Introduction and Overview to Managing Strategy Formulation and Implementation Risk

Michael Boland

Professor of Agricultural EconomicsArthur Capper Cooperative Center

Kansas State University

Farmer Cooperatives ProgramSt Paul, MN

November 18, 2008

Schedule8:45 – 10:30 Managing strategy formulation and implementation risk

– Introduction and overview: Mike Boland, Professor, Kansas State University

– Larry Swalheim , Landmark Cooperative, Cottage Grove, WI – John Blaska, Chairman of the Board, Landmark Cooperative – Tim Lindgren, Immediate Past President and CEO, Sunkist, Sherman

Oaks, CA – Nicholas Bozick, Chairman of the Board, Sunkist, Sherman Oaks, CA

10:30 – 11:15 Break 11:15 – 12:00 Managing human resource risk: Attracting and

retaining leadership for the future (Boland moderator)– Bob Brockelman, Farm Credit Services

Where does this information come from?

• Data from National Association of Corporate Directors, 2007-08 Governance Survey

• Course materials from Arthur Capper Cooperative Center director development module on Strategic Thinking

• Our experiences with cooperatives

What co-ops have we studied?

Productores Unidos Cooperativa Agraria Ltda. (Uruguay)

Mountain View Coop

Midway Co-op

Tree Top

Colun Cooperativa (Chile) Cooxupé (Brazil)

Farmers Cooperative Grain

Overview

• Directors state that Strategic Planning and Oversight are the most important topics for 2008

• 50% state that they are effective or highly effective in this topic; 50% say they are somewhat effective or below acceptable levels on this topic.

What are the most important topics for directors in 2008?

How Important are these topics to directors?

How effective are directors?

Effectiveness vs Importance

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Less Important More Important

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1Board Leadership 10Corporate Performance and Valuation 18Relations with Shareholders/Owners

2Board/ CEO Relations 11Federal and State Regulatory Compliance 19Information Management

3Board Culture 12Director Recruitment 20Mergers/ Acquisitions

4Board Effectiveness 13Executive Talent Management and Leadership Development 21Committee Structure

5CEO Succession 14Director Nomination/ Succession 22Board and Director Evaluation

6Strategic Planning and Oversight 15CEO Compensation 23Restrucutirng

7Financial Oversight/Internal Controls 16Risk and Crisis Oversight 24Director Education and Development

8CEO Evaluation 17Board Meeting Processes 25Corporate Social Responsibility

9Disclosure 26Director Compensation

Strategic Planning and Oversight

Strategic Thinking Process: Strategic Questions

• Where Are We?– Internal: Strengths and Weaknesses– External: Opportunities and Threats – Summary: Competencies, Success Factors and Strategic Issues

• Where Do We Want to Go?– Vision– Mission– Strategies

• How Do We Get There?– Action Plans

• Strategies • Programs

– Performance Control• Objectives and Policies• Budgets

• What Decisions Need to Be Made Now?

Roles: Organizational Structure and Management Team

Members/Producers

Board of Directors• Director Members

• Officers

• Chief Board Officer

Chief Executive Officer

Board Committees

Employees

Strategic

Management

Operational

Management

The Board’s Role in Strategy Development

Strategic Thinking RolesBoard:

1. Formulates strategy in concert with CEO so stay aligned on customers, especially members.

2. Not just an “advisor” to the CEO, who is the “chief strategist”.

3. Critically appraises and approves or disapproves strategies and strategic action plans.

4. Evaluates CEO and senior management strategy formulation and implementation.

Strategic Thinking RolesCEO:

1. Formulates strategy in concert with the board so keep people and operations aligned on customers.

2. Proposes strategic action plans to the board. 3. Implements approved strategies and action

plans.

Strategic Thinking RolesFacilitator of Retreats:

1. Provides a structured process and information to achieve retreat objectives

2. Educates participants about elements of the process

3. Manages the retreat discussion to achieve retreat purposes including maintaining an open, honest, balanced, objective, vigorous and stimulating environment.

Why Strategic Thinking, not Strategic Planning?

• Strategy formation is a critical factor in future success (Harvard Study and other studies).

• Strategy formation is most effective if based on seeing the big picture, on synthesis.

• Strategic planning relies primarily on analysis of the parts, on decomposing the business and its environment into parts.

• Strategic thinking relies primarily on a process of synthesis.

What is Planning? (Strategic or Operational)

1. Planning is outlining a course of action to achieve an objective.

2. Planning is a formalized procedure to produce an articulated (specified) result, in the form of an integrated system of decisions.

What is Strategy?

Four Alternative Views:Is a: Which is a: Such as:Perspective Vision or concept of To bring happiness

the business through creativity

Pattern Consistent behavior over High volume, lowtime (realized) margin

Position Selection of customers, High oil corn marketing products, partners and program; strategic markets in view of alliance in feed for hogcompetitors and SWOT and dairy producers

Plan Course of action to achieve Cutting costs by 5% to an objective (intended) increase ROE to 15%

Final Message• We have found that the word “strategy” and a directors role in strategic

thinking confuses some directors.• Many cooperatives are, in fact, practicing strategic thinking and their CEO

understands strategy.• But there are examples of cooperatives that have not practiced strategic

thinking.• Directors have a responsibility to be engaged in strategic thinking in

concert with the CEO and stay aligned on customers. But directors must understand your co-op’s– Perspective– Pattern of behavior– Position– Plan

• And these relationship to your customers, members and employees.