Boards play a critical role in guiding organisational transformation – in five critical steps.
Transformation needs to start from the top. The board of any organisation brings a unique value to successful transformation by creating clarity around the growth agenda and unleashing management to go after it. Without the parameters provided for growth (such as what kind of growth? How much? How far can we go?), management will be paralysed by uncertainty (or waste resources pursuing multiple opportunities all of which cannot be taken to their conclusion).
At the end of 2010, the board of a major not-for-profit organisation in the healthcare sector articulated a strategic direction which called for its organisation to grow in size and capacity and to become an organisation of influence and the first port of call for advice on healthcare in the home. The board recognised that in order to lead the transformation successfully, it would need to lead the change from the top.
Hay Group worked with this board to articulate the growth direction and importantly, to set the parameters for growth to guide management in achieving it. These parameters were:
- To expand geographically and secure a national presence;
- To grow by diversifying revenue streams and develop new and allied businesses, thereby reducing over-dependency on certain income streams; and
- To broaden models of care delivery and achieve greater scale.
Since that time, the organisation has grown from a $50 million organisation to a $150 million organisation, has expanded into other states and into New Zealand. Strategic acquisitions have enabled work to commence on new service delivery models as platforms for growth. This organisation has transformed and transformation continues to be the order of the day.
While the contribution of the board starts with creating that clarity, it certainly doesn’t end there. Hay Group’s work with boards on numerous transformations has identified a number of other critical value points for boards to really play their unique role in governing and guiding the transforming organisation:
Set the direction for transformation
As both the keepers and the shapers of the organisation’s long-term value, it is their role to provide clarity by defining both the direction for the organisation and the parameters for growth and transformation.
Ensure total alignment as a board
When key investment decisions are required, any lack of alignment can emerge to stymie important decisions, to the enormous frustration of management.
The responsibility to continuously test for alignment rests with the Chair. And indeed it is the role of every Director to bring questions and challenges to the debate to enable misalignment to surface and be resolved. This process will often be assisted by an external advisor to bring to surface any suspected areas of misalignment.
Manage their own and management’s hunger for growth and transformation
Board Directors are usually successful business people in their own rights with a motivation and appetite for growth. If this is not properly managed the board could lose sight of one of its key roles – that of scrutiny and challenge to initiatives brought to them by management, to ensure they are in line with the strategy.
At the same time, the board through the Chair will add critical value by ensuring that the time and energy of the CEO and management team is directed towards where it will make the greatest impact and contribution to strategy (not on left field initiatives or personal hobby horses).
Review lessons learnt from transformation
Organisations will experience challenges in pursuing opportunities for transformation.
It is the role of the board to ensure that learnings are extracted, shared and leveraged into future transformation.
Continually improve the board’s effectiveness
The ability of a board to lead organisational transformation is greatly dependent on whether it, as a decision-making body, is effective. With transformation often comes rapid change, exploration of new opportunities, and new challenges not previously experienced by this board. Investing in rigorous board performance reviews will ensure the board is enabled – through having the right people and through a review of ‘what it does’ and ‘how it does it’ – to deliver the stated transformational objectives.
Improving a board’s effectiveness is critical to good governance. It goes beyond the procedures a board employs to do its work. It extends to board composition.
Boards face a dilemma when it comes to alignment. While board members need to be in agreement on the strategy they will enhance their decision-making if they engage in rigorous debate in which divergent points of view on how the strategy should be implemented are discussed.
For example management of a company we work with asked the board for approval to pursue a large acquisition which would have doubled the size of its largest business unit. The board, which is aligned on the strategy, grappled with the decision since board members had different views on the question. After rigorously debating the question the board decided not to approve the acquisition as it would have materially altered the company profile. When asked about the decision, the Chair said that he was pleased with the way the board executed its governance responsibility because the viable options were seriously explored. Though he did admit it had not been an easy process.