Highly effective companies entrench habits that enable them to capitalise on opportunities during favourable market conditions and mitigate risks in poor market conditions. They are characterised by focused Boards that take seriously their role in appointing and guiding the CEO.
Three frogs sit on a live-market trader’s stand awaiting their fate. Each frog has one leg tied to the other two frogs. Even though each frog tries to jump off the stand and away from the other two frogs, they go nowhere. The team (of frogs) is not aligned in their strategic intent or execution.
Vantage Performance has been advising Australian companies, ranging from quasi-insolvent to high-performing companies, for over 15 years, through several cycles.
We have observed that, in favourable market conditions, companies “prosper” notwithstanding poor governance. It is not unusual to discover:
- No strategic plan, but a company busily pursuing multiple growth opportunities and plans;
- Lack of financial visibility, but relatively strong cash flow; and
- Short-term behaviours and decision-making.
These companies, assisted by advantageous market conditions, can be profitable and appear to be performing well. However, when the market turns, good opportunities become scarcer, labour markets tighten, inflation and interest rates rise, and supply chains become more challenging. This causes some of those “good companies” to struggle.
Currently, we are starting to see stress particularly across the midmarket, where it is increasingly likely that poor habits will produce poor outcomes.
- What distinguishes high-performing companies from those that are distressed?
- How does good governance create better outcomes?
- How does the Board assist the organisation to achieve its objectives?
- Why do Boards exist?
Our experience, coupled with extensive research from experts in the field of growth acceleration and business viability, has enabled us to compile the key habits that lead to success.
The core “habit” of successful and sustainable organisations is effective governance by an astute Board.
Boards exist to assist organisations to achieve their objectives by ensuring the CEO is highly successful.
Boards can get distracted by the organisation’s vision (the end state) or mission (what needs to be achieved next) statements, or in the belief that governance of itself is a good thing. However, governance is the how, not the why, and the how needs to be effective. A good Board assists the organisation to achieve its objectives through the CEO.
Because Boards achieve their purpose through the CEO, the mark of a good Board is whether the CEO is successful. People may take umbrage at that, but Boards are absolutely responsible for selecting the right CEO, encouraging and supporting the CEO, and for taking action if the CEO cannot be successful. It is important to remember that the CEO is the sole employee that Boards have.
Boards comprise Directors who act collectively. On an effective Board, each Director understands their responsibility to be engaged and proactively contribute to building and maintaining momentum towards agreed objectives, without being distracted by personal self-interest. Leadership is provided by Directors who are competent, engaging, influential and able to inspire others to perform at their best.
Of course, once an effective Board is in place, there are other factors that differentiate high-performing companies, including:
1. Setting a clear purpose and strategic intent.
2. Producing a one-page strategic plan (OPSP) to improve alignment at all levels within the business.
3. Clarifying the organisational structure, roles and responsibilities.
4. Building accountability through a tactical business plan that guides the executive management team.
5. Developing a positive culture that is both physically and psychologically safe.
6. Using an integrated financial model and budget for the period of the strategic plan to ensure the company has sufficient financial resources to achieve its strategic plan, and incorporating a 13-week cash flow forecast (when needed) to manage short-term cash requirements.
7. Ensuring timely and accurate financial reporting via a one-page management scoreboard.
8. Monitoring operational performance with strong business intelligence around the top three to five KPIs that matter.
9. Collecting customer and employee feedback, and using it to inform future decisions.
10. Communicating with internal and external stakeholders regularly.
11. Ensuring Board processes enable effective decision-making and build accountability.
The Board should regularly sense check and stress test these factors to ensure they are adequate for the business, and are leading towards success. In our experience, the extent to which a company receives and acts upon feedback to improve, is a measure of the health of the board, the executive management team and its culture.
The fate of the three frogs will be markedly different if they are aligned in their strategic intent and act collectively.
Contact us today for a free Vantage Resilience Index assessment for your business.
