How A Canadian Oil Company Used The Breakout Strategy Process To Catalyze A Business Turnaround

Summary

A Breakout Strategy Process for the retail component of one of Canada’s major integrated oil and gas companies. Results: New ideas for business strategy and “people strategy” contributed to a dramatic turnaround for the retail business and the corporation as a whole. The process sparked a new emphasis on employee participation and two-way communication, which was very important in sustaining the turnaround.

This project was followed by another Breakout Strategy Process for the corporation’s top management group, who used this process to build a shared long-term vision and strategy for the entire corporation.

Through its remarkable turnaround, the oil company, whose outlook was quite bleak when we began our work with the company, became what the business press dubbed “one of the darlings of the stock market.”* Today, because of its breakthrough strategies, this corporation is considered one of Canada’s leading companies, both in terms of business performance and in terms of environmental leadership.

The Challenge

At the end of 1992, when a new President took the helm of the oil company’s refining and retailing component, he faced what he would later call the biggest challenge of his career. Competitively, the company was positioned around the middle of the pack in a mature, margin-sensitive market with little promise in terms of long-range demand. And, in fact, there was little to distinguish it from the other regionals.

In a word, the company’s prospects in 1992 were “dismal.” Investors’ unenthusiastic response to the company’s first offering of public shares was understandable: “Earnings were going down the tubes.”

The picture from inside the company was also bleak: As the President later recounted: “Morale was at an all-time low. …People were frustrated and unhappy. They had been trying to do things to get the company more efficient, but they weren’t getting any traction. There had been a lot of reactive downsizing in response to pressure to cut costs — without much communication, understanding, or participation in the process. The whole organization was in a state of fear. People didn’t know what was going to happen next.”

In fact, the company and its major shareholders were trying to decide what division would have to be sold or shut down. As the President moved into his new position, everything was truly up for grabs.

Yet within three years, the corporation (including its refining and retail business) had accomplished a remarkable turnaround. By 1996 the company had not only survived; it had entered a period of aggressive growth and was dubbed by the business press “one of the darlings of the stock market.”

What made the difference?

The Engagement

As the President stepped into his new role, the corporation’s upstream component was completing a major strategic review that had identified a silver bullet: An extraction technology that would provide significant savings to that part of the business. One of the President’s first tasks was to initiate a similar strategic review of the refining and retailing business he now led. To assist with the strategic review, he called in the same world-class strategy consulting firm that had done such a fine job with the upstream business.

The strategy firm put a team of their best and brightest on the job, working directly (and almost exclusively) with the top management group. The short-term objective was to contribute to a $5/share increase in the company’s stock price. The longer-term (three-year) objective was to become a company whose business performance and ways of working would be benchmarked by others.

But after a month of work, the President and the senior consulting partner came to several conclusions:

• They realized that there would be no silver bullet for the retail business. What they needed was a whole set of new “break out” ideas that were both strategic and operational in focus.
• They also realized that both the refining-and-retailing management group and the strategy consulting firm were too wedded to traditional thinking to generate the break-out ideas they needed. The senior consulting partner recommended that the company hire another firm to work alongside his. This firm’s job would be to design and facilitate creative strategic thinking sessions that would involve employees at a number of different geographical locations. The most promising ideas from these sessions would then be incorporated into the strategic review. The President thought this was a great idea.

After considering several big-name consulting firms with strong reputations for facilitating creative strategic thinking, they chose us, saying our proposal was the most responsive to their specific needs. Working collaboratively with the company and with the strategy consulting firm, we drew on our Breakthrough Strategy Process and custom-designed a series of 12 creative strategic thinking sessions or Idea Factories.

These five-hour sessions, attended by 15-20 people each, were attended by a wide range of employees and by some of the company’s most important stakeholders. People loved the sessions because they provided a fun and meaningful way to contribute to the company’s future. People uniformly said they wanted to attend more sessions like this in the future.

The top management group was so enthused about the Idea Factories, they asked us to design and facilitate a meeting where they could synthesize the best ideas from the Idea Factories with the ideas from the strategy firm. The strategy firm was gracious enough to allow us to step in and take this role. The real payoff came when we took the top managers through a process of finding creative connections between the many ideas that had been generated. Even the more skeptical members of the strategy consulting team were “converted” when they saw the power of the new strategic initiatives that the executives created.

The Results

This creative, participative process led to several very important results:

• The refining and retailing business was able to develop the break-out strategies it needed to become one of the most efficient and effective refiners in North America and one of the top retailers in its marketplace.
• Another significant initiative that came primarily from the Idea Factories was a much stronger “people strategy” designed to catapult the company into the ranks of “high-performance organizations.”
• In addition, the participative, facilitated process not only resulted in the breakthrough strategies the company needed, it also built a strong common commitment to these strategies within the management group. As the President put it:

We tried to involve as many people as possible in the strategic review process. …We invested time and energy up-front to listen to people, build trust, and get everyone aligned, and it paid off, because we started to think with one brain. Instead of being at cross-purposes, we could understand and support each other’s decisions.

• The participative process and the heightened attention to people also supported a shift to much more effective communication with company employees. This was particularly important, given the fact that the new strategies required a smaller, more focused and productive company with a re-engineered structure. As the President would later stress:

This was not a slash and burn exercise. We were going to be undertaking an organized, step-by-step three-year project. …We would give people as much notice as possible, if their jobs were going to disappear, to give them time to manage; we would treat everyone fairly; we would try to find homes in the organization for as many as possible of those who were displaced; and we would keep the lines of communication open.

When the new game plan was ready, the top managers presented it to the employees before they announced it to the market.

At the end of that presentation, in spite of some bad news, people applauded. … In the months that followed we communicated our vision over and over again. … We engaged in an on-going discussion. We talked about the impact of the changes on our people in all kinds of forums, from one-on-ones to large formal gatherings. … We regularly communicated our business performance, and we linked that performance directly to the goals we had set. I personally talked to all employees every quarter to tell them how we had progressed and to discuss the issues, and I met with all 20 different individual management teams once a year to discuss strategies, goals, and check for alignment.

Developing breakout strategies was essential, and they were able to achieve that. But equally important, they were simultaneously able to develop the internal commitment, trust, and alignment necessary to implement these new strategies effectively. As a result, earnings from the refining and retailing business went from $9 million in 1992 to $40 million in 1995. Over this same period, they reduced cash expenses by $40 million a year. This allowed them to ship almost $200 million in cash to the larger corporation’s upstream business for investment in oil and gas exploration and development. And over the past three years, financial performance of the refining and retailing business has continued to increase.

Additional Results

Because our Breakthrough Strategy Process was so successful for the refining and retailing business, the corporation’s top executive group asked us to take them through a similar process. The purpose of this process was to begin building a long-term vision and strategy for the company as a whole.

This work was accomplished through three one-day sessions, each about one month apart. These facilitated sessions combined scanning of the business environment, scenario development, creative thinking methodologies, and identification of specific long-range strategic initiatives. The executive group also had access to the ideas generated through the strategic review completed by the refining and retailing business, with particular emphasis on ideas that had more long-range implications.

Several long-term results have grown out of this particular application of the Breakout Strategy Process:

• The corporation, which saw itself at that time as an oil and gas company, has reframed itself as an energy company. As a result, it is pursuing forms of energy beyond oil and gas, including electricity and wind power.
• In addition, one of the breakthrough ideas that emerged during the strategic thinking process we did with the company’s top executives was the idea of becoming a true environmental leader in the energy industry. (This was an idea that employees had already brought to the fore in the process we did for the refining and retailing business). Subsequently, the corporation has become a member of the World Business Council for Sustainable Development and has made a very strong, far-reaching commitment to environmental leadership.
• Finally, the strategic initiatives developed during this work contributed to the corporation’s overall business turnaround and its robust financial performance over the past six years.

* The quotations in this case study come from public statements made by the President of the company’s refining and retail business.

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