be doing as a firm to meet these challenges? What resources are required to be deployed? What gaps exist between available capabilities and those needed for the future? and so on. Alternatively, strategy debates can be on growth strategies and the methodologies for such growth, whether it is an acquisition, merger or even a greenfield project.

To arrive at a structured decision from strategy debates therefore, it is imperative to have a structured approach to such decisions. Such a structured approach should contain an outline of key attributes critical to the evaluation of such event or theme. Next, such attributes must be evaluated on a structured basis using a pre-determined scoring system, perhaps a scale. 

Lastly, the final decision must be made only after evaluating all the different options are profiled and evaluated based on the scoring associated with the attributes. In this manner, one can avoid bias associated in the decision making process and moves towards a more logical and rational decision making process.

Strategic choices and decisions constitute upper echelon level issues and provide the road map for operational level of the organisation to execute. It essentially distils a complex situation into a single path forward. We can evaluate a set of choices as to whether they are in fact strategic or not by applying the following three-fold test (Van Den Steen, 2016):

• Does the choice guide appropriately?

First for each choice determined, identify the likely actions this choice excludes; i.e. what we will not do!

Secondly, look at the clarity of the decision taken. Does it ensure that the strategy is being executed in an important way?

• Uniqueness

Is the decision arrived at makes your organisation unique in some way? In other words, it cannot be replicated by a competitor in the short run

• Conciseness

The decision should entail the smallest set of choices. Brevity is the way forward! 

Dialogue ethos

Parallel to the decision purpose is the dialogue ethos that must be natured in the organisation. Why dialogue ethos? How good or bad a dialogue can lead to path of construction or destruction! At the cost of repetition, strategy dialogues are characterised by facts and scenario based, and debative in style that helps bringing about a shared understanding of an event or situation. 

To bring about such a dialogue to fruition requires comprehensive information, in-depth analysis, generation of several options, and knowledge of limiting factors. It’s quite common to see executives gathering to discuss issues in an unstructured manner and without the backing of facts and figures. This leads to an all-round opinion based discussion, which most of the times end up, either without a decision or split groups with divided opinions. 

The organisation must develop an ethos of constructive debates. A debate that is fact based, transparent, and built on common ground rules where all participants are of; equal status around the discussion table; structured in a manner where a process of rationalisation takes place; when practiced in a consistent manner, builds an ethos in the organisation. 

Once the process gets institutionalised over the years, people in the organisation automatically gets adjusted to the mechanism. Not only does such practice build confidence amongst the stakeholders in regard to the decision making process in the organisation, the quality of decisions made also improves over time.

Leadership

For strategy dialogues to be effective (where issues must be framed appropriately, and decision purpose is defined) then guiding a structured, argumentative debate requires competent leadership. The leadership role in strategy dialogues are mostly situational, which means that depending on the type of issue associated with the decision purpose, an appropriate leader must be identified who possess the right credentials, his/her competency, experience and acceptance amongst the peers. 

The role of a leader in conducting a strategy dialogue is critical to ensure that the dialogue stays on course, manage potential conflict situations, providing advice when necessary and eventually guiding the team to arrive at a conclusion in a rational manner. Effective leadership in organisation and the practice of structured strategy dialogues will in the long run, build a guiding coalition amongst team members in the organisation. It will create a culture of ‘us’ as against ‘me’ and collectively top management will begin to see the bigger picture over time with appreciation.

Role of the board

How about strategy dialogues at board level? Ensuring that a company has a robust strategy is amongst a board’s most important functions and the ultimate measure of its stewardship. Generally, most boards spend most of their time reviewing strategic plans, yet how many directors are confident that they have a complete understanding of the dynamics of the industry(s) their companies operate in or even as to how these businesses create and capture value? 

To stay in control boards must engage in dedicated strategy dialogues, both, independently as well as with senior management, which will facilitate a deeper understanding of the industry dynamics of its respective businesses and the value creation-capture process. 

Given the current volatility of the business environments, my recommendation is that boards must dedicate at least two special meeting in a year for strategy dialogues. These strategy dialogues should be structured in a manner that reveals a thorough understanding of the industry and its business economics, value creators and unique capturing capabilities that the organisation possess. When this happens boards can engage with senior management in a more productive manner that will facilitate the deployment of resources and capabilities on market building strategic initiatives. 

For instance, increasing market share should not be the foci of a board. However, where growth is taking place and how much the firm can capture from such growth opportunities, given its current capabilities, should be a concern of the board.

Stemming from our prior thoughts and arguments on constructive strategy dialogues, the purpose of strategy dialogues at board level should be to develop a clear, shared understanding of the resources and capabilities of the firm that will provide it with a distinctive competitive advantage that is valuable, rare, inimitable and leveraged to generate superior returns vis-à-vis the given industry dynamics. 

A firm’s strategic plan will only make sense to the board, when such a process is followed. If not, firms will be merely going along with the rest in the industry, fighting lose-lose battles trying to gain market share, brand recognition, penetrating into existing markets and the like. 

My attention was drawn to a seminar that was held recently by the Sri Lanka Institute of Directors (SLID) on the topic “Strategy conversation in the boardroom: Role of the independent director”, where one of the speakers states that the “board’s ultimate responsibility is to sign-off on strategy”. Yet, how can a board sign-off a strategy, without having engaged in a meaningful strategy dialogue? 

Including independent directors to incorporate the requisite expertise is good, but the stewardship of the firm’s strategy remains the collective responsibility of board. Too much emphasis on strategic plans, as opposed to evaluating strategic options and associated resource-capability implications is perhaps where the boards lose the plot!

Therefore, it is my considered view that boards must engage in rigorous strategy dialogues, articulating debates and making decisions in regard to alternate strategic options and then working through the resource-capability implications of such decisions. 

Decision purpose, dialogue ethos and leadership remain the common platform on which such strategy dialogues will become constructive and meaningful. We must remember that the greatest contribution to strategy of an organisation can come from the diversity of the participants and the many insights and creativity they bring forth to the table. 

“The essence of strategy lies in creating tomorrow’s competitive advantage faster than competitors mimic the ones you possess today” (Gary Hamel & C.K. Prahalad, 2010). 

(The writer is a Consultant Strategist and specialises in strategic thinking, growth management, leadership and change and international trade. He is a Snr. Fellow of the Institute of National Security Studies of Sri Lanka. He can be reached at [email protected].)