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. Non-executive 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 strategicperformance 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 plans. For that purpose, they require relevant and timely management reports that allow them to assess performance levels and identify possible performance shortfalls.

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 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. 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.

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 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. 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-for-purpose". 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 2009. API was selected as it was them that facilitated the creation of the organizational

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

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

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. 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. 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 sub-committees 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.

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 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). 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 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."

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. 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."

Bernard Marr is a globally regognized big data and analytics expert. He is a best-selling business author, keynote speaker and consultant in strategy, performance management, analytics, KPIs and big data. He helps companies to better manage, measure, report and analyse performance.
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