In lieu of clear governance, many companies suffer from too many priorities, muddy decision rights, bowling-for-dollars resource allocation processes, and “executive-idol” approaches to key talent appointments. It’s no wonder the capacity of executives to make focused, impactful choices and stick with them is challenged.
Governance is simple. You need the right people,
- equipped with the right data and authority,
- making the right decisions, aligned against agreed upon priorities,
- allocating the appropriate resources, and
- determining the right steps to execute.
Sadly, most organizations don’t have the governance models they need to execute their strategy. Truth is, aligning and integrating strategic, financial, and talent processes to effectively allocate authority, priorities, and resources is the most profoundly differentiating activity a company can undertake. It is the lever that drives competitive positioning by enabling efficiency, effectiveness, and results. Unfortunately, many organizations believe a proliferation of councils and committees constitute governance; or they pride themselves on being an “informal,” organic company. All at their own risk. Regardless of whether you lead a start-up, a small to medium sized business, or a large, publicly traded company, well designed governance defines and promotes desirable behaviors in your organization and helps avoid negative ones. It helps clarify leaders’ expectations, their spheres of power, appropriate performance measures, and the inner working of critical seams across the organization. Good governance is how critical aspects of the organization are managed, and various groups of leaders come together to make and execute vital decisions. These include things like:
- strategic prioritization for both the short and long-term with requisite resource allocation,
- setting targets, goals, and performance measures around the enterprise strategy
- the planning for and building of P&Ls and budgets, and
- managing the portfolios of products, clients, and talent.
Well-designed governance ensures alignment and superior performance. It enables executives to make impactful choices as they guide the business, its units, and its investments. Just as there are symptoms of poor governance, companies that excel at organizational governance demonstrate it through strong performance in key areas. Their people are deployed to perform optimally. They fulfill their fiduciary responsibilities while mitigating risk. There is clear alignment between business and operational objectives in these companies. Core processes, policies and plans can be defined for optimal impact. Structure, accountabilities, and clear lines of sight can be defined and established. Information and decision-making flow at the right levels. Ineffective expenditures of time and resources are sharply curtailed.
Even the best governance models have some degree of imperfection. The complexities of organizational life and the dynamics of multiple, simultaneously moving parts make static perfection impossible. Nonetheless, when it works well, the synchronization is impressive. One CEO client of ours, pained by the lack of integrated planning and the proliferation of committees and task forces, insisted on a governance overhaul. He wanted one set of metrics with a clear line of sight to enterprise goals for the company’s four business units. He wanted the option of making resource tradeoffs at the enterprise level, not just at the business level where they were currently made. He declared a moratorium on four distinct strategy and resource allocation processes, and put the kibosh on a capital allocation team that was predominantly staffed and run by the largest BU with no representation from the smallest. He reformulated and streamlined both the executive team and the operations team. Decision rights were clearly defined and distributed across six governing bodies, and charters for each were established with linkages and synchronization of information flow between them. He established a forum to openly debate strategic priorities and quickly resolve major business problems, with one integrated data set that replaced dueling fact bases. He enhanced the ability to manage the enterprise portfolio as an integrated business rather than a loose confederation of discrete businesses. He could now leverage organizational capabilities to decrease bloated costs and raise the visibility of emerging talent previously obscured. In the first year under the new model, his organization successfully launched a major new product in one of the emerging BUs, integrated an acquisition, and increased talent retention by 38%, reversing a trend of unwanted defections. There was fallout from the transition to the new, cleaner and clearer governance model, as there often is. One of the BU leaders had to be replaced because he was not able to operate in the new world order. His need for severe autonomy was greatly challenged by the transparency and coordination required of him.
To be clear, cohesive governance designs, or re-designs, won’t come without disruption. However, the gains they yield usually outweigh the pain of getting there. The trick is to stick with the process of change, and resist pushback from the parts of the organization vested in protecting the old because it serves some agenda or advantage for them. If you want your leaders executing the right choices, a narrowed set of priorities, and winning strategic bets, install governance systems that facilitate such choices.