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Three big challenges for directors in 2013

Australian directors are facing a challenging environment in 2013 including an expectation of a low growth economy, significant pressure on government spending, greater transparency though social media and the continued rapid pace of change brought about by advances in technology, globalisation and hyper competition.

1) Non-sustainable business models

In this challenging context, boards need to ask themselves whether their organisation has built a sufficient sustainable competitive advantage. Some business models may need to be completely rethought and redesigned. In many cases an incremental approach won’t be good enough. A review of alternative business models including an understanding of the capital required, risk and return of each will be critical. The consequence and likelihood of changes in government policy to their organisation’s performance must also be addressed.

Boards will need a deep understanding of their organisation’s core competencies. They should ask why they think their organisation will make more profit or be more productive than their competitors by using the same resources. They will need to understand what is special or unique about their organisation and its products or services and how it will add more value to its customers than its competitors.

Boards will also need to ensure that their organisation’s credit review, invoicing and cash collection systems and processes are enhanced as the risk of larger and more frequent bad debts is likely to grow.

This analysis and review can be carried out as a separate project or included as part of an annual strategy day involving the board and management.

2) Toxic versus productive cultures

A deteriorating or toxic culture is a significant risk not only to employee turnover, productivity and performance but also to an organisation’s reputation. Increasing transparency including through the  prevalence of social media means that cultures of bullying, harassment and the like become visible far more quickly than previously.

Very few boards, however, ensure that the culture of their organisation and the engagement of their employees are regularly measured. Not many CEOs are held accountable for improving cultures and employee engagement as a means of lowering staff turnover and improving productivity with the consequent positive impact on profitability.

Most organisations have been through a number of restructures and cost cutting exercises in recent years and there’s not much “fat” left to cut. Building a culture that engages employees, is innovative and adaptable will be critical to grow productivity as a means of increasing profitability in a low growth environment.

3) Single mindedness

There are many personality, egotistical, behavioural, political, competency and other reasons why boards are often not single minded. Many don’t have a common commitment with their CEO and executive team, to the same long-term direction, purpose, strategy and priorities for their organisation.

Boards must provide leadership and dedicate the time and effort to ensure that they, together with their CEO and executive team identify and deal with any impediments to their joint determination to achieve an agreed set of goals and objectives for their organisation.

These and other important matters should be included on the board’s annual agenda to ensure that they get the appropriate time, attention and focus at least once per year are not inadvertently neglected.

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