Cutting Through The Grey

Directors ask the right questions to develop Situational Intelligence

Effective boards know how to ask questions of their organisations and board advisors. The opportunities for individual directors to ask searching questions are often greatest during their own due diligence activity through the recruitment, appointment and onboarding process.

Remaining curious and asking challenging questions is an essential strength for any director. Vigilance is better than complacency given the significant responsibility and liability which directors carry.

Rigorous questioning can establish:

Fashion or true sentiment

Initiative or strategic intention

Clear purpose or agile rebranding

True or disposable values

It pays dividends to develop a real understanding of the context in which you are expected to add value as a director.

Words matter, behaviour must follow

Over decades, business language has developed. Fashionable boardroom vocabulary adopts three letter acronyms referencing philanthropy, socialisation, corporate responsibility, compliance, governance, stakeholder engagement, sustainability, diversity, inclusion, environmental conscience. The words which leaders use may change but to be trusted, true sentiment must be apparent and behaviour must follow.  A strong foundation for trust is to develop a clear and common understanding of what the words mean.

Purpose - why we exist

Purpose guides strategic choices, provides clarity and a rationale for activity.  It is seen by internal and external stakeholders and can guide consistency of messages. Director due diligence pre-appointment will often involve making judgements on the clarity and resilience of an organisation’s purpose.

Culture - what we believe and how we behave

Our values are evidenced by what we choose not to do as well as what we do and how we do it. Shrewd Director candidates use every opportunity to establish the extent to which beliefs, principles and values are embedded in an organisations’ practices. Beyond a menu of fine words is the reality of what is acceptable behaviour. Valuing difference underpins the practices which deliver diversity and inclusion. 

Strategy - what we aspire to be and how we will deliver that aspiration 

Multiple metrics arrive in the boardroom. Newly appointed Directors are in the privileged position of contributing to and observing strategic decision being made. Astute individuals notice what really drives strategic decision making and the success with which the organisation balances the requirement for short term performance with the need to build long term stability. Understanding the board’s appetite for risk and change and the level of organisational agility, helps newly appointed directors to challenge effectively.

Stakeholders - who we choose to work for and with

Our brand is a promise to our stakeholders. In a transparent world, all stakeholders can see the promises we make to each other. We are judged on whether our promises are fair and whether we keep them. If we can’t keep our promises we are judged by the clarity with which we explain why. In today’s turbulent world, demonstrating an understanding of  the attitudes, aspirations and intentions of organisational  stakeholders is one of the most critical strengths a newly appointed director can evidence.

Responsible business

Government, regulators, investors, talent and consumers are among the many stakeholders calling for clarity on the ways organisations make strategic decisions, prioritise and implement those decisions. Evidence is required to demonstrate materiality, commitment, action and the impact of initiatives.  The way in which a board formally and informally reports progress and performance is critical in developing stakeholder perceptions of the voracity of the board. Being a director is not for the faint hearted.

What we notice and how we decide

In uncertain times we rely on our judgement to make ‘good’ decisions for ourselves, our organisations and our stakeholders. Very few of the decisions we make are binary. Navigating ambiguity comes more easily to those who tolerate uncertainty. For everyone, the activity requires energy. 

 

Individually, our habits and experiences impact what we notice and how we decide. To audit the quality of our decision making, we are advised to consider our behaviour and associated biases. This simple health check could be your starting point:

 

What information do we use to inform our decisions?

 

We create effective board intelligence processes but find that establishing what is good data and what is noise can be challenging. Common habits such as the tendency to ignore statistical evidence (Base rate neglect) and the mechanistic default to focus on easily obtained data (Availability bias) impact the quality of our decision making. A failure to ask probing questions to enable consideration of a range of options can result in partial, filtered board intelligence. 

 

Boards are advised to ensure that they think carefully about the nature and scope of the questions they need the business to answer.

 

Whose opinions and perceptions influence our thinking?

 

An invisible board habit of deferring to the most powerful person in the room and attributing weight to their words in the absence of evidence, is often present during board decision making (Anchoring and Authority bias). Our challenge is to check whether undue influence is being exerted by individual(s) with more authority/ power than us. We must be prepared to challenge statements to establish the intelligence on which others have based their opinions.

 

Other habits which draw us towards specific sources include our desire to create certainty where none exists and the inclination to filter out sources that disagree with our hypothesis (Confirmation bias). We like to belong to tribes and may want to fit in with the majority view, joining the bandwagon (Social Proof). However, most popular is not better or best and viral news can be false.

 

Boards are advised to create cognitive diversity in their decision-making forums.  When participants are encouraged to constructively challenge and express their alternative views, the quality of decision making improves.

 

How much does our experience hardwire our choices?

 

Our intuition may lead us to advocate or defend decisions and actions despite the absence of evidence.  Just because it worked for us before, does not mean it will this time. Our belief that because we have already invested resources we must continue with an initiative, may be flawed (Sunk cost fallacy). We believe we are adept at predicting the future and our arrogance can cause us to take uncalculated risks (Hindsight bias). If the experts we have invited to contribute have provided what we want to hear, then they reinforce our own views of what we think we know (Overconfidence effect).

 

Board members are advised to make a record of their experience and predictions in order to have a basis for reviewing their accuracy.

Leading in unprecedented times

 

As we travel through unprecedented times, multiple authors provide checklists for leaders. They recommend mindsets and behaviours. The lists are long and may tempt us to focus on those we are missing. Instead, it might be more fruitful to understand our strengths and how we can deploy them appropriately. We can collaborate with other people whose strengths complement our own.

 

In January, MITSloan Management Review published research into the future of leadership entitled The New Leadership Playbook for the Digital Era. Defining leadership behaviours as eroding, enduring and emerging, the 24 behaviours reinforce the long term trend away from a planned and directive style towards an emergent and empowered approach. The research highlights the importance of developing the mindsets in which leadership is shared and individuals think like producers, investors, connectors and explorers to succeed in the digital economy.

 

In March, Eric McNulty writing for Strategy + Business urged that we put away the cape and tights of superheroes and focus on human behaviours. He recommended expressing genuine concern for those affected and creating the space and climate where collaboration, compassion and service are rewarded. Navigating with your moral compass and ensuring that values and ethics inform your decisions will engage those around you. His warning about avoiding decision fatigue is a powerful reminder that we need to take care of ourselves.

 

In June, Cappfinity CEO Alex Linley reminded us of the importance of listening to our whispered voice in order to understand our strengths.

“It is this combination of doing something well, something we are good at and that also being something we enjoy, that is energizing, something that we love to do, that is the authentic essence of a strength”.

 

Leading in these challenging times requires Situational Intelligence and energy. It is easy to become exhausted balancing multiple conflicting demands on our time and attention. This advice might help us make more time to do those things that make our hearts sing:

 

Making time to recharge our batteries is important.

Understanding our own strengths will enable us to deploy them effectively.

Focusing on our achievements together will enable us to build resilience.

 

Applying Situational Intelligence

In a world where existing knowledge is codified and available for those who know where to look, a spirit of enquiry is a strength worth cultivating. And now we have time.

The global pandemic provides periods of frenetic activity interspersed by periods of reflection. This ‘black swan’ event has been on the risk:impact maps of futurists for some time but we don’t always pay attention to voices that don’t share our world view.

Now is certainly the time to gather intelligence, anticipate, plan, respond and re-plan in continuously evolving circumstances.

The search for intelligence which provides certainty may be rather fruitless. Innovative thinking and imagination can appeal as we all seek solutions to universal problems. Collaborative thinking may not respond quickly enough, but conversation is critical.

Now is also the time for kindness and gratitude.  

Over the past two decades of running Cutting Through The Grey, I have been fortunate enough to work with thousands of business leaders and governance professionals from across the globe. Building trusted business relationships has enabled individuals, boards and their organisations to realise the greatest value from our activities together.

In the last 100 days, clients, colleagues and friends have generously contributed their insights to Situational Intelligence stories we have been developing and I am grateful for their time and energy. Together we are creating a different way of thinking.

#Insights 2020 - market dynamics

Boardrooms are busy exploring how they anticipate and respond to multiple global trends that are making fundamental changes to the ways in which marketplaces operate.

Globalisation has impacted supply chains and the relationships between competitors. Interdependence characterises many sectors. The scarcity of resources, including the war for talent, has resulted in more co-opetition.

The growth of platform businesses has changed the relationship between supplier and consumer. Consumer aspirations and expectations have changed. The desire for instant satisfaction and the availability of buy now, pay later options have impacted business to customer transactions.

ESG (environmental, social and governance) drivers have reinforced the legitimacy of localisation in the creation of markets.  And as with globalisation, interdependence characterises success.

Thought leader, Henry Mintzberg, published the Declaration of our Interdependence in January 2020

As UK PLC explores the implications of Brexit, potential new trade deals and possible responses to Covid-19, we are reminded of this interdependence.

Multiple thought leaders direct us to choose in which markets we wish to operate and to pay as much attention to determining those we do not wish to address. This presupposes that a market exists.

November 2019 was the first time that proponents of market creating strategies, W. Chan Kim and Renée Mauborgne topped the list as #1 Thinkers 50 ranking for their work on blue ocean strategy.

The difficulty of innovating as an incumbent in an existing market had exercised the mind of Clayton Christensen RIP January 2020. His 1997 work ‘The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail’ was developed by Rita Gunther McGrath in February 2020. 

Understanding the dynamics of marketplaces is clearly essential for Boards in order to inform their strategic choices. A plethora of academics are available to inform thinking with different perspectives on the subject. As always, we seek to build the rich picture of our small piece of the world.

 

 

#Insights2020

January – scanning the horizon

Curiosity is considered a differentiating characteristic of excellent leaders and an essential strength in the boardroom. A director’s ability to ask the right questions and listen to a range of people providing the answers, determines the quality of board intelligence which will inform strategic decisions.

We start 2020 considering the wider world in which we live and exploring a range of sources providing curated insights into the themes preoccupying organisations in the public, private and third sectors.

Most business schools, strategy houses and professional firms publish their insights early in each calendar year, so January provides a wealth of intelligence.

Each year The World Economic Forum gather a global audience in Switzerland.  Davos2020 invited teenagers from around the World to join political and business leaders and explore ‘Stakeholders for a cohesive and sustainable world.’ Climate change and its financial impact dominated conversations. Greta Thunberg, Swedish climate change activist called for global action now. Other themes included the potential for technology to enrich lives and the way in which we live and share resources. The forum leaves many questions to be answered by individuals, organisations and governments.

McKinsey shared four themes they took away from Davos2020. Highlighting the business cases which have already been made in boardrooms, they point to a change in tone and a decrease in trust, making clarity of purpose and stakeholder understanding critical for organisational success.

PwCs 23^rd CEO Survey involved 1,581 CEOs in 83 countries with 126 CEOs in the UK. Economic uncertainty is perceived as the greatest threat and the focus is on implementing practical measures in order to keep growing. Confidence levels grow from 70 to 90% when considering the 1 and 3 year outlooks. Globally CEOs rank UK as the fourth most important territory for growth.

Scanning and triangulating sources will help avoid the natural bias to seek insights only from those who agree with our world view.  We live in a global, instantly connected environment but the desire to focus on the ‘village’ we inhabit and share and explore patterns with people we trust, may limit our understanding. As Harvard Business School Professor, Rosabeth Moss Kanter has exhorted us for decades, we should think global and act local.

During 2020, I look forward to working with my clients as we explore strategic responses to these themes.

A robust strategic process

Increased scrutiny by a range of interested stakeholders is prompting many boards to explore how robust their strategic process is. For listed entities, regulators require evidence of compliance and have extended their interest to incorporate a broader governance agenda. Positioned as good practice for all, the agenda has been tailored for large private companies into the Wates Principles. For public and third sector entities, standards bodies provide inspection regimes.

Investors expect to make informed choices and seek assurances that they have a true and fair picture of organisation performance and aspirations. Talent is attracted to organisations that clearly position their strategic intentions and report on their delivery. 

 

When health checking their strategic process, boards may choose to consider the following: 

 

Inputs - board intelligence 

Specification  - asking the right questions and requesting the exploration of alternatives.

Collation - triangulating sources to increase confidence and including big data and human intelligence. 

Clarity - ensuring that assumptions are explicitly stated.

 

Process

Timing - building on the board rhythm. 

Urgency – determined by the level of dynamics in the wider world and market places

Order - sequencing activities to recognise appropriate involvement and sustain focus and momentum through time.

Involvement - building engagement through conversations between horizon scanners and those with operational insight. Ensuring respect for different perspectives and perceptions. 

 

Outputs - decision and tracking 

Aspiration - developing a storyline to explain the journey to the future.

Evidence - showing how decisions have been arrived at.

Metrics – choosing the few lead strategic metrics which will clearly show progress and behaviour.

 

Most critically, a robust strategic process requires the commitment of all members of the board and the teams who enable them to govern effectively. It takes time to align individuals and build common purpose. Failing to ensure that alignment before health checking your process will deliver flawed results.

 

And for the curious, the picture shows the ward of Samson and Bryher, from whence the ballot boxes have finally been collected to enable the last UK General Election result to be declared.

True 'Customer' insight

True ‘customer’ insight  is a hot topic around boardroom tables, but often subsequent to a review of financial performance.  Strategic thinking involves understanding the perceptions and intentions of many stakeholder groups in order to create value propositions and engagement strategies. Failure to deliver perceived value to ‘customers’ tends to negatively impact the ability to deliver value to any other group of stakeholders. 

Who is the customer?

The first challenging question.  Determining who you want to provide value to may involve modifying the market segments you target. Identifying the customers you don't want to serve is also critical. Consider inviting these elegant but invasive Green Parakeets into your garden and watch the small birds leave.

Who knows?

Decisions on who to target need to be informed by evidence so critical questions include ‘ how can we hear our customers first hand? And ‘who knows the history, perceptions and intentions of each customer?’

Who listens?

Consultancies and academic researchers have advocated an increased exposure of executive committees and boards to customers who reinforce organisational beliefs AND those that challenge assumptions. Listening to perceptions first hand can be educational but also uncomfortable.

Boundary workers with unique insights to share need to be invited to speak directly to strategic decision makers and supplement the real voices of customers. The voices of those who know may be filtered out before they reach the boardroom. 

Reliance on Big Data without the addition of human intelligence can lead to misinformed strategic decision making. Sifting messages from noise and recognising patterns is a critical board competence. 

Creating opportunities to listen to customers and boundary workers may require 'Leading by Wandering About' as opposed to MBWA (Managing by Wandering About). Physical and virtual wandering about are habits cultivated by effective directors and enabled by governance professionals.

What happens 

If you engage in conversations with customers, you build an expectation that change will happen. You also build an expectation that the conversation will continue. This presents challenges in establishing who is responsible and accountable for deciding and delivering changes and how performance and perception of value delivery will be monitored. 

Ensuring that change is visible and supported by necessary hard wiring and soft wiring of your organisation involves adopting systems thinking, understanding the inter-connectivity of all parts of your organisation.

Establishing which stakeholders are consulted before strategic decisions are taken and which stakeholders are informed after decisions are made, provides the foundation for an effective engagement strategy. 

So now after a year of courting a charm of Goldfinches to our garden, I am off to persuade the Green Parakeets to move on.

Strategic Insights

Digital connectivity has made the World a much smaller geographical space. Curiosity drives many organisations and individuals to explore strategic options in new territories with potential new partners.

The inherent biases we all have tend to result in conversations about possibilities which misinterpret intention and aspiration.

It takes time to develop a common understanding of what you are trying to achieve and a collaborative approach enabled by a shared vocabulary.

Surfacing implicit assumptions and discussing their impact on all parties is valuable in creating a foundation for more complex conversations.

 

The Brand:Reality gap

Teflon leaders

Toxic cultures

Tribal behaviour

 

Trust dissipates. 

Reputations tumble

Performance in trouble. 

 

But how long does the impact last and are lessons learnt to prevent repetition? 

Regulation and legislation may be a blunt and slow instrument for dealing with systemic dysfunction. 

New leaders emerge to deal with the mess, and so we go on. 

 

Self interest and the loss of contact with reality seem to define so many stories. 

The Governance Echo Chamber

In the Governance echo chamber, we are biased to listen to voices that agree with our sentiments. It is challenging to recognise that our truths and perceptions are not universal. Our focus is often on the common view that it is no longer enough to target compliance.

We agree that more is expected by multiple different stakeholders. Governance is described and required by regulators and legislators. Investors lobby for better evidence of behaviour and intentions. Talent is drawn to organisations based on their positioning and messaging and consumer behaviour is similarly informed by perception of brands and reputation

We aspire to embed governance. We understand that this will involve developing a coherent story of how we align our organisation’s purpose, belief system, strategic decision making and governance behaviour. We recognise that success will depend on developing an effective and committed board, enabled by governance professionals.

In response to this challenge, academics call for more research to aid evidence-based decision making. Longitudinal studies of practitioner thinking exist, but forecasting the impact of current perceptions in changing circumstances is notoriously difficult.

Regulators, legislators and institutions provide rules, principles and examples of best practice.

And in each organisation, the leaders realise that there are no universal solutions to embedding governance. Time, effort, energy and judgement must be exercised by boards to establish 'Situationally Intelligent' responses. Three early insights generally emerge from our discussions:

It is necessary for us to curate the mass of information available in order to synthesise relevant and important messages and recognise patterns and trends.

We need to listen attentively to voices that challenge our perceptions and while this can be uncomfortable, it is valuable in developing better understanding.

Our strategic decision-making and behaviour will be widely scrutinised to ensure alignment with the beliefs we subscribe to and the intentions we have shared.

August often provides a welcome opportunity for individual reflection and catching up on reading. This year my Summer reading stack includes recent publications on strategy, governance and leadership and several rather dusty books from authors I have had the pleasure of working with over the last forty years. It will certainly provide food for thought.

And in September I return to participate in conversations with Boards and governance professionals who have scheduled time to think collectively about their capability and application.