In the whirlwind of daily business operations, it can be tempting to focus solely on immediate challenges and quick wins. However, true corporate success depends on having and working within a long-term plan for the business, also known as the ‘strategy’.
Strategy goes beyond addressing today’s issues. It involves anticipating future trends, outmanoeuvring competitors, and building a foundation for sustainable growth.
This is where a board of non-executive directors becomes invaluable. By bringing an independent perspective, these experienced professionals can focus on strategic planning without the distractions of daily management.
This article delves into why having a board of non-executive directors is crucial, shedding light on how their insights and oversight can help companies navigate complexities, seize opportunities, and achieve lasting success in a constantly changing market.
The role of strategic objectives at board level
While executives are primarily concerned with tactical and operational matters, the board operates at a strategic level, analysing current performance alongside future projections, forecasts, and budgets. This distinction ensures that the board remains focused on the bigger picture, aligning the company’s actions with its long-term vision. By providing oversight and guidance, the board facilitates a cohesive approach that balances immediate needs with future aspirations.
Strategic objectives are typically set over a three-year horizon – although this depends on the type of business and its industry. Some require a faster turnaround than others, depending on revenues, cash flow, investment, financing and the shareholding structure.
These objectives serve as a compass for the organisation, guiding decision-making and resource allocation. These objectives are not mere short-term targets but rather a reflection of the company’s overarching vision and values. They provide a roadmap for sustained growth and development, allowing executives to navigate the complexities of their respective industries while staying true to the company’s core mission.
In essence, the board acts as a strategic forum, ensuring that the company’s actions are in line with its long-term objectives. By focusing on strategic planning and oversight, the board empowers executives to execute their responsibilities effectively, driving the organisation forward with purpose and clarity. The board also provides guidance when required and challenges executives constructively.
This division of labour between the board and executives fosters a symbiotic relationship, where each party contributes their unique expertise to achieve shared goals and objectives.
How do these strategic objectives influence resource allocation?
The decisions taken at board level revolve around aligning investments with organisational projections and strategic plans. Take technology, for instance. If we’re planning to scale up, expand globally, or enter new markets, scalable technology is essential. That’s one way that resource allocation is being supported by the strategic objectives.
Similarly, HR decisions consider current and future competencies required for succession planning and entering new industries. If we’re thinking of launching a digital product, for instance, do we need to invest in particular skill sets, such as digital marketing?
Another common question is: at which point do we invest? These decisions will all be supported by the overarching strategic objectives, which also consider the financial performance and cash flow within that particular organisation.
Do they also help with mitigating risks?
Once set, strategic objectives are your guiding posts for any scenario that might arise. Having these terms of reference makes decision-making easier, as projects which do not fall within that remit are automatically excluded, or at least challenged by those parameters.
Crafting effective strategic objectives
Board members, particularly Non-Executive Directors (NEDs), play a crucial role in shaping the strategic vision of an organisation. However, it’s essential to clarify that they should not formulate strategy themselves (although this is what often happens based on my personal experience).
The objectives should be crafted by the executives, led by the CEO and the management team. Once the strategic objectives are presented, the board’s duty lies in scrutinising and challenging the proposed strategy presented by the executives. This involves:
- assessing its alignment with the shareholders’ value
- understanding the investment required
- understanding associated risks
- evaluating its feasibility
- evaluating its ambition: is it over-ambitious, or simply maintaining the status quo?
- assessing stakeholder engagement, both present and future (particularly external stakeholders – legal, political, economical, etc.)
- evaluating value creation and value migration
- ensuring that the strategy is sustainable, future-proof and competitive
- confirming that the strategy aligns with the organisation’s USP and value proposition
So while the board doesn’t craft the strategy, its role is to evaluate each component, contributing to informed decision-making and long-term value creation.
Executing strategy: from planning to implementation
Once the strategic objectives are established, it is the board’s pivotal responsibility to oversee the actual implementation of that strategy. This entails not only ensuring that the current financial performance aligns with forecasts, but also examining future projects, financing and timelines.
While the board conducts thorough analyses to maintain operational sustainability and identify potential threats, its focus extends beyond mere oversight. The chairman and board members actively engage with executive management, particularly the CEO, to ensure that the “house is in order”, as they say.
During these discussions, it’s clear to see why clear project timelines are a crucial part of the strategy, as they facilitate continuity and, more importantly, accountability. By monitoring execution progress, the board reinforces the commitment of individuals and executives to the strategic vision, ensuring that the organisation remains on course to achieve its long-term goals.
A note on performance metrics and KPIs
KPIs and metrics give the executive team a clear picture of the operational performance of the here and now, together with the projected performance until, say, end of year.
The board should instead focus on the strategic implementation of the 3-year plan. Any project that forms part of the long-term strategy will have a dedicated plan and budget, so there will be items on the agenda where one would specifically ask for updates on these projects. KPIs and performance metrics are therefore not always relevant, because the projects might still be in planning stages.
The importance of adaptability and flexibility.
External board members bring a valuable outside-in perspective, offering insights into industry trends and the broader macroeconomic landscape that can influence organisational performance. As a result, flexibility and adaptability have emerged as crucial components of contemporary strategies.
While “Act of God” clauses were once sufficient safeguards in client contracts, the modern business landscape demands attention to a myriad of dynamic factors, including health and safety, environmental, social, and governance (ESG) considerations, and cybersecurity. These three areas have become integral agenda items for boards, with executives expected to provide regular updates and strategic planning in response to these evolving challenges.
Overcoming the biggest challenge in strategic planning
Executives, particularly those in companies experiencing swift growth, often find themselves consumed by the immediate demands of day-to-day operations. The urgency of addressing operational challenges leaves little time for strategic reflection, as it may not rank high on their list of priorities.
It is precisely this aspect that the board endeavours to address – it continually emphasises the significance of strategic planning and future-oriented thinking. Without such foresight, decisions risk being shortsighted.
While the present requires attention for ongoing projects and resource allocation, dedicating time and resources to discuss the future is equally imperative. Otherwise, time slips away, and before you know it, you’re laying out the budgets for the following year without a well-defined vision that aligns with the strategy. Thus, the decisions made in the present must be in harmony with the organisation’s future aspirations.
The absence of a strategy severely constrains discussions, limiting the scope and purpose of the board meeting. Without strategic dialogue, the forum risks resembling an executive management meeting, which defeats the intended purpose of the board gathering.
If your company is at crossroads, on a journey towards growth, and requires the support of a Non Executive Director, contact Nadia today!
