Corporate strategy work in focus: a real case at Vale
In January I met with Rafael Laskier, Strategy and Innovation Manager and Ludmila Nascimento, Strategy Manager at Vale, one of the world’s leading mining and metal groups headquartered in Rio de Janeiro, Brazil. The discussion evolved around the practical work on corporate strategy, the changing business landscape in what one might think is a fairly stable branch of industry and the importance of an ecologic view on strategy in a group of more than 76 000 employees working with natural resources.
Headquarters: Rio de Janeiro, Brazil
Key people: Murilo Ferreira, CEO, Luciano Siani, CFO
Products: Nickel, iron ore, iron ore pellets, manganese ore, ferro alloys, aluminum, copper and coal
Revenue: US dollars 34,0 billion (2017)
Number of employees: 76315 (2017)
Corporate strategy basically focuses on two questions; what ‘parts’ should actually be a part of our organization and how do we get these parts to generate more value together than the parts themselves – synergies. It has little to do with business strategy. A solid business strategy should decide what products or services each business unit (‘part’) should focus on and in what markets. Hence, corporate strategy traditionally tends to have a financial focus, be more abstract and more long-term. It is more difficult to make practical and to make sense to the business. Realizing synergies is an extremely important task to any group strategy function. If you have a F1-race car – including the costs for it – why would you want to race it as a Renault 5 competing with other Renaults on a gravel road? It makes no sense, but still many organizations do precisely that.
This is an issue overlooked by many large organizations and in this article we talk about the way Vale is working with corporate strategy to make it relevant and concrete, and at the same time focusing on a bigger picture. We will also describe how Vale Global Strategy department got to a position where they are internal sought after experts to business unit management within the different organizations around the globe.
The strategy team at Vale consists of approximately 20 people. The purpose of the team is to “manage the decision making process of the top management”, as Rafael puts it. And since the environment is always changing the strategy team has to deal a lot with change. Change, both in a responsive sense – e.g. reacting to changes in regulation and proactive change – innovation all across the organization.
To be able to handle large scale worldwide changes Vale needs to have a strongly consolidated strategy-process. Strategy is often discussed in various forums. Even though each business unit has their own strategy meetings, the group strategy team works tightly with them leading the strategy processes making sure focus is in alignment with the group’s overall targets. When it comes to larger strategy events with directors across the globe the strategy team asks the various business units what themes would be relevant to discuss. Themes throughout the years have been changing the corporate culture, boost productivity, etc. just as in many other groups. Although in Vale’s case the themes have been chosen because there has been an interest from the business units, not an interest to the top management team or the strategy team themselves. The strategy team is fully aware that it is impossible to “know” the entire business, which makes an inclusive group strategy process very fruitful.
A traditional modus operandi in strategy making at group level is a top-down approach involving only the board, the top management team and some experts – internal or external. The idea that a top-down approach to strategy development is successful is a common misconceptions in strategy work today. As mentioned above however, this is not the case at Vale. They believe in inclusion – in some cases even of externals e.g. shareholders or analysts are invited to give their opinion on a pressing issue. The larger variation of ideas, the larger probability of securing the “right” collective idea.
However, Vale has not always been working with strategy this way. It has been a long and sometimes difficult road to get there in some sense. The first year they started working with strategy this way was in 2008 and it is not until now that they are starting to harvest the success of the work they have put in. Persistence is important. The company has had five Chief Strategy Officers in six years. Naturally it is difficult to change the responsible person so often. Although in this case the strategy team has also been able to keep the “good stuff” that was valuable at the same time as every new CSO brought in new ideas. In that sense the strategy process has always been improving. The strategy team has never been “satisfied” with the status quo, but wanting to do a little more, a little bit better.
Strategy at Vale used to focus on growth and the strategy evaluation basically consisted of updating some economic KPI:s on a monthly basis. This has dramatically changed into focus on value a couple of years ago. Value is traditionally perceived as money. However, now when Vale talks about value different aspects of it come to surface; shareholder value is one aspect, but stakeholder is another one. Vale is in the midst of defining “value” more properly, but already sustainability is an important aspect. Economy stems from Greek world for housekeeping of scarce resources. Ecology means housekeeping of finite resources. Natural resources are finite and Vale’s business in in natural resources, which makes it important to Vale to define value as something sustainable. Growth or just surviving the next quarter, which sometimes is the case in publicly listed companies, is both too narrow and short term to Vale.
For those of you interested in developing your corporate strategy work, here are the following key success factors to build an inclusive and relevant corporate strategy process making the strategy department valued, according to Ludmila and Rafael:
- Keep monthly meetings where strategy is discussed – talk strategy a lot and often
- Build coalitions across the various parts of the organizations
- Point at the good examples of the strategy team’s work and the actual benefits of it
- Focus on what is important and relevant to the company and business units – ask them – don’t presume
- Develop, communicate and keep a clear structure of the strategy – both process and structure
- Make sure budget and strategy processes are aligned timely – it simplifies evaluation immensely
Besides this – that a strategy team can do for themselves – the organization (e.g. a CEO who wants to sharpen the strategy process) needs find a strong advocate for the strategy work. In Vale’s case it was the group CFO who managed to convince the group top management team and other senior executives of the strategy department’s importance and value to the group.