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BRG's CSO Consortium: Q4 2015

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Fall 2015

BRG assembles chief strategy officers from leading companies across a range of industries to share their insights on market trends, challenges they are facing, and best practices. Out of this dialogue comes the opportunity to deepen market understanding, share best thinking, benchmark, and collaborate with respected others. 

Following are key takeaways from the latest discussion:

Quotes of the day

“The real world can get in the way of strategy. The principle we have is that strategy is not a one-off process—it’s not meant to sit on the shelf in document; it’s something we execute on a day-to-day basis.”

“We spend a lot of time talking about balance [between enterprise and business units] in our senior leadership team. I would say local folks think we are still too dictatorial, and people like me think there is too much autonomy. Thank God we have a CEO who knows how to balance that.”

“In a Silicon Valley context, there are those that say, to promote entrepreneurship, let chaos reign, then rein in chaos.”

“Having that risk discipline as an antecedent to the financial plan is ultimately how we try to police the [business unit growth] processes.”

“Rotation of people is always the best way to copy/paste from one operation to another.”

Things members care about. . .

Interplay between corporate/business unit strategy 

Why does it matter?

The manner in which corporate and business unit strategies interact affects key issues including risk, productivity, innovation, profits, customer satisfaction, and market share. It was generally agreed that the choice of, or a balance between, a centralized or devolved control structure rests on a range of factors. These include business sector, organizational structure, business maturity, and the extent to which different business lines overlap, as well as how much entrepreneurship the company wants to encourage, and when.

What is the issue?

To drive alignment and desired behaviors, members identified several levers, notably financial, risk, and talent. BRG’s Joe Bohling added the importance of intangible assets—such as human, informational, and organizational capital—as primary drivers and ultimately the building blocks of strategy and the interplay with the businesses. Meanwhile, a member shared that finite resources were better used when business units were prepared to compromise and become part of a coherent set of values, objectives, and purposes.

What is the bottom line?

There is no right or wrong place on the top-down versus bottom-up strategy continuum, but as members and BRG pooled experiences, key influencers appear to include market dynamics, business maturity, leadership styles, and structure. In one example, a member said their company was more centralized during a business downturn, enabling them to focus on operations and profits. As revenues stabilized, and the need to innovate and grow in a disruptive market became paramount, a shift to decentralization took place.

Another member, whose company was described as a “tribe” in the wake of acquisition-based growth, said the company has unified under a single strategy the new CEO mandated for all units. The transformation was top-down driven through upped communications, drawing solid reporting lines between business unit VPs and corporate development, and combining corporate and business development teams under one roof. In all cases, members see strategic flexibility and ongoing dialogue—both between corporate and business units, and within the senior leadership team—as essential, while strong CEOs often make final calls on the control/autonomy balance. It was also noted that a combination of enterprise and business unit scorecards, and/or balanced scorecards that measure milestones and intangibles, can help to strike the right balance between keeping the corporate agenda moving forward and allowing the business to react to developments at the market frontline.

Finance as a control lever

Why does it matter?

The use of finance-based control to manage and create alignment between enterprise and business units was discussed. It was broadly agreed that while financial “forcing” may not be the best option, certain financial “guardrails” can be usefully applied.

What is the issue?

The group agreed that providing business units with the company’s financial and risk profile helps to keep their expectations in line with enterprise strategy.

What is the bottom line?

Proactive management of business-unit expectations is seen as better than having to trim ambitions. In one example, a member said they communicate the company’s broad financial plan, and the risks attached to current and future investment/asset profiles, to business units early in the year to help them understand how capital will be allocated. Two members noted that their capital allocation is linked to business-unit maturity and the different financial risks therein. Financial tools that members are using to make business units more accountable include measuring net equity generated over time (thereby helping to time-weight decisions on projects) and modified free cash flow, which indicates how much cash is being generated or consumed (although the latter was described as a more challenging management metric, especially in less-mature units where capital consumption is high).

Talent as a control lever

Why does it matter?

Talent is being seen as a way to control and manage business-unit performance, entrepreneurship, and innovation. Talent transfers, for example—whereby teams arrive, implement new initiatives or processes, and then leave existing teams to run them—were agreed to be one of the easiest ways of “cutting and pasting” between units.

What is the issue?

Members agreed that once innovation and entrepreneurship are set loose, they can be hard to measure and therefore to manage. Staff rotation through business units can deliver better results by helping teams understand the corporate whole.

What is the bottom line?

Talent rotation is becoming an essential part of HR policy, to the extent that one member includes it as part of their annual business unit scorecard. The same member is now considering rotation incentives for business-unit leaders. In another case, strategy team members are seconded to the business every three to four years, with those returning from operations seen as making the team more effective. Another member said they use spinoffs to shift creative talent from a research mindset toward a market one.

Meeting and summary notes protocol

This session was held under the Chatham House Rule, which reads: “When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed.”

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