Introducing Strategic Planning
1965 marked not only the 100th anniversary of Ocean
but also a number of momentous changes for the company, including the establishment of OCL
as well as a reorganization of the fleet and flotation on the stock market. Flotation—undertaken to demonstrate a high share price before the introduction of capital
gains tax
in the UK
—meant that Ocean
became vulnerable to take-over by investors interested in the company’s substantial cash reserves and unused tax
allowances. To preserve its independence, Ocean
had to make use of the resources it had accumulated.
37 Ocean
was also aware that successful containerization
of major routes would not only destroy the value of its accumulated operational knowledge
but also make most of its traditional business obsolete, with a few container ships replacing the entire fleet of nearly a hundred liners. While the
Glenlyon class ships spent 191 days at sea per year, the
Priams managed 216 and the
Liverpool Bay container ships 300, achieving six to seven times as many ton-miles per year as the
Priams.
38 The pressure that had been building for the company to transform itself into something new now became irresistible. From the late 1960s onwards, Ocean
adopted a new company structure, embarked on a diversification
drive both within and outside shipping
and eventually disengaged from all marine activities, including container shipping
. The direction of these changes, and no small part of the impulse behind them, came from the systematic introduction and implementation of the factual and conceptual knowledge
that informs the development of explicit business strategies.
Transformation meant diversification
—using the company’s resources (people, capital
, tax
allowances and so on) for other, ideally profitable, purposes. To guide diversification
, an explicit strategy
was required. Around this time, a whole new body of knowledge
dealing with corporate strategy
emerged and was disseminated in business books, taught in business schools and promoted by consultancy firms.
39 Eventually, it became ‘
the framework by which companies understand what they’re doing and want to do’, but this process took time.
40 In the UK
, ‘management
thought remained the product of relatively few intellectuals’ and no more than 3700 people were enrolled in management
courses in 1966–1967.
41 Ocean
and other shipping
firms provided financial support
for management
courses at university level ‘because … management
education in general is so important to this country’, even while deploring that universities focused on postgraduate degrees and neglected the shorter and part-time courses for mid-career managers industry demanded.
42
Turning towards diversification
, restructuring and explicit strategic plans, the shipping
industry followed the lead of many other international businesses. At Ocean
, the introduction of modern management
thought was the work of Sir Lindsay Alexander
, a director responsible for commercial development and then chairman from 1971 to 1980, and of Nicholas Barber
. Barber
joined Ocean
in 1964 as one of the ‘crown princes’ or ‘student princes’, promising Oxbridge graduates the company recruited from time to time with a view to fast-tracking them into senior management
.
43 Back in Liverpool
after two years in Singapore
, he persuaded Alexander to send him on an 18-month MBA course at Columbia University in 1969–1971 and then stepped into a new role as the company’s Strategic Planner.
44 His personal correspondence with Alexander sheds light on this crucial period in the company’s development.
45
Ocean’s
strategic planning systems were created from scratch, based on a review of how large US companies had introduced strategic planning. Priorities were quickly established: the emphasis was to be on identifying areas of development, because ‘the whole need for strategic planning has arisen from our having to look for new business’; ‘real support
at the top’ was considered necessary in order to get ‘people interested in longer term problems which do not involve immediate operational pressures’, and planning had to appear as Ocean’s
‘own activity rather than something done by people looking like management
consultants’.
46
The Barber
-Alexander correspondence led to a briefing document for Ocean’s
board, accompanied by a fuller version with background and reflections added. It started from the assumption that ‘[a]ll companies have a strategy
but not usually explicitly,’ and that an explicit strategy
was particularly important when branching out into new business. Strategic planning was to help the Board ‘[d]etermine
what kind of Company Ocean
wants to become, particularly what businesses we expect to be in, for what rewards / risks
’. It was to be an annual process, seeking to make top and middle management
‘
planning minded (including budget-minded), i.e. oriented to looking at the long term’. Planning was to become embedded in the company’s processes and devolved from the Board and central departments downwards to senior and middle managers. The job of the Strategic Planning Division was ‘to ask awkward questions / insist on answers / encourage management
to do its own planning … It will (must)
not write its own answers. Paradoxically, planners should not plan’.
47
Barber’s
(and Alexander’s) starting point was that ‘O[cean]’s major problem concerns strategic direction’. Asking ‘
what kind of Company Ocean
wants to become’ not only led to a ‘master plan for the whole Company’, but also to the setting of ‘objectives for the future in terms of profit, return on investment
and sales growth’.
48 Once up and running, the system of strategic planning and budgetary control would allow for the first time to work on company strategy
on the basis of detailed information on what the individual divisions were doing, how they were performing and developing, and how efficient they were.
49 Along with strategic planning, a new company structure was introduced. While strategy
was kept under the control of Ocean’s
managers, Boston Consulting Group
was called in to help with development of the new structure. The result was a multi-divisional company structure that would free up resources for strategic decision-making at Group level, with an Executive Committee free from operational responsibility, while planning and decision-making would be devolved to the operating divisions.
It is easy to dismiss these changes as little more than new jargon, or an imitation of changes occurring in many companies at the time: diversification
, bureaucratization and the creation of multi-divisional structures.
50 But the aims, and effects, of Ocean’s
strategic planning system were more far-reaching. The fact that the company’s objectives were now stated in terms of profit, return on investment
and growth should not be underestimated. So far, not making a loss and living up to self-set quality standards had been the only guidelines for company strategy
. Now, economic performance indicators at least theoretically had gained primacy over other aims and unspoken assumptions. While fully implementing this new outlook would still take some considerable time, Ocean’s
managers now began to see themselves as business managers rather than shipowners.
The dangers of a lack of explicit criteria and strategy
are illustrated by some of the attempts at diversification
that Ocean
had already undertaken, for example a move into services and hotels in the Caribbean
, and diversification
into new areas of shipping
such as tankers
, bulkers and liquefied natural gas. The Caribbean
ventures never became profitable and nobody could in the end make sense of how they fitted in with the rest of the company. The acquisition of the LNG tanker
Nestor, ordered in 1970, nearly broke the company—it was built for a market that did not materialize, went straight from the dockyard into layup and was sold off in 1989, never having seen service. It later turned out that basic errors were made in assessing the viability of the project.
51
Strategic planning was supposed to prevent such mistakes by reviewing the strengths and weaknesses of the company, the resources it had, the markets it might move into, and the resources it would need to succeed. Thorough analysis of Ocean’s
resources soon revealed important weaknesses alongside the company’s acknowledged strengths. Ocean’s
knowledge
was concentrated in a narrow, unfortunately increasingly irrelevant, area: the operation of cargo liners
in cartelized markets. In many other areas, the company lacked knowledge
and well-trained staff. To enable Ocean
to diversify and seize opportunities in other markets, new expertise was required in areas such as finance, accounting, taxation, internal audit, and personnel. Management
in general was seen as a weakness, with a shortage of general management
skills and a lack of experience in marketing
, retailing, and ‘working to fine margins’. Accordingly, the first exercises in strategic planning resulted in ‘mostly very poor’ plans and gave ‘no demonstration that the line manager really understands the business he is in’.
52 Falkus notes that before the early 1970s, Ocean’s
rigid management
structure and lack of ‘financial and accounting expertise … made the implementation of a coherent diversification
plan well-nigh impossible’.
53 Ocean’s
people were good at operating ships but not at running a business. Like other shipping
companies, or the trading houses active in disappearing colonial markets, Ocean
had to accept that resources such as accumulated skills and experience were being devalued by political change such as decolonization and technological change such as containerization
, and were not easily transferable into other complex industries.
54
Despite disappointment with the initial results, the strategic planning exercise paid off quickly. Conducting a thorough assessment of threats, aims and resources enabled Ocean
to seize the opportunity when the services company Cory
came up for sale in 1972. Ocean
quickly identified Cory
as a perfect match, Cory
was bought and over the coming years, Ocean’s
shipping
activities were gradually scaled down and Cory
provided the basis for the company’s transformation into an industrial services business. Many of the managers brought in with Cory
or recruited from other non-shipping sectors at the same time would soon play leading roles in Ocean
. The mission of OCL
, initially defined as achieving a dominant position in container shipping
, was redefined as providing the best possible return on the parent companies’ investment
.
55 By the end of the 1980s, Ocean
, in Barber’s
words, resembled a ‘Polo Mint’—a company formed around a shipping
core that no longer existed.
56 Commercial knowledge
, including a heightened awareness of resources, costs and profitability
led to diversification
away from the shipping
industry—an activity Ocean
was good at, but where the knowledge
accumulated over more than a century was no longer relevant due to the commodification of operations bulk and container shipping
had brought with them.
Implementing Strategic Planning
This brief big-picture summary should not distract from the considerable difficulties Ocean
experienced trying to implement strategic thinking and budget-conscious management
. By the mid-1970s, Ocean
still used an ‘amalgam of various accounting systems’, consolidation of which remained a goal for the longer term.
57 Developing human resources policies and procedures aligned with overall Group strategy
took many years. The transition out of liner shipping
took much longer than expected, as diversification
within shipping failed dramatically and the newly-acquired Cory
businesses were slow to take off while traditional liner shipping
business declined more slowly than anticipated. The Cory
businesses seemed more responsive to planning than the old Ocean
core. The shipping divisions and in particular OFL, the staffing and maintenance division, often adopted a defensive attitude, sensing that—even though they still contributed the bulk of Group earnings and profits—their importance and opportunities were declining. Far from implementing the strict focus on return on capital
required in the strategic planning process, in day-to-day management
, Ocean
tried to keep up ‘fleet morale’ and shore up its ‘marine base’. In the short run, it seemed very costly to wind down marine activities while maintaining the reputation and identity of a ‘responsible employer’, but in the longer run, opportunities to sell ships while they still commanded reasonable prices were lost, and staff had to be made redundant nonetheless, and in overall much worse labour market conditions.
58
Elaborate strategic plans for all parts of the business had become part of Ocean’s
operational routines by the mid-1970s. These plans noted that the process of planning had made operations more efficient generally, but also that planning and forecasting had usually tended to ‘over-react to the prevailing conditions at the time of planning’.
59 More importantly, while strategic planning could yield sharper insight into the nature of existing difficulties and deficiencies, it often was less successful in finding alternative uses for Ocean’s
resources. Mid-1970s strategic plans paint the picture of a company that had few strategic options and was trapped by laws and regulations in a declining sector and in an inflation-ridden economy controlled by trade unions and a socialist government. The Group Personnel Division’s plan for 1977–1981 noted that the strategic planning system and its aim to allocate resources to the most promising markets was based on the assumption of free markets, in particular for labour, which was no longer correct. Even the basic notion of growth which was at the heart of both Ocean’s
internal planning and BCG’s proposals had apparently become ‘suspect’ in much of public discourse.
60
‘The lack of indicated growth opportunities, combined with the capacity to invest, is a major planning gap’, noted the 1976–1980 Group Strategic Plan. Probing questions were asked, but not answered: did Ocean
need new businesses or a new ‘product’ ‘to answer our longer term growth requirements, and to enable us to escape from the increasing likelihood of State interference and constraint in the service industries of transportation and distribution?’ Could the answer be a move to overseas investment
in familiar businesses? ‘Or, does a new activity imply a new business altogether, such as manufacturing? leisure? mining? engineering? or what?’
61 These are the question the diversification
literature at the time recommended asking, and strategic planning made sure that such questions were asked, the company’s situation was analyzed and growth opportunities were sought.
62 Ocean
had begun to function as a business seeking ways to achieve the best possible return on the capital
employed. Yet, solutions were not easy to find. Plans continued to highlight the need to develop new activities in order to ‘balance the preponderance of mature and declining businesses’, and to affirm: ‘We have very substantial capacity to invest and few identified growth opportunities to enable us to exploit these resources’. Asking entrepreneurial questions seemed easier than finding entrepreneurial answers.
63
Management Development
There was a practical as well as a strategic side to the increased attention paid to management
knowledge
as a corporate resource at Ocean
in the 1970s. Until then, training had been largely on-the-job, with no systematic, formal training of management
staff for specific roles. Barber
bemoaned a lack of entrepreneurial spirit, along with an atmosphere characterized by amateurism and paternalism.
64 A systematic effort to train and empower managers was made alongside the introduction of strategic planning. Yet John D. Rees
, who joined Ocean
as management
development adviser in 1973, claims that the devolution of responsibility and leadership too often was only a theoretical goal, whereas in practice the Board were reluctant to give up control
65—perhaps understandably, given the deficiencies revealed by the first strategic plans. Rees saw the increased role of formal knowledge
as the signature of modern business. He tried to get everyone on Ocean’s
management
development programme to read Peter Drucker’s
The Age of Discontinuity—the main theme of which was the rise of the knowledge
society—as well as Alvin Toffler’s
Future Shock which, he hoped, would ‘shake complacent managers into an awareness of changes in their work environment and in the wider context of a post-industrial society’.
66 Rees’s
management
development programmes focused on aspects that had become important under the new decentralized multidivisional structure. In particular, personnel management
techniques and procedures were introduced, with all line managers becoming responsible for appraising their staff and setting objectives closely aligned with company and divisional strategic plans. Likewise, all managers had to brush up on finance and accountancy.
67
It is not easy to assess the overall effect of these changes. The transformation Ocean
managers described as one from ‘family business style’ to ‘big business style’
68—a development that mirrored the gradual engagement with management
weaknesses throughout British industry at the time
69—was more difficult to achieve in practice than to sketch out on paper. The impact of managers brought in through the Cory
acquisition shows that it is often easier to acquire resources from outside than to develop them from scratch internally.
70 Yet it appears plausible that both personnel management
and financial knowledge
were essential to operating a business in the 1970s and beyond as labour relations were becoming more bureaucratic and the company was focusing on the financial ‘bottom line’. What is clear is that the Ocean
of the 1970s and onwards fully understood the necessity of systematically developing, distributing and applying modern management
knowledge
throughout its senior workforce, as well as of recruiting, nurturing and promoting skilled staff.
With strategic planning, diversification
, management
development and implementation of the multi-divisional structure, the days where the knowledge
that underpinned Ocean’s
competitive advantage
was about operating liner ships in a cartelized environment were gone. Systematic strategic planning processes were now governing both ‘grand strategy’ at a group level, and detailed mapping out and budgeting of individual divisions’ development over the medium term. But did the adoption of strategic planning achieve its objectives and lead to a sustainable improvement in performance? David Riddle, Barber’s
successor as Ocean’s
strategic planner, argues that the ‘successful development of a broadly based freight group [was] the result of the creation of business plans driven by long term profitability
and the move away from basic ship operations. … I put it down to the introduction of planning and related reporting in the early 1970s’.
71 The literature on strategic planning is often much more sceptical about what could be achieved through the strict application of strategic planning methodology, arguing that its formalistic nature tended to prevent, rather than support
, strategic thinking and suffocate entrepreneurialism.
72 Planning is described as designed for the stable growth conditions of the 1960s and unsuited to the radical uncertainty and heightened competition of the 1970s. Ocean’s
experience seems to lend qualified support
to both sides of the argument. On the one hand, the most fundamental strategic decisions were taken either before strategic planning was fully in place or did not figure in the strategic plans (as with the acquisition of Cory
), and planning did not provide much help in identifying growth and investment
opportunities in the 1970s. On the other hand, though, strategic planning seems to have provided the tools required to identify and assess strategic opportunities. Again, the Cory
acquisition is a prime example because though it was clearly an opportunistic move it could not have been identified as a strategic opportunity without the work already undertaken in the context of the introduction of strategic planning. At the level of individual businesses, planning helped implement strategic decisions and keep a focus on commercial performance. Within the resource-based framework adopted in this chapter, it can be argued that strategic planning helped mobilize and apply knowledge
about the company, its divisions, its customers, competitors and environment both in strategic decision-making and in day-to-day implementation. It thus seems to have fostered the systematic development of knowledge
as a corporate resource. As such, planning underpinned and enabled strategic thinking and decision-making—what it could not, and at least in Ocean’s
case was not intended to, achieve was replace them.