Good organizational governance is enabled by effective strategic planning
Good organizational governance is important for high-performing organizations. This article explores the relationship between governance and strategic planning and contains the following sections:
What is organizational governance?
Benefits: how effective strategic planning enables good governance
Many organizations use insufficient strategic planning processes – compromising their governance
What is organizational governance?
The international standard for social responsibility, ISO 26000, defines organizational governance as follows:
“A system by which an organization makes and implements decisions in pursuit of its objectives. Governance systems include the management processes designed to deliver on performance objectives while considering stakeholder interests.”
The ISO definition is intended for use by all organizations – whether private, public, or non-profit. Breaking this down further, organizational governance generally involves:
Leading the administration of an organization according to established policies, processes, and structures, and
Overseeing the establishment and implementation of, an organization’s strategy.
Numerous models exist for organizational governance, each with its unique approach. For instance, the "Traditional Model of Governance" places the responsibility of organizational leadership solely on the Board of Directors, while the "Carver Board Governance Model" distributes leadership between the Board of Directors and a CEO. Further models exist; however, this is outside the scope of this article.
Who is responsible for organizational governance? As foreshadowed, it depends on the model used and where an organization is headquartered (laws on required governance setups vary between countries). Generally, however, an organization’s owners (shareholders) are responsible for ensuring an appropriate governance model is in place and utilized. In some countries, owners can be represented by a Board of Directors who are then responsible for establishing and administrating governance. Typically, executive management also plays a role in leading or supporting the administration of governance, as do other members of an organization (for example – the strategic planning team).
What is strategic planning?
First, refer to our article on strategic planning and why it is important. In a nutshell, however, strategic planning is the administrative process an organization follows to:
Define its strategy
Confirm how the strategy will be implemented & achieved
Establish the financials required to fund operations and reward owners, and
During implementation periods – regularly review strategic priorities + operational and financial performance*
*Note: point 4 above takes place during "strategy execution” periods. However, it is closely tied to the strategic planning process. So, our "end-to-end" definition of strategic planning includes this point.
Who is involved in strategic planning? Eventually, all members of an organization will be involved in the strategic planning process to some extent. However, it is typically owned by the executive team and led by a strategic planning team, and owners hold decision-making authority. An organization’s governance model should guide this.
Benefits: how effective strategic planning enables good governance
As indicated, strategic planning is an organization’s process for establishing and achieving its strategy. Therefore, it forms part of the overall administrative “processes” package for organizational governance. Research has shown that good, effective strategic planning can significantly improve organizational performance, especially in terms of effectiveness and efficiency.
Good governance can improve an organization’s performance, ensure stability and productivity, and unlock new opportunities. Additionally, it can improve reputation and trust. Conversely, it can reduce risks and enable quicker and more sustainable growth. Many of these aspects are accounted for via the strategic planning process.
Many organizations use insufficient strategic planning processes – compromising their governance
Unfortunately, most organizations fail to implement effective strategic planning practices. One survey of nearly 800 executives globally (McKinsey & Company) found that just 23% use a formal strategic planning process to make critical strategic decisions. For small and medium enterprises (SMEs) — the vast majority of organizations in existence — even fewer use effective strategic planning processes.
This lack of effective strategic planning compromises the ability of many organizations to achieve optimal governance. It often leads to decreased performance and can even pose a threat to their existence.
So, does your organization use effective strategic planning and governance mechanisms?