Corruption, Risk and Business Strategy. Which one manages the others?
Since I stared writing about issues relating to compliance at the front line of international business, I have found myself looking more and more at the role of business strategy as a significant foundation of anti-bribery compliance. It seems that with every enforcement action comes the to-be-expected rogue employee corporate statement “we don’t tolerate corruption, this was the work of (insert how many people engaged in bribery).” With few exceptions, such as the Chief Medical Officer of GSK who stated to Reuters that GSK might need to build a new sales model designed to “eliminate sharp marketing practices,” (link here to my post on GSK), I have yet to hear a corporate pronouncement that says, (in so many words) “our business model is broke, and such corrupt behavior is an unintended consequence, we are going to fix it.”
As I started blogging about this subject, came an introduction by Charlie Helps, Senior Adviser at DAC Beachcroft LLP’s Governance Advisory Practice (link here), to Alan Kennedy, Author, The Alpha Strategies. At Charlie’s recommendation, I read Alpha, and having been a participant in numerous strategic planning sessions, with “top-shelf.” (read: high cost) facilitators, I was immediately impressed by the Alpha Model, just as I was unimpressed by previous “strategic planning” initiatives, which resulted in no meaningful change other than a number of action items which through attrition, melted away with strategic issues unaddressed. Sound familiar?
So, I asked Alan if he would not mind joining me for a Q and A, as perhaps providing value to those corporations and field level business groups that are confronting the dynamics of business strategy and corruption at the front lines of business. (the full Q and A is available via PDF by linking here).
RB: Hello Alan, and thank you for participating in this Q and A. So, first, what is the Alpha Strategy?
AK: Thank you for your kind words Richard, and the chance to speak to your audience. The Alpha Strategies is a new book on strategy, its structure and communication. It is available online, http://amzn.to/15xWVsQ. We start by defining “strategy” as a choice of action rather than the more popular definition as “value creation” or “competitive advantage”. Using our simple definition, it becomes possible to see that there are 8 “choices” common to every business, be it for-profit or nonprofit. In other words, strategy can be seen as a system. The system consists of 8 strategies and 3 types of strategy.
RB: As I shared in my intro, having to sit through what seemed like endless meetings with expensive facilitators who were supposed to make a dramatic impact on strategic thinking, only to have those concepts “melt away” over time, marked with a return to the “the normal,” what makes Alpha different?
AK: What makes the Alpha model different is that it enables an understanding of the current strategy system of a business or nonprofit. Conventional approaches to strategic planning proceed immediately to tackle new strategy development after a cursory review, at best, of an organization’s current state. The conventional approach assumes that decision-makers already understand how existing strategy is being implemented and the challenges implementation is facing. But here’s the troublesome thing. Study after study shows this is simply not the case.
Boards and management do not understand current strategy! In the absence of a deep knowledge of existing strategy, strategic planning will fail. How can planners properly identify which strategies might need changing? What’s more, no one can explain the rationale for the proposed new strategies because they cannot relate them to the existing strategies. This means the strategic plan dies, unread and forgotten, in some folder on the shared drive while folks in the business lines get on with doing what they were doing before the new strategic plan came out. Or as you say, “all returns to normal”. Our model avoids this flaw by focusing first on the structure of the existing strategy system, not on strategy development. Once the existing system is well understood, it becomes much easier to identify the external factors most impacting the system.
RB: That makes a great deal of sense, after all, how can you know where you are going, if you don’t know the current state of affairs. Also, it would seem that if there is a fundamental flaw in strategy, including one that promotes or tolerates corruption, and you don’t take a look at current strategy, it goes undetected.
So, where does risk, in general, fit into the Alpha model?
AK: A relevant question, at a time when Boards are struggling with how to provide proper oversight to risk from issues such as cyber attacks, corruption, disruptive technologies and the looming prospect of protracted low growth. We take the position that risk is one of the 8 strategies found at the core of any business or nonprofit. As such, risk becomes a strategy to be managed. That’s the first difference with how we look at risk.
RB: I am not sure I understand?
AK: Conventional thinking tackles risk as an event beyond anyone’s control. This thinking completely disconnects risk, being an unacceptable event, from strategy, being choices of action. Since choices of action are the source of all risk, conventional thinking makes risk management very problematic. Consider this. A typical risk workshop today starts backwards with an identification of every possible risk that could impact the business. And then those risks are prioritized. But based on what, we ask? Our risk workshop begins with an identification of specific strategies. Once those strategies and the activities being undertaken to implement them are well understood, then it is possible to look at the risks attracted by each choice of action.
RB: So, what of corruption risk?
AK: With respect to your question on the “risk” of corruption, it is a risk typically associated with sales or procurement; thus, we would want to first understand how the sales folks are actually executing the sales process in their assigned territory and the challenges they face. This would yield the basis for understanding the risks they face, in this case, the risk of corruption.
RB: That is an interesting observation. I have seen all too often where they are disconnected. In other words, management sets the business strategy, globally or regionally, and says “execute.” Oh, and also, “here is how we are going to compensate you for achieving plan.” Then comes the “and don’t break the law,” with whatever compliance practices, training and documentation might be in place. What I don’t hear is someone raising a “red-flag” and saying “slow down, that growth strategy in a region x with the associated compensation plan is actually putting us in a position where executing strategy and not breaking the law are in potential conflict. “
What about culture and values? We can’t have a conversation about strategy without paying homage to the “tone at the top.” Where does that fit within Alpha?
AK: I think you are exactly right about culture and values coming straight from the top. To understand the culture of any firm, we identify its dominant strategy or Alpha. The connection between culture and strategy is that culture reflects accepted behaviors. Strategy, being the choice of action, is what determines the behaviors that will be acceptable. As for values, I think the term is synonymous with expectations. Imposed expectations are the driver of all strategy implementation. Thinking back on your focus on corruption, you can easily see how imposed expectations (a.k.a. “values”) impact corruption risk. How often in your career did you hear the chilling directive: “Just get it done! Make those numbers. I don’t want to know the details or how you do it!”
RB: Indeed! I can’t help but ask one final question, in all your experience, what is the single most common and consequential mistake that you see companies making when engaging in the strategic planning process?
AK: Without question, from what we see, the most common mistake in strategic planning is failing to understand the current strategy system already in place. This leads to uninformed decision-making on changing strategy. The real problem is that there is no common definition of strategic planning. And the definitions that are typically offered are so academic and vague that they offer no real guidance as to what constitutes a strategic plan. We define strategic planning as a review of the current 8 strategies being implemented. Once that is known (and we have yet to see an organization able to reach easy agreement on current strategy until after a lot of discussion). Only then it is possible to identify specific external forces impacting performance of each of the strategies. It is the conclusions drawn on the likely impact of external forces that drives the need to consider changing strategy. Folks are regularly told by the so-called experts “You need a strategic plan.” The reality is, there is already a strategy system in place and being implemented in every company, whether or not there is a written plan in place.
The question should be “Do you understand your present strategy system?”
RB: I think that is a great way to end, and I wonder how many organizations ever really look inward and to see where that system might be in fact a foundational “red-flag” in terms of corruption risk. So, for those who want more Alpha, how do they find you?