Welcome to the Australian Institute of Company Directors

Effective Strategy Execution

Speakers: Graeme Sumner MAICD Andrew Trnacek MAICD, Strategy Partner, Operational Advisory, Grant Thornton Sue O’Connor FAICD

Tuesday 25 June 2013

The Role of Directors in Strategy

Graeme Sumner MAICD

“The board is responsible for providing input into and final approval of management’s development of corporate strategy and performance objectives”

ASX CGC Corporate Governance Principles and Recommendations 2010

The Role of Directors in Strategy

Graeme Sumner MAICD

• There has been a trend over the past 2 decades for boards to become further involved in strategy development…but we still have some way to go

• In practice the level of involvement a board has in strategy

development varies considerably and depends on a range of factors

• Collaboration between the Chairman, Board and the CEO

is essential in achieving the right balance

The Role of Directors in Strategy

Graeme Sumner MAICD

Strategy Plan Approve Implement Monitor

Board ✔ ✔

Management ✔ ✔

A Traditional View

Strategy Influence Process

Plan Approve Implement Monitor

Board ✔

✔ ✔

Management ✔

✔ ✔

A Contemporary View

The Role of Directors in Strategy

Graeme Sumner MAICD

Strategic Intent

Board Led

Strategic Options

Shared

Strategy Implementation

Management Led

An Advanced View

The Role of Directors in Strategy

Graeme Sumner MAICD

The level of board involvement in strategy development varies greatly and is influenced by many factors including

• The preferences, skills and experience of board members

• The performance and experience of the CEO and management

• The complexity and dynamics of the business • The interpersonal dynamics between management and

the board

The Role of Directors in Strategy

Graeme Sumner MAICD

Collaboration between the Chairman and CEO is essential to get the best value from the process. This includes

• Agreement on the best approach - tools used - people involved in the process - time allocation

• Bridge any broader gaps in knowledge and experience

of board members

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10 timeless strategy tests Andrew Trnacek Partner – Strategy & Operational Advisory 25 June 2013

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The problem with strategy

…our strategy will lead us to success

Our strategy defines our differentiation…

We have clear capabilities…

…that fully support our strategy

Source: Booz&Co

%

%

%

%

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10 tests: separating the wheat from the chaff

Have you translated your strategy into an action plan?

Is there conviction to act on your strategy?

Is your strategy contaminated by bias?

Does your strategy balance commitment and flexibility?

Does your strategy embrace uncertainty?

Does your strategy rest on privileged insights?

Does your strategy put you ahead of the trends?

Is your strategy granular about where to compete?

Does your strategy tap a true source of advantage?

Will your strategy beat the market?

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Will your strategy

beat the

market?

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The 5 forces at play

You Competitors

New entrants

Alternatives

Suppliers Customers

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Does your strategy tap a

true source of advantage?

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Positional and Capability Advantages

Positional Advantages

• Market Dominance

Capability Advantages

• Access to unique resources

– Saudi Aramco

• Innovation and R&D

– Google

• People (?)

Source: The Australian

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Is your strategy

granular

about where

to compete?

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Granularity can be service, customer segment and location

Legend

Facilities

Feeder organisations

Competition

Service:

detailed to

attributes

Location:

Street corner

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Life satisfaction

Quality expectation

Individualism

Price expectation

Attractiveness to innovation

Perceived progressiveness

Maintain the

status quo

Innovation

Old and familiar New and different

Basic

needs

Visible

achievement

Socially

aware

A Fairer deal

Something

Better

Real

conservatism

Young

optimism

Traditional

family life

Conventional

family life

Look at

me

Roy Morgan Value Segments

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Does your

strategy put you

ahead of the

trends?

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Does your

strategy rest on

privileged

insights?

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Insight comes from many different sources

Whence comes insight?

• Board

• Staff

• Customers

• Commissioned research

– Internal data

– External data

• External experts or

provocateurs

• Problem analysis

TO

P D

OW

N

BO

TT

OM

UP

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Does your strategy

embrace uncertainty?

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Scenario Planning: forecasts are not predictions!

Scenario planning is a

useful tool for

discussing possibilities

in an uncertain future

Supply

Dem

and

High

High Low

Low

Vocational Education

Land of the giants

Niche markets

Boom times

Bread crumbs

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Does your strategy balance

commitment and flexibility?

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A few big decisions

Timing is critical Many smaller decisions

Flexibility Commitment

There is unavoidable tension between flexibility and commitment

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Is your strategy

contaminated

by bias?

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Is there

conviction

to act

on your strategy?

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Have you translated your strategy

into an action plan?

© 2011 Grant Thornton Australia Ltd | February 2012

The Roadmap

Finance

Customer Market

Internal

Growth &

Development

Set next year’s budget

Restructure Board of Directors (Phase 1)

Reintroduce Remuneration Committee

0 – 3 Months 3 – 6 Months 6 – 12 Months

Appoint Sales team

Create website

Introduce Sales team into client conversation

Polish shop review

Outsource internal operations (e.g. IT)

Find sub-contractor installation teams

IT review

Upgrade & review employment contracts

Update & implement organisational chart

Review job description in all 5 areas

Appoint Senior Leadership Team

HR development & training for individuals

Appoint company mentor

Appoint Executive Assistant (EA) to Managing Director

Review Management Reporting (M1)

Restructure Board of Directors (Phase 2)

Review Shareholdings

Establish clients

Sales strategy

Procurement strategy

Sponsorship & community involvement effort

Environmental review

Set next year’s budget

Update business plan

Company director training

Review/refresh manuals

Storage review

Review IJF Mayco

Review outsourcing components for assembly

Risk review on products & suppliers

Construction strategy (ECH Expansion Health & Aged Care)

Establish competitors

Manufacturing outsourcing – local (painting, etc)

FF&E market

Establish procurement based on product (e.g. China, India, Vietnam)

Establish product core

Review showroom location (with product library included) 28

Strategic Direction

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The results:

65% (3 or fewer)

25% (4 – 6)

10% (7 – 10)

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Strategy

• Takes time

• Requires effort

• Builds on capability

• Needs commitment

Sue O’Connor FAICD

Chair, YMCA Victoria

Director, Goulburn Valley Water

Managing Director, Balcombe Consulting

Sue O’Connor

YMCA VICTORIA FAST FACTS

Strategic Priorities

Decision Making Matrix Procedure G416A-G

Approved December 2012

“Innovation is about seeing the world not

as it is but as it could be. Its about

exploring opportunities or difficult

questions whose solutions can’t be found

in past experience or proven by data.”

Roger Martin, The Design of Business, 2009

Innovation: Growing understanding

Analytical + Intuitive Thinking = Design Thinking

Analytical Thinking

Intuitive Thinking

Design Thinking

Previous History Data Driven

50:50 Mix Future Looking

“Gut Feel”

Modified from R Martin, The Design of Business, 2009

The Challenge: Double plant capacity to cope with floods

Question is Known, solution is new and unknown

• Small dedicated team with strong leader

• Senior executive support

• $40k seed funding

©

Result: 300% in plant performance

• $17m capital upgrade delayed by at least 5 years

• Reduced operating costs by $75k/year

• $150k capital cost

Innovation: Questions for Directors

• Leadership – both board and executive

• Design Thinking

• People and capability

• Innovation systems and process

• Space & culture

Upcoming events

Leaders' Edge Luncheon with Mr Rod Sims, Chairman, Australian Competition and Consumer Commission Monday 29 July, Melbourne CBD

Healthcare Breakfast: Building a better mental health system Tuesday 13 August Melbourne CBD

The Essential Director Update: 13 Thursday 17 October, Melbourne CBD