Strategic Transformation in Business

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13 January 2017

George Yip, Professor of Marketing and Strategy and Associate Dean, Executive MBA, Imperial College Business School

 

Imperial Business in the City” is a talk series that features Imperial Business School faculty, sometimes partnered with a top practitioner, talking about a topic of relevance to senior business executives. These events take place at a location in the City of London and include networking drinks before and after the talk. On December 1 the topic was Strategic Transformation, and the speakers were George Yip, Professor of Marketing and Strategy, and John Allan CBE, Chairman of Tesco, Barratt Developments, and London First, and former Chairman of Dixons Retail and WorldPay.

Professor Yip talked about how strategic transformation has long been a high corporate priority. But very few companies manage to transform themselves before they are forced to do so by financial trauma.  He reported on a study he and co-authors had investigated 215 of the largest publicly listed British companies. They found that only 28 (or 13% of the 215) achieved consistently superior financial performance over a 20-year period. Then of these 28, only five (fewer than 3% of the 215) also achieved successful strategic transformation. Yip researched three of these “successful strategic transformers” (SSTs), pairing them with three comparator companies, to understand how they did it. He found that the SSTs developed four historical traditions over a 40 year or longer period, each of which contributed to the companies’ ability for strategic transformation. The central message is that if managers are to develop firms that can both achieve consistently high performance and manage significant strategic change, then they need to accept and foster alternative management coalitions, constructive tension, and debate.

Yip also gave guidelines for how to anticipate the need for strategic transformation. Look for the following indicators:

  • A new technology or product form introduced into your industry by someone else which your top managers refuse to regard as significant. This happened in many industries, including motorcycles, personal computers, coffee, music downloads, and mobile phones.
  • Sales and profits good but the most innovative/fashionable/desirable customers desert you, as happened with Cadillac
  • Customer loyalty and retention declines
  • The smartest employees do not join you
  • Your company is worth more broken up

John Allan then gave a practical application of strategic transformation, talking about how he turned around Ocean Group when he became its CEO in 1994. Ocean Group was a former shipping-only company that had diversified into six major business lines (mostly unrelated). In 1994 it was poorly rated (256 out of 260) in an annual reputation survey.

Profits had flatlined for five years. The Board removed CEO in Spring 1994 and appointed Allan as CEO in September 1994.

From 1995 onwards, Allan took the following actions:

  • Strategic analysis showed that global trade was likely to continue to grow strongly for many years (two times global GDP)
  • Ocean had a potentially strong vehicle in one of the Top 5 air and sea freight forwarders
  • Sold all other divisions and recycled cash into the core business
  • Built out the forwarding business geographically and in capability
  • Goal to become the leading global logistics business
  • Focussed on building closer and more extensive relationships with major customers (Nokia, Ericsson, HP, etc.)

From January 2000

  • Ocean Group plc merged with NFC plc to form Exel plc
  • Combining the second largest freight forwarder with the largest contract logistics company dramatically increased the capability of the new entity
  • Geographic strengths were complementary
  • Shareholders and customers responded very positively

August 2003

  • Tibbett & Britten acquired adding 30,000 employees to Exel’s 85,000
  • Strengthened presence in US, China, the UK and Africa

September 2005

  • Deutsche Post (which was pursuing a similar strategy in logistics) approached Exel
  • Agreed acquisition of Exel by Deutsche Post announced
  • Final selling share price was 5x to when Allan took over

Lessons learned

  • Take control quickly
  • Analyse portfolio quickly to identify best bets vs value destroyers
  • Eliminate value destroyers first
  • Take control of cash and CAPEX
  • Change management where necessary
  • Give people the will to win
  • COMMUNICATE, COMMUNICATE, COMMUNICATE

The next Imperial Business in the City event will feature Omar Merlo, Assistant Professor of Marketing, and Paul Colman, Head of Strategy at advertising agency Wieden+Kennedy on 26 January 2017 from 6 pm to 8 pm.  The topic will be “Dealing with customer apathy through innovative marketing approaches.”

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