Corporate Strategy Engagement
Helping a major power utility develop a new corporate strategy to meet surging demand and manage rising blackouts.
In this series of articles we discuss the approach used to help a major power utility develop a corporate level strategy to meet increasing power demand and manage rising blackouts threatening to cripple economic growth and foreign-direct-investment.
For confidentiality reasons, we have modified some of the details in these articles. All ~650 power point files and >650 training videos of this complete study will soon be released as part of our Executive Program.
Power utilities are big companies. Integrated power utilities that control generation, transmission and distribution under one roof are even bigger. They are like the Wal-Mart’s of the energy world: everything you could possibly need is under one sprawling roof.
The generation arm produces electricity at power stations. The transmission arm takes the power from the power station to urban centers. You generally see transmission lines running over or alongside major roadways. The distribution arm takes the power from the transmitter and brings it to your home. Most of you will be familiar with distributors since it is their bills you will receive each month.
They are the guys you end up hating, for the high bills, when they are merely passing along costs they rarely have control over.
Consumers rarely have any interaction with generation or transmission companies.
Some integrated utilities also have large construction divisions, new business divisions and support service divisions. The R&D divisions alone can be standalone businesses. Each division, or arm, is the size of a large company with between $1B and $5B in revenue. Sometimes they are even larger. So these are sprawling companies.
Keeping that scale in mind is important as you read about this corporate strategy study and follow us over the next few months as we try to figure out the path for this very large and very important client. This client drives 2.4% of the GDP in the region.
Big companies do not change their culture, beliefs and strategies easily. They have momentum and entrenched ways.
However, before we get into this study I wanted to discuss a big disconnect between what happens on a major corporate strategy study and what we initially set out to accomplish.
In this study we have been retained by the power utility to develop the corporate strategy for their wholly owned subsidiary. The subsidiary is a very large company with about $5B in revenue.
It is important to remember that a subsidiary is not the same as a division. A subsidiary will have its own CEO, board and may even be listed on the stock market. This subsidiary is, however, not listed though it behaves like a listed company.
A subsidiary usually pursues a corporate strategy independent of the parent. Whereas, a division cannot and should not pursue a strategy independent of the parent.
This independence is a crucial distinction and it is the sole reason this is a corporate strategy study and not a business unit strategy study.
When we started this study, this was seen as a standard corporate strategy review. There was a lot happening in the sector and company, but the changes were viewed as impacting the parent and not the subsidiary.
Therefore, no one expected any major changes from our review. If you had asked us three weeks before the study if we expected major changes to the client’s corporate strategy, we would have said no.
In other words, and this is crucial to remember, we never go out looking to dramatically change a company’s corporate strategy. We go where the data and our business judgment will take us.
McKinsey had done a review a few years back and the division simply wanted a refresher. They were not expecting any radical changes and this review could just as easily have been done by McKinsey, BCG or even Bain. It just happened to be us.
As we started learning more about the region, company and challenges in the sector, we began to develop an initial hypothesis that if the parent had to change, than the subsidiary had to change. Yet, we had no idea what that change would likely be until about a week into the study.
A week before meeting the client, as the senior director on the study team, I had developed my own thoughts. A week after the meeting I had refined my hypotheses and had a pretty good idea.
As you will see, a lot happens in just a few days.
People looking outside in, especially from boutique consulting firms, routinely ask us how we convince a client to undertake a study to radically change their organization.
Well, the study was never not positioned as a radical change. It was positioned as a typical review in which we would develop a set of recommendations that are best for the client.
This is very important to understand. We do not go out to a client and promise any massive changes or even that the study will lead to a massive change. We just do not know. Sometimes our review will indicate that the corporate strategy is more or less perfect with no modifications needed.
Therefore, we do not come in at the start presuming that radical change is needed and, therefore, there is no need to convince the client to buy into that outcome during the proposal stages.
In other words, the client is not buying a transformation or turnaround study. They are really buying a corporate strategy review. Sometimes we know enough to indicate to the client a radical shift is needed. Or sometimes the client knows enough to assume a radical shift is needed.
However, in many studies, like this corporate strategy study, we went in not sure where the study would take us until the first week. Granted, we had some good hypotheses, but we where not sure.
Building the framework for this study was not fun in any way.
First, this is a state-owned power utility. Most power companies around the world tend to be state owned. State run companies are difficult to work with.
Management consultants around the world traditionally and actively avoid state clients. State clients have little money, the staff tends to be demotivated and the demands are very high.
None of these elements inspire the average consultant.
Yet, the question is do you really want to figure out more ways to sell sugared water or pulverized potatoes to children or solve big problems that change lives, dreams and destinies?
Really, that is the true comparison. Advising Coca-Cola and P&G may sound more glamorous but you are really just pushing crisps and sugared water. State problems tend to be more critical. If the study fails, lives are directly impacted.
So the work may not be popular or easy, but it is very important.
Due to their ownership structure, state companies need to comply with onerous procurement rules set by a bean counter sitting in some government audit department. And, we have no choice but to comply with them. This was a major administrative burden of proving our legal status, tax status etc.. Yet, while burdensome, it was easy to do.
The main challenge we faced was due to the client’s active involvement. The subsidiary had convened a strategy sub-committee of their board to guide and oversee the consultants selected. The sub-committee was very hands-on and disruptive.
They had decided that the strategy needed no review and we should spend our time thinking through the organizational structure and staffing requirements to accelerate their existing strategy implementation.
In fact, they insisted this be the scope of the study.
In these situations a consulting partner needs to make a critical judgment call. Do you give the client what they want, even if it is wrong and will not help them, or do you refuse to do it?
It is easy to give in to the client. We would get paid, the client would be happy and any flaws would take years to show up. It would be hard to pin the blame on us.
Challenging the client right now is much tougher.
Confrontation or walking away from a client sounds good on paper and looks good in movies but is rarely a viable strategy. Even those grandiose stories about how Marvin Bower refused to serve Hughes Corporation etc. have definitely been rewritten to mythologize the man and the point.
It happened, but not as epically as McKinsey makes us believe.
So walking away or refusing to serve a client should only ever happen as an absolute last resort. I have done this before but only when no other option works. I would always first try to get the client to see things our way.
That is what we did in this case. We followed the approach of not acquiescing or challenging them.
We presented a proposal addressing the needs of the sub-committee. We, however, added in a section explaining why we believed a full corporate strategy review would be useful and why a new organizational design for an older and non-validated corporate strategy posed a critical risk.
We also raised some questions about the current market and presented hypotheses on the impact to the company and why the existing corporate strategy may need to be adjusted.
We presented this proposal to the sub-committee.
If challenging a client is a tough call to make, the way you challenge the client is even more critical. Telling a client they may be wrong takes an enormous amount of skill.
My experience says that softer, less aggressive and an almost apologetic style works best. That is one reason Marvin Bower could challenge a client. He did not look or act challenging. He was a small man with, how shall we say, a delicate voice.
We tend to think the most confident, enthusiastic and boisterous consulting partner style will get a client to change their mind. I have rarely seen that work.
When you stand up and explain to a client why you have a different viewpoint, it is better to be circumspect, tolerant and appreciative of the challenges they are facing. I have seen consulting firms lecture clients and treat the client like they are stupid for not understanding something.
In the simplest terms, you do not want the client to lose face. In other words, if you ever create the impression that you, as the partner presenting, are right, then by default someone must be wrong. That is the client. That is failure.
So, when we presented this, it was less about presenting our insights and hypotheses on why a new corporate strategy was needed, but a deliberate choice to jointly discuss this with the sub-committee and also mini-workshop it so that they came to the same conclusion as us, but of their own volition.
This is a critical skill to have. Your job as a consulting partner is not to be right. Your job is to help the client get to the right answer.
This may sound like a subtle point but it results a dramatically different communication: speaking and writing style. It matters.
All of the proposal materials will be released as part of the Executive Program once this study is published on the site.
In the next pieces we will discuss the structure of the study and the very unique challenges of corporate strategy versus other types of strategy.
We have released over 30 podcasts about this study in our podcast library.
To be continued …
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