by Julie Garland McLellan, Consultant AltoPartners Australia

The value of different thinking styles and perspectives around the boardroom table is no longer debated. Delivering it in practice still lags the desire to have done so. The contribution of diverse perspectives and skills to successfully navigating the Volatile, Uncertain, Complex and Ambiguous (VUCA) reality of business is now an accepted paradigm. What is less certain, however, is the way in which these perspectives and skills may be harnessed to provide greater insights and a higher potential for success. How do boards evolve their thinking to govern things that the individual directors cannot yet comprehend?

It is a process of continuing education.

For an individual director the emergence of new perspectives, skillsets, and relationships can be either a career enhancing source of competitive advantage or a daunting prospect of being left ever further behind as boards compose their membership to disrupt or resist disruption. Directors must guide their organisations and there is no room at the board table for any director who cannot contribute a unique and valuable perspective to strategy development and risk identification.

Managing three distinct time horizons

Mere technological expertise is not enough to allow a director, or aspiring director, to gain a secure position in the boardroom; the director of the future will need to position his or her technological ability across three distinct time horizons – being the present, the foreseeable future and the distant (or unforeseen) future – as well as applying it at the personal, board, organisational, and stakeholder eco-system levels in the search for advantage. Failure to differentiate the horizons can lead to an inability to focus on the most prospective areas for board intervention or difficulty in communicating persuasively.

Present

Elements - Known - Fixed - Agreed

Trends - Knowable - Predictable - Disputed

Seeds - Unknown - Unpredictable - Existence is contested

Foreseeable Future

Elements - Largely unchanged

Trends - Extrapolate with confidence

Seeds - Scenarios - Contingencies

Unforeseen Future

Elements - Elements changeable

Trends - Trends variable

Seeds - Seeds die or evolve into trends -> New seeds emerge

Horizon one

On the first horizon, the present, directors need to know what is going on. That sounds easy but, when it comes to navigating a VUCA reality, it is actually very hard. The environment can be conceived as a mixture of elements, seeds, and trends. An element is an ‘environmental fact’ or an unquestionable aspect of the status quo. It is accepted by all as part of current reality. Gravity, mortality and human ingenuity would all qualify as elements. They may change slightly over very long periods of time but, to all practical intents and purposes, they may safely be considered fixed within a corporate strategic plan.

A seed is something that may germinate and grow into something else but that, in the present, is too small and uncertain to predict. Some seeds may grow almost explosively and transform in a highly unpredictable fashion, others may grow steadily, and others may not germinate at all.

A trend is a development underway such as a seed that is observably growing or a correlated set of actions or events that can be observed to be in transition from a known state to a knowable or calculable future state. A good director will be sufficiently attuned to the present environment to confidently identify seeds, trends and elements and to know which are important to the enterprise.

Horizon two

On the second horizon, the foreseeable future, directors need to be considering the trends and elements with a view to making long term decisions that will position the company to compete effectively as the status quo changes. As William Gibson is often quoted as saying “The future is already here, it is just not evenly distributed”.

Projecting trends into the near future will allow the board to create a plausible base case around which they may plan. Scenario plans to account for the disruptive impact of seeds will lead to the development of identified contingency plans and clear trigger points for deviating from the base to a contingency case. Modern boards do not use single line plan projections; they build a layered plan that is easily adapted in response to changing environments.

Horizon three

On the third time horizon, the unforeseeable future, projections or extrapolations are meaningless; the impact of seeds and variances in the rate or direction of trends make prediction an impossible task. This is where the board needs to be very clear on the purpose and values that guide the business. These long-term determinants will guide decision-making and provide direction into the unknown. For many directors this can be the most inspiring and engaging part of the role. This is where their personal ethos and values can begin to shape the potential future for their enterprise, economy and eco-system.

Being able to persuasively discuss and agree on important cultural ideals in the boardroom allows them to have an impact that is widespread and transformational. That ability is firmly based in the director’s personal effectiveness.

Spheres of influence

For a director, having information and being able to apply this to planning through a disciplined process across each of the time horizons is only the start. To be effective, good directors apply their knowledge to their individual contributions and needs and then to their boards and enterprises.

Personal

• What do I currently know?
• What additional skills and information do I need?
• How can I apply this?

Enterprise

• How does the new technology impact the business model?
• How can new practices enhance customer engagement?
• What are the risks in the new technology?
• Will we disrupt or resist disruption?

Board

• How does emerging knowledge and skill assist the board?
• How will board practices evolve to use new technology?
• What are the board’s liabilities and risks?

In each sphere the balance of challenge and skill level will determine the ease with which changes can be accommodated and benefits garnered. Whilst totally new skills can be gained and used in each sphere these will come at a higher cost (both in time and effort), as well as with a greater risk of failure, than enhancements to existing skills.

Personal impact

In the Personal sphere the director will be concerned with his or her individual contribution and the addition of new skills or enhancement of existing skills to enable personal development and increased ability to add value within the boardroom. The key questions are centred on personal interest, ability and utility. The focus is on honing one’s personal skills and developing a reputation for a particular valued perspective that will enhance career prospects for future board appointments as well as enable current board success.

In this sphere directors will be operating across two distinct skills-development needs: their current needs based on the boards and organisations in their portfolio, and their future needs based upon their targeted career development path. As tenure limits and professionally balanced portfolios become the norm it will be increasingly important for directors to actively manage skills acquisition to support a career trajectory.

Board impact

In the board sphere a director will be concerned with the impact of emerging trends on board operations. For example, how will developing board portals impact on the ease of communication between board meetings and how will the most alert boards change their processes to avail themselves of the greatest advantages? What are the implications of retaining or destroying records of directors’ notes on their board papers? Can the portal be used against the board in the event of a malfeasance litigation? Does the portal link directly to the enterprise management and reporting systems so that directors can drill down into areas of concern or interest without over-burdening management with requests for information?

Portals are not the only technology to impact board operations; modern communications are making it easier for boards to operate with internationally based members playing a meaningful role. Global consumer markets demand global insights. Understanding how to use technology to enhance communication and when to invest in face to face meetings to engender cultural assimilation is fundamental to a board’s ability to appropriately engage a wider membership.

Enterprise impact

At the enterprise level each director must understand the implications of emerging technologies for the business. This requires insights into the evolution of technology as well as a deep understanding of the company’s business model and competitive landscape. In their compliance role directors will be concerned to recognise regulatory responses to new business practices and to position the company appropriately. In their performance role directors will be keenly aware of the competitive responses of industry participants, the potential for new entrants or the exit of existing participants to change the competitive landscape, and the ability of their business to disrupt or resist disruption.

While management should be aware of the day to day technological issues it is up to the board to ensure that strategic oversight of larger trends is not ignored due to attention to detail. This is an area of creative tension, particularly for larger companies with specialist strategists and technologists on staff. Good boards take a part in the environment scanning and monitor the emergence of threats or opportunities in adjacent, or even unrelated, industry sectors. They have the emotional intelligence to discuss scary ideas in a strategic manner and to make decisions that will prove robust under a wide range of scenarios rather than collapsing under the pressure of the challenges, falling into infighting and factions, and making short term decisions in the vain hope that the future will suddenly become clear.

Stakeholder horizons

Companies exist in complex eco-systems. Boards will need to become ever more aware of the changes in those systems.

Stakeholder ecosystem

Personal

• What do I currently know?
• What additional skills and information do I need?
• How can I apply this?

Enterprise

• How does the new technology impact the business model?
• How can new practices enhance customer engagement?
• What are the risks in the new technology?
• Will we disrupt or resist disruption?

Board

• How does emerging knowledge and skill assist the board?
• How will board practices evolve to use new technology?
• What are the board’s liabilities and risks?

Technology, rising global awareness, and falling barriers to trade and collaboration are creating opportunities for boards to move beyond exploiting their value chains and into creating shared value across their industry ecosystem.

As with any strategy, adoption of shared value carries risks. Boards need to decide, case by case, if rewards justify these risks. Boards have a fiduciary duty to act in the best interests of the company. If they give too much value to stakeholders they may lose shareholder support; too little and they may be accused of cynical ‘green-washing’.

Shareholders’ support is crucial for new strategies, particularly when changes reduce short term results even if aiming for longer term value. Boards that create shared value benefit from strong and sustained growth generating even more opportunities; a worthy objective that can only be achieved in the individual directors and whole board are able to move with strong consensus into the VUCA future!