Aligning Teams and Driving Strategic Success with Jos Sclater, Group CFO at Ultra Electronics

Sure, well I'm currently CFO of Ultra Electronics, which is a high technology defense business, most focusing on the US and the UK. Before that I was CFO of Castrol lubricants in the oil and gas sector, and before that I was CFO of GKN, which was a very large multinational engineering business. And in the next chapter, actually I've just got a new job as chief executive of Avon Protection, which makes bulletproof helmets and respiratory masks. Okay.

Sure, I mean for me strategy is about defining firstly where you're heading. It's the sort of points on the horizon that you're trying to get the organization to head towards, and to try and get the whole organization — in Ultra's case it's 4,000 people, in GKN's case it was 55,000 people — get all those people aligned and traveling in the same direction. That's for me when a business can be really powerful.

Extremely challenging. Getting a business to prioritize is very difficult, and communicating a strategy once it's been defined and articulated is also a challenge. And people underestimate the challenge of getting people to understand the strategy. In fact, I would guess that in most businesses, if you went and asked people even two tiers below the executive team what the strategy of their business is, they probably don't know. In fact, it wouldn't totally surprise me if even the executive team couldn't articulate the strategy fully. And actually that's one of the areas within Three Horizons and Stretching Action that we look to counter, I suppose — is the understanding the strategy throughout the organization.

Well, one of the reasons that I've been attracted to Strategy in Action is it really starts with the premise that you teach your own management team how to do strategy, which is very different from some of the leading management consultancies who tend more to do a lot of work and define a strategy for you. The problem with that is that your team hasn't necessarily bought into it, and because they haven't bought into it, they're less likely to actually execute it. And my view is that most strategies fail not because they're bad, but because they don't actually get done.

I mean, a strategy used to be the purview of the chief executive. I think there was a sort of expectation that the CEO would magic up this amazing strategy and then sort of deliver it to the organization. That's not how I see good strategy creation now. I would much rather get 20 people, or maybe in a business this size a number of businesses each having teams of 20 people, creating their strategies at the right level of the organization that it's meaningful, and also multiple layers of the organization within that 20 people. Of course you do need your leadership team, but also some high potential people, some up-and-coming people, and people from the technical side — a cross-section of the business that can feed directly into the strategy. And actually, even once that group's created it, it can then be refined with a bigger group, and as it's communicated throughout the organization, it can be tightened up through that process as well. So you can end up involving a lot of people in the strategy process, and because they've then felt some ownership of it and have genuinely helped create it, they're much more likely to actually make it happen.

Organizations tend to try and do too many things at once, and as a result none of them get done very well. A good strategy will define what the priority areas are, and therefore you can put your limited resource onto those priorities. And I don't know about other businesses, but certainly we've had difficulty recruiting over the last few years — super tight labor market. It's even more important that your scarce resources are focused on the things that are most important to take the business forward, and aren't doing sort of extraneous stuff, which is all good stuff. People don't do things that aren't priorities sort of maliciously, but they think they're doing things that will help you focus on your priorities, but actually they're doing things that are a distraction.

I think it's an absolutely essential part of being chief executive or a CFO or a member of the leadership team, is to help people understand which hill you want them to take. Otherwise they're going to take the wrong hill.

I think growth is always a priority for business. It's much more fun working for a growing business. I think people like working for a growing business, and obviously the shareholders like working for a growing business. And I would add that really a business needs to grow and generate good returns on capital. And I'm trying all this to get a business to do both, but good returns are not enough; you also need the growth. So working out how to grow a business, I think, is fantastically important and a real premium at the moment as we head into a sort of global slowdown. Businesses that will grow are the businesses that are the winners.

It's very important. I mean, the investment case of a business depends on its strategy, so being able to articulate that clearly to shareholders in a way they can understand — and actually shareholders see a lot of companies, so it's being able to explain it to them quickly but powerfully is extremely important. And one of the great things about Strategy in Action in a portfolio business like Ultra or GKN is that you have the same look and feel of your strategy for every business within the portfolio, which makes it much easier for a board to absorb and much easier for a board to review, but it also makes it easier then to pull it together and create a group-level strategy that you can articulate to shareholders.

Well, I first came across Three Horizons when I was head of strategy for GKN, and we actually started off looking at capital allocation, but then I realized that the Strategy in Action process was much more powerful than that. And I was asked to create an additive manufacturing business for GKN, and that was the first time that I worked with Three Horizons to run the full strategy process for that business and create a strategy and action plan for the additive manufacturing business. And that was when I realized how powerful this could be. And I then took that idea into Ultra Electronics, and at Ultra we've used it now for almost all of our portfolio businesses, and with great effects. You know, certainly the first one we did was our forensics business. That business has grown 10% a year since we put that strategy in place, 100% cash conversion has been extremely successful.

One of the things I like about the Strategy in Action process is it actually becomes one team extremely quickly. And whenever I go to a Strategy in Action report out or to review the end of the first week or the second week of work, it's interesting how much the Strategy in Action guys and the internal team have become one team, and they are working together on defining what their mission, vision, and actions are.

Well, I think the process is quite a discipline, the Strategy in Action. So the first thing I would say to anyone using Three Horizons is trust the process. The process does work. It's a very clever and maybe refinement of lots and lots of interesting strategic inputs that it takes them and puts them into a process that's very understandable for anybody. And your team comes away better equipped to build strategies for the future. So if you trust the process, it will throw out a strategy which is hopefully both powerful and has clear actions defined, which means that when you go into the year ahead, you know exactly what actions a business has to take part in, what it's trying to do in the year ahead.

I regard the year ahead, or you could look at it as the next budget year, as the first step in a five- or ten-year strategic plan. So it is extremely important that the next year those actions are clearly defined, both for your leadership team but also throughout the organization. And what we try and do is take the actions that come out of strategy and then cascade them through the executive team, through the functional teams, down into the plants and the factories, and all the way down to the engineers, the scrum rooms, or the factories, or the cells in the factories. So that strategy, you can walk into any engineering area or any cell on a factory and you can see their objectives and how they link up to the layer above and the layer above, and support ultimately the business strategy. And it's that alignment top to bottom of the organization that makes Strategy in Action powerful.

I think the cascading is very underestimated by people. In fact, one of my proudest moments is when I was in Austin, Texas recently. We've got a very clever software business that does a lot of artificial intelligence, and the way it's organized is it has scrum rooms for the software engineers, and every scrum room had their strategic actions on the wall, on the outside of the door of their room, and how they map to that business's strategy, and how that business's strategy mapped to the Ultra strategy. And it was really at that point I thought, we've got this strategy really cascaded well, and people understand what they're trying to do. And I think in a lot of organizations, actually, people's objectives are a process run by HR, and the strategy function runs a separate process, and the two don't actually really marry up. What I try and do is ensure that strategy cascades all the way through to teams and then ultimately into individuals' objectives.

Well, if you're referring to the strategy of the company, I mean my view of strategy needs to be fairly flexible. In fact, the chief executive of Ultra has a nice saying that a strategy is a series of approximations. And I think strategy does need to be agile, and therefore it does need to be refined. I like refining organizational objectives every six months, so we actually look at them in the middle of the year and see if they need a little bit of tailoring or tinkering. But the actual strategy we will refresh every year, but it is only a refresh because we've set the direction, or the point on the horizon that we want to get to. That's not going to change, but how we get there will respond to market conditions, what the competitor is doing, what the recruitment market is doing, what talent we've got. So it needs to be a little bit flexible, and we will refine the actions as we go along. Probably refining the actions on a wholesale scale more than once a year is confusing for an organization, but certainly I would give them a nudge at the mid-year and then refresh the strategy every year.

Sure, I mean there's certainly interesting times, but then I think my whole career we've lived in fairly interesting times. But you know, definitely it is important to re-prioritize. At the moment we've got very high inflation, that probably is going to translate through into wage inflation, that has implications for pricing. So those are things that we didn't really expect a couple of years ago when we set out the strategy for a lot of our businesses, but they are things we've got to respond to. I think one hazard that chief executives can face is that you respond by adding actions but you never take any away. The beauty of looking holistically at your strategy on a regular basis is if you have to respond to things that have happened that you didn't expect, you can also take some things off that maybe are no longer such a priority. Because there's only so many strategic priorities that an organization can cope with, and probably any business is going to struggle with more than five big objectives in any one year.

I think one of the things I've learned over my career is that people like being taught new stuff, but if you don't put it into action very quickly and actually do it, then it can be a bit of a wasted effort. People will forget things that they've learned if they don't do it quite quickly. It's actually one of the reasons I like continuous improvement, because done well, you can teach an organization how to improve their organization, and then they immediately do it through sprints or whatever the structure you have for that. Strategy in Action, I see, is very similar. You can teach your people how to think strategically, and then they immediately apply that by doing the strategy for their own business. Whereas if they go to a business school, they will learn the strategy bits but they will not apply it to their own business immediately; they probably will look at case studies. And I think that's less powerful than teaching people strategy and then they immediately create the strategy for their business. It's a very powerful learning mechanism. It develops your people, so whether they stay with you or move on, they have a better CV, they have a better way of building businesses, and people are excited by it. So for me, that's the way to go.

Very good, thanks a lot.