"Do I have the right information?" "Do I feel sufficiently informed to be able to reach a conclusion on this matter?"
These are the usual questions going through a board member's mind, knowing the matter will be put to a board vote.
This challenge is made even more difficult because of the popular deeply flawed practice to define "strategy" as being something to do with competitive advantage or a value proposition. This prevents boards and management from seeing and managing strategy as it really is: a dynamic system of 8 strategies that form the heart of any organization, be it for-profit or nonprofit.
As a result, too many board decisions make are made in splendid isolation with little or no appreciation for the impact of that decision on the strategy system of the organization. For example, we now know that the growth strategy pursued at many banks negatively impacted focus on their financial management and risk strategies. Then there are the retailers that decided to use offshore manufacturing alternatives because they were "cheaper". In both cases, the decisions on strategy seem to have been made without consideration to the impact on other strategies of the business.
Simple cross impact analysis thinking can help prevent making decisions in isolation.
The Eight Strategy System in Every Organization
We believe strategy is a dynamic system. Our model is based on work done by Fayol, Drucker, Mintzberg, and Tregoe.
It starts with defining strategy as a choice of action.
This definition allows the focus to be on the choices of action and their duration rather than on the word "strategy". Our model doesn't approach strategy as a single course of action. We see strategy as a complex system of multiple choices of action.
6 were identified by Henri Fayol in his book, General & Industrial Management, arguably the very first book published on the newly emerging subject of strategic management.
The remaining 2 strategies were identified by Peter Drucker in The Practice of Management, 1954.
These 8 choices are the foundation of the strategic plan of any organization and the basis for all organization design. These are the strategies that boards are expected to understand and monitor.
Start by Using Cross Impact Thinking
Seeing strategy as a system enables identification of the impacts that a decision on one strategy may have on the other strategies in the system.
To make this thinking graphic, consider the following table:
For more on cross impact analysis, see Gordon, Theodore, Hayward, "Initial Experiments with the Cross-Impact Matrix Method of Forecasting," Futures, Vol. 1, No. 2, 100-116, 1968.
4 Steps to Using Cross Impact Thinking for Strategy Decisions
First, consider what type of strategy decision is being discussed. Is it about financial management? Or growth? Or risk? On which of the 8 strategies is it focused?
Second, having decided which of the 8 strategies is the subject of the requested decision, are you satisifed you understand how the proposed decision will impact and change the existing underlying strategy itself? This question is double-barreled because it assumes board members understand the existing strategy.
Let's say it's a decision about offering a new product or service. Are you comfortable you understand how that decision might impact the current product/service offering? This is usually where management provides boards with a lot of information and analysis. Management understands that boards need to know the rationale for the change in existing strategy. The first question for board members is: Do you understand the existing strategy? Only then, can you assess the impact of change to it.
Note to board members: Never accept the explanation that "We don't have a strategy." It is just not true for any of the 8 core strategies. Choices of action have been made for all eight. They may not be appropriate but nevertheless they are in place and therefore have to be understood.
The third step in doing strategy cross impact analysis is to consider if you understand how the proposed strategy decision will impact the other 7 strategies. For the relevant strategy, simply work yourself across each cell in its row asking yourself if you understand how the change will impact each of the other 7.
The fourth and last step is to look at the requested strategy decision from the perspective of the other 7 strategies. Instead of asking how the proposed strategy change will impact the other 7, the question is "How are each of the other 7 strategies likely to impact the proposed change?
Using our example of a requested change to the marketing/sales strategy (i.e. offering a new product or service), and picking the financial management strategy, the question becomes "How is the present financial management strategy likely to impact the offering of a new product or service".
The whole point of cross impact analysis is to enable seeing the bigger picture of strategy as a system and possible impacts to that system because of strategy changes.
Seeing the Big Picture: Impact on the Strategy System
In our example, it at first seems as though the question of strategy is all about offering a new product or service and understanding how that might impact the existing marketing/sales strategy.
But, using cross impact analysis, the real issue becomes understanding how the marketing/sales strategy decision could impact the strategy system as a whole. And that impact can be a 2-way street, as the cross impact approach demonstrates.
And it goes without saying that if at any point in the analysis, you as a board member feel you need more information to understand possible impacts, you can now frame that request very specifically. For example, "I'm not sure I understand how the proposed decision is going to impact our current business definition strategy." Or, "I am unclear how our current financial management strategy is going to impact this proposed change."
If management can't satisfactorily answer those questions, then you, as a single board member, may have stopped an ill-considered change to strategy. And you will have fulfilled your fiduciary obligation as a director to look after the best interests of the corporation.
For more on strategy, see The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization