Saturday, December 22, 2012

Is Strategic Planning Actually Part of Corporate Governance?

General speaking, four key dimensions of corporate governance are accountability, strategy, policy, and monitoring.

From Wikipedia: Governance System - Listen to people involved, identify suspected key indicators, measure, attempt improvement, track, analyze, learn, and repeat; while strategic planning is viewed as a process for determining where an organization is going over the next year or—more typically—3 to 5 years (long term).

So is strategic planning actually part of corporate governance or governance is also a component in strategic planning?  What is the "reflection" of board governance that occurs in the form of executive management in their role in creating, planning and executing strategic direction?

1.    How should business strategy development be governed? How should EA be governed? & how should EA be used in governance effort? Also, how should IT be governed?

Corporate governance operates by the Boards of Directors delegating authority downward to a series of governance committees and boards with responsibility for investment, risk, compliance, finance, compensation, architecture, policy, etc. The "Policy Committee" is generally the senior governance group below the Board of Directors. These governance groups will oversee and monitor alignment and progress against Strategy, Plan, and Policy. They do not participate in the day-to-day operation of the organization. That is the responsibility of management. No manager should govern their own function. Each function should have a governance group. The board of directors is the governance group for the CEO, and so on down the management hierarchy.

-Corporate governance could be part of strategic planning because if it isn't, strategic planning becomes a synonym for wishful thinking - corporate governance is where resources are allocated to turning the strategy into a reality. Though there are other dimensions to corporate governance that aren't associated with strategy, just as there are dimensions of strategy that never have anything to do with corporate governance.

- Project, Program, Portfolio management are management activities, not governance activities. They are overseen by a governance group. An example of this being an enterprise architecture review board (EARB) having oversight for all enterprise architecture-related programs, projects, and the entire EA portfolio.

EA plays a big part of the bridge from corporate level governance to the governance of individual domains like IT. This is because the EA provides the top-level guidance and functional requirements that drive the domain architectures. As a result, the EA serves as a very good tool in translating corporate priorities into specific initiatives that can be used to tie in governance efforts.

-  There are no IT projects, only business change projects (98% anyhow), that business change is part of the executive responsibility for implementation of the business strategy (created/approved by corporate governance), and that business change exceeding financial delegation thresholds must receive corporate governance approval.

- There are situations - process and information governance - that are genuinely needed - because different parts of the business are making shared use of a process or information. Equally, there are many aspects which can be adequately addressed through the normal delegation of controls approach of the managerial structure within an enterprise. That is how finance operates. That is what an org structure and job specs do. The problem is that they create information and process silos and governance is needed to create a more effective process and information enabled enterprises.

2.  What are the possible governance structures and mechanisms for these things? 

The governance structure of an enterprise is as important as the business function structure or organizational structure and often misunderstood to be settled. This creates a lot of confusion (political infighting) in larger organizations. 

a. Governance, for example, does senior management committees make informed proactive and timely decisions to achieve desired results? 
b. Strategic Planning and Plans, for example: To what extent and how does the corporate planning align corporate priorities, sector business plans, and resource allocations? 
c. Portfolio Coordination, for example: How does the organization ensure policy coherence across the portfolio?

Management Activity vs. Governance Activity: Implementing policy is a management activity, and monitoring policy compliance is a governance activity. The distinction between these activities is essential to understanding the difference between management structures & processes and governance structures & processes. 

 Separation of concerns (separation of powers) is the fundamental requirement for effective corporate governance. Being responsible for making decisions is not the same as ensuring that the decisions were made according to policy, plan, or strategy.

The Boards of Directors is only a part of corporate governance. It would be more helpful if EA were to explore the full spectrum of corporate governance rather than focus on a single, albeit important, governance entity. 

The program and project management processes that are in use include the setup and operation of Boards. Their purpose is steering (review, decision making, actions, prioritization, etc). Managers participate on these boards and are taking their roles seriously. ... These processes become real in an organization when programs and projects are canceled if necessary for the right reasons. An effective process will also help distinguish between situations where governance is truly required versus those situations where governance is being used as an excuse for not doing the job of management!

 Where would one expect IT to come into Board conversation? In the following places at least:
a) business strategy - since disruptive nature of IT is highly likely to have implications for business strategy and some elements of strategy may require IT enabled business capabilities
b) risk management - IT risks exceeding the threshold for Board should come to Board
c) business change investment - initiatives exceeding the threshold for Board approval of investment should come to Board;
d) board performance – are there appropriate skills and competence around Board table to deal with these and related issues giving their increasing prominence?

3. Does the mental model of executive leadership consider the creation of a strategy to be part of corporate governance?

Among executives in the company, if using the word "governance" in conversation, would the mental model that they refer include the process for developing strategy and creating the plans to execute on it? 

 The challenge in this discussion includes:
a) Varying degrees of understanding of the concept of governance and the distinction between governance and management.
b) Varying degrees of understanding of the scope of corporate governance and the distinction between corporate governance responsibilities and management responsibilities; such as governance structure, governance process, governance mechanism, governance practice & governance metrics, etc;
c) Varying ways in which governance operates, depending on whether the corporate governance entity is explicit or implicit (as it is often in a government entity), and whether it is fulfilled by all executive directors, or non-executive directors, or a mix.

General speaking, four key dimensions of corporate governance are accountability, strategy, policy and monitoring - understand accountabilities of environment - regulatory, shareholder, etc; develop business strategy, develop business policies offering further constraint / guidance to implementation of strategy, monitor performance and implementation of strategy, manage risks across all domains of interest. Thus, strategic planning is one out of a high number of activities within an Enterprise that is part of one or more corporate governance structures. 

Paradoxes are very hard to reconcile with corporate governance. The complementary point is: Strategic planning is part of the strategy development process that starts with strategic thinking, then goes to strategy formation and ends with strategic planning. In that process, you often meet many paradoxes, such as logic vs. creativity in strategic thinking or revolution vs. evolution in strategic planning. Paradoxes are very hard to reconcile with corporate governance. So that is why the strategic planning is usually left out of corporate governance, as you would not like to either have your future strategy constrained by the current corporate governance or the corporate governance weakened by too much creativity

A useful mental habit: Keep front-of-mind that categorization schemes are never right or wrong. Some are more useful than others; some have less ambiguity than others; some might even be less arbitrary than others.

  Board need be more than a rubber stamp: The question for a BoD, even one which only authorizes business strategy, as to whether the business strategy will lead to success - the concept of successful business strategy is only evident after the fact, but the Board needs to determine suitability, adequacy, viability, etc in advance.  If a Board is to fulfill its fiduciary responsibilities to its stakeholders, it needs to be more than a rubber stamp. It might not be developing business strategy, but it needs to do more than a rubber stamp it.

 Some old school of management thinks governance is only for bottom line, statistically, the organizations with better governance discipline will outperform competitors by 20% more revenue growth. EA can play a significant role in designing governance structure and process; governance structure is independent of management structure, but governance process/mechanism can be embedded into business process seamlessly, and governance practice should be shared cross-enterprise collaboratively as well.

A strategy planning is part of governance structure, and governance mechanism can be embedded into strategy planning. A function which governs itself has no governance. The art of the purpose of corporate governance is to ensure that all business functions are on track and following the policies, strategy, plan, and architecture defined by executive management, verified and approved by the Board of Directors. 


Great post, I agree with what you're saying. I would say we should change to nomenclature from governance to something that sounds less controlling from top down (although I don't know what it should be). I think when you look at most strategic initiatives today the successful ones are those which in execution utilize the work of the knowledge workers (employees). When we use governance as a description of how to control strategy then you create the impression that it's another top down mandate. Although I think you're right though without the governance type controls strategy is only a "wish list".

Hi, Patrick, thanks for comment, true, governance is not only for bottom line, statistically, the organizations with better GRC management discipline outperform competitors significantly, as they have better governance mechanism well embed with business processes seamlessly. thanks.

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Strategic planning process has 9 steps to make effective use of human and material resources of organization for achieving objectives of organization.

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