Board of Directors
Serving on or working with a Board of Directors has always been a challenge. The Sarbanes-Oxley Act makes it even more of a challenge. Board members and management are now held to an even higher level of accountability for corporate strategies and results. Still, all too often discussions of corporate strategy are cut short by board meeting time pressures. The strategy discussions themselves are often unfocused and haphazard. StrategyStreet should be helpful in making board-level strategy discussions more efficient and effective.
The first problem a board faces is time. The board meets every two to three months for several hours over one or two days. These meetings are full and time-pressured. There are regular committee meetings – audit, compensation, governance and so forth. Once the full board meeting starts, several issues require discussion and decisions, along with a full review of the company’s financial results for the year.
Sarbanes-Oxley has added to the detail and time pressure.
Strategy takes time. A full discussion on the strategy for a business would last at least two hours and could last four. That is half a board meeting for just one business. And larger companies may have several businesses to consider.
The problem of time has a simple solution — one increasingly in vogue — the strategy retreat. This is an annual day and a half or two-day off-site meeting to review the strategy of each business of the company. Given the demands on today’s boards, many companies need to create an extra meeting to focus solely on business strategy.
Then appears the second, less tractable problem, the agenda. In many companies, there is no agreement on the content for an agenda on company strategy. What should management review with the board? What should the board ask? Strategic questions present a potential conflict between an appropriate level of understanding for the board and management’s prerogatives.
In considering questions to ask, the board members need a fundamental understanding of the four key questions for each business:
- What segments of the market are we trying to serve?
- How do our products and services for these target customer segments outperform the competition?
- How do we price our products compared to competition?
- How do we manage our costs to produce a good return on investment while providing this value to our customers?
Each of these four questions raises many subsidiary questions. The board must consider how deeply to probe. If the board probes in excessive detail, it impinges on management’s prerogatives in running the business. Management wants to protect its ability to manage while getting the benefit of each board member’s counsel and perspective.
This section of StrategyStreet.com suggests an agenda for these discussions of business strategy. The agenda takes the form of a set of questions that the board and management might agree to discuss at length for each business of the company. We propose ten questions below for the agenda. We have organized the ten questions into the four strategic subject areas: segments, products and services, pricing and costs.
Click on any question to see a fuller explanation of the issue. Following the questions in each subject area, we provide a link to the step in the Basic Strategy Guide that addresses the issue in more detail, and three videos that offer an overview of the subject area.
These questions should help the board fulfill its responsibilities in comprehending and guiding corporate strategy. The developing answers to these ten important questions might also be the subject of a quarterly or semi-annual progress memorandum to the board.
- Who are the customers who will allow us to earn our cost of capital? More»
- How will we increase our market share with these core customers? More»
- What portion of our current and future sales goes to our core customers? More»
More Information: Segments section of Basic Strategy Guide
PRODUCTS AND SERVICES
- What value improvements must the company make to reduce its shortcomings versus competition? More»
- How do the planned product and service innovations create value for the customer? More»
- How long will the product and service innovations generate new sales for the company? More»
More Information in the Products and Services section of Basic Strategy Guide
- Where are prices and margins heading over the next few years? More»
- How will the company exploit industry prices to gain share and increase profitability? More»
More Information in the Pricing section of Basic Strategy Guide
- How do our returns on investment compare to others? More»
- Is the company creating economies of scale as it grows? More»
More Information in the Costs section of Basic Strategy Guide
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