By Patrick Dunne
When talking about the impact of the pandemic on boards in an article to accompany the launch of the second edition of Boards a few weeks ago, I noted that:
“There has been the acceleration from what I call a “Maps world to a “Satnav” world when it comes to decision making.
The “Maps” world consisted of incredibly detailed and lengthy strategic plans and annual budgets. The “Satnav” world, which is more common in early stage and venture backed organisations, consists of strategic frameworks and parameters and dynamic budgeting. i.e. Making decisions, at the best time, with the very latest information.”
The trend for larger organisations to adopt these methods has been given a boost by increased uncertainty and the availability of data analytics tools. However, it hasn’t all been plain sailing. As many board members and finance teams have found, such adjustments hard in practice.”
The analogy resonated with a lot of people. So, a three-minute video was produced in my car to say a little more about what I meant. Governance Publishing then held a small LinkedIn event on the topic to gain other views on the topic.
Here’s a snapshot of what I and others think is going on when it comes to the Drivers, the Dream and the Reality of the changes that are underway and how “Smart” boards seem to be adapting:
Before we start, I should say that in using this analogy I placed more emphasis on the mindset shift rather than the enabling technologies, for they are only a part of the story. So, please don’t assume I am suggesting a judgement or thinking by-pass or a handover to the robots just yet. This is about how we might better inform our judgements and how and when we make them.
Big Data and live data:
A range of technologies from processing power to mobile devices and storage combined with societal change driven by online purchasing, social media, the easier than anticipated acceptance of the subscription models, almost instant news and other factors have combined to produce vast quantities of information.
Big data analytics, the rise of Algorithms, Artificial Intelligence, Infographics and communications technology:
As importantly, big data analytical capabilities have grown significantly. Developments in their use in Particle Physics, the use of algorithms, artificial intelligence and infographic tools combined with the ability to produce and distribute data and communications ever faster and clearer have changed the game for many, as well as created substantial businesses providing these tools and advice in the process.
Shrinkage of the time taken to gather and distribute information:
The technological and societal changes referred to above are enabling this and being reinforced by an almost herd like “Need for speed” which carries dangers as well as thrills. Daniel Kahneman’s brilliant “Thinking Fast and slow” is worth reading again!
Increase in significant external events and resultant uncertainty:
Numerous profound geopolitical, natural and societal events have led to increased uncertainty as well as reduced reliance and confidence in established institutions and ways of doing things. Then there’s the growth of an “Influencer” susceptible society where social media influencers can shift markets both ways with a post.
Shifting Risk and resilience mindsets:
These significant events have had a profound impact on the way boards think about risk and resilience. The financial crisis almost 15 years ago caused a seismic shift in approaches to risk and resilience in the financial sector. The pandemic has had a deeper and wider effect and climate change is likely to have an even greater one.
Regulators across many sectors have become more demanding of boards in terms of assurance and reassurance that they have robust enough resources, systems, processes and culture in place to withstand major shocks. The Risk Coalition is doing some very interesting work in this space
The upside in getting it right in an increasingly winner takes it all world where margins between success and failure are fine.
A few words capture this Zoom and Test and Trace.
Fear of the downside in getting it wrong
This has both a positive and a negative effect. Really good downside analysis and understanding the consequences of different choices is powerful. Yet prevarication and paranoia are unhappy partners when making decisions.
Boards of organisations who haven’t kept pace will reflect on their choices and how they made them and think about what to change. Or more likely their successors will.
As an aside it’s odd that we don’t do as much “black box thinking” on boards as we should given the importance of some decisions. For more on this Matthew Syed’s brilliant “Black Box thinking is well worth a read.
Growing popularity of “early, mid, late” approaches to the big decisions:
This is where a decision-making process for a major decision, where there is the time, is split into three stages:
“Early”: Where the board considers and discusses what are the issues that need to be taken into consideration in the decision, confirms who needs to be involved and when, as well as what the process will be from here including when a final decision will be made.
“Mid” A longer discussion with supporting papers which confirms the issues and considers the choices and consequences as well as the outline of implementation plans then provides input on preferences .
“Late”: Essentially a finalisation meeting where the formal decision is made. This time the emphasis is on the board being satisfied that not only is it the right choice but that it endorses the implementation strategy, resourcing plan and risk mitigation strategy to achieve it.
Heightened awareness of interdependencies, logistics and decision consequences leading to more system thinking in decision making.
One of the striking things to come out of the pandemic was a greater appreciation of interdependencies whether they be with suppliers or team members who were previously undervalued for their contributions and criticality. In the UK, BREXIT has also led to a heightened awareness of these things and highlighted a lack of system thinking across society. Not everyone seems to have got this yet, but many have, and it is leading to more thought on not just the choice, but how it might be implemented and its consequences.
Increased focus and transparency around purpose, values, diversity and inclusion and relationships with stakeholders
Understanding the implications of decisions for stakeholders and how they may respond or react has rightly had an increasing role to play in decisions. Lack of attention and care in this
can quickly unravel what initially looked like a sound decision. The stakeholder strategy and the metrics in place to help the board understand stakeholders and what they think and feel about the organisation are central to finding the right balance especially when there are competing stakeholder interests.
Do all of these drivers and others I haven’t listed add up to a tectonic shift or are they simply producing superficial changes to how we describe what we were already doing?
It feels much more like the former to me.
In a nutshell, better decisions. Why? Because we are able to make them at the best time with more and better information. The payoff is that we will capture more of the potential upside when it comes to making choices and also that we will be more resilient and better able to adapt when things go wrong or circumstances change.
Is that we are not quite in dreamland yet. The art as well as the science is developing and just as with the early days of the use of satnav in cars and boats adaptation takes time, pragmatism, discussion and good judgement to strike the right balance.
I don’t have the data to know, but would reckon that many organisations and boards have been “Satnav” thinking for decades. Yet they were, or are, probably only a small proportion of all boards. The nature of the organisation, its stage of development, type of ownership and resources available to it will all have a big influence. Those at an earlier stage or who are in faster moving markets with shorter term paybacks on investment cycles are probably more likely to be further down this route.
In general, I don’t think we talk enough about how boards make decisions and when we do, we tend not to system think. Instead, we might focus on one particular aspect for example bias or diversity and inclusion, or perhaps a new strategic modelling tool or a technique another board has found helpful.
This is as much about behaviours as about data. Alignment within the board on this topic can also be a challenge. Some might have almost a religious difficulty with aspects of these changes and fear the loss of the comfort blanket of the more traditional plan and budget that has been with them all of their exec and Board lives. Good chairs will know that it is as important to listen to what people think as what say and be cautious with superficial proclaimers who hide behind catch phrases like “We are following the science or the data” when the data supports what they want to do and only challenge the assumptions or the competence of who produced it when it doesn’t.
Which brings me on to another reality.
The place for a board to collectively be is Data Savvy in the middle at the peak. Data savvy boards understand how to interpret data or evidence that’s presented to them. They know the difference between correlation and causation and think a lot about what might be missing, the so- called “Dark Data” referred to in David Hand’s
excellent book on the topic.
Really good CEOs also ensure that data isn’t dumped, its analysed and interpreted and it’s clear what is fact and what is interpretation. Years ago I started to write little Fs and little Is on decision papers to help me get a sense of the balance. It’s really useful.
As you will see below, when it comes to what smart boards are focussing on, capabilities are high on the list. Having a board that knows what evidence will be most helpful in making a decision and has the ability to understand it, to challenge it as well as underlying assumptions and then add their experience, insight and instinct to it must help.
Another reality is that the need for speed carries dangers as well as thrills. It was fascinating to see during the pandemic how some moved swiftly but surely while others panicked and rushed only to regret later.
A final reality is that as with the early days of satnav in cars and boats when we try a different approach it sometimes takes a while to get the hang of it. I am sure that this will be the case and that this is a game with is ever changing.
So, how are smart boards adapting?
If I had to boil it down to just three things then I would sum them up as “Capabilities”, “Communication” and “Culture”.
Smart boards have humility and recognise that they need to adapt their composition as they go in order to have the range of skills, experiences and characters they need for the next phase of development. According to search firms board churn is high right now. The more commonly stated reasons given are the need for more digital capability and increased diversity. I haven’t heard yet of the for more “Satnav” thinkers.
As ever, when it comes to making the big decisions it isn’t just about the capabilities on the board. Many a good strategic decision has been made to look a stinker by poor implementation. If we are going to move to a different way of decision making we need a CEO and executive team that also get it. We need to be realistic about the adaptation required by the Board and the Executive, especially in the finance, marketing and operations functions.
We also need to accept that we are likely to have to invest not just in capabilities but in systems and processes to support the shift. A step-by-step approach is likely to work best, grand project approach least.
Smart boards are also changing their agendas and focussing their time more on the big decisions. They are having more discussion about what these decisions are, when they should take them, what input and evidence they need as well as how the decision is going to be made. The rise of the “Early” “Mid” “Late” approach referred to above is also helping.
Central to this is having the right approach to communications and ensuring that this is not a one-way exercise. This is definitely something for the Venn diagram intersection of Board and Executive. Having the right conversations and carefully considering the consequences of the changes you want to make will support buy in and usually help us to avoid mistakes.
In making this shift if we are talking about cultural change, it is not just at the board level but throughout the organisation. The good news is that one benefit of some of the drivers referred to above is that there are now more tools available now for understanding what culture we have and how it is changing.
By way of example in Boards I quote the MIT Sloan Glassdoor survey in August 2020 which included data from 1.5 million employees in 500 substantial organisations. It showed that at that point these employees were rating their organisations significantly higher on their values and culture than at the start of the pandemic and that their agility through that first phase of the pandemic was one of the key reasons.
In conclusion here’s a post from my good friend Ali Gill from BVALCO on the topic which sums things up rather nicely.
“Love this analogy Patrick. I remember the first time I used a Sat Nav to navigate my way around several traffic jams, the richness information and the ability consider options
changed my behaviour and got me to my destination more efficiently. Effective decision making in boards requires three key behaviours – seeking information, concept formation and conceptual agility. Boards that use these behaviours really well will be the winners. The combination of human brain power and rich data and analytics is profoundly important.”
Please do post comments and add to the discussion.
The author is an experienced chair and author of the award winning Boards