Change Whisperer on ProjectManagement.com

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This is a blog about Strategy Execution, about implementing change and driving ROI to the bottom line. It is intended for: Leaders and for Program, Project and Change Management practitioners trying to manage the weather systems of change raining inside the organization.

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Insights in Change Management—Interview with Kimberlee Williams, CEO, Ignitem (Part 1 Of 3)

What is leadership’s responsibility for driving and sustaining a nimble organization? Interview with Daryl Conner, Chairman, Conner Partners. Post 2 of 3

The strategic imperative of the "nimble organization" and the mirage. Interview with Daryl Conner

What is the Board’s Role in Strategy and Strategy Execution? Post 3 of 3

What is the Board’s Role in Strategy and Strategy Execution? Post 2 of 3

Insights in Change Management—Interview with Kimberlee Williams, CEO, Ignitem (Part 1 Of 3)

Who knows more about change management than practitioners in the trenches? These are professionals who are vested in helping organizations achieve the promises to the Board (the strategy, “the change”) and who have dedicated their careers to figuring out how to do this well.

In this series, Insights in Change Management, we will hear the voices of these professionals.

Kimberlee Williams is the voice of global business professionals driving performance through transformation and change. She’s worked with companies in 18 industries, often during ambiguous, distressed, and difficult periods in their histories.

As Head of Global Change Execution in Merck’s Strategy Office, she pioneered strategy execution and change leadership by accelerating critical initiatives, building sustainable skills in the $46B/50,000-employee base, and guiding an informal community of thousands of change agents who enabled $3.5B in savings.

She served as Executive Director, Strategy and Program Management Office Global Services, a $4B/5,000-employee business unit and was previously VP, Organizational Effectiveness/HR at a privately held 30,000 employee-outsourced services company. Kimberlee is a certified Master Change Agent, Lean/Sigma Black Belt, award-winning executive facilitator, and advisor.

Today, her company, ignitem, specializes in transformation and change, guiding leaders around the world to achieve extraordinary results through her online training resources, coaching program, and live events.  You can download her free article, “Closing the Confidence Gap in Change Leadership” here and check out her website athttp://www.ignitem.com.

This interview comprises a series of questions and answers that will be published in three parts:

  1. Part 1—What brought you here? Includes: How did you get started? What’s your definition of change management? Where do you start when determining your approach to change initiatives?
  2. Part 2—Where is here for you? Includes: What do you bake into every engagement? What have you learned from failure? In SWOT analysis, what are the top three touchstones you refer to?
  3. Part 3—Who inspires you? Includes: What gets you up in the morning or keeps you going? What does the future of change management need? As a bonus, Kimberlee answers the question, “What would you like to ask other practitioners?”

This is Part 1.  Parts 2 and 3 will be published shortly. You can subscribe to ensure that you don’t miss them.

Here we go…

1.       Your story—How did you arrive at change management? How did you choose this discipline and why?

My career started in a small town gas station. I started working in my family’s business when I was nine years old and was doing automotive repairs and supervising adult employees by the time I was a teenager. I was absolutely fascinated by our employees’ behavior and performance, and the mechanisms needed to shape their behavior (especially when they were asked to do something different or that they did not want to do).  Learning the finer points of a combustion engine and how the elements of an automobile are designed to work together to achieve a certain level of performance shaped my interest in whole-systems design. In addition, abstract concepts such as horsepower and torque helped me to visualize invisible drivers of performance inside systems, like beliefs and assumptions, and to learn how to measure those drivers.

I carried those people and systems interests into college and grad school, studying Industrial/Organizational Psychology and Statistics/Research Methods. After entering the professional world, I worked in HR/Talent/OD. Although I rose quickly to become a senior HR/OD executive, I discovered there were other line functions (business development, operations, strategy, etc.) that might more fully utilize my skills, so I began to cross-train in those areas.

I worked in outsourced services for about 10 years, leading transitions of large numbers of employees in very turbulent environments. A pivotal moment for me occurred when an employee in one of our client facilities was killed performing maintenance on a piece of manufacturing equipment, despite the fact that my company had been actively promoting a safety program there for several years. It underscored for me how hard it is to change human behavior—even when people know it means life or death. After that, I totally shifted my focus from HR/OD to Organization Effectiveness, Strategy/PMO, and leadership roles on huge projects that gave me the opportunity to address systemic elements of business and people change using a variety of methodologies such as scorecard, Lean Sigma, and others alongside change management.

2.       Perspective—What is your definition of change management? Is there an aspect that has captured your attention that you continue to study and investigate?

Change management means assisting people to 1) move from the current state to a defined future state as quickly as possible while 2) maintaining or improving their desired level of performance. Methods and techniques to do so are primarily rooted in behavioral science and often involve up-skilling and working through others (e.g., people managers) rather than directly.

It is both a discipline (i.e., formal organization role with title) and skill set (i.e., the competencies can be defined and embedded in a vast number of roles across the company).

Although it is often discussed in isolation, in my opinion, change management is part of a larger constellation of organization capabilities (e.g., identifying, deciding on and prioritizing strategic opportunities; aligning leaders; designing solutions; implementing solutions; measuring to assure desired results are achieved; and sustaining those results over time). I see change management mostly supporting “implementation,” as there are other approaches better suited to address the other areas. For instance, Sigma is much better suited to designing solutions. Developing all of those capabilities in an organization requires a multi-disciplinary approach.

In addition, change management techniques have evolved from, and contributed to, other disciplines, including Organizational Development, Lean Sigma, Balanced Scorecard, and even Talent Management. This can create organizational friction and needs to be managed thoughtfully.

My passion, and the reason I founded my business, is to enable professionals who are implementing change—no matter what their job title or discipline—to graduate from change management to change leadership. Change management has been commoditized to a large degree (and the focus is frequently mis-directed to tools and tactical techniques) and it has not always delivered on improving implementation results, leading to an overall devaluation of the discipline.  Change leadership is much broader. It is about persuasion, influence, politics, high-impact conversations that redirect behavior and get to the root of a wide spectrum of issues, at the time of implementation and beyond. So this is what I do in my business—I work with companies to define the roadmap to identify and develop these organization capabilities, and I work with professionals leading change to improve their own impact, influence, and income.

3.       Starting Point—What do you see as the most significant attributes that differentiate change initiatives and how do you approach them differently? Examples might include transitional vs. transformational, culture, impact dimensions (number of people, change history, locales, positive vs. negative impact, etc.).

All of those you have listed here are critical and I agree need to be considered when evaluating any organizational change. In the impact analysis I use in my own business, I have added a few dimensions. Two that I recommend people consider are:

 1)      Apparent Inconsistencies—the degree to which change actions, on the surface, seem contradictory to one another. These create credibility problems for change leaders because they are incorrectly interpreted as a coordination problem (i.e., the left and right hand don’t know what they are doing) or worse, a leadership trust issue (e.g., belief they are deliberately being “sold” a benefit that they will not experience). Some examples of apparent inconsistencies include hiring in one part of the organization while reducing force in another or optimizing globally while sub-optimizing locally (as often occurs with ERP implementations). I find that these conflicts are sometimes not uncovered until quite late in the implementation and, with focused attention, could have been anticipated and addressed.

2)      Shifts in Management Power Bases—an attribute evident in reorganization and restructuring efforts for a long time that becomes even more acute as companies undertake business model redesign. Business model redesign fundamentally disrupts structures, processes, products/services, resource allocation—often in highly unpredictable ways—making some leaders’ roles or entire functions obsolete (so there is a heightened sense for leaders that they could end up with no role at all or a greatly diminished base of power). This can cause excessively protracted decision-making as executives attempt to create a fit for themselves, obfuscate in an attempt to manipulate circumstances, buy time to keep options open, or engage in other behaviors that make moving forward seemingly impossible. Shifting management power bases often requires a parallel work stream (beyond basic change management) of dealing with those especially challenging leader behaviors, and providing extra coaching to sponsors to work through options.

Parts 2 and 3 coming soon. You can subscribe to ensure that you don’t miss them.

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Posted on: March 17, 2014 05:33 PM | Permalink | Comments (1)

What is leadership’s responsibility for driving and sustaining a nimble organization? Interview with Daryl Conner, Chairman, Conner Partners. Post 2 of 3

Daryl Conner’s extensive thought leadership on creating nimble organizations has the potential to breathe new life into the dinosaurs of the Fortune 1000 and S&P 500.

As a preface, let’s just level-set. Why should leaders and boards care about an organization’s ability to change? Is it a real issue?

Tenure on S&P500The statistics are not kind.

The Innosight study, “Creative Destruction Whips through Corporate America,” indicates that:

“the 61-year tenure for the average firm in 1958 narrowed to 25 years in 1980—and to 18 yearsnow.” (2012)

The authors offer a warning to executives: “At the current churn rate, 75% of the S&P 500 will be replaced by 2027.”

So, risks of declining performance are pretty big and they exceed the usual tenure of a CEO—surely this risk sits at board-level purview.

The Innosight study also proposes three questions that the CEO and executive committee should ask themselves. I found the second question to be arresting: “How fast do we have to change to maintain our position within our industry?”

How fast indeed? And how does an organization change fast, repeatedly, and consistently? It needs to become “nimble.”

Daryl’s very precise definition of “nimble,” covered in the first post, is deliberate. This is not your usual corporate jargon about “strategic agility” or “innovation” and not about (as is widely misunderstood) creating a “start-up mentality.”

It is about creating and sustaining an organizational DNA that views change as a constant, as part of the daily activities of leaders, managers, and employees.

In this post, we explore the role of the board and the senior leadership team in establishing and fostering a nimble organization—an organization that will still be thriving 18+ years from now.

Daryl, talking about the many concurrent strategic imperatives that executives have to lead takes me to a trend toward Enterprise Portfolio Management, where we see even board-level committees assembled to track the organization’s top strategic imperatives. Do you see this as a way of managing nimble as a concurrent top priority?

Yes, building nimble capability must be managed at this level. It is a multi-year initiative and requires purview at the senior most levels of the organization. Without this attention it will fail.

Furthermore, building nimble capability then can be integrated into many of the other ongoing initiatives.

And, by the way, establishing a standing oversight office at the executive level is a key element of a nimble strategy for leading change. I call it “Portfolio” in the model. Back in 2004, we launched the first Strategy Realization Office. This body, more expansive than a conventional PMO, really tracks implementation, at a high level, to breakthrough risks and to ensure that the benefits of the key strategic initiatives are realized. This level of executive purview changes the game.

In fact, do we even need board-level purview?

Yes, we do. To be a nimble organization, in my view, there must be board-level accountability.

An organization’s nimbleness should be so embedded that it can survive the transfer of power from one CEO to another. The only things that make it through a CEO transition are board-level priorities.

The real issue for the board is whether it is going to take on the responsibility to add another filter when hiring the next CEO. Without a doubt, the candidate must be technically competent and, yes, culturally consistent. The bigger question is, “Is this person prepared to drive and sustain a nimble organization?” Is the board intentionally hiring for that competency?

If someone is brought in who is profitable this year but unable to drive nimbleness, it means that whatever he or she is using as a solution to drive profitability has a limited shelf life, and there will be no infrastructure for constant transformation.

Conner Partners began working with organizations to establish Strategy Realization Offices 10 years ago. Would you take a moment to explain how these are different than conventional Project Management Offices and how an SRO can contribute to building a nimble organization?

We built the Strategy Realization Office structure to give leaders two things: oversight on their most strategic imperatives and line of sight on benefits realization.

Conventional PMOs are assembled on project funding and adjourned on installation. This kind of timing mindset does not serve leaders who need to manage continuity of business performance all the way through to full realization of the initiative’s promise.

There is always strategic change in organizations. It is a fact of life now. We need permanent structures to manage it.

More to come

In the next post, Daryl talks about tackling the strategy to become nimble. We discuss what leaders can do and how to start on a long-term strategy to create a nimble organization.

Want to get started? Do contact Conner Partners directly or give me an email at gailseverini@symphini.com and we’ll find time to chat.

Getting something out of this? Please do share with your network by forwarding this post over email or over social media using the buttons. Thanks!

Posted on: March 17, 2014 05:26 PM | Permalink | Comments (0)

The strategic imperative of the "nimble organization" and the mirage. Interview with Daryl Conner

“The mind, once stretched by a new idea, never returns to its original dimensions.” ? Ralph Waldo Emerson

Daryl photo

 

In this post, I interview Daryl about what “nimble” means, why it is a strategic imperative, and why it seems to be so difficult for organizations to get traction with it.

For full disclosure, I work with Conner Partners, so I do have a bias. However, Daryl’s work of 40+ years speaks for itself—and you can make up your own mind. Please do share your comments below.

 

There are many definitions of “agile” and “nimble” in the business world. I know that you have a very precise meaning in mind. Would you share it?

Sure. The definition I use is “the organization’s sustained ability to quickly and effectively respond to the demands of change while delivering high performance.”

Some would say, “As long as you win the race you are first,” but I view nimbleness as a sustained, competitive, strategic advantage. It’s not enough just to ask, “Did we accomplish more change than our competitors this year?” Becoming truly nimble requires looking at the amount of energy that goes into accomplishing those changes and saying, “Was it optimized?”

In his own blog series, Nimble Organization, Daryl explores this further. In post 4 of that series, “Characteristics of Nimble Execution”, Daryl outlines the characteristics of organizations that are nimble at strategy execution:

Characteristics of Nimble Organization Daryl Conner

As he notes, two components work together—environment and application:

  • “Creation of the environment where nimbleness can flourish (reflected in the organization’s leadership, culture, and approach to change roles)
  • Creation of the application structures and processes that drive successful execution (reflected in the organization’s portfolio of initiatives and implementation architecture)”

How important is nimble for leaders today?

I published “Leading at the Edge of Chaos: How to Create the Nimble Organization” in 1998 and I thought then that I was late to the nimble game. But that was wrong. My first book, “Managing at the Speed of Change” (published in 1992), was about understanding how to implement the changes you have in front of you; “Leading at the Edge of Chaos” was about how to prepare for changes you can’t even envision.

The responses to the books, and many of the subsequent conversations I’ve had since their publication have been pretty consistent. There is an overwhelmingly positive affirmation of the idea of nimbleness. Leaders often say to me, “That’s exactly right. That’s what we have to do.”

I then make the point with them that, if you want your organization to be nimble, you have to treat executing change as a strategic capability. For example, it needs to be something you and your board talk about and take action on. This is when their interest in the idea of nimbleness starts to taper off. When it comes down to actually creating nimble DNA, I’ve found that very few leaders will invest the energy and mindshare that is required. They are so focused on the current change-related challenges that they can’t pick their heads up long enough to attend to a longer view.

Even though I‘ve had many such conversations with a wide range of executives, at this point in the discussion, I hear similar views: “Look, we are so overwhelmed with our existing portfolio of changes that you are going to have your hands full just teaching us how to deal with that. Isn’t it possible, Daryl, that if we manage this portfolio better with your help, we’ll automatically be more nimble? Can’t we leave it at that?”

My response is always, “Yes, you probably will be more nimble to an extent, but don’t confuse that with deeply embedding nimble DNA—at the level of personal mindsets and organizational structure—enough for people to be able to handle ongoing transformation as the norm. Will you be better prepared for new transitions after executing the changes you have before you? Of course you will, but that’s different than putting a stake in the ground and declaring that “It is imperative to become more intentional about being nimble…On my watch, this is going to happen.”

I have unsuccessfully made the case for years that being nimble is a crucial strategic advantage, not a luxury. Not that leaders aren’t responsive to the general notion, but actually following through with all the hard work involved in getting there is often not as well received. Getting a leader’s attention, interest, and enthusiasm isn’t that hard, but not many follow through with what it takes to actually build an enduring legacy of nimble operations. They almost always get diverted by the next crisis.

So, why don’t more organizations focus on becoming nimble?

There are many reasons, but one is that they fear they will have to stop what they are doing and pick up a separate task called nimble development.

That’s not really how it works, however. Shaping a nimble culture requires that leaders still do everything normally required of them, but they do it with the clear intention of fostering a nimble enterprise. For example, if an organization is seeking new talent anyway, why not hire people who have a predisposition for operating in a nimble fashion? Leaders know (or can learn) what those capabilities are and can incorporate a filter for nimble predisposition into their hiring criteria. Instead, I typically meet with leaders one week when they declare they are ready to move ahead with fostering a nimble culture (“We’re doing this!”), but by the next week, they meet with the board and there is a new customer service crisis or some other issue and all of their attention goes to that.

I’ve been fortunate over the years to work with several senior executives who were serious about architecting a nimble culture, so I’m not saying it never happens—I’m saying it is rare.

Does that mean organizations are not good at juggling multiple strategic priorities?

I think it’s more the reverse of that. They think they are so good at pursuing a huge number of priorities that they believe they can just add nimbleness to the ever-growing list of initiatives their organization must then endure.

More to come

Daryl shared more insights in the interview than can be covered in a single post, including thoughts on how leaders can manage their multiple strategic imperatives andstay focused on building organizational bandwidth and capability for “quickly and effectively responding to the demands of change while delivering high performance,” (i.e., a nimble culture).

Want to get started? Do contact Conner Partners directly or give me an email at gailseverini@symphini.com and we’ll find time to chat.

Thoughts? Reactions? Please share in the Comments section.

Getting something out of this? Please do share with your network by forwarding this post over email or over social media using the buttons. Thanks!

Posted on: February 07, 2014 04:13 PM | Permalink | Comments (0)

What is the Board’s Role in Strategy and Strategy Execution? Post 3 of 3

This post concludes my notes and my observations and comments (indicated by italics) from the panel discussion,“Growth Strategy—the Board’s Role,” run by the Institute of Corporate Directors (ICD).

The panel was stellar, with names well known to board and strategy watchers: Thomas O’Neill, Krystyna Hoeg, Stephen Bear, and Ken Smith (bios in Post 1). Overall, I found it a great overview of the most obvious answers to the seven questions, peppered with relevant examples and a few deeply insightful remarks.

The bottom line for me? The board members totally “get” the need to be engaged in strategy formulation; however, there was not much conversation about execution. Granted, it was not specifically called out in the abstract but I had hoped it would get more mention. The jury is out for me on what to make of the fact that it didn’t.

Question 6: Is scenario planning more popular now?

Of course, Stephen Bear kicked off, sharing his deep experience from McKinsey. He noted that, when done well, this is an important strategy formulation tool and that it provides a way to manage the sometimes “schizophrenic tension” between short-term performance expectations and ensuring health over the long term. It is a tool to ensure that we are investing in both at all times.

I confess, I lost a little traction with the note-taking here. I am sure Ms. Hoeg and Mr. O’Neill commented, but I caught myself reflecting that this all still falls short of the high-level oversight on realization of results (that I read into “board oversight of growth strategy”) that I was hoping for. I realized that my own biases had shaped my expectations.

Question 7: What is the relationship between management and the board regarding strategy development? Do we expect management to resist and object? Do we expect them to say, “It’s my job. If you don’t like it, fire me”?

Ms. Hoeg referenced her experience at Shoppers Drug Mart and noted that it was not long ago that the board brought Domenic Pilla into the president and CEO role. They had done so, realizing that a strategic refresh was in order, and recognizing that he would need time to learn the organization and prepare that plan. She noted that management went shopping for a strategic advisor and prepared two or three plans. The board was engaged in these processes. A five-year plan was produced that looked at what the organization could do organically and, alternatively, through mergers/acquisitions. This really served to put the board in a “ready state.”

Thomas O’Neill noted that “down the hall” at Loblaw, where he is a board member, they were looking at their strategy. They recognized that the grocery industry had peaked a couple of years ago and was stabilizing around three companies (i.e., “it was time to do a deal”). Loblaw made a bid for Shoppers and the acquisition is underway.

Mr. Bear weighed in with the observation that sometimes board members end up asking a lot of questions, sometimes the wrong questions. He cautioned that this can waste precious time. He also noted that, at times, the role of the chairman and CEO is to work with the board members to focus.

Mr. Smith invited each panel member to have a “last word” before he opened the floor to questions:

  • Mr. O’Neill summarized with: “Search for growth in the core business or adjacencies; if one cannot grow, one must evaluate all other options.”
  • Ms. Hoeg suggested: “Evaluate the board and the senior management team.” Her comment reminded me of one of her earlier remarks—that she looks for the “cheerleaders” and the “naysayers” and the need to weigh input from both.
  • Mr. Bear noted that when considering strategy, “data deliberation can skew the outcomes.” He recommended considering whether “we are stretching enough.”

All in all, this event was well worth the time. The opportunity to see how board members think was fascinating and to hear some of their “war stories” was intriguing. I will be attending more of these events.

Summary

Our interest in such matters tends to track along with the economy. Given that the recovery is in full swing, we are well into transformational growth strategies. Acquisition announcements, such as Sobeys’ purchase of Canada Safeway, Loblaw’s purchase of Shoppers Drug Mart, and many other dramatic shifts, are examples of growth strategies that have our attention.

As these proceed into execution, we will have an opportunity to shine the spotlight on the board’s role in this critical step.

Presently, I come at this from the perspective of an investor in institutional funds that buy into these corporate strategies. The very sharp point of my own motivation is to gain from these strategies—and when they fail (as they did wildly in the sub-prime mortgage crisis) I know I bear the risk. Chances are, you are in the same boat. I also bring 20+ years of strategy execution experience to the table. I know, viscerally, how difficult this is. What I wonder is, “do boards?”

I believe there are ways to provide boards with efficient and insightful means to track execution and to require the organization to build change agility. Here are some examples that would focus their diligence, bring their deep experience to bear, and deepen the organization’s—and the board’s—capabilities:

  • Search for and retain a member(s) with deep strategy execution experience. Tap his or her experience and insight.
  • Identify the most strategic initiatives and require management to provide quarterly updates (including not just the standard plan against actual, but also candid risk tracking, and updated insights based on competitive, regulatory, etc. market movement).
  • Establish a Strategy Realization Committee. Just as boards run Compensation, Nomination, Audit, etc. committees, perhaps they should run a committee with oversight on delivery of the most strategic of initiatives. BMO runs such acommittee that looks remarkably as described.
  • Prioritize change agility (the capability to deliver strategic initiatives in rapid iteration, and adapt so concurrently as to appear fluid) as critical organizational capability. Require management to develop a plan to develop and embed this. Require quarterly reporting.

Over the next several months, the role of the board in Strategy Execution is a theme I will continue to pursue.  

Thoughts? Reactions? Please share in the Comments section.

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“A rising tide lifts all boats”—John F. Kennedy

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Posted on: February 01, 2014 03:03 PM | Permalink | Comments (0)

What is the Board’s Role in Strategy and Strategy Execution? Post 2 of 3

This post is a continuation of notes from a fantastic panel discussion, “Growth Strategy—the Board’s Role,” run by the Institute of Corporate Directors.

On stage, board members represented major public- and private-sector organizations such as BCE, Bell Canada, Scotiabank, Loblaw, Shoppers Drug Mart, St. Michael’s Hospital, Sun Life Financial, Canadian Pacific Railway, Princess Margaret Cancer Foundation, and Imperial Oil. Bios are provided in Post 1. My own comments are indicated in italics.

Question 2: How should the board be engaged in strategy?

Facilitator Ken Smith led in with the observation that the traditional process is for management to present a fait accompli—the board is given the Strategic Plan, allowed to ask a few questions, and then expected to stamp their approval. He noted that boards are not always given much opportunity to weigh in.

Mr. O’Neill was clear: “Strategy should be a part of every conversation.” He further noted that the director doing the onboarding should include briefings on the business and the industry such that directors are informed enough to comment appropriately. He also suggested that the strategy review process should have a cadence such that board members receive information and have time to “soak and deliberate” on it.

He further suggested a series of three meetings where, in the first, management shares “what they are thinking,” while the second is dedicated to risk assessment, mitigation, and discussion and the third is dedicated to making the decision.

Stephen Bear shared his perspective, starting with a re-calibration—he noted that “we used to do 3-5-10-year plans, but now it is more of a process, a journey, than a deterministic point in time.” He concurred on the need to educate the board on the industry and noted the importance of also looking at adjacent industries. He advocated that boards must think about and discuss “Where do we fit in that?” and “What are the risks and challenges?”

He suggested that there are two types of strategic decisions that boards should discern between—both important, but different:

  • Broad decisions, such as “where do we fit in the market,” and
  • Smaller ones, such as “which acquisition should we make?”

He noted one caveat: “Not all board members are born equal,” (i.e., each brings different expertise). He advocated that boards should “leverage your best assets” appropriately. I took this to mean that not all board members have deep expertise in strategic planning and that members should look to each other to determine who can bring the most forward on this topic.

I appreciated the candid question (particularly the contextual tee-up that boards might be expected to rubber stamp strategy) and the momentum of the answers. I would have liked to see each of the speakers take their thinking another step, and I wondered if Stephen Bear would go so far as to suggest that every board should have a member whose expertise was as deep in strategy as a Chartered Accountant’s is in finance; however, time did not permit.

Question 3: How are directors prepared to play an effective role?

Ms. Hoeg stressed that “one must educate oneself” on the organization, the industry, and the proposed strategy. She emphasized that directors really must discern whether management is doing the “right things” and whether the organization is sticking to its core capabilities. I became hopeful hearing her following remarks:

  • “Boards are clamoring for more and more attention on strategy” and
  • “Management is being pressured to manage the operational parts more tightly to allow more board time to be spend on strategy.”
  • “Strategy must be a living, breathing document to ensure that it is the right one.”

Mr. O’Neill also shared that training for directors at Scotiabank is at the board’s request. Such training sets a baseline for the directors’ knowledge bases and every iteration deepens the insight. “Once you have been through a couple of cycles, you can dive deeper.”

Stephen Bear dropped in the following deeply incisive remark: “You are educated as well as management wants you to be. It’s your role to determine if that’s enough.” He noted that it can create some discomfort to pose questions such as, “Is management telling us enough?” and “Do they know enough?”

This was followed by a zinger from Mr. Smith: “Risk oversight is good unless they [board members] believe their role is risk minimization.”

I was relieved to hear that boards get some onboarding (no pun intended) and that they can seek additional general and specific training; however, I had assumed this. I was glad to hear (from Ms. Hoeg) that board members are “clamoring” for more engagement—that seems fitting. 

Question 4: What have you seen around boards balancing growth and risk?

Mr. Bear led this off with two assertions:

  • “One cannot grow without some risk. There is a need for a good discussion on the appetite for risk.” He added: “With misalignment, so many questions, debate, and demand for analytics can happen that you can miss the opportunity.”
  • “It’s important to be very aware of two types of risk: commission and omission.” As an example of commission, Bear noted that in the late 1990s, in an acquisition bid, Bass pressured the board to a “deal/no deal.” The board agreed, but government regulation tied the deal up. “It cost $1B to get out of that.” The point is that the board “committed” that problem. On omission, he noted: “It is important to have processes in place to see the unseen,” particularly in adjacent markets. He also commented that it is very difficult for a successful business that is “pumping out profit” to change even when they see it coming. He referenced Kodak and Blockbuster as examples of failure to act.

Bear further noted that, in a recent McKinsey survey, only 16% of boards felt they have a deep understanding of dynamics in their market and articulated the obvious question: “Is this enough?”

Ms. Hoeg weighed in next, noting that some organizations, such as Sun Life (where she sits on the board), are in the business of risk: “They understand how to drive profit from that.”

Thomas O’Neill picked it up with a reference to “stealth risk” and the need to be aware of unpredictability. He noted, “Who would have thought in 1985 that Toyota would be become the biggest car manufacturer in the world and GM would go bankrupt?” He referenced several recent acquisitions: Bell’s of Astral Media; Loblaw’s of Shoppers. He also referenced BASEL III and the impact this will have.

I heard a consensus that organizations are under pressure, some internally driven by proactive strategy and much externally driven, to accommodate varying degrees of risk. I did not hear much around how boards are coping with this.

Question 5: What is the right timeframe to be thinking about planning? What’s the board’s role for setting appropriate timeframes?

Mr. O’Neill carried the ball here: He noted that the cycles for different industries are different and therefore the answer needs to be calibrated to reflect that. He noted that, in retail, the supply chain cycle drives a lot of the strategic issue, but in oil sands development, like Nexen’s Long Lake, the cycle is entirely different. I lit up when he said, “The board is responsible for ensuring that the strategy can be executed.” He went on to discuss short-term activism (and the pressure to deliver continuously, improving results quarter-over-quarter without respect to the longer-term growth strategy). He advocated against setting quarterly expectations and, instead, recommended giving analysts the data and letting them figure it out.

Ms. Hoeg picked up the issue of “short termism,” noting that strategy must be “put in context” and “one has to get that the strategy is as right as possible and that it will have to flex.” She referenced the example of brand management from her past experience, noting that brands have cycles and as one is declining there must be others in development for mid- and long-term growth. She also referenced the Canadian Pacific Railway (CPR) saga, noting that this case is an example of the importance of being in touch with shareholders. (For a bit of background, see “Ackman vows to make CP Railway ‘one of the best’ in the world”.)

I didn’t really hear an answer to the question; however, the comments were interesting. Of course, the references to Long Lake and CPR really left me wanting to hear more, much more.

The next question turned, logically, to scenario planning and its role. For this, Mr. Smith turned, obviously, to Stephen Bear to tap his deep experience at McKinsey. More on that in the next, and last, post in this series. Don’t want to miss it? You can subscribe top left.

In the next post, I will share the panel’s responses to the remaining six questions. 

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Posted on: February 01, 2014 03:02 PM | Permalink | Comments (0)
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