Introduction
There has always been contradicting views on what role a board should really play in strategic planning and setting organizational direction. In the recent past however, boards have been pushed to be actively involved in strategy formulation. Traditionally, boards have been taking part in strategy on rare instances due to specific reasons to do so such as, retirement of an incumbent CEO, when a company is planning to undertake a major investment or when there has been a sudden decline in the sales or profits (Lynch, 2018). In the recent years, however, many boards have sought to be involved deeply due to increasing regulatory pressures. For instance, boards now participate in the CEO performance evaluation process and even in annual strategy retreats. Still, even today, very few boards take part in shaping and developing the organization’s strategic direction. Strategic planning refers to the way organizations define their strategies, or direction, and make decisions on how to allocate their resources to pursue these strategies (Thompson, Gamble, Peteraf & Strickland, 2014). It therefore involves analyzing a business and setting goals and objectives and working on realizing them.
Importance of strategic planning
This process is important to organizations as it offers the following benefits:
Competitive advantage. With a strategic plan, organizations have a competitive advantage as they are able to study prevailing market conditions and research on the next moves of their competitors (Gamble, Thompson & Peteraf, 2019).
Offers a clear sense of strategic vision and direction. A strategic plan helps in defining the direction to be taken by an organization so as to attain desired goals and objectives.
Motivates employees. Strategic planning enables employees to be more aware of how to attain short term and long term objectives. This keeps them motivated.
Minimizes risk. Strategic planning helps firms to foresee problems that may arise in the future and take corrective measures beforehand.
Elevates productivity and operational efficiency. A proper plan helps increase the level of productivity and operational efficiency of the whole firm since all employees comprehend their tasks and understand how to execute them in the most effective and efficient manner (Bryson, 2018).
Improved understanding of external and internal environments of business. Through strategic planning, organizations are able to understand both the internal and external environments of their businesses. This is possible due to the evaluation that is done on business environment.
The board and executive management in strategic planning.
The role of the board in supervising the company’s strategy and development is as important as the role of a CEO in creating and executing the strategic plan. While the number of roles that a board can fulfill varies, there are essentially two broad roles for every board. The first and most recognized role is that of monitoring. In the monitoring role, the board’s responsibility is to ensure that it is informed and engaged with the company to make sure that the interests of stakeholders are protected. This role also involves overseeing the execution of chosen strategies and whether goals of the firm are being realized. The second role is the board’s service role which basically involves taking on direct responsibility in making major strategic decisions or indirect for advising top management on their strategic plans (Ebener & Smith, 2015). Shareholders are increasingly relying on their board members to be highly involved in setting company strategy due to the various challenges that leaders face in this era. These challenges include external pressures brought about by politics, heightened regulatory challenges which require constant compliance and accelerating change that necessitates companies to continually re-evaluate assumptions on which they base their strategies.
The nature of the relationship between a board and its company and the modern corporate environment most often than not dictates the factors that determine the role of a board in strategic planning:
- Board connections. Board members usually have a wide variety of connections with individuals from various settings whether political, business or industrial. These connections can provide a window to important insights for example recognizing and responding to emerging opportunities and threats (Baber, Waymon, Alphonso & Wylde, 2015)
- Wide knowledge. Board members have important knowledge about technologies and opportunities which can be used to enhance on a company’s strategy and help improve on management’s skills (Healey, Hillier & Metzger, 2015). Different board members have knowledge on different fields which comes in handy in strategic planning of an organization. Detailed knowledge helps move a company further.
- Long-term focus. Compared to a CEO who lives in a day-to-day world, boards look into the future and not just daily challenges of an organization. Thus, they are able to come up with mitigation measures against negative effects that might arise from short-term planning.
In order to enhance its effectiveness in strategic planning as it partners with the executive management, the board can do the following:
- Educate the organization’s management about strategic processes. A board can help the management in understanding and determining the proper process to develop a strategic plan.
- Create options for strategic plans from which the management can select the best after discussing them with the board. Introduction of options for discussion facilitates participation of all board members hence proper utilization of their skills and expertise.
- Establish communication channels between the CEO and the board to ensure that the board is up to date with current condition of strategic plan development and its implementation.
- Identify negative signs that indicate that the strategy is not bringing the expected results and may need re-evaluation right from the outset and progress of the planning process.
So as to engage effectively in strategic planning, the board must possess diversified experience and expertise that provides useful knowledge about the industry in question and also other factors that may have effects on the company in the near future such as technological and economic factors.
In most companies today, boards’ involvement in strategic planning is limited for various reasons:
First, the idea of boards being involved in strategy discussions does not sit well with some CEOs. These CEOs view the engagement of boards in strategy development as not only an interference into their managerial responsibilities, but also a threat to their sense of power. This leads to underutilization of board talent.
Second, there has always been the concern regarding where to draw a distinction between directors being involved through just suggesting ideas about the organization’s strategic direction and directors trying to take up managerial roles in the company. Strategy formulation is believed to be fundamentally the responsibility of the management while the board’s role should be limited to ensuring that the relevant strategic planning process is undertaken and the real development of strategy should be the CEO’s responsibility (Charan, Carey & Useem, 2014).
Third, the extent of how knowledgeable board members are to assist with strategy development has always been questioned (Keay, 2016). Most directors are relatively effective in analyzing financial data in short-term whereas strategy development requires deep comprehension of long-term issues like technological developments, changes in consumer tastes and trends. A typical board of directors therefore, is inadequately equipped for such tasks.
Finally, board meetings are only conducive to questioning specific strategic assumptions and monitoring progress toward strategic goals but not a good forum for the more elaborate, creative and nonlinear process of crafting strategy.
Challenges faced during planning.
Planning for the future of the organization is the responsibility of both the board of directors and the top management. Planning is very important as lack of a well-defined plan results into failure of business or even losses. The following is a breakdown on the various challenges that face the management when planning the organization’s future:
Lack of resources and funding. Planning involves use of funds and resources. Lack of resources cripples the strategic planning process. Training requires funds as well as the use of technology is quite costly.
Ineffective training. Training is core during planning as it involves accommodating change. A plan can never go well if the involved employees are not well trained to execute it. Ineffective training can lead to failure of an organization’s plan thus not attaining the desired objectives.
Weak strategy. This is another major setback to many management teams. A proper plan should be clear, distinct and precise in showing the role of employees and timelines within which the objectives should be met (Barratt, 2014).
Lack of communication. Communication is key in planning. There must be an effective communication from the management to its employees (Prince, 2017). Communication should be transparent and honest since lack of communication results in disunity and widespread uncertainty which is not good to an organization.
Legal and regulatory responsibilities. Regulation is evolving constantly and directors are obliged to keep up with changes in the legal or regulatory environment that may affect their organization. Keeping abrest of such changes can be so demanding while it is not acceptable for directors or boards to claim that they were not aware of their responsibilities as they ought to know and understand their duties.
Balancing risk and strategy. The key function of a board is to make sure that the strategic direction pursued by a firm will achieve long-term value while putting in place appropriate structures to manage risk and processes that strengthen and protect the organization (Robertson, 2016). Since most of the risks are inevitable, risk management should encompass everything from financial, operational and strategic risks to risks from the external operating environment.
Lack of proper or adequate information. This is a common problem faced by managers during planning. Lack of proper or adequate information leads to wrong assumptions during planning hence failure to implement the strategy and attain set objectives. Lack of information can therefore be disastrous especially in implementing projects.
Conflict. Different people have different perspectives on different circumstances. This often results into conflicts among members of the board since each member wants their opinion to be counted as important (Hughes, 2019).
Poor leadership. Leadership influences the formulation, implementation and evaluation of strategic plans. Inadequacy of management skills is another major challenge faced by management during planning. Poor leadership results into reluctance from the side of employees in sharing useful knowledge and information with the management (Storey, 2016). This impacts negatively on planning. Inconsistency of and lack of commitment by leaders has led to the failure of many strategic plans in organizations.
Organizational structure and culture. These two aspects of an organization play a major role in planning and affects the type of strategies followed to achieve set objectives (Schein, 2017). Some structures only accommodate one-way communication which limits employees from giving feedback which could otherwise be used to realize goals of the organization.
To realize success of planning, managers ought to deal with the above issues. This can be done by ensuring that they obtain relevant inform required to avoid disastrous outcomes, ensuring that all members understand the objectives of the organization so as to minimize on conflicts during planning (Gibson, 2017), undertaking efficient and sufficient training to ensure that board members and employees understand the importance of planning and how to accommodate change, the management should also ensure it accumulates enough resources and funding to ensure that their plan see completion hence success. In order to deal with the issue of weak strategy, management and the board should ensure that their plans are distinct and clear so as to avoid loopholes (Pearce & Robinson, 2014). Board members together with the management should also be sensitive to changes in legal and regulatory procedures so as to avoid the consequences brought about by ignorance of such responsibilities.
Conclusion
Strategic planning is a very crucial process in the success of any organization. Managers however face numerous challenges when planning the future direction of their organization such as lack of information, conflict between board members, lack of communication, lack of resources and funding among others. These challenges however do no overshadow the importance of strategic planning to organizations. Strategic planning benefits organization in different ways such as increasing competitive advantage, improving productivity and organizational efficiency, motivating employees, improving the understanding of the internal and external environments of businesses, among others. Based on different views on whether the board should actively take part in strategic planning, it is clear that creating a strategy- focused board is very important (Leblanc, 2020). This is however not quite easy at it requires a lot of time. Most importantly, board members should be asked to find an effective correspondence between the short-term and long-term concerns when they are in charge.
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