Requisite Organization in a Major Stratum VII Global Corporation

- The mining industry hasn't really provided context for society in the last 30 to 40 years. And so for us and so being a participant in our industry, I don't believe we've really sold our story. It's a responsibility we have as leaders is for us to set context or understand context in that social setting.
- In about four years ago, Australians and Canadians were confronted with a choice about going to war in Iraq. The discussion in Australia ended up being about supporting a friend. For me, that was an important place to start in terms of making change or introducing change within Inco.
- After doing a three month review of the operations in the business, we came back with and said, we think we've got our business model wrong. We introduced the concept of options. We'll position the business differently so we can make better decisions when the world unfolds in front of us.
- Inco's chief executive was able to talk to the why and where all the pieces fit together. One of the ways that we opened the conversation was comparing him to Genghis Khan. And for Scott, he could start to see results, improving things, changing strategy.

Speaker A Start off with a bit of context, three pieces of external context and then I'll talk about a bit of internal context and then go into the sort of conversations that we had. And the CEO I'm t...

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Speaker A Start off with a bit of context, three pieces of external context and then I'll talk about a bit of internal context and then go into the sort of conversations that we had. And the CEO I'm talking about is a fellow by the name of Scott Hand. And the experiences with Scott were very rewarding. Firstly the mining industry and an important piece of context for us, the age of information has created what I would call the age of great expectations, driving economic development and growth across all borders. And so from my perspective in looking at the world today, uncorking the bottle, providing access to information right around the world I think is unleashed something spectacular in terms of where we're going as a society and in many ways in the mining industry. And this is the second point I make in the last 30 to 40 years we haven't really provided context for society in terms of what we provide and what we've provided over 5000 years to society. And so for us and so being a participant in our industry, I don't believe we've really sold our story. One of the guys that I thought had very capably started to tell that story and is still around today is a guy called Sir Roderick Carnegie and he was the leader of CRA and obviously worked with Elliot and the team in introducing some of the requisite principles in the CRA organisation. And for me he got what our industry was all about and that was making a better world. And the sad thing for me as a player in our industry and I think it's a responsibility we have as leaders is for us to set context or understand context in that social setting and for us to start changing the social context and really help our society grow into the future. In also talking about change, the third piece of context I want to provide from a social perspective is to talk about different cultures. I'm Australian, as some would probably guess, working in Canada for four and a half years and the one thing that was pretty apparent to me is Canadians. Even though we do speak some form of a similar language, we don't actually think the same as Australians. And I characterized the difference in the two cultures using a fairly simple comparison and I use a fairly controversial subject to draw the comparison. The Iraq war. In about four years ago, Australians and Canadians were confronted with a choice about going to war in Iraq. And it's not a comment or not a discussion that I'll make a comment either way, whether it was good or bad. I'm just going to talk about how the two societies in my observation, dealt with the issues. And it was interesting to note when you looked at public opinion in the two countries when the debate was raging, both countries were divided pretty well down the middle in terms of the way they thought about whether you should go to war in Canada. My observation was the debate was very much about doing the right thing, and whatever that meant to Canadians in Australia. The debate was certainly focused on doing the right thing. But there was a second theme that, for me was very strong. And if you understand the history of Australia, 200 years convict settlement, mainly made up of immigrants, lots of family in other countries, then the concept of friendship and friends and the concept of mateship was very important. So, in actual fact, most of us didn't have family, and, in fact, I didn't have very many family, italian and Irish background, so not many families. So your friends became family, and the concept of mateship and that relationship was actually very important. And, in fact, interestingly. Australia's National Day celebrates the greatest loss or greatest military loss in our history. And if you understand the psyche of Australians and teams and the importance of being successful in teams, it's an interesting point to note that the most famous day in our history that literally, to a person we celebrate is our greatest loss. Anyway, the discussion in Australia ended up being about supporting a friend. And in fact, Australia is the only country, I think, since the Civil War that has supported the US in every major military action since that time. That's not saying the Canadians made the wrong choice. They made exactly the right choice for Canadians, and Australians made exactly the right choice for Australians. Now, history will prove one way or the other, and I'm not suggesting it was right or wrong either way, but I thought the process in which societies came to a decision and ultimately went forward said a lot about who we are, about the cultures and how we think about in society. And for me, that was an important place to start in terms of making change or introducing change within our organization, within Inco, and in particular, the Sudbury operations. I started in the organization, doing some business reviews in our Canadian operations and looking at how we could change the business or improve the business. But for me, in starting that conversation, the role of the leader in understanding social context is the first part, and the second part, which is the corollary to that, is changing social context. And that's our job as CEOs. Three pieces of organization context for Inco. Hundred years of mining and with a history of dabbling in ro principles. And Ken was right. The requisite conversations have been alive and well in inca for quite a long time, but quite frankly, never fully embraced. I think, at the executive level in Sudbury, we had an operation that was 100 years old. So if you wanted to talk about and wanted to characterize the Inco organization, you only had to go to Sudbury. And in fact, in my mind, the two were indivisible. Sudbury was Inco, and Inco was Sudbury, and so when we started to think about introducing change in the business, we had to think about the broader community, because, quite frankly, that's who we were and that's what was needed to change in terms of being able to drive change through the business. The other piece of context, in terms of Sudbury, the Sudbury operations are the second deepest mining operations in the world. Technically challenged, very tough safety and managing risks, always first priority and a big challenge in that type of environment. And I think Elliot made the observation, Michelle, if I'm right, that it's certainly one hell of a big stratum five role. And if you're talking about change, it's probably a stratum six role. It's that large an organization about 5000 people 20 years ago, about 25,000 people. And so an interest place, full of culture and in many ways defining inco itself to start the conversations with the CEO and talking about change and trying to talk about requisite organization and working as a VP within the business again, three levels below the CEO had to talk about some things that might interest Scott Hand. And the two things that we talked about that he felt was interesting, or the two elements within a broader conversation was after doing about a three month review of the operations in the business, what we came back with and said, we think we've got our business model wrong. And by that I mean in terms of the business model. The way we produce product in our operations, we generally, technically driven produce nickel metal. And what we were suggesting is there is possibly a better way to generate returns, and that is to maybe sell nickel intermediate products, not taking it to full metal, but to look at different ways of making money through the value chain. And that was quite a significant departure from the inco strategy of old and so created a significant debate within the business in terms of what our actual business was and what was our core business. So we were actually questioning what the core business was. The second thing, which is interesting, and Michelle and I were having a bit of a chat, we introduced the concept of options. And it's interesting if you captured Michael's discussion, it's exactly what we were talking about. We demonstrated to the organization, to the executive management, that in actual fact, by spending $10 million a year on additional mine development and this is a business that had a budget, an annual budget of $1 billion by spending ten to $15 million a year and creating some options around the ability to produce. If the price of nickel went up or if the price of nickel went down, we could actually be more efficient by creating more working places. So we were able to demonstrate option value if the price went one way or if the price went the other. Whereas traditionally the organization would argue about capital allocation and said that I want to see the returns in terms of exactly what will happen next year. What we were able to open the conversation up to was the creation of options. And we were then able to do scenario analysis that would say, look, we can't predict what's going to happen, but here's what we do in a number of cases and for example, with a nickel price around $3, we were able to demonstrate that at $5, we'd make about $600 million over the next five years. Well, as you're probably aware, about 18 months later the price of nickel jumped to about $10. And in fact, in the last six months it hit $25. And in fact, the cash flow from the operation, certainly for those that do the numbers, would see it's in excess of two and a half billion dollars. And the contribution that conversation made to the business is probably in excess of a billion dollars in the last two years. And so Scott, to his credit, in fact, it was a conversation that we found hard to actually land at the executive committee level. But the CEO got it and that started the conversation, which was around a change in business model and approach and a way of managing strategic options and positioning for the business. And what we said is we're not saying you go down exactly this path. What we actually do is we'll position the business differently so we can make better decisions when the world unfolds in front of us. And we demonstrated what that looked like in three years time, what that looked like in five years time. And so we took that out to 30 years literally in the context of how we're operating the business and how we are actually globalizing our operations in terms of I'm going to change this, Michelle, just excuse me for 1 second. In terms of then opening up the conversation, in terms of requisite, we got Scott's attention in terms of the business model, we had to then start introducing other concepts that would interest him in terms of the way we're actually running the business. And so we started a conversation around what we called a business framework. And in fact, this overhead here is one of the actual overheads that I used to start the conversation. And so we started that conversation. We actually said that the role of executive management is to put in place structures and processes. And we talked about mission, we talked about vision and values, we talked about strategy, we talked about a business process model. One thing we found in Sudbury, in the major downsizers, in downsizing in the late ninety s, a lot of the systems development work or work that was being done at the Stratum four level was actually taken out of the organization. So in a downsizing people said, well, this is not going to add value in the next twelve months. And therefore, given where we are, we probably don't need that functional, we'll work out a different way to do it. And so the organization went from about 6000 employees to, sorry, about six and a half thousand employees to four and a half thousand employees. And so the stratum four type work actually was pulled out of the system. So you had people executing within operations, but not executing within a systems framework. And so long term maintenance strategies fell away. So long term maintenance and a whole range of other things that are needed to sustain the business beyond relatively short time frames were actually taken out. And within the course of about five or six years the organization's capability started to drop away. And I'm talking about productive capability. And so we were able to start this conversation and when I got to the business process model, was able to describe for Scott what had frustrated him for so long around why we weren't reliable in producing. And I went back to what I'd observed had occurred in the late 90s in terms of the restructuring of the business and why, in actual fact, you were only starting to see the results now and again, being able to put that into the context of capability, the nature of the work, levels of work, what was being done, why it was taken out and why it could be taken out for a period of one or two years and you wouldn't see that much effect. And then why you were seeing changes and reductions in capability in the organization today. And we actually then physically took him around the assets and showed him where areas had been deteriorated. And so for him, we were able to talk to the logic, we were able to put some structure around the conversation, we were able to then point physically to what happened and he certainly got that message very quickly. Finally we talked about organization model and the first question he asked, what the hell is an organization model? And so it's interesting when you ask people that question because within our organization people struggled with that very question. And so again, the requisite model provided us with the ability to talk to where all the pieces fit. And more importantly, and I think somebody said earlier, and I think Art actually said it, talk to the why. That was critical. There's one thing to talk about where all the pieces fit, but to be able to talk to the why and what makes the whole process tick and where all the pieces fit together I think was a critical part. And because of Scott's intellectual curiosity, he wanted to know the why. And so we started probing into those sorts of conversations. The second part of this, and for those that are familiar with Ian's work, that really I think helped get him across the light in terms of the whole conversation, was being able to wrap it up into three elements or humanize the conversation. And again, I think Ian's done some great work on social, technical and commercial processes. So we talked about the dimensions of the business because he could see that Inco had been a technically focused company and the social processes and the commercial process actually were quite secondary. And what we were able to now launch for him was a conversation that took the three elements. And so we talked about where people fit and we talked about how they add value in the business and we talked about individual contributors in a technical sense or in HR and where all the functions put together. So what was for him a random jigsaw puzzle? We were able to start putting some of the pieces together and help them fit together and a guy who is very capable could see that very quickly. And so the conversation landed very well. One of the ways that we opened the conversation, which was I think an important way to introduce the hook, is I actually compared him to Genghis Khan. And for someone that's working three levels below the CEO and telling the CEO that you remind me of Genghis Khan and let me explain, was an interesting way to start the conversation. But for those who know Scott, he's a very generous person and certainly a very good listener, was open to the conversation. And so we talked about nature and we're trying to establish that hook into why would you be interested in this sort of conversation. And so I just asked him, and I related a very small story which there's a little bit of poetic license around, but you'll forgive me in terms of the context, but when I said to Scott that the Mongol hordes took over most of the world. They were on their way through Germania position to literally take out the rest of the known world. And for some reason they stopped, turned around and actually withdrew and then beat a strategic withdrawal over a number of years. And I said there was one event that people can trace to why they stopped and turned around. I said, can you guess what that event was? I don't know. They said, Well, Genghis Khan died. And so the question is, what difference can a leader make? And how could one person lead a group of people to take over most of the known world and then at his death start a sudden retracement in terms of what they've just done? And so understanding the answer to that question I think is the start to understanding what your role is in the organization. And that was where I think we really started to start the right conversations around the organization and started doing the work in our context, in our organization, through Inco. There were lots of conversations around requisite principles and in fact, there were a series of conversations at various levels and at different operations. People had taken on and were using the principles to operate whether it was Fairfeld pay, understanding levels of work, incorporating those levels of work in role descriptions, but we hadn't really tied all the pieces together. And what we did in Sudbury was started to tie all those pieces together. And for Scott, he could start to see results, improving things, changing, talking to a rational strategy. And that strategy started to have an impact in terms of the way we looked at inco and the way we start to develop the organization strategy and the business strategy across the organization. And so for us, that was a very important piece and a very important learning. And again, lots of people doing lots of work. But until the chief executive starts to focus in getting the levels of work right through the organization, it actually starts to create space for the rest of the organization. I think in the last twelve months of our business, we started to get into those conversations. Obviously, lots of takeover activity, and the world changed a little bit for all of us. But again, the good thing in our organization at the moment is those conversations alive and well, and different organizations had different views, and we're talking to different models, but many of the principles obviously are aligned. And so it's a good conversation going forward. As a postscript in terms of Sudbury, in 2003, the Sudbury operation was targeted for reduction in operation by about 35%. Today we're actually producing 35% more than we were four years ago. Last year was a record year by some 7%. In fact, the highest production for 26 years. This year will be higher, and next year will be higher again. It was interesting. About three and a half years ago, we had a conversation with Catherine and we talked about organization structure. We talked about roles, responsibilities, and particularly frontline accountabilities. And Catherine made the observation, we had a good chat about safety in the organization. And if you confuse accountabilities and people don't actually know what their roles are, particularly at the front line, then history says you're likely to have serious concerns on safety. And we took that conversation very seriously and did a lot of work in terms of understanding how we structure our work and how we structure accountabilities, and make sure that accountabilities are very clear. And in particular, and I use the term as a manager, you own the behaviors and the impact of equipment that you have in your control on every person, on every other part of the organization. You own it. You own the behaviors, and people found the comment, you own the outcomes or their outputs a little bit too conceptual to deal with. But when we talked about behaviours, I prefer the word practices. People got it. And certainly that's helped us. And in actual fact, Sudbury has been awarded the World Canadian Safest Mind the last two years, Catherine, so it's certainly been a significant improvement. And I think the key has been around the front line, although we still got a long way to go. And so we've seen good success in the Sudbury operations, I suspect we're only just starting to scratch on the real potential. The organization itself is in the right conversations about what do we have to do, how do we define these levels of work? What's my role in that? Where am I going? Accountability structure is all very important. And so we're in those conversations, we've aligned on that framework. We've aligned on that framework as a leadership team, certainly within the operations. And that's the conversation we have at an executive level. And certainly it's providing us a basis to work through the issues. And the organization model, the requisite model, is the conversation we have in terms of how do you actually put all these pieces together in a coherent piece that means something to every individual in the organization, helps take us forward in terms of the way we operate. And so from the experience I've had, if you understand and can get to or land the conversations such that there is interest through the organization, in particular, get the attention of CEO, then I think you can drive change from anywhere within the organization, but ultimately it needs the CEO to actually drive and lead that change. And I think well on the way. And certainly we were with Scott in making a significant change in the business. And from our point of view, we've got the right conversations going on in our organisation, and I'm optimistic about the future.

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Mark Cutifani
Executive Vice-President and Chief Operating Officer
CVRD Inco Limited
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