Hi Everyone,

I hope everyone is staying away from the Coronavirus. It's certainly affecting my travel plans for March but I'm happy to enjoy some extra downtime. I also saw the news today that Jack Welch passed away. I had the pleasure of doing some work with him early in my career as I was teaching strategy programs at GE's Crotonville training centre. What a story his is - bullied at school because of a bad stutter he would later become the world's most iconic business leader taking a tired and fading GE and vaulting them into the darling of Wall Street. He was proud of the fact that more Fortune 500 CEO's were trained at GE than at Harvard or any other iconic business school.

This month's newsletter (video here) is on ensuring your business structure is designed to enable your strategy. Get it wrong and even the best strategy will fail. Watch how an Italian company gets it right.

Enjoy - Cam

CTipping@iibd.com

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Volume 20 Newsletter 2

The Italian Job

Boil it down to its core and the goal of a market driven business strategy is to ensure the resources of your firm (people's time and money) are aligned with your best market opportunities. Anything less and your firm is burning resources. However, aligning resources with opportunities is only half the battle. The other equally important half is creating the right structure so your team can efficiently execute. It sounds so simple, yet choose the wrong business structure and even the best strategy will fail to materialize. Watch how an Italian holding company got this right by transforming from a group of independent operating companies to a "strategic enabler" business structure sharing key systems and facilitating cross selling of products and services to common clients.

Coesia is an Italian based group of industrial packaging and solutions companies. Originally a motorcycle manufacturer back in the 1920's, over time Coesia morphed into a global leader in automated machinery for the packaging and equipment manufacturing industries. Through both organic growth and acquisitions Coesia grew to be a conglomerate of over twenty independent companies. To be clear, that was twenty independent, stand-alone companies each with their own operating systems, little communication and almost no cross selling between them even though many of them shared the same customers. To continue to grow that would all need to change, but changing to a new corporate structure to support an updated business strategy can bring its own set of challenges. 

In 2010 Coesia hired its first non-Italian CEO who presented the board with an aggressive plan to double the business size in five years….. but it came with a catch. To achieve the aggressive goal would require a complete business transformation, a change in strategy and a change in the business organizational structure. The independent federation of companies under the Coesia umbrella who all sold to similar customers worldwide would need to become a cohesive global group, sharing common practices and enabling cross selling of the various business units' products and services. This would be no easy feat. 

An independent company model is an appealing structure as it encourages entrepreneurial thinking and the autonomy means total control plus a quick response to any market changes. However, it also means there is no common business strategy, no common processes, almost no sharing of insights and little interaction between companies. Coesia was a mash of twenty different payroll systems, twenty different sales training programs, twenty sets of international tax lawyers and the list goes on. It was obvious to the new CEO that the operating structure that got Coesia to where they were was not going to take them to where they needed to go.

To achieve their ambitious goal of doubling in size in five years Coesia needed a business model that would keep the autonomy, flexibility and entrepreneurial spirt of the current operating model while leveraging best in class technologies and practices in accessing global markets enabling more business cross selling. In short they needed to create a lean group infrastructure that could support the growth of the individual companies without crushing their entrepreneurial spirit with a bloated bureaucracy.

Developing a winning business strategy is tough enough but changing the corporate structure in order to implement a modernized strategy presents a whole new set of challenges. To execute the new strategy Coesia needed to transform from a holding company structure, where each company is totally autonomous, to a strategic enabler model where key business operations like cross selling are coordinated at the corporate level. In Coesia's case, business unit CEO's used to calling all the shots would now report up through a matrix reporting system to regional General Managers.  As one might imagine, some individual company CEOs used to full autonomy pushed back, longing for the days of a single dimensional, entrepreneurial business with its clear chain of command with them at the top.

However any strategy that requires a change in business structure and a new way of doing business can create friction as people struggle with unfamiliar lines of reporting and doubts about responsibilities.   The unintended headaches that result are the price of any transformational change. The key to reducing these friction points is to keep the groups' focus on the bigger prize while asking them to develop their own business unit strategies that address those inevitable areas of resistance. With some coaching, each business unit develops its own new strategy ensuring it supports both their individual business unit objectives while buoying the larger corporate goals. In this way, the onus falls on the individual business unit CEOs and their management teams to define how they’re going to manage the change. In Coesia' case, one of the main friction points was cross selling of products and services and making use of already developed customer relationships by individual companies. Even though the individual business units mostly sold to the same customer base, cross selling was almost nonexistent. The independent minded business unit CEO's addressed this friction point and turned cross selling into a main contributor to their growth.

What can we learn from Coesia …….

1. Select the right business model to support your strategy: In Coesia's case as business became more global, a "strategic enabler" business model needed to replace the independent holding company model.

2. Manage the friction: Re-developing a strategy and changing a business's structure will always create friction points. Coach your business teams to develop their own business unit level strategy to ensure they address friction points.

3. Leverage your new structure: In Coesia's case the cross selling initiative became a main contributor to their groups' overall growth. 

It took a transformational effort to get there but it was worth the prize as Coesia doubled their business in five years. The "strategic enabler" structure brought regional coordination to the various independent companies and facilitated business unit cross selling. In any business, strategy execution is a key component. Does your business structure enable your business strategy or is it holding it back?