H. Pierson

Boards of directors can help executive teams build the foresight, response, and adaptation capabilities they need to manage future shocks. Resilience means both protecting against the downside of potential shocks and preparing to capture the upside. In this episode of the Inside the Strategy Room podcast, three experts discuss the board’s role in building that resilience to weather the current volatility. Asutosh Padhi, McKinsey’s managing partner for North America, is joined by Celia Huber, who leads our board services work in the region, and Ida Kristensen, coleader of McKinsey’s risk and resilience practice in North America and leader of the global cybersecurity practice. This is an edited transcript of the discussion. For more conversations on the strategy issues that matter,

Sean Brown: Why is resilience on the board agenda now?

Ida Kristensen: We’re facing an amazing set of disruptions. First, the highest inflation since the 1970s, and while energy receives a lot of attention, core inflation is also high, and it is unclear what governments and other institutions will do. GDP slowdowns seem to be continuing, but how deep will it be and for how long? There is a lot of volatility in the capital markets as well, and while they are quite robust, access to capital and credit is tightening, which is particularly important for growth-oriented companies.

We see continued supply chain challenges. In our surveys, we see increasingly negative sentiment from consumers and businesses. We see job growth, which normally would not be consistent with recessionary trends, but the tight labor market is paired with decreased productivity in many countries. On top of all these macroeconomic elements, we have continuing uncertainty around the pandemic and geopolitical tensions. In conversations with CEOs and boards, uncertainty is the number-one topic that comes up. But there is a lot more resilience built into the system today than in previous times of volatility.

Asutosh Padhi: Yes, it’s not all gloom and doom. Consumer sentiment is at an all-time low, but consumer balance sheets continue to be extraordinarily strong, totaling $3 trillion of cash in the US. CEOs likewise report strong balance sheets. Innovation is alive and well, and this is a moment when everyone is thinking through how to take advantage of digital, improve productivity levels, and drive innovation and growth. We are getting mixed signals on the economy, but we believe that moments of high uncertainty are when institutions have to differentiate. In previous downturns, the actions that companies took made a tenfold difference in share price over a seven- to ten-year period. Likewise, the actions that leaders take today matter, and boards can enable them.

Sean Brown: Are boards well prepared to address a potential new series of negative events? They generally rose to the COVID-19 challenge

Celia Huber: In our global board director surveys, boards say they are very prepared to deal with some challenges close to home, such as employee safety, but they feel unprepared for larger-scale forces. Major crises, macroeconomic shocks, climate change—directors find these challenges ambiguous. But boards have learned over the past two years that their clock speed and ability to make decisions need to increase to match the environment. I don’t know many boards that are just doing quarterly meetings anymore. They have added ad hoc phone and virtual meetings in between regularly scheduled ones.

It was also interesting that board members see opportunities to improve their efficiency and effectiveness during crises. One piece I found surprising is that only 7 percent of the respondents believe that over the past year their board was “most effective” at risk management, but 40 percent said their organizations are currently well prepared for the next large crisis. That still leaves 60 percent of board members feeling unprepared.

Ida Kristensen: And there are ways boards can prepare. For example, we sometimes stage war games around potential crises, and I recently participated in one with a North American company, a joint session for board members and the executive management. It was a ransomware-attack scenario played out over 3.5 hours, and it was more gripping than the latest James Bond movie, a really high-intensity situation. At the end, the CEO turned to the chair of the board and said, “If this had been real, I would now resign from the company.” When you do these exercises and play through the decisions you would have to make, it brings them to life and that gives you some muscle memory.

Sean Brown: Given those mixed economic signals, what are some ways, aside from war games, that boards and management teams can plan for different eventualities?

Ida Kristensen: Financial and geopolitical volatility will likely be with us for a long time; it may be the new normal. So, one thing we advise clients is to not rely on forecasts. The only thing you know about your forecast is that it will be wrong. You need to think about scenarios and interdependencies and plan for what you would do in those situations.

Many board members have experienced more economic cycles than the current management, so they can ask: How do we create a new playbook that builds on everything we have learned from the past? Secondly, boards can help ensure that the focus is not just on short-term protection of the business. There is a higher premium on short-term earnings and profitability given the rising interest rates, but this recession may be shallower and shorter than past downturns, which means that planning an exit from the slowdown should start now. Board members should make sure that management is focused on both defense and offense. What measures should we take to protect the firm in the short term? What opportunities can we find to improve our business portfolio?

Finally, talent is an important topic. Amidst talent shortages, some of our clients are considering not filling open positions, but our advice is to not cut to the bone. Manage your talent, because you will need all of them soon.

Asutosh Padhi: The decisions that boards now support and influence will have an impact on their companies for the next three, ten, 20 years. This is a moment to simultaneously focus on both growth and productivity. Productivity alone can help get you through, but on the other side of the business cycle you may lose strategic distance.

Secondly, most management teams and boards have a view on the businesses they want to be in today and in the future, and we think this is a time to accelerate both divestitures and acquisitions. The third element boards should pay attention to is strategic optionality, which comes from the health of the balance sheet. What is our fixed-cost position? How can we strengthen and deepen our talent bench?

Sean Brown: What is the board’s role in developing this new playbook?

Celia Huber: It is not unusual for companies to have an M&A playbook, and the management team has approval to move forward within that playbook, but boards understand that may adjust given the context. We are talking about something analogous [on broader strategy]. The board doesn’t need to be in the details but to understand the playbook’s framing and underlying assumptions. If these were to change due to the macroeconomic environment, that would change the management’s playbook as well.

Ida Kristensen: A board member can say, “Help us understand the playbook we are deploying. What are the key insights we are relying on? What scenarios could require us to mobilize quickly, what would be the board’s role, and how are you preparing us for that? What is our balance between defensive and offensive moves?” There will be some telltale signs if the company is retracting too much to short-term management of expenses and not sufficiently looking ahead.

Talent is another topic board members should probe. “In an increasingly competitive talent market, how are we differentiating ourselves? What is our value proposition, and what are indicators telling us about our ability to attract and retain talent?” Board members should also ensure a cyber playbook exists, because a cyber crisis plays out quite differently from most other crises.

Sean Brown: Are boards changing their approach to managing cyberrisk, maybe appointing a dedicated director or establishing new reporting structures?

Ida Kristensen: Some boards are making sure that at least a couple of directors have the right technical experience. We are also seeing boards, both in regulated industries like banking and nonregulated industries, say, “This is now such a critical threat to the company that we as a board need to understand and prepare for it.” Gone are the days when the chief information security office would tell the board, “We have a 99 percent patching rate, we’ve got it under control.” We are seeing a much more honest and substantive conversation about the threat landscape. What do we know about who is coming into our systems? What are they looking at? What are our greatest vulnerabilities and how are we addressing them?

Sean Brown: The word “resilience” is used a lot these days. What does it mean to be resilient in the current environment?

Ida Kristensen: Fundamentally, it is the ability to pivot when a disruption strikes, both by preparing the company for what is happening now and strengthening it for what’s ahead. We see three elements to that: foresight, response, and adaptation. Everything begins with information. Do we understand the likelihood of different things happening, their complexities and interdependencies, and the implications for our company? Tactically, it means looking not at forecasts but scenarios, with stress testing, early-warning systems, and some clear management decision processes around what you would do if X, Y, or Z were to happen. Take the supply chain: What kind of disruption would trigger the need for a decision, and are you clear on what that decision would be?

Response is all about the near to medium term. What levers are we pulling in response? That can be expense management, pricing changes, or operational adjustments, as we saw during the pandemic, where brick and mortar stores had to change their processes. Then adaptation might require more long-term changes to diversify your suppliers so you are less vulnerable to any one disruption. It could mean building up the resilience muscles within the company, institutionalizing war games and tabletop exercises, and preparing longer-term playbooks in response to more systemic changes.

Asutosh Padhi: The questions board members should consider are, one, what is the speed of the response? During the pandemic, we saw companies that used to launch products in four to five years doing that in three to six months. Number two is the effectiveness of the response. What results from these actions? And what is an enduring aspect of the response? What are we learning that is not just an in-the-moment exercise but can change how we run the institution? An example is board and management interactions: long presentations versus much more bite-sized, problem-solving topics. How does the CEO communicate with customers and with employees? You want to use this as a moment to accelerate.

Ida Kristensen: It reminds me of something JPMorgan Chase chair and CEO Jamie Dimon shared in the CEO Excellence book. During the 2008 financial crisis, he thought talking theoretically about what was happening at board meetings wasn’t the best use of his time. Instead, he pulled the board members out to the trading floor so they could see in real time. During crises, the board plays a different role around foresight, response, and adaptation. Rather than debating the response, it is probably more helpful to tell management, “Go run with it and tell us what you need.” But the board can play an important role in ensuring the organization learns from the crisis.

Sean Brown: What is the board’s role on each of those three aspects of resilience—foresight, response, and adaptation?

Celia Huber: On foresight, the board’s role is thinking about the main areas of uncertainty. Many boards I work with use scenario planning as a tool to understand the main drivers of uncertainty and the early-warning indicators that you are heading into that scenario. On response, the board’s role depends on the specifics of the crisis, and whether it is a moment to be seized. Most companies that came out of the 2008 recession in a strong position had used that downturn to make bold strategic moves. So, boards can ask, what are those moves for our company and what strategic decisions need to be made or business model changes implemented? For example, in the industry I work in, which is healthcare, one of the necessary business model changes recently was more digital delivery, particularly of primary care, and that had to happen almost overnight. As for the adaptation questions, how can we expand those capabilities? Can we take that virtual health offering and turn it into something bigger and bolder?

Ida Kristensen: Fundamentally, the board members can think about the balance between defensive versus offensive responses to crisis, short-term versus long-term trade-offs, and appropriately challenging management. Once you understand the main areas of uncertainty, ask management how they can help you prepare for the moment when you get into one of the scenarios when you have to make quick decisions.

Asutosh Padhi: I start with the notion of one team. I see the CEO and the management team as the player-coaches and the board as non-playing coaches. For this team to win, collaboration and faster two-way information exchange need to be in place, and joint problem solving as opposed to 100-page presentations. When I work with institutions, we recognize that there are three to five big questions that will determine the future of the institution, so what are those questions and are you spending enough time on them?

Sean Brown: What aspects of resilience should boards pay the most attention to?

Ida Kristensen: When we talk about resilience, people often focus immediately on financial resilience. How strong is our balance sheet? What are our pricing levers? What can we hedge? There’s no doubt that financial resilience is important, but we think other elements of resilience are also critical. Thinking systematically around six dimensions can help ensure that the company is prepared for whatever might happen. Aside from financial, there is operational resilience, which covers the inner workings of supply chains and production channels and how diversified or concentrated they are, how subject to disruption. Technology comes back to our cyberrisk discussion as well as other potential technology disruptions. How are we prepared and what backup systems are in place? How quickly can we get up and running again?

Resilience in brand, reputation, and ESG [environmental, social, and governance considerations] is about how you manage both internal and external stakeholders, and how you think about your societal commitments. On business model and innovation, resilience is about how quickly you can pivot. Asutosh talked about making production times shorter but what are the areas where it is critical to innovate quickly? Finally, organizational resilience is both the leadership—the board’s and the management team’s ability to decide and act quickly—and ensuring the talent value proposition.

Sean Brown: Which of those do you find boards and management teams are most focused on—or should focus on most?

Asutosh Padhi: I think talent is a top-three topic for boards and CEOs now, especially around leadership development and how to strengthen the leadership bench.

Celia Huber: It depends on the industry, but brand, reputation, and ESG are big topics in healthcare. The conversation about health equity became important even prior to the pandemic, with boards worrying about access and quality of care for underserved communities. Even if you are a privately held, for-profit healthcare business, you still need to think about, what is your customer base? What do those stakeholders need, and how are you creating the ecosystem to serve them?

Sean Brown: Is this increased need for strategic and operational resilience changing the structure of boards, such as more independent directors?

Celia Huber: Board seats change slowly, so we haven’t seen a huge uptick in the number of independent directors. I do think shareholders, and particularly institutional investors, are looking more closely at the backgrounds of independent directors and whether those directors are on too many boards. We are seeing more time on the agenda for the chief risk officer and outside experts in different risks. Board members are also demanding more time on the agenda for discussion after the presentations. Boards are using executive committees more as well, be they on supply chains and operations or technology.

Sean Brown: One aspect of resilience we haven’t talked about is climate change. How are boards ensuring that executive teams manage environmental risks, especially around catastrophic events like floods?

Asutosh Padhi: That falls into the bucket of operational resilience. For example, with industrial companies, supply chain resilience first became a board-level topic during the pandemic. I liken it to having been to the emergency room and now it’s time to go to the gym—to reimagine what the supply chains should look like in the future.

Sean Brown: What aspect of the evolution in the board’s role are you most excited about?

Celia Huber: I’m most excited about the board becoming a catalyst, bringing those independent, outside viewpoints to raise the ambition of the management.

Ida Kristensen: I would say the long-term perspective and the commitment to long-term strategy and innovation, making sure that course is clear and maintained even in the stormiest of weathers.

Asutosh Padhi: I think there is no better time to be a board member. This is a time when the actions you take will matter more than what you did five years ago and even in aggregate. Resilience is a new muscle for everyone and how boards and management teams work together to build that muscle is going to be extremely important.

Generative artificial intelligence (AI) describes algorithms (such as ChatGPT) that can be used to create new content, including audio, code, images, text, simulations, and videos. Recent breakthroughs in the field have the potential to drastically change the way we approach content creation.

Generative AI systems fall under the broad category of machine learning, and here’s how one such system—ChatGPT—describes what it can do:

Ready to take your creativity to the next level? Look no further than generative AI! This nifty form of machine learning allows computers to generate all sorts of new and exciting content, from music and art to entire virtual worlds. And it’s not just for fun—generative AI has plenty of practical uses too, like creating new product designs and optimizing business processes. So why wait? Unleash the power of generative AI and see what amazing creations you can come up with!

Did anything in that paragraph seem off to you? Maybe not. The grammar is perfect, the tone works, and the narrative flows.

What are ChatGPT and DALL-E?

That’s why ChatGPT—the GPT stands for generative pretrained transformer—is receiving so much attention right now. It’s a free chatbot that can generate an answer to almost any question it’s asked. Developed by OpenAI, and released for testing to the general public in November 2022, it’s already considered the best AI chatbot ever. And it’s popular too: over a million people signed up to use it in just five days. Starry-eyed fans posted examples of the chatbot producing computer code, college-level essays, poems, and even halfway-decent jokes. Others, among the wide range of people who earn their living by creating content, from advertising copywriters to tenured professors, are quaking in their boots.

While many have reacted to ChatGPT (and AI and machine learning more broadly) with fear, machine learning clearly has the potential for good. In the years since its wide deployment, machine learning has demonstrated impact in a number of industries, accomplishing things like medical imaging analysis and high-resolution weather forecasts. A 2022 McKinsey survey shows that AI adoption has more than doubled over the past five years, and investment in AI is increasing apace. It’s clear that generative AI tools like ChatGPT and DALL-E (a tool for AI-generated art) have the potential to change how a range of jobs are performed. The full scope of that impact, though, is still unknown—as are the risks. But there are some questions we can answer—like how generative AI models are built, what kinds of problems they are best suited to solve, and how they fit into the broader category of machine learning. Read on to get the download.

What’s the difference between machine learning and artificial intelligence?

Artificial intelligence is pretty much just what it sounds like—the practice of getting machines to mimic human intelligence to perform tasks. You’ve probably interacted with AI even if you don’t realize it—voice assistants like Siri and Alexa are founded on AI technology, as are customer service chatbots that pop up to help you navigate websites.

Machine learning is a type of artificial intelligence. Through machine learning, practitioners develop artificial intelligence through models that can “learn” from data patterns without human direction. The unmanageably huge volume and complexity of data (unmanageable by humans, anyway) that is now being generated has increased the potential of machine learning, as well as the need for it.

What are the main types of machine learning models?

Machine learning is founded on a number of building blocks, starting with classical statistical techniques developed between the 18th and 20th centuries for small data sets. In the 1930s and 1940s, the pioneers of computing—including theoretical mathematician Alan Turing—began working on the basic techniques for machine learning. But these techniques were limited to laboratories until the late 1970s, when scientists first developed computers powerful enough to mount them.

Until recently, machine learning was largely limited to predictive models, used to observe and classify patterns in content. For example, a classic machine learning problem is to start with an image or several images of, say, adorable cats. The program would then identify patterns among the images, and then scrutinize random images for ones that would match the adorable cat pattern. Generative AI was a breakthrough. Rather than simply perceive and classify a photo of a cat, machine learning is now able to create an image or text description of a cat on demand.

How do text-based machine learning models work? How are they trained?

ChatGPT may be getting all the headlines now, but it’s not the first text-based machine learning model to make a splash. OpenAI’s GPT-3 and Google’s BERT both launched in recent years to some fanfare. But before ChatGPT, which by most accounts works pretty well most of the time (though it’s still being evaluated), AI chatbots didn’t always get the best reviews. GPT-3 is “by turns super impressive and super disappointing,” said New York Times tech reporter Cade Metz in a video where he and food writer Priya Krishna asked GPT-3 to write recipes for a (rather disastrous) Thanksgiving dinner.

The first machine learning models to work with text were trained by humans to classify various inputs according to labels set by researchers. One example would be a model trained to label social media posts as either positive or negative. This type of training is known as supervised learning because a human is in charge of “teaching” the model what to do.

The next generation of text-based machine learning models rely on what’s known as self-supervised learning. This type of training involves feeding a model a massive amount of text so it becomes able to generate predictions. For example, some models can predict, based on a few words, how a sentence will end. With the right amount of sample text—say, a broad swath of the internet—these text models become quite accurate. We’re seeing just how accurate with the success of tools like ChatGPT.

What does it take to build a generative AI model?

Building a generative AI model has for the most part been a major undertaking, to the extent that only a few well-resourced tech heavyweights have made an attempt. OpenAI, the company behind ChatGPT, former GPT models, and DALL-E, has billions in funding from boldface-name donors. DeepMind is a subsidiary of Alphabet, the parent company of Google, and Meta has released its Make-A-Video product based on generative AI. These companies employ some of the world’s best computer scientists and engineers.

But it’s not just talent. When you’re asking a model to train using nearly the entire internet, it’s going to cost you. OpenAI hasn’t released exact costs, but estimates indicate that GPT-3 was trained on around 45 terabytes of text data—that’s about one million feet of bookshelf space, or a quarter of the entire Library of Congress—at an estimated cost of several million dollars. These aren’t resources your garden-variety start-up can access.

What kinds of output can a generative AI model produce?

As you may have noticed above, outputs from generative AI models can be indistinguishable from human-generated content, or they can seem a little uncanny. The results depend on the quality of the model—as we’ve seen, ChatGPT’s outputs so far appear superior to those of its predecessors—and the match between the model and the use case, or input.

ChatGPT can produce what one commentator called a “solid A-” essay comparing theories of nationalism from Benedict Anderson and Ernest Gellner—in ten seconds. It also produced an already famous passage describing how to remove a peanut butter sandwich from a VCR in the style of the King James Bible. AI-generated art models like DALL-E (its name a mash-up of the surrealist artist Salvador Dalí and the lovable Pixar robot WALL-E) can create strange, beautiful images on demand, like a Raphael painting of a Madonna and child, eating pizza. Other generative AI models can produce code, video, audio, or business simulations.

But the outputs aren’t always accurate—or appropriate. When Priya Krishna asked DALL-E 2 to come up with an image for Thanksgiving dinner, it produced a scene where the turkey was garnished with whole limes, set next to a bowl of what appeared to be guacamole. For its part, ChatGPT seems to have trouble counting, or solving basic algebra problems—or, indeed, overcoming the sexist and racist bias that lurks in the undercurrents of the internet and society more broadly.

Generative AI outputs are carefully calibrated combinations of the data used to train the algorithms. Because the amount of data used to train these algorithms is so incredibly massive—as noted, GPT-3 was trained on 45 terabytes of text data—the models can appear to be “creative” when producing outputs. What’s more, the models usually have random elements, which means they can produce a variety of outputs from one input request—making them seem even more lifelike.

What kinds of problems can a generative AI model solve?

You’ve probably seen that generative AI tools (toys?) like ChatGPT can generate endless hours of entertainment. The opportunity is clear for businesses as well. Generative AI tools can produce a wide variety of credible writing in seconds, then respond to criticism to make the writing more fit for purpose. This has implications for a wide variety of industries, from IT and software organizations that can benefit from the instantaneous, largely correct code generated by AI models to organizations in need of marketing copy. In short, any organization that needs to produce clear written materials potentially stands to benefit. Organizations can also use generative AI to create more technical materials, such as higher-resolution versions of medical images. And with the time and resources saved here, organizations can pursue new business opportunities and the chance to create more value.

We’ve seen that developing a generative AI model is so resource intensive that it is out of the question for all but the biggest and best-resourced companies. Companies looking to put generative AI to work have the option to either use generative AI out of the box, or fine-tune them to perform a specific task. If you need to prepare slides according to a specific style, for example, you could ask the model to “learn” how headlines are normally written based on the data in the slides, then feed it slide data and ask it to write appropriate headlines.

What are the limitations of AI models? How can these potentially be overcome?

Since they are so new, we have yet to see the long-tail effect of generative AI models. This means there are some inherent risks involved in using them—some known and some unknown.

The outputs generative AI models produce may often sound extremely convincing. This is by design. But sometimes the information they generate is just plain wrong. Worse, sometimes it’s biased (because it’s built on the gender, racial, and myriad other biases of the internet and society more generally) and can be manipulated to enable unethical or criminal activity. For example, ChatGPT won’t give you instructions on how to hotwire a car, but if you say you need to hotwire a car to save a baby, the algorithm is happy to comply. Organizations that rely on generative AI models should reckon with reputational and legal risks involved in unintentionally publishing biased, offensive, or copyrighted content.

These risks can be mitigated, however, in a few ways. For one, it’s crucial to carefully select the initial data used to train these models to avoid including toxic or biased content. Next, rather than employing an off-the-shelf generative AI model, organizations could consider using smaller, specialized models. Organizations with more resources could also customize a general model based on their own data to fit their needs and minimize biases. Organizations should also keep a human in the loop (that is, to make sure a real human checks the output of a generative AI model before it is published or used) and avoid using generative AI models for critical decisions, such as those involving significant resources or human welfare.

It can’t be emphasized enough that this is a new field. The landscape of risks and opportunities is likely to change rapidly in coming weeks, months, and years. New use cases are being tested monthly, and new models are likely to be developed in the coming years. As generative AI becomes increasingly, and seamlessly, incorporated into business, society, and our personal lives, we can also expect a new regulatory climate to take shape. As organizations begin experimenting—and creating value—with these tools, leaders will do well to keep a finger on the pulse of regulation and risk.

The Institute of Directors defines the role of the board as being “to ensure the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders.” With such responsibility, it is essential that the board works to its full potential. This certainly includes knowing how to improve board effectiveness.

Worryingly, PwC found that only 10% of C-suite executives rated their boards as ‘excellent’ in terms of their effectiveness. The majority – 55% – said that their board’s performance was merely ‘fair’.

This article describes the steps required to improve board effectiveness and provides a checklist to help you assess how effective your board is.

What is board effectiveness?

Board effectiveness relates to the performance of the directors individually and collectively relating to their roles and responsibilities.

Once, stakeholders might only have been concerned with the profitability of the business, and that would have been the most important measure of board effectiveness. However, non-financial metrics are now similarly important, especially given the rise of investing decisions surrounding environmental, social and corporate governance (ESG) matters.

You can measure the effectiveness of a corporate board by monitoring its performance against those factors that matter most to the business and stakeholders.

7 steps to improve board effectiveness

Your board performing to the best of its ability is essential to the success of your organisation. These steps will help you increase the effectiveness of the board and help them lead the business towards its goals.

1. Clearly define roles and responsibilities

Your succession policy should allow you to select and prepare candidates who can fill the skill gaps on the board and ensure that the whole delivers more value than the sum of its parts. To facilitate this, create job descriptions for each board member, where you explicitly state what you expect of the director from their work with the board.

Following robust recruiting and succession processes, each director will have their own particular strengths and skills that they bring to the boardroom. This should be reflected in their clear, defined role on the board.

In addition to their duties, every member of the board must understand their key performance indicators (KPIs) and how they tally up with helping the business work toward its strategic goals and mission. For this reason, they should gain focus on what they need to achieve from their board work to contribute effectively to the governance of the organisation.

Directors can face legal sanctions for failing in their duties to the business and its customers. So, make certain that all board members understand the lines of accountability within the board environment. Having this framework in mind helps to make your workflows run more smoothly.

2. Examine board structure

Getting the structure of the board correct is a difficult balancing act, but it is essential for board effectiveness. There is no ideal board size that suits every company because it depends on your specific circumstances.

Think about the roles that you have defined. If there is too much overlap, your board might be too big. If you still have gaps or you require directors to work outside of their core skillset, you might need to recruit more board members.

You should also assess the committees that you have in place. Are they all serving a purpose and working efficiently and effectively?

Once again, look for overlaps and gaps. Just because you have always had certain committees, it doesn’t mean you should keep them if they are serving no purpose in driving the business toward its targets.

3. Revise formal operating procedures

Another example of improving effectiveness by not being afraid to challenge traditions comes in the formal operating procedures of your board. You may well have run your meetings in a certain way for decades, but if it is not the most effective way possible, you should make a change.

Some of the procedures you can improve include:

4. Keep track of decisions and actions

There should be a frictionless procedure that translates decisions made into actions carried out afterwards. Sometimes this is not the case, and there is a disjointed approach.

Ensure that the chair communicates the action points that arise from decisions on key issues and that the directors responsible for those actions understand their obligations.

One way to achieve this is to track decisions and actions within your board portal. This acts as a clear guide to all board members, outlining the steps they need to take and by when they need to take them. It ensures everyone knows their responsibilities and can be held accountable for completing their tasks within the deadline. This means that the board takes effective action to bring its decisions to life and carry out its duties.

5. Evaluate board composition

There are a number of different considerations to make with regard to board composition. You need a balance of skills, experience, outlooks and attitudes. In addition, gaining better board diversity in terms of gender, race and other considerations helps you to avoid groupthink that fails to fulfil the potential of the business.

The better the balance, the more your board members can challenge each other knowledgeably. They can offer innovative solutions, making for a better-informed debate and stronger decision-making.

Use board evaluations to identify gaps in the board of directors and look to fill them with the help of your succession planning process.

6. Understand board culture

The culture of the board has a bearing on its effectiveness. Are the meetings too formal or too informal? This is an element of board culture that could determine how effective those meetings are.

In addition, a culture of development shows a board is willing to commit to change and adapt to new ways of working if they will benefit the organisation. If this is not the prevalent culture, it will rarely be able to be as effective as possible.

During a meeting, the chair has a key role in setting the board culture. If they allow the big characters in the room to dominate, it will skew the debates that happen within the board. By bringing in quieter board members and balancing the discussion, board chairs can shift the culture and gain the benefit of additional viewpoints.

7. Engage board members

The chair or CEO can improve the effectiveness of the board by making efforts to engage board members. This could include reaching out between meetings to develop personal connections, organising informal meet-ups to encourage team building, making time to celebrate wins and other such exercises.

These activities develop a connection between the board members, encouraging them to give more of themselves to their work on the board and increasing the effectiveness of the board at the same time.

Checklist to assess board effectiveness

Useful questions to ask consider when assessing board effectiveness include:

Does the board have an appropriate environment and a diverse mix of skills, experience and independence?
Does the organisational design support and/or enable strategic decision-making?
Do board members understand their roles and responsibilities?
Are individual directors formally evaluated in terms of their performance?
Does the chair create an open and inclusive environment at meetings where all are encouraged to contribute?
Is the chair’s performance appraised by their directors?
Are management boards clear on their roles and responsibilities?
Does the board have clear and timely access to information to assess both the performance of the business and its management of strategic risks?
Are board papers distributed in a timely manner?
Do directors engage with the reports, agendas and other documents they receive?
What percentage of actions are completed on time?
Does the board provide a plan for its succession?
Are diversity and training considered in succession planning?

FAQs

How do you structure board meetings?

Board meetings should have a clear agenda to allow directors the opportunity to prepare thoroughly for the meeting. This will include the approval of the minutes, reports from officers and committees, special orders, unfinished business from previous meetings, new business and announcements.

What is considered effective governance?

A board shows effectiveness by creating and developing policies it believes are in the best interests of the company and its key stakeholders. Effective governance helps the board reach its strategic goals and face future challenges with confidence.

What is the biggest challenge to board effectiveness?

A disengaged board can be detrimental to the effectiveness of its work. Board members need to give their full attention to their role, including preparing for and following up after meetings. Without full commitment, board performance is affected, meetings are not as productive as they could be, and the board could fail to execute its decisions.

Conclusion

When you look at how to improve board effectiveness, engagement is one of the key drivers. When board members feel engaged with their work and they know their roles and expectations clearly, they can dedicate their time most efficiently. Communication helps achieve that, and a board portal is an effective way to facilitate it.

Source: ibabs.com

Organizations of all types from small nonprofits to mega corporations are governed by a board of directors that appoints the agency head. Serving on a board of directors requires strong leadership, commitment to the mission of the organization and impeccable credentials.

Board of director responsibilities may include fiscal oversight, fundraising, strategic planning and personnel actions. Those who meet board member qualifications may find the experience challenging, but deeply rewarding.

Board of Directors Responsibilities

Individuals appointed to a board of directors meet regularly to review budgets, operations, strategic plans and personnel matters. Advice and guidance is given to the organization’s management team. Board members may take the lead in fundraising activities for nonprofit organizations and may have been selected for their ties to community resources.

Many board members are chosen at the late stage of their careers and bring decades of experience and business acumen, according to Forbes. Others are younger and ambitious with forward thinking ideas that can grow the organization. Honesty, integrity, independent decision-making and objectivity are personal qualities that Forbes considers necessary for board members to possess in order to properly fulfill their responsibilities.

Serving on a board of directors is a major commitment that should not be undertaken lightly. In fact, bank board director Charles J. Thayer writing in Directors & Boards suggests that the potential risks of serving on a community bank board of directors can outweigh the rewards. Bank board of directors qualifications include understanding of banking laws because directors are expected to know and follow 800 rules of the American Association of Bank Directors to avoid the perception or reality of financial mismanagement.

Board Member Qualifications and Disqualifications

Board member qualifications include basic eligibility criteria that must be met for further consideration. Those who do not meet basic requirements are eliminated early in the selection process. Directors must be carefully vetted to ensure they have the ethics and integrity to serve in this capacity. Qualifications for serving on the board are typically outlined in the organization’s bylaws and vary from one organization to the next.

For example, FindHOALaw, a resource for homeowner associations (HOAs), suggests that an HOA board member should minimally be a member in good standing who is committed to regularly attending board meetings. Disqualifiers would include anyone with a felony conviction, or applicants or nominees who have a conflict of interest that affects eligibility, such as being related to a sitting board member. Being embroiled in a lawsuit against the HOA would also be grounds for disqualification.

Typical Board Member Qualifications

Required qualifications align with the type of board member skills needed to effectively lead the organization. Qualifications for a seat on a corporate board look different from those required to serve on a local animal rescue nonprofit organization, for example, but universally shared qualities include a commitment to duty of care and loyalty to the mission, vision and purpose of the organization.

Large companies often require in-depth knowledge of the industry to make competent decisions as a board member. For example, Colgate-Palmolive requires its directors to have held a position as CEO of a large corporation or comparable leadership, experience in information technology, or regulatory and public service. Possessing a master’s degree or a doctorate is also considered helpful.

Commitment to Diversity

Board member qualifications typically include commitment to diversity. Members of a board of directors from diverse backgrounds offer unique perspectives and ideas for reaching underserved populations and untapped markets. According to the National Association of Corporate Directors, commitment to diversity and inclusion is essential to innovation and an organization’s long-term viability and expansion.

The Council of Nonprofits suggests that charitable and philanthropic organizations should be doing more to increase diversity on the boards. Instead of limiting qualifications to CEOs who may be predominantly white males, board membership could be open to millennials, for example. Asking for nominations from communities served by the organization may also result in a more diverse pool of qualified director applicants.

From pandemic recovery to economic, political and social changes and activist investors, boards of directors are widening their duties and problem-solving as they address how to navigate obstacles and opportunities for the future. Staying aware of these trends is crucial. Here are four key areas boards need to consider this year.

Surges in Activism

2022 had the highest record for activism activity in history. Activists investors’ agenda was to take advantage of low stock prices and stressed financial forecasts of struggling companies. Their focus was on company strategy and operational performance, when in past years the focus was more on M&A and capital allocations. This noted, the jump in activity produced higher success for activists. 2022 showed a 200% increase in adoption of shareholder rights plan from 2021. Preparing and defending against activism has boards busy with updating their bylaws with amendments regarding voting and decision-making abilities.

Expanded Focus on Risk Management

Areas for coverage in risk management are broadening. To address this, some boards are separating Audit and Risk Committees into separate committees. Others are revising their committee charters to include the new duties and systems to monitor critical functions, safety issues, oversight of the strategies and policies and practices adopted to address risks. These new areas include cybersecurity, cryptocurrency, ESG, climate, new laws permitting officer exculpation from personal liability for monetary damages expands the committee work. This requires new areas expertise on boards, and the SEC has proposed new rules regarding cyber expertise on boards.

Continued Focus on Board Diversity

Investor expectations for board diversity includes firm investor voting policies and proxy advisory guidelines. The influence from such groups as Blackrock, Vanguard, Fidelity International and ISS has impacted practices. For example, ISS recommends against the Nom and Gov committee and other directors at a company that has no women on the board. The disclosure rules regarding diversity are underway. Nasdaq-listed companies must provide annual public disclosures of diversity statistics with a board diversity matrix to comply or disclose their explanation as to why they do not meet the objectives.

The Relationship Between the Board and Management

With the expansion of responsibilities, the board and executive leadership are dealing with new pressures. Directors must get more involved in understanding of company operations, challenges and fiduciary expectations. Directors and executives are now encouraged to come together to define their respective roles and responsibilities and authority to ensure the check and balance between governance and management and to uphold a healthy collaborative partnership. Based on our research in 34 countries, the most highly correlated factor for a high performing board is the functionality of the group dynamics.

Written by Theresa Sintetos

Whether they have years of board experience or whether it’s their first board director position, all board members benefit from governance training. Board directors have many important responsibilities. Their work is never done.

Organizations that train and educate their board directors make an important investment in their leadership and that has a direct bearing on the organization. Continual training in governance makes average and good boards great.

The right tools assist boards in bringing their knowledge and expertise into the boardroom.

Why Board Members Need Governance Training

Current and new board directors all bring valuable skills to the organization they lead. Both groups have much to learn from each other. No matter how long someone has been serving on the same or different boards, there are always new things to learn, new challenges to address, and new problems to solve.

Serving on a board is not all work, though. Board directors work very closely together. They share a special sense of friendship and camaraderie. Advanced training brings all board directors current on governance issues which keeps them all on the same page. Governance education promotes candor and straight-talking on tough issues without causing harmful discord on the board.

Boards have much to accomplish in the space of a board meeting. As a result, they have precious little time to get to know each other during board meetings. External activities, such as spending time at governance seminars, workshops, and conventions provide valuable opportunities for boards to connect and form stronger relationships outside the board. The connections they form will help them to think and act as one when they’re faced with challenging times.

Sitting Board Directors Play a Role in Mentoring the Incoming Board

Long-term, seasoned board directors have much to contribute to the rest of the board. Experienced board directors have learned much about governance from past boards where they’ve served, as well as their experience on the current board.

Veteran board members offer much value in mentoring newer board members and helping with succession planning. Every time there is changeover on a board, it becomes a new board that’s different from the old one. New boards will soon form their own dynamics. Building bonds and earning trust takes time and it’s important for boards to put in the time to make it happen.

Newer Board Directors Have Room to Grow in Governance

Newer board members may lack governance experience, but if they were recruited well, they’ll bring other valuable skills to the board. When new board members combine their existing knowledge with the basics of good governance, they have much to contribute to the board.

Inexperienced board directors are often motivated to join a board because it gives them experience and enhances their resume. Once they join a board, it quickly becomes apparent how much work it is, and how little they know about governance. By putting in the time to learn more about governance, less experienced board directors can participate more robustly and intelligently in board discussions and become better contributors to the board.

Board dynamics are an important part of a board’s work. Existing board directors are bound to notice newer board directors that put the time and effort in to learn more about governance. That’s a good first step toward gaining the respect and admiration of the other board directors. Getting governance education demonstrates that new board directors value the organization that invested in them. That goes very far with the rest of the board.

Good Governance Benefits Your Community

Your organization plays a vital role within your community and it deserves the best of skills, perspective, and leadership that the board has to offer. A responsible board quickly gains the respect of the business leaders and people living in the community. Continued governance training shows that the board values governance education and takes their duties seriously. That’s important because those are the people that will become volunteers and donors to help sustain your organization.

Moreover, as boards grow and learn together, it’s easier for them to put personal and political agendas aside and put the needs of the organization first.

Responsible Boards Are Current on Governance Issues

All board directors should be familiar with the term fiduciary duties. When a board director accepts a seat on a board, they automatically accept the duty of care, duty of obedience, and duty of loyalty. These duties are important because board directors also accept legal liability for the decisions they make. If a board decision is ever in question, courts will apply fiduciary duties as the standard against the board’s decisions and actions. Knowledge about governance issues helps boards to make informed, wise decisions collectively, and it demonstrates they acted on an informed basis.

Something board directors should always be cognizant of is that a crisis can happen within an organization at any time, even if things have gone smoothly for decades. A board that knows governance issues well is better equipped to handle anything that comes their way, no matter how difficult it is.

The business environment is continually changing. Regulations and compliance issues are evolving. Continuing education in governance ensures that boards know what their legal responsibilities are and have the knowledge base to fulfill them.

Something many boards fail to recognize is that their responsibilities are important not only for the current time but also for the future. Effective boards are forward-thinking. The idea of “future-proofing” the organization should be evident in strategic planning and fundraising efforts. It’s a good strategy to map the board’s current skills against the skills the board will need over the next three-to-five years. Gaps in needed skills are instrumental in helping with board recruitment efforts.

Overall, there are hundreds of good reasons for boards to invest in governance training and there are no good reasons for not doing it.

BoardEffect board software is a valuable tool to help boards get organized and document their efforts as they pursue board development.

Boards are expected to conduct annual self-evaluations which are essential for developing a strong board. BoardEffect software makes the process of self-evaluations easy and efficient. The portal offers many other governance tools and features to help boards stay at the top of their game.

Open Banking refers to banks and other financial institutions opening up data for regulated providers to access, use, and share. Ensuring security for a data-sharing project such as open banking is paramount, and banks are effectively putting in place the infrastructure for their customers’ data to be shared more securely with third parties, with customer permission. That data sharing takes place only with customer authorization is important. Open banking wasn’t designed to allow banks to sell their customers’ data more easily.

The intention is quite the opposite — open banking was conceived to improve financial services for customers by opening up access to data that has historically been kept in-house; new companies and new products can enter the market and use this data in helpful, innovative ways.

So what does it all mean?

For financial service providers — At the top of the chain, open banking will allow financial service providers to significantly innovate their product offerings to businesses.
For businesses (large and small) — Those innovations made by financial service providers will mean more effective and efficient financial tools in your business — notably payments. This will mean more automation, freeing up more time, doing away with the headaches of manual tasks, and ultimately saving you money.
For customers — Open banking will mean better ways to spend, borrow, and invest.

Why is it important/relevant?

The promotion of Open Banking holds the promise of bringing about innovation in the banking industry. Fintechs typically take up positions that traditional banks cannot fill. Ensuring a good open banking system will mean greater efficiencies leading to better services and, ultimately, better customer experiences. The banks and the fintech create a network of data sharing, which could be used to create more robust customer profiles, and information, understand spending habits, and aid in better risk modeling, which in turn will help reduce risk, particularly for institutions providing credit facilities.

In addition, open banking will necessitate new technology to bolster existing banking systems and will, in turn, provide efficiencies and profits that will exceed the investment required for these technologies. It’s a WIN-WIN situation.

What Was the situation PRIOR to the regulation?

Open banking, particularly in Nigeria, has been largely unregulated. Fintechs have low regulatory barriers to entry and face hardly any oversight compared to traditional banks (no banking licenses required). As such, the fintech industry in Nigeria has been expanding at a significantly high rate over the past five years. Numerous apps are available for consumers; some have become household names: Quickteller, Paga, Carbon, Piggyvest, etc.

However, as with any industry that sees such rapid expansion, the risks posed and faced by this industry become more apparent. When it comes to Open Banking, two prominent issues need to be addressed.

The first issue is privacy. This refers to the privacy of customers’ banking information that the banks share with third-party financial service providers. By regulations, banks are not allowed to share customers’ banking information without their consent. As such, customers making use of third-party financial services providers are required to agree to the providers’ “Terms of Service,” in which the customer will agree to the provider being granted access to certain information about the customer from the banks. Once the customer agrees to these terms, the banks can then grant the provider access to the information through the API. This part is all fine and well and is standard practice. However, once the provider gains that information, no strong regulatory framework dictates what they can and can’t do with that information.

The second issue is regarding Security: The security of the customers’ information and the security of the banking systems. Due to the lack of a strong regulatory framework for the providers and Fintechs, the requirements for the protection and security of customers’ information is vague at best. While this could be considered an existential threat to the providers, which they would have to address prior to commencing business, there are no guarantees of security, monitoring, or oversight.

Also, with regards to security, the providers and APIs being employed create extra points of vulnerability to the banking system. Of course, customers’ information is at risk, but the customer account information and access to the accounts could also be compromised. In Nigeria, the recently alleged hacking for Flutterwave is a good case in point. It is alleged that hackers got into Flutterwaves systems and were able to move NGN 2.9bn to a number of different accounts. Flutterwave is a payment system provider, not a money deposit bank, so where did the NGN 2.9bn come from? From Flutterwave’s customers’ bank accounts. It is important to note that Flutterwave has publicly denied this alleged hacking, but this highlights what is potentially at risk here.

Why is CBN putting out guidance for it?

The CBN initially put out a circular for the regulatory framework for Open Banking in Nigeria in February 2021. This framework covered some critical issues regarding Data and Service Access Governance, Guiding Principles for API specifications, Risk Management guidelines, Customer Rights, Responsibility, and Redress mechanism.

In furtherance of the released framework, the CBN in March 2023 approved the operational guidelines for Open Banking in Nigeria. While the regulatory framework addressed the overarching issues regarding open banking in Nigeria, the operational guidelines seek to tackle the more granular operational issues faced by third-party financial providers.

In conjunction with the regulatory framework, the operational guidelines should alleviate the risk and security concerns surrounding opening banking in Nigeria.

What does the guidance mean for Nigerian markets?

These guidelines mean that financial institutions and fintech companies will have stricter requirements to adhere to in order to ensure the security of customers’ information and their systems.

However, there are a few points that are important to note.

The level of monitoring and oversight that the CBN will do on fintech companies is not certain. It is expected that it will not be at the level of oversight provided to the traditional banks, but whether it will be effective enough to fully rein in the fintech industry is yet to be seen.

While the CBN guidelines for open banking are directed more toward the fintech, the traditional banks have their roles to play in ensuring a viable open banking environment in Nigeria. Banks need to update their Third-party risk management frameworks and policies to incorporate Open Banking into their risk management considerations.

H. Pierson Advisory Team

Strategic thinking has long been viewed as essential for leaders of organizations. The ability to anticipate and plan for the future, to think critically and creatively about complex problems, and make effective decisions in the face of uncertainty and change, is more necessary now than ever. These capabilities will be dramatically augmented and magnified by artificial intelligence systems such as ChatGPT.

With the ability to process large amounts of data, identify patterns, and make predictions, AI will provide fresh insights and perspectives that were previously unavailable to company executives. This will enable them to make more informed and accurate decisions – and to anticipate and plan for the future more effectively. But it won’t replace the human element in strategic thinking, which remains critical.

Currently, AI can analyze vast data, spot trends, make forecasts, and help leaders identify and mitigate business risks. Soon, it will also simulate different scenarios and provide leaders with various options and recommendations for which path to take. In the near future, I expect to see symbiotic relationships between executives and AI systems, in which they both work together to enhance decision-making, problem-solving, and strategy development.

WHAT CAN CHATGPT DO?

ChatGPT has a plethora of use cases across the board including.

Solving mathematical questions
Producing proof of concepts
Writing long-form content like essays and reports

WHAT CHATGPT DOES NOT DO?

ChatGPT can be a great place to start, but it won’t solve all of your problems.

It cannot think or make decisions independently.
It does not distinguish or understand emotions and may respond inappropriately in certain situations.
ChatGPT cannot understand the entire context of a conversation; it can only generate responses based on the input it receives at any given time.
Even though ChatGPT has been trained on a large amount of data, it is still inaccurate and may occasionally respond with incorrect or illogical responses in certain situations.

BENEFITS OF CHATGPT

Businesses can speed up response times and enhance customer service by using ChatGPT, which can handle a high volume of interactions accurately and quickly. In fact, the more you interact, the more ChatGPT can pick up on your tone and develop into an AI assistant.

ChatGPT can increase productivity by freeing up staff time for more complex and imaginative tasks by automating routine tasks like responding to frequently asked questions and creating a transcript from your most recent presentation.

ChatGPT can handle a high volume of interactions at the same time, making it an ideal tool for small businesses to large corporations.

I WANT TO CREATE MY STRATEGY, SHOULD I USE CHATGPT?

No. This is because:

Chat GPT will find it difficult to develop a thorough understanding of your environment because markets, rivals, suppliers, and a host of other factors have vastly different values and contributions to the success of your company.
An expert must compile, analyze, prioritize, and act on the data discovered during an internal SWOT or PESTLE analysis of your strengths and weaknesses. This is something ChatGPT cannot do.
ChatGPT is unable to develop a corporate, functional, or departmental strategy for your business due to a lack of situational understanding.
It won’t help you think strategically about how to use the information mentioned above to generate a clear path forward.

The goal is to use the tool as a support mechanism that provides leaders with basic-level strategic advisory services. It should be noted that the answers given will not be specific to the person who asked the question, but it can be useful for brainstorming ideas.

H. Pierson Advisory Team

Economic cycles are nothing modern. Business leaders have constantly had to deal with things like unstable job markets, supply chain confinements, and cost changes. Concerns about a potential period of weak economic growth is however justified. The two most important factors are how long it will last and how much damage it will cause.

Although no one can see into a crystal ball, there are some concerning signs that should not be ignored. For Nigerian businesses in 2023 for instance, they will continue to cope with several vulnerabilities including:

A high-cost environment.
Challenges with the retention of talent with the increasing demand for migrant workers in the United Kingdom, Canada, and other developed economies. This is without prejudice to the rising cost of living in the aforementioned countries.
Post-election political risks

It would be short sighted for business leaders to not prepare for some kind of economic slowdown when you consider this along with the frail global forecasts and the pandemic’s ongoing effects.

Despite the doom and gloom, businesses can take practical actions to lessen the effects of economic slowdowns. Instead of worrying about potential future events, this is the ideal time to check that your organization has the necessary systems in place to not only weather storms but to thrive in them. How?

Pay Attention to your Business Relationships

Customer relationships are crucial regardless of the economy’s outlook, but they can become even more crucial during hard times. Understanding how the economy impacts your customers’ businesses is crucial, but it’s also a great chance to figure out how to help them and add even more value.

Partner relationships can also be very important. Strong partnerships can help to stabilize or even increase revenue streams because they share the burden of acquiring new business, even though this may result in slightly smaller overall revenue pie slices.

Diversifying your customer base is essential. When the economy is struggling, it’s crucial to evaluate your customer base and determine whether your business is overly dependent on a small number of significant clients. If that’s the case, think about how you can diversify your customer base and invest in forming new connections. Be cautious when adding new customers because you will want to make sure you can still provide excellent customer service. When every business is vying for a small pool of customer dollars, this differentiation becomes particularly crucial.

Motivate your Talent

Taking care of your team should always be a priority, especially when the economy is weak, as we frequently mention here at H. Pierson. When there is talk of a recession or weak growth, employees are concerned about their own finances and layoffs are a real possibility. It’s not simple to find talented, strong candidates, as we’ve seen over the past few years.

Consider innovative ways to reduce costs without laying off your talent. Rather than making the decision to shrink your team right away, see where else you can cut costs, like overtime or scaling back some nice-to-have, but unnecessary perks? Also, you can offer employees a day off each week in exchange for lower pay? Or can the team collectively agree to a pay cut that ensures everyone keeps their jobs?

Increase your Firm’s Agility

In order to become more agile, your business may need to invest in itself or increase spending in some areas. In a struggling economy, this may seem counterintuitive, but you might discover that enhancing technological or organizational systems results in longer-term resource utilization. As well as allowing for the introduction of new goods and services, it may also permit the diversification of income sources.

Any department in your organization could benefit from agility. You can change how you interact with customers and assist them in discovering new value in the goods and services you provide by using agile marketing. Agile development may entail freeing up unused resources to give your team more time and freedom to think creatively and make the best use of their collective talents. Your human resources department’s agility may take the form of job-sharing arrangements to better utilize strengths and tap into your talent pool or cross-training staff to take on new responsibilities.

We are aware that not all organizations can implement these ideas, and that there are times when difficult choices must be made. Transparency is key in those situations. Be clear about the needs and objectives of the business and try your best to make decisions for your employees with respect and gratitude. Take into account the significance of every position within your company as well as the effects on those left behind when positions are eliminated. Show that you have a plan in place to guarantee a fair and enjoyable working environment, even if the size of the team needs to change.

When times are tough economically, having the right strategy and the insights required for effective strategy execution, is mission-critical. Reach out at strategy@hpierson.com and let us guide you through a free consultation to determine how your company can best develop a plan to remain strategy-protected both now and into the future.

H. Pierson Advisory Team

AUTHOR: JOSHBERSIN

In today’s skills-based economy, people want to learn faster than ever. More than $200 billion is now spent on various forms of workplace training and the volume of content is massive. There are tens of thousands of videos, courses, articles, and tools dedicated to helping people learn. And more and more of it is designed to be “in the flow of work,” so you can learn where you are, when you have time, and when you need the help.In this mad flurry to put more and more content online (YouTube now has 23 million channels and gathers more than 5 billion views per day), we seem to have left something out. The most powerful and memorable learning actually occurs when we talk with other people.

Take a look at the research done on the Ebbinghouse Forgetting Curve, which essentially shows how quickly we forget what we learn. When you study alone, you typically remember 28% of what you learned after two days. When you repeat the material, you remember 46%.

But when you use it, answer questions about it, and interact with others, you remember 69%. The reason? Actually conceptualizing, recalling, and using information is what creates the “memory pathways” that stick in your mind.

Why do you think we have homework assignments and work in groups in school? Why do teachers give lectures and then ask students questions to discuss in a group? It is a well-known fact that collaborative, cohort-based learning is the most valuable, useful, and memorable way to learn.

And we must remember that the “teacher” is always a vital part of the learning process. This person may be a subject-matter expert, a renowned researcher, a lecturer or instructor, or a course facilitator. Through the process of asking questions, providing advice, giving context, and explaining specific examples and solutions, the teacher “brings learning to life” for each individual in their own important way.

Learning Platforms: How This Has Been Lost

The learning technology market is a fast-moving, somewhat fad-driven space. Whenever a new technology is invented, L&D professionals rush to see how it could be used for learning.

As I like to remember, in the early 1980s when the first PC’s came to market, one of the sexiest ideas was to use them for training – so technologists hooked up laser disk players and developed video learning programs that cost hundreds of thousands of dollars to build.

Since then we have “experimented” with social interactions in many forms of learning, and I have to say most of them have been somewhat limited, unimaginative, and more or less “bolted on” to content. In other words, what we’ve been doing is building lots of self-study content which has “some collaborative features,” but mostly focused on comments by learners.

I recently participated in a large online masterclass which I authored through a series of videos. The students loved the content but the interactions were limited because we did not group people into small groups and did not use a platform that truly facilitated group learning. I’m here to help you figure out how to fix this.

(When done well the results can be amazing. Hive Learning, a provider which focuses on designed collaborative learning, has proven through A/B testing a 50% increase in retention through their environment when compared with traditional classroom training. Nomadic Learning, who I discuss below, regularly achieves over 90% completion rate regularly in their cohort-based programs.)

Since building a collaboration platform is expensive, most vendors have lashed together off the shelf tools. The market has essentially evolved as follows, and in many ways, this represents an industry-wide exploration and learning journey we’ve all gone through together.

Learning platform vendors, of course, fall into various traps. They develop a platform that facilitates a certain type of activity (ie. The LXP vendors focus on the discovery of content, not the content experience itself), and then they sell their products as horizontal solutions. We as L&D and HR professionals have to buy these platforms and more or less “stitch them together” to build a total solution.

In particular, if you want to drive change, alignment, innovation, and relationships through your programs (as we do in the Josh Bersin Academy, for example), then you have to design your programs for group activity. And one could argue that this is also true for pure technical skills: coding academies and most technical certificate programs require group projects, design sessions, and “studios” that bring people together in small groups.

I know in my own career these group learning activities have been far more memorable in the long run, but that doesn’t mean “micro-learning” is also important. Group and cohort-based learning often fall into the “macro learning” space, while self-study and reading fall into the “micro-learning space.”

How Platforms Are Changing

As you consider all these issues, let me point out how learning platforms are starting to address this problem, and I’m going to talk primarily about two I know well: 360Learning and Nomadic Learning (the company I’m partnering with for the Josh Bersin Academy). There are many others (Intrepid, NovoEd, Hive Learning), and I will try to compare them briefly at the end of the article.

In the case of 360Learning, the company was founded six years ago by a passionate and brilliant engineer (Nick Hernandez) who realized that the most important learning that takes place is driven by an expert. Over the last decade, he has built an amazing platform that enables any expert in your company to “teach classes online” without the burden of “building complex content” or even hiring an instructional designer.

Underneath all the technology is a simple concept: a human (teacher, facilitator, expert) is at the foundation of great learning. And as 360Learning calls them, they are “learning champions.” (We are all learning champions at different times in our lives.)

In the early 2000s I wrote a lot about this idea, and we called it “SME-authored content.” (We called it “from e-learning to we-learning,” which was a cute idea.)

At that point in time products like Presedia, Breeze, Brainshark, Articulate, and other “Powerpoint to Flash” tools become hot, because they let people take their PowerPoint presentations and quickly turn them into instructional programs. Today many of these products are gone (or evolved), and we need a new system that facilitates this “expert-led” approach that is easy for experts to use.

I won’t get into great detail about how 360Learning does this, but it’s quite an amazing system and the company now has more than 500 large clients and is used by Safran Group (global aircraft engine manufacturer) where hundreds of experts teach others throughout the company.

Every single company needs a platform like this, and in my travels, I have never found a system that focuses so well on letting an expert (L&D or line leader) author content, share it, certify experts, and create an ongoing collaborative experience with employees. The company’s concept is “teaching experts to author and teach” in a highly scalable way.

I know this works because I’ve talked with some of their clients. Companies like Safran Group have almost 5% of the professionals authoring courses which are consumed by others. Imagine what this model could do to unlock expertise in your company.

Initially, the company positioned themselves as an LXP but they’re really much more. So position them into the “program management” category in my model and really are creating a new category for expert-authored, collaborative content. (LXP’s are primarily tools for content discovery and aggregation.)

When you think about the problem in this “human” way, you find new features become important. 360 Learning, for example, keeps track of all interactivity by learner and gives instructors lots of data about what content people are using, where they seem to need more help, and how “engaged” they are with the programs. This is exciting proprietary stuff, which really makes customers happy.

Nomadic Learning, the company I partner with for the Josh Bersin Academy, is even more interesting. Matt Burr and Tim Sarchet, the founders, built a business called “50 Lessons” which created video-based stories from the world’s greatest CEOs around the globe. (Similar to BigThink.) The videos were amazing (I watched many of them), but what Matt discovered is that nobody ever watched more than two videos in a row and most people stopped watching after 3-4 minutes. In other words, there was very little “depth of learning.”

The problem he discovered, which is even worse now, is that people just don’t have time to sit down and watch videos for an hour or more at a time. My research with LinkedIn shows that we waste almost a day a week on distracting emails and the biggest “challenge” people cite about their learning and career development is “I don’t have enough time.”

So Matt and Tim set out to build something new. I won’t give away the secrets, but the whole idea of Nomadic is to build a learning experience that “draws you in” and continuously gives you surprises, videos, exercises, ideas, and interactivity – in a way that makes it easy to stay engaged. Matt likes to call it “semi-synchronous,” because you can stop and restart at any time – but you do have a “time-bound” program to finish, so over a period of weeks you’re expected to stay on track.

In the case of Nomadic, the platform, content, and collaboration are integrated in a designed way. Since Nomadic is a custom content and video storytelling company, the programs feel like carefully designed integrated experiences, and you keep “wanting to come back” whenever you can. In the case of cohort-based learning, Nomadic has learned that by arranging people into small groups (20-50 people) the learning experience is personal, collaborative, and innovative. So the “programs” in the Josh Bersin Academy are designed to take place in groups, and each exercise brings people together in innovative and novel ways.

What I’ve experienced so far is that Nomadic’s platform (and 360 Learning’s platform) are much more than “learning” platforms. Just like face to face events, they bring people together, let people share their challenges and ideas, and create alignment toward strategic solutions. And Nomadic includes its own built-in LXP, so there are hundreds of curated resources available for micro-learning at any time. One of our clients, Medidata, is using the Josh Bersin Academy to drive their entire digital transformation. And this is the type of thing that 360 learning could do also.

What To Consider: Many Platforms Abound

There are many learning platforms and content providers on the market, and they are built by smart, innovative entrepreneurs. My point in this article is not to try to cover them all, but rather help you think through the importance of “group-based learning” and make sure you focus your energies on “what is being used for macro learning” and “what is being used for micro-learning” as you build your solution.

Remember To Focus On Culture

Finally, let me mention the importance of building a learning culture. Regardless of your efforts to build great content and hire the best instructors, the culture of learning always prevails.

Do people have time to learn? Do they feel a sense of empowerment and belonging in the program? Does the experience “meet them where they are?” And is there an expert, teacher, or facilitator to make sure employees can really get what he or she needs as they push themselves to the next level?

Nothing creates a learning culture more than groups of people activated to learn together.

New ideas, conversations, and talking about solutions create memorable skills we all carry for a lifetime. As you select your tools and build your strategy, make sure the focus on human supported, group-based learning remains at the core. You’ll be glad you did.

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