Digging deep at BHP Billiton: The role of the chief strategy officer

There is no generic definition of the role of the chief strategy officer (CSO) although recent research conducted by Powell and Duncan published in the MIT Sloan Management Review identified four specific ‘archetypes’:

Internal consultant: The type of CSO who adopts a very rational approach to the development of strategy.

Specialist: A CSO chosen for highly specialised skills that were not previously present within the organisation.

Coach: A facilitator who focuses on strategy formulation with the business units, and

Change agent: In contrast to specialists, change agents act through the business units as facilitators to ensure that strategies were enacted with fidelity.

From a functional perspective, the CSO is responsible for helping the CEO decide what kind of support will be provided from the corporate office to its divisions on the matter of management information and decision-making systems. They must also advise on what kind of structure the organisation will adopt, the two extremes being a centralised integrated structure that optimises cross-division synergies, or a portfolio-oriented organisation that operates each division or business unit independently to the others.

The soon-to-retire Marius Kloppers was the company’s chief strategy officer prior to his elevation to the position of CEO at BHP Billiton. Given the dynamics of the resources boom that existed at the time of his appointment, the board knew the company didn’t need an internal consultant – they already had a strategy.

Nor did they need a coach or change-agent. What they needed was a specialist and maverick – someone who could see the big picture and go for it. He was only five weeks into the role of CEO when he launched a $US150 billion bid for Rio Tinto. Although this, and three other attempted acquisitions were not ultimately successful, he was given full credit for trying.

He was no slouch in the pursuit of cross business synergies either. Kloppers was the driver of innovative operational improvement initiatives that included a procurement system that delivered substantial savings and a standardised operating system that monitored, compared and reported key performance indicators across the company. Kloppers is also widely acknowledged for his work as the initiator of the reform of the global iron ore pricing system, an outcome that benefited all companies in the industry.

For more detailed and focused performance improvement initiatives, it was his role as CEO to ensure divisions were aligned to corporate strategy. The question is however; to what extent were his and division initiatives actually aligned to the well-established corporate strategy?

From a quick review of strategy content, we can see a far more passive, people-oriented approach to strategic management than that adopted by Kloppers. Rather than rapid and aggressive acquisition, it is to: “operate large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market …. which will enable us to deliver superior margins throughout economic and commodity cycles for many years.”

Until the so-called resources boom started to ease, it appears that Kloppers had been acting more out of opportunistic instinct than in accord with “steady as she goes” philosophy described in the corporate strategy above. If it wasn’t for the onset of the global financial crisis, BHP Billiton would be in a much different place to what it is today.

The emphasis and focus of his role in the latter part of his reign at BHP Billiton, consistent with all mining companies, regrettably, went into reverse. Rather than frenzied activity, rapid growth and opportunism, there is now a need for a more orderly, planned and cost-effective approach to managing in an environment that is representative of “business as usual” over dynamic growth. Strategically, this change in focus could be a reason for Kloppers’ early resignation.

Rather than a maverick and specialist, the prevailing economic environment now calls for a candidate exhibiting the archetype characteristics of coach and change agent. That is a strategically astute individual – someone who can define long-term strategy without losing the focus on short-term execution; especially with the engagement of divisional personnel. For all of Kloppers’ good points, people engagement was not one of his strengths. As one BHP Billiton board member noted: “Being a brilliant engineer with a huge brain is not all you need.”

Welcome to BHP Billiton’s new CEO, Andrew Mackenzie. Although he has said little publicly about his plans for BHP since the announcement of his elevation to the top, he has emphasised his key priority will be an intensified focus on cutting costs. Wisely, he has made it clear that he intends to conduct the equivalent of a “listening tour” before commencing this program when he takes the chair on May 10.