Scarcity: the making and measure of governance

GGI consultant Daniel Taylor looks at one of the biggest challenges of governance and leadership

Not having enough. Doing the best with what we have. This is the great challenge of governance and leadership.

What is scarcity?

Scarcity is a natural state. To use the economic definition, it refers to “the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good.”

A reality, our reality

Scarcity is a fundamental reality for our public and third-sector organisations, our government, our planet. Resources are limited. This isn’t a fixed correlative but dynamic, with periods of greater disparity in different contexts and at different scales over time. Over the last decade across the UK there has been both a rise in demand and a real-terms reduction in funding for the provision of services, a gap not bridged by the promise of technological innovation. Indeed, in many ways these have fed the increase in demand and transformed expectation around delivery.

Right now, the challenge of scarcity seems particularly acute and we are feeling it in many ways, from the rising affordability and availability of goods and services, to the rising cost of delivering them, the limitations on the raw materials themselves, and the cost to our planet in their extraction and production.

Scarcity is also breading more scarcity. As the pace of life and work continue to rise and decisions about what to do with the decreasing proportional level of resource increase in complexity, scarcity of time and attention also becomes an issue. What leaders and boards pay attention to, and the precision with which they do, is a vital aspect of good governance.

Why scarcity is at the heart of governance

The running of any organisation, or government or trans-governmental organisation is fundamentally about choice and decision-making. Nowhere is the issue of scarcity more stark, or the stakes so high, as in health and social care, environmental sustainability, food poverty and housing. For leaders dealing with these issues the scope of choice feels – and in many ways is – more limited, and decisions within it ever-harder to make.

Fairness is key: distributional justice in the face of rising health, social and financial inequality. The basis on which decisions are made is central to leadership and board accountability and, in the face of increased scarcity, under increasing scrutiny.

Stakeholder engagement and involvement are central to good governance. In the face of increased scarcity, consideration of stakeholders and seeking their input – particularly those impacted by specific choices or decisions – is imperative to the legitimacy, fairness and effectiveness of decision-making.

With the long-term future of our planet increasingly at risk, future generations are as present and crucial a stakeholder group as any other. Their consideration is as much about attention to and engagement with the issue of environmental sustainability and long-term planning as it is about realising stewardship.

In this context, good governance is key.

Governance as a means

Governance can help organisations to navigate the challenges of scarcity – whether human or financial resources, time, or anything else. Governance can provide a framework for fair and ethical decision-making, with stakeholder voice built in, and should help ensure boards are spending their time on the right things furnished with the information they need. But governance must be lean, it must be calibrated to provide maximum value, and it must be an enabler for organisations and their boards to deal with scarcity challenges, rather than adding to them by becoming inefficient or overly bureaucratic.

What follows are some practical ways governance can help, which can be used as a test framework to assess whether your organisation’s governance is adding value:

I. Strategy and prioritisation

GGI’s governance framework is built around several key dimensions. The first is mission and purpose – it all starts with this. From the purpose comes the organisation’s strategy. The board should, with the executive leadership, preside over the development of a precise strategy for the organisation with clear aims and objectives.

Establishing these focal points and their respective success measurements provides the board with an agreed means by which it can make decisions about prioritising work, resources and effort. It allows greater prioritisation of effort and affords transparency to stakeholders, and a clear frame of reference for why decisions have been taken. This ensures efforts are directed towards what truly matters, avoiding wasted time and resources.

II. Measuring impact to ensure outcomes

A hallmark of good governance is evidence-based decision-making. From a point of clarity on the strategic aims of the organisation, the board and its committees working with the executive can develop an effective monitoring infrastructure to determine what needs measuring, how to measure it, and how this information will flow through the organisation’s assurance system up to the board.

In that way, good governance is a frame for purposeful collation, analysis and reporting. In the context of scarcity, the board and its committees need precise data and analysis to support informed decision-making about the allocation of resources and commitment of time and effort against objectives to optimise output and maintain quality. This leads to the more efficient and impactful use of scarce resources and provides a rationale for decisions.

Organisations with better data gathering and analysis used in a purposeful way to inform decision-making are also better placed for long-term and risk scenario planning and also for risk management. More of the knowable knowns are known, logged and in the focus and attention of the right people. Effective governance then anticipates potential challenges and develops contingency plans for various scenarios. This proactive approach enables organisations to adapt to resource constraints and minimise negative impacts.

III. Efficiency and optimisation

One of the issues with governance in organisations, particularly after periods of challenge or crisis is a tendency towards more. But more governance doesn’t provide greater control, better risk mitigation or better assurance. Indeed it is often the opposite, getting in its own way, creating duplication and confusion of roles and responsibilities, and generating a significant overhead to service.

The entire governance system of the organisation should be designed to maximise efficiency and effectiveness. Often this isn’t the case and poor connectivity ensues, as well as inefficiencies. Different parts of the governance system have developed over time, with different drives and influences and a holistic view of the entire structure hasn’t been formed. Regularly reviewing and optimising the governance structures, procedures and processes can eliminate waste and duplication, freeing up valuable resources. This could involve simplifying approvals, looking at levels of delegation, removing whole committee or management group meetings, reviewing who is needed in which meetings and consolidating similar functions.

This also applies to performance oversight of programmes. Regularly assessing the effectiveness of programmes and initiatives helps to identify areas for improvement and ensure resources are directed towards activities with the highest impact. In organisations with good governance, it is a means through which the capacity for delivery and therefore for possible total commitment of resources to projects and programmes is well understood, managed and overseen, and so too the performance well understood, managed and scrutinised to provide the best basis for successful delivery and therefore justifiable use of resource.

IV. Fostering innovation and resourcefulness

Scarcity can also be a driver of innovation, as organisations seek new ways to utilise resources more efficiently and sustainably. Governance can encourage and support this innovation. The board can, through its risk appetite in these domain areas and its strategic intent, support an approach and culture of investing in research and development, and of innovation in the organisation. Supporting research and development initiatives can lead to new solutions for utilising resources more efficiently or finding alternative resources. This proactive approach can mitigate the constraints of scarcity in the long term.

There is a famous story of an Australian technology company that gave its employees one day a year of entirely self-directed time to come together with colleagues, which became a powerful source of service development, improvement and innovation. How the board works with the executive to promote creativity and resourcefulness is key. A supportive environment that encourages employees to think creatively and find solutions with limited resources can unlock hidden potential and lead to new approaches, service refinements and cost savings.

How organisations embrace new technologies such as AI, and their appetite and approach to risk in this direction, is key but needs good management, controls and oversight. Leveraging technology and automation can significantly improve efficiency and resource utilisation but requires diligent processes for determining the value of investment, understanding the nature of the technology and the internal skills and knowledge to embed and make any such investments work long-term.

These changes can be both large- and small-scale, from finding ways to automate repetitive tasks or perform automated quality checks, with human oversight, to using data analytics for better decision-making. Innovation and its deployment in the area of technological and digital utilisation and application can be a powerful tool for organisations to overcome resource constraints.

V. Building trust and accountability

One of the outcomes of King IV, the leading global corporate governance code, is an ethical culture. Fairness and ethical decision-making are increasingly vital to good governance, and a standard by which it is scrutinised and judged externally. The board and executive have vital roles to play in setting, role-modelling, supporting and monitoring the ethical standards and their application in an organisation.

Upholding high ethical standards and preventing poor and damaging behaviour ensures that resources are used responsibly and for the intended purposes. It helps build and maintain trust and confidence in the organisation's governance and decision-making.

Alongside this the board should preside over, and be involved in shaping, the accountability framework of the organisation in line with statutory, legislative, regulatory and other requirements. The executive should use this to design clear accountability measures and mechanisms throughout the organisation as a core part of the governance system. This ensures that individuals, teams and departments are well aware of their accountabilities and those of others, and as such their responsibility for the efficient use of resources entrusted to them is all the clearer, and more easily and readily scrutinised. This discourages waste and promotes responsible ownership and stewardship.

VI. Stakeholder engagement and involvement

Open and transparent communication is a hallmark of good governance and an instant way to assess the health of a culture. It is also the basis for another critical aspect: stakeholder engagement. Often, organisations engage stakeholders at one level – to listen to concerns or get general feedback about experience or the quality of provision. Rarely do they engage stakeholders at the level of collective problem-solving, forward planning or strategising.

Is your governance part of the solution, or part of the problem?

If your organisation’s governance isn’t an aid in the face of the challenges scarcity poses, it simply isn’t effective nor adding the value it could be. Worse still, it may be the adding to the challenge.

The governance principles and suggestions set out above are intended to help organisations to reflect on the effectiveness and impact of their own arrangements and take positive action to improve them. Governance is an important means by which organisations can effectively navigate the challenges scarcity poses and achieve their strategic aims with the resources constraints at play.

Good governance is not just about compliance, it's both a dynamic form of control and an additive and generative activity in the service of desired outcomes. It should be configured to proactively support the management of resources, foster innovation, ensure the views and insights of stakeholders inform decisions, and build foundations for long-term success.