Corporate strategy is something of a catchall phrase used to describe the kind of decisions that take place at everything from small, local companies to global behemoths. While many of the elements involved are the same— market share, company finances, the cost of debt—the complexity increases as an entity grows larger and more diverse. How can any strategy effectively guide tens of thousands of employees spread across diverse business units on multiple continents?
A recent McKinsey study asked executives at multi-business companies about the role of corporate strategy in the conduct of their organizations. The major takeaway was that the executives see corporate strategy as crucial to the success of their companies—but admit that it doesn’t get the attention it deserves. That means, according to McKinsey, that in times of crisis, many companies aren’t willing or able to make the kind of critical portfolio decisions that would best serve their interests. “Companies would do well to design an ongoing corporate strategy-development process that explicitly tackles key corporate-level issues,” the report said.
Sarena Lin ’98, corporate vice president for strategy and business development at Cargill, spent the early part of her post-MBA career at McKinsey advising multi-business companies. Now she’s on the corporate side at Cargill, based outside Minneapolis, which is the country’s largest privately held company. She is part of a team that seeks to devise and employ strategy across business units spread across the globe and focused in industries that would seem to have little in common, including agriculture, food manufacturing, finance, and industrial products and services.
That diversity, she said, means it would be foolish to attempt to implement a uniform, top-down strategy. “Doing a beef-related strategy is very different from, for example, how do we think about grain trading in China,” she said. “[For] the industry insights and expertise, we rely heavily on the businesses. What we bring in is the methodology, the tools, and the analytics, as well as the way of organizing thinking to help them sort through whatever strategy they need to do.”
Q: How does a company as large and varied as Cargill set strategy?
Sarena Lin: At Cargill last year, we had revenue of about $130 billion, with about 70 business units. So, as you can imagine, when you talk about 70 business units that cut across 65 countries, it’s actually pretty impossible to set a so-called corporate strategy that will guide a direction, as well as the specific strategic plans for each of the regions as well as business units.
So, when we talk about corporate strategy, at least in Cargill’s terms, it’s less of strategy in the traditional sense of, where do you play, and how do play, and what’s your core competency, but it’s actually more of setting, I’ll say, a set of guardrails: of how do we actually govern this organization, that sets some sort of limits so people know exactly where to play. But leaving enough of the entrepreneurial aspects of running the business, setting the specific strategies, to individual businesses to do.
So, what do I mean by “guardrails?” Cargill is a place that’s governed very strongly by a set of guiding principles. So, very strong business ethics—I would say that’s number one. Again, typically for people who trained in strategy, we don’t typically think of that as a strategy, but it absolutely is the guiding lighthouse, if you will that guides how Cargill functions.
Cargill also has what they call the “strategic intent,” that’s being developed—I think the last one was refreshed, I think, about seven years ago. And this is probably comes closest to what we typically think of a corporate strategy. The strategic intent is a set of intentions that basically states that our inspiration is to be the partner of choice for our customers, for our employees, and for the communities that we work in. We want to have imaginative people who can deliver on the strategic intent and will leverage innovation as part of it.
So, as you can imagine, that statement is very broad, and in some ways is somewhat vague, but it actually serves as a galvanizing force that basically pulls everybody together and says, “Okay, what we’re trying to do, or whatever strategy we do develop has to meet the strategic intent of serving our customers and be the partner of choice in every location and every business we’re in.”
Q: What is your day-to-day role, working with 70 very different business units?
Lin: We have to look at a portfolio approach and ask ourselves, “How do we want this portfolio in its entirety to shape up?” Rather than going into individual businesses. So, ultimately, the goal is to be able to step back and say, “Okay, looking at these 70 business units, what’s the health of the portfolio? And therefore, what’s the performance of the portfolio? Are there adjustments that we need to make at any given point in time?”
But setting the overall guidance for what the portfolio needs to look like and shaped like is what we do. You could call it “corporate strategy,” but I would think that this is more around portfolio management, in terms of really thinking about resource allocation . In terms of placing your bets short term versus long term. In terms of also just thinking about the size and the shape of the portfolio at any given time. And this is very organic. As you can imagine, it moves back and forth. So, that’s the corporate level work that we do.
Now, for a lot of the BU level work, the strategy work in some ways is very similar to what a first-year consulting firm would do. A lot of it is about business world strategy. It is about setting directions. Sometimes it’s about turnaround. Sometimes it is about, “How do we bring strategy in to combine with the operational aspects of the business?”
So, I think for those—I call those more the classical strategy work—in some ways, it is now very different from business to business. I think the key element here is we always work very closely with the businesses to make sure that the specific industry expertise is brought in.
Because as you can imagine, managing a beef business—so, Cargill is one of the largest beef manufacturers. A lot of people don’t know that. Beef producers, I should say, in the U.S. So, doing a beef-related strategy is very different from, for example, how do we think about grain trading in Chinat? So, the industry insights and expertise will rely heavily on the businesses, people who have the experience and expertise. What we bring in is the methodology, the tools, the analytics, as well as the way of organizing your thinking, to help them sort through whatever strategy they need to do.
Q: What decisions are best made at headquarters, as opposed to in the business units?
Lin: Sitting in Minnesota—actually it’s in a suburb of Minneapolis; the headquarters is in Wayzata, Minnesota— we can’t possibly know not only the regulatory and the business environment in every single location, but there’s no way for us to know what are the operational challenges that’s currently facing there, how the employees are thinking about it.
So, we are very conscious of what kind of decisions we make and we don’t make out of the headquarters. I think the communications and the decisions that would come out of the headquarters probably only fall under a few different categories. First and foremost is about just being the cultural stewards of the organization. So, guiding principles is very important in Cargill. It is all about we must obey the law. It is about we must think about our customers first. It is about we must be an environment where we are there to enrich the community and employees. Those things don’t change no matter where you are. So, being the stewards of that guiding principle is also paramount. Especially sitting in the headquarters.
And I’ll say the second and third probably are around—especially in terms of setting the foundational goals and financial targets. Ultimately, what a headquarters’ function is, especially in the context as Cargill, is resource allocation. Resource allocation in terms of financial resources, in terms of best talent. Where do you put people? Where do you put money. And that becomes the most important decision.
So, the way to make those decisions is obviously— sitting at headquarters, you do need to have the information bubbled up to know where are the biggest opportunities? And where are the biggest challenges? So, we make those kinds of decisions at the headquarters level.
And the third is, continue to provide directions to galvanize the employees. Our chairman and CEO, Greg Page, regularly does webcasts with employees to share financial results, share high-level directions in terms of where the company is going, sharing shareholder expectations. So, it’s communication. It’s a help to basically pull the organization together, more so than making very specific decisions of, “You shall” or “You shall not do this.”