Whether they are applied by an entrepreneur on a first-time venture, or by the management of a well established enterprise, values-based governance disciplines provide a control mechanism for investors. The three disciplines of stewardship, strategy, and structure regulate the three processes of planning and policy development, deployment, and performance measurement. When these disciplines are in place, the processes are under control; investors can "rest assured" on "the three legged stool."
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The Governance function, which consists of the board of
directors and the chief executive of a corporation, the
members of a limited liability company, or a sole
proprietor, has the ultimate responsibility for an
enterprise to its investors. This responsibility includes
taking care of the affairs of the enterprise, and
protecting its assets.
The term
"management," which refers to the board of directors,
officers, and non-official managers, has the authority and
responsibility for directing and controlling the events and
activities.
The
governance disciplines of stewardship, strategy and
structure dictate relationships among employee, customer,
supplier, regulator, and competitor constituencies for
enacting change and earning value. The management team must
be able to demonstrate that they can enact change, both by
being able to cause it or respond, depending upon
opportunities and conditions.
Stewardship, strategy, and structure...
Stewardship is the responsibility for the performance of an enterprise and the delivery of value to constituencies. The responsibility includes ensuring that the enterpriship (entrepreneurship, leadership, and management) competencies of individual employees are used judiciously. If so, ideas are transformed into value innovatively, directions are set that others can follow effectively, and resources are applied to achieve results efficiently.
Strategy addresses the beneficial positioning of an enterprise in the marketplace so as to deliver value over time. It begins by establishing the values and guiding principles, mission, vision, and value proposition, and ends with delivered value. The results are only as good as the underlying assumptions.
Values form the basis for behavior within the enterprise, because they describe a system of management's beliefs that set expectations for individuals, establish positions and priorities, and provide a framework for decision making. As a consequence, the governance disciplines must be values-based, because if management doesn't live the values, nobody else will.
Strategy establishes the direction for competitive, collaborative and cooperative advantage, and performance excellence.
Competitive advantage is about the position and posture that offers constituencies better value than competitors. Causing change affects competitors, but being able to respond to change caused by competitors is essential to sustainability. Collaborative advantage is about the relationships between suppliers, or customers, or peers as a partnership with a common mission, and operating dependently for mutual value. Cooperative advantage is about the relationships between suppliers, or customers, or peers as an association with a similar mission, but operating independently for mutual value.
Performance excellence means doing the right things, and then doing those things well.
Structure is the consequence of strategy, and defines the business model - the enabler of relationships between an enterprise's infrastructure, products and/or services, markets, and constituencies that deliver value. The infrastructure itself consists of processes, functions, facilities, and equipment. Products and/or services are delivered through the infrastructure to both external and internal customers.
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Planning
and policy development, deployment, and performance
measurement...
The values-based governance disciplines are enacted through
the enterprise process model. This model defines three
processes: planning and policy development, deployment, and
performance measurement. The deployment macro process
subdivides into the research and development, and sales and
production micro processes. All activities that earn and
add value are embraced by this model.
Developing,
enhancing, and maintaining plans and policies is best
accomplished first on an enterprise basis with with
strategic objectives and goals, and then on a tactical
basis by function. Functional plans include business
development, operations, finance, human resources, and
information technology.
Deployment
activities include research and development, and sales and
production. Research and development activities are
project-oriented with a finite beginning and end. Sales and
production activities are either perpetually-oriented or
project-oriented, depending upon the nature of product
and/or services offered.
For
example, the sales and production activities of a food
service enterprise are perpetually-oriented, whereas the
activities of an aircraft manufacturer are
project-oriented, varying by each contract
negotiated.
Perpetually-oriented
means occurring continually, but not necessarily
permanently. For example, operators of food service
establishments must maintain standards, and offer exciting
new menu items from time-to-time to preserve sales levels.
However, contract manufacturers have to drum up new
business before current contracts expire, otherwise
production activities can come to a hard stop. Sales levels
in food services establishments may be seasonal, and can
fluctuate with consumer confidence, impacting staffing
levels. However, once contracts booked, manufacturing
workloads should be reasonably stable.
Performance
measurement processes must address both financial and
non-financial measures. Revenues, costs and expenses,
profits, cash flows, and returns on investment involve
financial measurements based upon rates, quantities of
input, and volumes of output. Financial performance must be
evaluated in terms of non-financial measures, such as
market share and penetration, product usage, employee and
customer satisfaction, quality, time-to-market, cycle time,
and asset utilization.
Full
compliance with laws and regulations is an essential
performance criterion, and should be measured; otherwise
values are meaningless.
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Control
mechanism...
The values of the enterprise must promulgate the notion of
trust and integrity; management has the responsibility to
behave accordingly. Such behavior includes being willing to
fully disclose both satisfactory and unsatisfactory
performance and results.
Actual
performance should compared to planned through a feedback
loop that provides timely actionable information, so that
problems can be better anticipated, and solutions
implemented with deliberation. It's difficult to "save
face" when things go wrong, but early prevention is better
than cure.
An
internal audit function should provide independent
assessments of the effectiveness of processes in medium to
large enterprises directly to the Governance function.
These assessments should be in addition to external
audits.
If the
governance disciplines are applied routinely, the processes
executed consistently in accordance with plans and policies
with independent audits, then the investors have a control
mechanism in place. This mechanism ensures that the affairs
of the enterprise are being taken care of and its assets
are protected.
The
values-based governance disciplines of stewardship,
strategy, and structure provide a three-legged stool upon
which the investors can "rest assured."
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Leveraging
values-based governance disciplines is an enterpriship
competency.
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From Nigel A.L. Brooks
http://www.nigelalbrooks.com
Article Source:
http://EzineArticles.com/?expert=Nigel_Brooks
http://www.scribd.com/doc/31930462/Values-Based-Governance-Disciplines-A-Three-Legged-Stool
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