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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

The ‘Strategic Blueprint’ of your firm: Articulating your competitive strategy Why do many firms fail to achieve their ambitions and growth targets in revenue and profitability? Several reasons can be found and one of the fundamental issues lies with the firm’s leadership not being able to articulate its competitive strategy and communicate it down to the operational levels of the organisation.  A lack of clarity about a firm’s competitive strategy results in poor execution. Why? People in the company have no sense of direction and therefore cannot align themselves with a common purpose. Worse still, in some situations firms have only operational strategies and attempt to survive on a year-on-year basis.  The majority of firms lack value-creating and uniquely different strategies. Competitors converge on similar strategies competing on similar platforms, eventually leading to eroding returns. They fail to address the core of how value is created and captured by the organisation.  One of the hallmarks of successful companies is sound alignment between strategy and execution. Hence, it is important to articulate your strategy in a simple yet meaningful way so that the whole organisation shares a common direction and purpose.  Let’s look at a typical scenario. It is the third quarter in the financial year. The setting is the boardroom where the directors meet to proceed with their structured monthly meeting. Last month’s performances and the cumulative figures are evaluated. Our revenues are not on target, neither is our bottom line, says the Chairman. We are behind our budgets. Looking at the trend, we will end the year behind our budgets. What do we say to our shareholders? We cannot allow this trend to continue, responds another board member. Last year too, the team failed to meet its budget. Even though we ended up with a profit, we were far behind our targeted figures.   The Finance Director then provides an analysis of the financials and comparisons vis-a-vis budgets, both for the current years and for the previous year. A lengthy discussion follows. The final conclusion is that we need to strengthen our strategic planning process. Obviously, our team is not competent enough to draw up the right strategies to achieve the agreed upon targets. Let’s hire an external consultant and facilitate the process for next year. Sounds familiar? This is one of many such scenarios that take place in firms that struggle to keep pace with changing market dynamics. So, what follows? A consultant is hired or sometimes a senior member within the organisation is designated to review and carry out a fresh strategic planning process. The process is planned, a retreat arranged, where select team members are taken on a weekend residential workout. The process begins by taking stock of the external environment followed by an assessment of the firm’s capabilities.  The discussion is followed by an analysis which concludes with a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. Presentations are made by groups, challenged, debated, discussed and agreements reached with amendments. Great! There is a long list of findings that appear in the SWOT analysis. Everybody is happy and proud of their findings. Now comes the next step – let’s set goals for the next financial year.  With deliberations over, the groups present their goals. Again, the same process is adopted, namely challenging, deliberating, negotiating and eventually agreeing on some lofty goals. There are examples galore to increase sales, increase market share, reduce costs, increase profitability, improve staff motivation and so on.  Then comes the next step and perhaps the more important aspect in the minds of the team – strategies to achieve the objectives that have been agreed upon. A comprehensive list of strategies is articulated, with attention paid to novelty and creativity in most instances, to impress senior management. You can label some of these as fantasies rather than realistic steps.  Once this process is completed, the onus is on the finance division to put together the budget for the next financial year for presentation to the Board. What follows is a negotiation process between the Board and the CEO and his senior management team. Whilst the Board will try to push the figures up and question the validity of some numbers, actions, etc., the management team will defend its position with justifications. Finally, agreement is reached (after a process of horse-trading) and the team is wished good luck to achieve the said budget.  The result in the next financial year, more often than not, is nothing different than that of previous years. Justifications prevail, slack market conditions, a terrorist attack, competitors dropping prices, lack of a product range vis-a-vis competition and so on. Why is there a gap between intent and realisation? The term strategy used in your strategic plan and the competitive strategy of the firm bear two different contexts and mean two very different things. Unfortunately, most executives are unable to distinguish between the two. Thus, when you question executives as to what the strategy of the firm is, different people have different interpretations.  Some say we are following a “cost-reduction strategy” or “our strategy is to increase market share by 15%” or “our strategy is to go international” and so on. Others generalise it. They say “our strategy is to achieve our stated objectives and for that we have several” and then begin to list all of them. Correct. But when they are confronted with the question “what is your firm’s competitive strategy?” the response is most often a blank stare. Sometimes I ask the same question in another manner – why should a customer buy your product or service and not that of your competitor? The typical responses for these include “our products are of a higher quality”; “we give a better service”; “we have financial stability, a strong brand, motivated staff” and so on. All these are generic answers that are copied from textbooks. Yet when they are confronted with the questions, “what do you mean by high quality?”, “what is better about your service?”, “can’t your competitor also

The myth of strategic planning “Planning is not the panacea for lack of a cohesive strategy” Walk into a pottery centre and you will see craftsmen (or women) seated at their pottery wheel, crafting a pottery design of their own. Slapping on a lump of clay, combining their hands in a skilful motion of their nimble fingers, the potter begins to gently shape the clay as the wheel rotates, raising and smoothening the sides of the lump of clay, to craft an ornament, the image of which, is in his/her mind.  There are no drawing in front of them, there are no written specifications that guides their thinking nor the movement of their hands and fingers or the design of the ornament. Yet, going by previous interactions with their customers, they have a good idea as to what would appease them. The design, colours, sizes, finesse and utility value are all arising as a result of their previous experiences, interactions, skills, learning; combined and delivered to the delight of their customers.   This is strategy in the making! An iterative process, where an integrated set of decisions are made to determine a combination of choices that optimally guide the rest of the choices in the business, to generate a sustained superior performance over time. This is not strategic planning, rather a process that compels entrepreneurs/managers to think strategically in crafting a strategy that will deliver the desired results. It is very common to see senior management of companies looking to carry out a strategic planning exercise to overcome organisational slack or in situations where performance requires transformational change. This is because of the belief that strategic planning process leads to the discovery of a strategy! Does it really? What is a plan? A plan is essentially a coordinating and control document. Considering the limited resources that an organisation deploys to implement its pre-determined programs to achieve specific results in a defined period, a firm must ensure that such activities/programs are executed in a timely manner within the resources allocated and then monitored to ensure desired results are achieved.  Planning by nature is a formalised, rational process to produce an articulated result. Such rational planning implies that those who are planning has the ability know the attributes of the future; can accurately assess the strengths and weaknesses of the organisation; and be able to manage the desired change process that will align the organisation with projected future.  Think for a moment… is this the reality? In the real world, does the external environment you assessed remain constant during your planning period? Does your competitor go into hibernation, whilst you are engaged in your annual planning process? Are you able to sustain your performance with the strengths and weaknesses assessed, including the filled gaps during the planning process for the rest of planned period? Let’s look at a local situation.  Most organisation would have finalised their strategic plans for 2019/20 or longer, by February 2019 the latest. They step into the new financial year, buoyant with their new look strategy to achieve the lofty objectives they have set forth to achieve by the end of the year.  The carnage on 21 April, takes the whole nation by shock and a catastrophic hit on the entire economy. Do you think that any organisation would have had predicted such a phenomenon to occur? Did they factor this factor into their strategic plan? The tourism industry, one of the main sectors to be affected, are struggling to come out of this catastrophe. Is the resulting consequence effecting the strategic proposition of the firm? How do we respond? Go through yet another strategic planning process and come out with revised strategic plan? Is this the answer? We must realise that Planning is not an end unto itself. Strategy of an organisation and strategic plans are not the same. Neither do strategic planning necessarily lead to developing a strategy for the firm. Crafting a strategy for the firm is better managed through strategic thinking, whilst planning and plans help codify such strategies and facilitate execution. Therefore, strategic planning is not a panacea for a lack of a cohesive stagy for the organisation. Let us now try to understand what strategy is in the context of a business; a concept which in most instances is commonly misunderstood. To do so, it will be good to understand strategy from a position when firms feel that they do not have a strategy or that the strategy pursued is not robust enough.   Planning is not an end unto itself A firm must make choices that fit together in a holistic manner consistently, to succeed in its operating environment. Those choices are the essence of strategy Firms must continually question whether the core assumptions guiding their business are still valid? Corporate management must go beyond the mundane stuff of signing-off annual strategic plans, monitoring achievements and taking corrective action to, simultaneously engaging in structured strategy discourses They feel so when firms find; difficulty in growing their returns; gain market share; demand is slack; it difficult to face onslaughts from competitors and the like. What it essentially means is that the firm’s actions, while appears to be effective on a standalone basis, does not bring about the desired overall result. In other words, the different actions pursued by the firm, is devoid of a unifying logic!  For example, a firm pursuing a cost reduction program may successfully reach its target of costs to be reduced by slashing costs all round, but may in the process de-rail a staff development program that is designed to provide a unique and differentiating service to its customers.  Strategy of a firm must be determined by two fundamental decisions: Choosing where to compete and choosing how to compete. Simple in outlook, but the depth to which answers to these two fundamental questions are pursued determines the effectiveness of the strategy itself. Its purpose is to create a sustainable competitive advantage that generates superior, sustainable financial returns over the