Five Strategy Conversations Every Board Should Have Bob Frisch Managing Partner The Strategic Offsites Group Silicon Valley Chapter National Association of Corporate Directors Rock Center for Corporate Governance Stanford Law School January 17, 2013 v9
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Five Strategy Conversations Every Board Should Have
Bob Frisch's Presentation at the Rock Center for Corporate Governance at Stanford Law School - Sponsored by the Silicon Valley Chapter of the National Association of Corporate Directors (NACD) - January, 2013
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Five Strategy Conversations Every Board Should Have Bob Frisch Managing Partner The Strategic Offsites Group
Silicon Valley Chapter National Association of Corporate Directors Rock Center for Corporate Governance Stanford Law School January 17, 2013 v9
Boards and Management Teams Typically Hold Too Broad Views of How To Define Success
Qualitative: • Gone into new businesses • Grown good businesses • Become recognized as an industry leader • Moved from a product approach to a solutions approach • Met the needs of our customers seamlessly • Be identified as a major INDUSTRY firm • ‘Own’ MARKET A - become the dominant player in MARKET A • Have a coordinated Company Y strategy • Launched a successful NEW SEGMENT ENTRY
Quantitative: • Double MEASURE OF SCALE to $2.6 trillion • Enjoy a 20% unit cost advantage over competitors • Number of new customers • Market share vs. LARGEST COMPETITOR • Margin 17-18% • Retention
How do you think about success for Company Y? If we were meeting at the end of FY2017, and we were looking back at another tremendous 5-year run for Company Y, what would have happened?
It’s Not That The Aspirations Are Wrong In Any Way - It’s That There Were Multiple ‘Most Important’ Goals Among 7 Directors
Grow Sales (5) • “The only measure that matters to a retailer is revenue growth” • Consistent sales growth and comp store growth • “Generating organic growth = 3% comp store sales growth” • “Boost sales per square foot across the chain (not just existing stores)” Grow Shareholder Value (4) • “As a director I work for shareholders – market value is the #1 measure” • “Total shareholder return in the top quartile of the industry group” • “Provide shareholder value relative to macro environment“ Grow Profitability (4) • “Get back to level of profitability of several years ago“ • 5 - 20% EPS growth Grow Number of Stores (3) • Overall growth of stores • “Expand presence through a new concept or acquisition”
How do you think about success for Company X? If we were meeting at the end of 2013, and you looked back at a successful 3-year period for the company, what would have been
accomplished? How would it be measured?
n=7 for the first, 6 for the second, 5 for the third success factor
ARE WE ALIGNED AROUND THE WALLS AND FENCES THAT BOUND THE BUSINESS?
• Walls are the boundaries around any business that are assumed to be immovable – so much so that executive don’t even bother to approach them
• But by challenging these assumptions teams discover that the walls are sometimes actually fences – boundaries that can in fact be moved, opening up strategic space for the company to grow
Some Directors Report That Critical Elements of Data Are Missing
How well informed are you as a board member on the industry, competitive, market and strategic context of the company? Are you provided with the background you need to have a rigorous discussion of strategy?
2%
20%
29%
44%
6%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Our board is not well informed on the
strategic context of the company.
We get some information, but there are critical elements we as a board don't know enough about.
We Determined Which Strategy Topics (Beyond Specific Growth Opportunities) Will be Included on the Board’s 18-Month Agenda
42
The board kept 13 strategy topics from pre-offsite data gathering with slight modifications… 1. White space opportunity analysis
3. How should we define growth (i.e, profitable growth, not just growth)? 4. Can/how we improve operating margins in the XXX business? 5. Can/how we reverse the revenue decline and maintain profitability in the YYY business? 6. Why is our EBITDA multiple so low? 7. Will S-shares prove to be an effective acquisition tool as planned? 8. Can/how we strengthen our position versus national competitors in ZZZ?
9. What should we do about MARKET A and MARKET B? 10. How do make our business stronger (i.e. What if one or more big players attack our core markets)? 14. What is the long term role of the YYY business in our portfolio?
15. What is our management succession plan (especially at DIVISION A)?
16. Should we acquire 100% of QQQ? 18. How should Board members shape the strategy?
…. added two topics… 19. How can we accelerate our study/execution of what we decide to do?
20. How do we ensure the analysis is done in an objective fashion?
…. and deferred discussion on five individual topics. (2)
2. Analysis of growth opportunities within existing lines of business
11. How can we ensure that we delight our customers?
12. What are our options for improving our position with REGULATORY AUTHORITY and Congress?
13. What is required to ensure platform interoperability as technology moves quickly?
17. Should we change our corporate definition from “AAA” to “BBB”?
The board did a similar validation/edit of the potential growth
For Some Top Priority Topics, The Board Identified Areas of Analysis to Inform the Discussions
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Analysis Required / Other Notes
White space opportunity
analysis (1)
• Analysis of existing markets: - What are our top 15 markets? What is our market share? - Why are we strong in our top markets? - Who else competes in these markets? How do we compare?
• Analysis of white spaces (Businesses operations in which we do not currently compete): - Identify lines of business that would accelerate our ROC, revenue/EBITDA greater than on a
standalone basis
Analysis of the XXX business
(4, 8, 9)
• How/can we Improve operating margins in cXXX? What are our existing and potential markets (e.g. 6 specific urban markets)? Can we grow and achieve acceptable returns?
• How/can we strengthen our position versus national players in YYY? • What is the growth strategy for the XXX business? What is the role of MARKET A and
MARKET B? - How much have we invested to date? What are the projected future investment requirements?
What are the related tax costs? - What are the potential scenarios for (minimum) 5 year operating results? - What are the costs of transfer (including impact on other parts of the Company)? - What are our strategic options and associated economic projections (e.g., How strong would a
turnaround have to be in MARKET A or MARKET B to justify leaving our “recoverable” capital in these markets)?
• A Boutique strategy consulting firm founded in 2002
o We work around the globe with CEOs, senior executive teams and boards across industries on their most important strategic issues and opportunities
• We specialize in the design and facilitation of strategy processes and discussions to help executive teams make better decisions and convert those decisions to measureable actions
• Through our thought leadership, SOG offers new ways of approaching strategy processes and decision making
• We do not work for direct competitors
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• Whether engaged for a single meeting or a multiyear change initiative, our role is to help design and manage critical strategic discussions
• The common denominator underlying our work is expertly facilitated and prepared workshops and processes designed to achieve organizational, executive and board alignment
• Beginning with setting clear objectives, we help clients maintain a balance of process, content, and conversation to ensure that strategies gain and hold momentum
• We collect and synthesize relevant data that inform objectives and frameworks to drive management teams to actionable outcomes
Bob Frisch, Managing Partner, Strategic Offsites Group For the past 31 years, Bob has worked with executive teams on their most vital strategic and organizational challenges, both as a consultant and a corporate executive. He is considered one of the world’s leading strategic facilitators, having conducted executive offsites in fifteen countries with companies ranging from Fortune 10 multinationals to German mittelstand family businesses. Bob’s work has been featured in publications ranging from the Wall Street Journal to the Johannesburg Business Report, and he is the author of three Harvard Business Review articles: Off-Sites That Work, When Teams Can’t Decide and Who Really Makes The Big Decisions in Your Company?. When Teams Can’t Decide was recently named one of HBR’s ‘10 Must Read Articles on Teams’. Bob’s first book, Who’s In The Room? How Great Leaders Structure and Manage the Teams Around Them, was published by Jossey-Bass/Wiley in January 2012 and is now in distribution in 12 countries. Bob is a frequent keynote speaker has been a guest lecturer at Harvard, Yale, the University of Chicago, Northwestern, Stanford and Brandeis. Before founding Strategic Offsites, Bob was a Managing Partner of Accenture, where he helped create the Organization and Change Strategy practice. Bob joined Accenture from Cap Gemini Sogeti, where he created the firm’s global capability in corporate vision and growth and led the Strategy practice for the Americas. He began his career at the Boston Consulting Group, where he helped found the Los Angeles office. Bob’s executive roles began when he went to work for a client, running planning and business development for The Dial Corporation. Bob went on to become the youngest Division President of this Fortune 500 company. A decade later, he took another leave from consulting to head corporate strategy for Sears, Roebuck and Co. Bob is a magna cum laude graduate of Tufts University and earned his MBA at the Yale School of Management. Bob lives in Newton Centre, Massachusetts with his wife Iris and their four children. Dangerous Company, a best-selling book on the consulting industry, says of Bob: "He has been there, small company and big, strategy and operations. He has lived much of his professional life on the road or in the corridors of power of huge institutions. In the game of business, he is equipped to be the perfect coach."