A board can receive exactly the results it asked for and still preside over the erosion of the company’s competitive position.
Margins improve. Management delivers its cost commitments. Capital moves toward businesses with stronger reported returns. The compensation committee confirms that executives have met their targets. From a governance perspective, the system appears to be working. Yet those same decisions may be reducing the expertise, customer relationships, and capacity to adapt that future performance depends on. The board’s challenge is that financial results can validate management’s execution before they reveal the consequences of its strategy.
This tension has been on my mind during my DBA work at Haskayne, particularly while studying Walter Kiechel III’s The Lords of Strategy and our accompanying course material. Kiechel traces the ideas that transformed how executives understand competition. For directors, their relevance extends beyond evaluating a strategic plan. The different schools expose different weaknesses in the evidence boards use to approve investments, assess management, and determine whether the company is building durable value.
An internally consistent proposal can be particularly difficult to challenge. Its forecasts reconcile, its milestones are clear, and its projected returns exceed the investment threshold. But consistency within an analysis says little about what the analysis excludes. A board needs to understand which view of strategy underpins management’s recommendation and whether another perspective would materially change the decision.
The experience curve, associated with Bruce Henderson and BCG, offers a useful starting point. It explained how accumulated production experience could reduce costs and strengthen competitive advantage. Its influence remains visible whenever management argues that greater scale, standardization, or automation will improve economics. Directors should expect evidence supporting those benefits. They should also examine whether the proposed changes preserve the organization’s ability to keep learning. Improving today’s production system and developing tomorrow’s capabilities are related, but they are not interchangeable.
Consider a proposal to automate routine work and reduce junior positions. Management may have a credible estimate of the immediate savings. The less visible issue is whether those positions also serve as the training ground for future specialists. The board does not need to design a replacement development program. It should, however, expect management to explain how the company will maintain the expertise its strategy requires, what that will cost, and who is accountable for the outcome. Otherwise, the investment case may recognize the savings while omitting a foreseeable capability gap.
Amazon is reportedly approaching former employees, including laid-off workers, for AI and cloud roles. That does not establish that the earlier reductions were mistaken. For directors, it illustrates a question worth asking before approving a major restructuring: has management considered the possibility that the company will need to rebuild capabilities it is removing? Recruitment, development, and the restoration of working relationships can affect the economics. Those costs deserve consideration alongside severance and implementation expenses.
Portfolio strategy raises a related governance concern. BCG’s growth-share matrix and McKinsey’s nine-box framework brought discipline to allocating capital among businesses. Their enduring contribution is to force choices. However, business-unit performance can obscure contributions across the portfolio. A mature operation may provide customer access, technical expertise, or infrastructure that another business needs. A divestiture can therefore improve the apparent quality of the portfolio while weakening its remaining components. Directors should expect management to identify those dependencies and explain how the transaction affects the company’s overall advantage.
This requires judgment without creating an exemption from financial discipline. Almost any management team can describe an underperforming business as strategically important. The board’s responsibility is to require evidence: what contribution does the business make, which other operations depend on it, and what would replacing that contribution cost? Holding management accountable for these claims is more useful than either accepting them at face value or dismissing them because they do not appear in segment earnings.
The uncomfortable possibility is that management can meet every transformation target while leaving the company easier to replace.
Porter’s positioning perspective explains how. An investment can improve internal efficiency without improving the company’s position relative to competitors. If rivals adopt similar technology and customers demand lower prices, much of the benefit may pass to buyers. The investment may still be necessary, but its justification differs from an investment that creates differentiation. Boards should expect management to distinguish between expenditure required to remain competitive and expenditure expected to strengthen advantage. Both can deserve funding, with different return expectations and measures of success.
The resource-based view provides a complementary test. Barney’s VRIN framework examines whether resources are valuable, rare, difficult to imitate, and difficult to substitute. For a board, its practical value lies in making management’s claims about distinctive capabilities more specific. “Our people” or “our technology” is insufficient. Directors need to understand which combination of expertise, information, and organizational processes produces an advantage customers value. That understanding provides a basis for evaluating whether acquisitions, outsourcing, and cost reductions strengthen or weaken the investment thesis.
This perspective also changes how boards oversee succession and talent. A company can have successors identified for senior roles while remaining vulnerable to the loss of technical expertise or customer knowledge below the executive level. Directors need assurance that management understands material concentrations of knowledge and has credible plans to address them. The appropriate board discussion concerns strategic exposure and management’s response. It should establish accountability without drawing directors into individual staffing decisions.
The organizational effectiveness tradition, including Peters and Waterman’s work and the related 7-S framework, adds another dimension. Strategies depend on alignment among organizational systems, skills, and management behavior. Boards influence that alignment directly through executive incentives. If compensation rewards immediate margin expansion while the strategy depends on capabilities that take years to develop, management receives conflicting instructions. Directors should examine whether performance measures encourage executives to build the business described in the strategy, including whether current rewards can be earned by deferring necessary investment.
Value-chain analysis and business process reengineering bring the trade-offs into operating design. A second supplier, spare capacity, or overlapping expertise carries a visible expense. Its value may become apparent only during disruption. Boards should require management to explain material decisions about efficiency and resilience using scenarios appropriate to the business. A proposal that removes redundancy should identify the exposure being accepted, the consequences of failure, and the recovery assumptions. Directors can then assess whether that exposure is consistent with the company’s strategy and risk appetite.
The adaptation perspective challenges the idea that approval of a strategy settles the underlying questions. Customer needs, technologies, and competitive conditions can change before financial performance signals a problem. Boards therefore need a review process that distinguishes execution shortfalls from a weakening strategic premise. When results disappoint, asking management to execute harder may be appropriate. It may also deepen commitment to an approach whose assumptions no longer hold. Accountability should include management’s willingness to surface contrary evidence and recommend a change.
What my DBA work has reinforced is that the schools of strategy offer boards a disciplined way to challenge the completeness of management’s argument. Cost analysis examines efficiency. Positioning examines competitive economics. Capability analysis examines what the company must preserve or develop. Organizational analysis tests whether incentives support the plan. Adaptation examines whether its assumptions remain credible. Directors add value by ensuring that material decisions survive these different tests, then holding management accountable for the commitments that follow.
Boards can begin with three actions:
- Require a statement of strategic consequences for one major decision. Alongside financial returns, ask management to explain the effect on competitive position, essential capabilities, and resilience. Require material dependencies and replacement costs to be explicit. This gives directors a more complete basis for approval.
- Review whether executive incentives reward the approved strategy. Examine whether management can meet its targets by postponing investment or weakening capabilities the board considers essential. Require a small number of credible measures that connect current performance to future capacity, with clear ownership and reporting.
- Agree on evidence that would trigger reconsideration. For each major strategic commitment, identify the critical assumptions and the developments that would warrant a board review. Hold management accountable for reporting changes promptly and presenting alternatives, while the company retains the capacity to act.