Management Case Study The Role of Board Members in Strategy Execution: How an Effective Board helps to Drive Performance

Transcription

1 Management Case Study The Role of Board Members in Strategy Execution: How an Effective Board helps to Drive Performance For more information please visit:

2 The Role of Board Members in Strategy Execution: How an Effective Board helps to Drive Performance By Bernard Marr* and James Creelman Abstract: Ensuring effective strategic performance delivery is the responsibility of boards. Effective boards ensure that the appropriate performance frameworks are put in place and that they receive meaningful information with which to monitor the delivery of the strategic performance objectives. This case study outlines how one leading organization has succeeded in creating an effective board that focuses on strategic decision making and performance improvement. The case study illustrates the vital role board members play in managing organisational performance and how to closely engage them in the processes and practices of performance management. Version: 14 April 2010 Bernard Marr is the Chief Executive and Director of Research at the Advanced Performance Institute. James Creelman is a Fellow of the Advanced Performance Institute The Advanced Performance Institute (API) is a world-leading independent research and advisory organisation specialising in organisational performance. It provides expert knowledge, research, consulting and training to performance orientated companies, governments and not-for-profit organisations across the globe. For more reading material or information on how the API might be able to help your organisation please visit: How to reference this case study: Marr, B. and Creelman, J. (2010) The Role of Board Members in Strategy Execution: How an Effective Board helps to Drive Performance, Management Case Study, The Advanced Performance Institute ( Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 2

3 The Role of Board Members in Strategy Execution: How an Effective Board helps to Drive Performance Introduction Ensuring effective strategic performance management is what boards should be about, whether in a commercial, non-for-profit or public sector setting. Each board member has a vital role to play in managing organizational performance and therefore needs to be closely engaged in the processes and practices of performance management. Effective boards ensure that the appropriate performance frameworks are put in place and that they receive meaningful information with which to monitor the delivery of the strategic performance objectives. A board of directors will typically comprise both executive and non-executive directors. Executive directors head up the day-to-day operations of the organization and are typically full-time. Nonexecutive directors, on the other hand, do not get involved in the day-to-day running of the business are part-time and use their experience and expertise to provide independent advice and objectivity. In particular, non-executive directors have a role in independently monitoring the executive management. The fact that non-executive directors do not get involved in daily operation and spend less time in the organization makes it critical that they have a robust and meaningful strategic performance management framework on which to base their advice and decisions. The Main Roles of Board Directors The Board is collectively responsible for promoting the success of the organisation by directing and supervising the organisation s affairs, they do this on behalf of the shareholders and stakeholders. The key roles of boards are formulating policy, supervising the management and being accountable. 1. Formulating Policy The board set the long term goals of the organisation which set pace for its current operations and future development, determine the values that underpin the behaviours and culture across the organisation, and determine the strategy of the organisation by reviewing and evaluating present and future opportunities, threats and risks in the external environment and current and future strengths, weaknesses and risks relating to the organisation. 2. Supervising Management The board delegates authority of policy implementation to the management. The role of board members is to monitor and evaluate the implementation of policies, strategies and business 2010 Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 3

4 plans. For that purpose, they require relevant and timely management reports that allow them to assess performance levels and identify possible performance shortfalls. of a Board Effectiveness Program that set out to ensure proper governance and control, enhance board performance and to better align its activities with the strategic goals of the organization. 3. Being Accountable The board members are directly accountable for organisational performance and each year the directors must provide a report to shareholders (or stakeholders in public sector organisations) on the performance of the organisation as well as its future plans and strategies. Board members must ensure that communications both to and from shareholders and relevant stakeholders are effective. Effective boards are vital to the success of an organization and therefore must be equipped with the latest skills and knowledge on roles and behaviours in order to function well and make effective decisions. A board that is confident in its governance and control arrangements will fully embrace its role in strategic decision making. Unfortunately field observations and research evidence signal that there are many ineffective boards, especially in public sector organisations and the UK National Health Service (NHS) in particular. Fortunately there are exceptions, one of which we now showcase. About the Case Study Organization This case study outlines how an NHS Board Effectiveness Model developed by the Advanced Performance Institute (API) was deployed within Northumbria Healthcare. This was the central focus Geographically, Northumbria Healthcare NHS Foundation Trust is one of the largest of the NHS Trusts in England and Wales. It is also recognized as one of the best, regularly winning national awards for performance excellence, (as just one example, in 2009 it was rated the best performing NHS trust in the UK for patient safety standards) 1. The Trust has more than 6,000 employees in 10 hospitals within the northern English counties of Northumberland and North Tyneside. With a budget of 270 million, the Trust serves a population of about half a million people. Board Structure The board of Northumbria Healthcare comprises a Chairman, Brian Flood, and six other non-executive directors. There also seven executive directors, headed by the Chief Executive Officer Jim Mackey. Ensuring an equal balance of non-executive directors is in line with the principles of good governance as recommended through the Code, says Chief Operating Officer Ann Farrar herself a member of the board. 2 Reasons for Improvement As cited Northumbria Healthcare is recognized for its high standards of service quality. Its achievements are more fully described in the Advanced Performance Institute case study Managing Healthcare Performance: Best Practice at 2010 Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 4

5 the Award-Winning Northumbria Healthcare NHS Foundation Trust. In that case study we also describe how the Trust developed a strategy map (shown in Figure 1) with which to describe the strategic goals of the organization and to align the activities of the organization with those objectives. 3 As the board already oversees a high-performing patient-focused organization and was influential in the development of the strategy map, an interesting question is why Northumbria Healthcare felt it important to initiate a board development program? We wanted to make sure that the board had the requisite skills to oversee and support the execution of the five year plan described on the strategy map, comments Farrar. In shaping our new strategic plan we took a long hard look at all aspects of the organization to ensure that we were fit-forpurpose. It made sense that we also conducted the same thorough review at the board level and the board was keen to do so. External Facilitation With external expert facilitation provided by API, the Board Effectiveness Program got under way in November API was selected as it was them that facilitated the creation of the organizational Figure 1: Northumbria Healthcare Strategic Plan-on-a-Page 2010 Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 5

6 strategy map. As the board was fully involved in that process, they were already fully aware of and comfortable with API s approach. The board members had formed a positive view of API s behaviour, knowledge and values, says Farrar. Moreover, APIs deep understanding of the Northumbria Healthcare s strategy was also deemed important in ensuring that the Board Effectiveness Program would be properly aligned to the strategic goals. The API Board Effectiveness Model Core to the Board Effectiveness Program was the deployment of an NHS Board Effectiveness Model, which is shown in Figure 2. Essentially this is a customized version of API s generic Board Effectiveness Model. At the outset Northumbria Healthcare stated that the program had to be tailored so to conform to both the Cadbury code and to the requirements of Monitor. Monitor was established in January 2004 to authorise and regulate NHS foundation trusts. It is independent of central Government and directly accountable to Parliament. Amongst its core responsibilities is to ensure that the trust is well-governed, with the leadership in place to drive future strategy and improve patient care. 4 As Figure 2 shows, the model starts with an assessment of the overall board effectiveness and considers the three areas of accountability, policy formulation and the supervising of the executive management. Next in the model hierarchy is an assessment of the board s capabilities and competencies in strategic decision making. This is then supported by eight enablers such as information (defined as board members demand intelligent information to guide their decision Figure 2: API Board Effectiveness Model 2010 Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 6

7 Text box 1: The eight enablers of an effective NHS board: 1. Clear and Effective Processes Effective boards have effective processes. This starts with regular board meetings that are well structured, with board papers and agendas delivered in good time to allow directors to prepare properly for the meeting. Good board meetings make it clear what decisions have to be made. Clear and effective processes also include clear and effective committee and sub-committee structures. 2. Effective Leadership The chairman of the board needs to have good leadership skills and be able to effectively manage the board meetings. In addition to this, the chairman has an important role to play in communicating and engaging with external stakeholders. 3. Intelligent Information Effective decision making is underpinned by good management information. Board members have to demand intelligent management reports that provide them with the relevant insights. Performance reports to boards tend to be either too long with too much operation detail, or too short with too little relevant insights. Board performance information needs to be linked back to the strategic information needs and have to strike the right balance between numbers and narrative. 4. Analytical Understanding For boards to be effective, members have to have an adequate level of analytical understanding that allows them to understand performance and identify potential performance shortfalls. 5. Public and Patient Engagement The decision making in effective NHS boards has to be underpinned by public and patient engagement. 6. Constructive Challenge In an effective board meeting, directors challenge the organization and each other in a constructive manner. 7. Inclusiveness It is important that board members have a sense of inclusiveness and feel that everyone on the board has an equal right to voice their opinions or concerns. Inclusiveness creates a sense of unity among the board members. 8. Trust Finally, in effective boards, members trust each other and behave and act cohesively and corporately. This means that private agendas are put aside for the greater good of the organization and its strategic performance Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 7

8 making ) and challenge ( board members constructively challenge the organization and each other). Broader definitions of these eight enablers are provided in Textbox 1. One-to-one Meetings with Board Members Implementing the Board Effectiveness Model began with API conducting individual face-to-face interview sessions with each board member, which was an approach that Northumbria Healthcare specifically requested at the outset. We went through this process when developing the strategy map and found that it worked extremely well as it focused on soliciting the views and opinions of the individual and is completely anonymous, says Farrar. We wanted each member to feel uninhibited in providing comments and opinions in a safe environment and in the full knowledge that their views would only be fed-back to the board as part of a summation of all the members views. In these individual sessions, the board members were asked questions regarding each element of the Model. As well as providing comments, each member was asked to rate a particular element on a 0-10 score (with 10 being the highest performance) and to provide an example of why they chose that rating. They were then invited to offer insights into what they believed should be done in order to improve that rating. Based on API s analysis of the interviews, feedback was provided in a late December 2009 workshop for the whole board where a full discussion was held to confirm the results and to agree on future actions. As a visual aid to this discussion, API presented a Figure 3: Board Effectiveness Heat Map 2010 Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 8

9 set of colour-coded heat maps that described the performance to each element (in comparison to global best practice and in comparison to other public sector organisations) ranging from green (everything good) to red (not good at all). See Figure 3. Improvement Opportunities Given the reputation of Northumbria Healthcare as an exemplary organization, it was perhaps unsurprising that API s assessment found a board that was at or near the top of effectiveness when compared to other public sector organizations. Indeed, API rates the board of Northumbria Healthcare as one of the best it has ever worked with commercial or public. That said, the assessment process did identify a number of internal improvement opportunities which led to the board green-lighting the following interventions, amongst others. It was also decided that the sub-committee structure (which includes finance & performance and HR & Organizational Development (OD), as two examples) would also be aligned with the map s bubbles. The key change here is that the subcommittees will make a quarterly report to the board rather than provide a monthly set of minutes with selected performance data, as they have done historically. The sub-committees will answer key strategic questions relating to the objectives within the strategic plan, says Farrar. For instance, the HR & OD sub-committee will report quarterly against the key strategic questions relating to the breadth and depth of human resource and whether our human capital is adequate to meet our strategic goals. She adds that in essence this will equip the board with a good understanding of likely future performance rather than just being informed about the performance over the previous three months with some data on likely performance over the next three, she says. Processes It was evident from the assessment that board meetings were too short-term and operationally focused and that to be effective the board should be spending about 70% of its time on longer-term strategic issues. As a result it was agreed that the board agenda would be aligned with the bubbles on the strategy map and that an additional strategic review meeting would be held two or three times a year to discuss and review the long-term strategic plan. comments Farrar. Information The interventions above also positively impact the information element of the Board Effectiveness Model. Also notable here was the API assessment found that reports delivered to the board were often too long with too much irrelevant data (some finance reports, for instance, could be 40 pages long!). We have so much information that we have to take to the board with regard what s just happened that it s hard to be strategic when the board is swamped by operational details, says Farrar. We are saying that the board will receive 2010 Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 9

10 more strategic reports on the strategic questions that we have set ourselves. Consequently it was agreed that a reporting template be developed that would be standardized across the various report types received by the board. The report will provide the board with a high level 2-3 page summary and will include, headlines, high level narrative summaries, as well as demonstrating a link back to corporate objectives and information needs (Key Performance Questions). testing questions regarding the performance of the organization, says Farrar, who adds that this will require improvement to processes outside of the actual board meeting. If we get the board papers out in good time and if the reports are summarized in a way that makes them easy to read and digest then it will become clear as to the strategic questions that the non-executive board members requires answers to, she says. As a result the discussion can remain focused on strategic business while clarification on operational business is resolved prior to the meeting. It is also intended that every summary sheet includes a section called the patient s view, to ensure that the end goal of performance improvement patient care is always uppermost in the minds of both the board members and the information providers. We ve developed an appropriate report template, says Farrar. And we will make sure that the board agenda is correct and that items are properly introduced, discussed and summarized. As a further useful intervention it was agreed that the board agenda should begin with the chairman and CEO giving verbal reports that would highlight what they feel to be the most important issues for the board to focus on within that particular meeting. Challenge To the challenge element of the Board Effectiveness Model, board members agreed that they would aim to improve the constructive challenging of each other. This is about asking Benefits of the Board Effectiveness Program Although still early in its implementation it is clear that the API-facilitated Board Effectiveness Program is proving successful within Northumbria Healthcare. Farrar states that the fact the organization has been through a professional and formal board effectiveness review is in itself a huge benefit. It has been five years since our last formal program and this really helped us gain a firm understanding of our performance levels and to know what we need to do to become a best practice board, she says. It has been a comprehensive and far-reaching review in which every single board member has been involved, open and fully engaged. This has led to the board collectively agreeing to positive changes to processes, structures and behaviours. Critical Success Factors In conclusion Farrar points to several critical factors that underpinned the success of the Board Effectiveness Program Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 10

11 That the board quickly reached agreement as to what it was good at and where improvements were required was a clear success factor, and here Farrar points to the value of the board interviews conducted by API. Because these were one-to one and anonymous we were confident we had made our assessments and reached our decisions through a very honest process rather than people saying they were in agreement when in truth they were uncertain, she says, adding that: Also important was that we have a group of individuals that constructively work together and learn from each other and are by nature forward looking. A final success factor is that the organization was operationally sound. This meant that the board has the space to look ahead and to be strategic and also the time to properly analyse its performance and understand where improvements were required, Farrar says. If we were not operationally excellent then the board might have been too wrapped up in enervating fire-fighting to dedicate time to higher-value, strategic activities. For more case studies, reports and articles visit Endnotes, References & Further Reading Marr, Bernard (2010), The Intelligent Company: Five Steps to Success with Evidence-Based Management, Wiley, Oxford. Marr, Bernard (2009), Managing and Delivering Performance: How Government, Public Sector and Not-for-profit Organizations can Measure and Manage what Really Matters, Butterworth- Heinemann, Oxford. Marr, Bernard (2006), Strategic Performance Management, Butterworth-Heinemann, Oxford 2010 Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 11

12 The API Resource Library: Our Resource Library offers a selection of relevant downloads and links to books, articles and case studies. These have been selected as useful information sources for further reading and to illustrate best practice and leading thinking. To read more just click: 1 See bhttp:// 2 See THE COMBINED CODE: PRINCIPLES OF GOOD GOVERNANCE AND CODE OF BEST PRACTICE 3 Bernard Marr and James Creelman, Managing Healthcare Performance: Best Practice at the Award-Winning Northumbria Healthcare NHS Foundation Trust, Advanced Performance Institute, For more see Advanced Performance Institute, BWMC Ltd. (All rights reserved) Page 12