As the world’s largest container-shipping company, Maersk Line operates in an industry with a poor overall record of delivering value to shareholders, high volatility and an uncertain outlook. When Soren Skou took over as chief executive in January 2012, the Denmark-based company was losing $8m-$9m a day, reaching a total loss of about $600m in the first quarter.
The company plays an important strategic role in Denmark’s AP Møller-Maersk Group: restoring profitability and maintaining its industry leadership position were central to its strategy.
Mr Skou and his new leadership team faced the dual challenge of improving financial results in the short term while simultaneously breaking the cycle of volatility and delivering more sustainable shareholder value over the medium to long term. They quickly recognised that the best performers in the container-shipping industry created shareholder value throughout the cycles experienced by the sector. Maersk Line therefore had to identify and address the root causes of its own volatile performance.
The team led by Mr Skou developed a three-stage strategy that would have overlapping phases.
● The first phase, “Back to Black”, was all about short-term financial results. Its specific aim was to restore profitability within one year, which meant engineering a swing in performance representing more than $1bn. Mr Skou’s team quickly identified a number of measures to cut costs and increase revenues. This was the easiest stage, probably because Maersk Line executives worked in a volatile industry and were used to addressing immediate performance issues.
● The second stage, “Finish the Foundation”, involved the leadership team taking greater control of the mass of internal organisational initiatives that different parts of Maersk Line had launched to address the company’s declining performance. Mr Skou’s goal overall was to break down silos to make planning and operating systems more integrated and coherent as part of a general effort to create a strong organisational foundation for long-term success.
This phase involved hard choices about how much the leadership team should intervene in shaping a new organisation, including how the business should be structured and which projects should be shelved. Ultimately, more than 40 per cent of projects were halted.
● The final phase, “Sustainable Profitable Growth”, was concerned with specific actions to make Maersk Line the best-performing container-shipping company, and not just the largest. Mr Skou and his team reflected on current and potential changes in their industry, and on what type of company they wanted to build. They identified clear “must-win battles”, the priority areas on which the leadership team would focus to address long-term underperformance.
Defining these priorities was the most difficult part of the strategy. It forced the team to consider not only how to reshape their individual areas of responsibility but also how the decisions would collectively help advance the business.
In November 2013 Maersk Line reported net profit of $554m. Maersk had cut its target for its shipping unit’s return on invested capital from 10 per cent to 8.5 per cent in September but Maersk Line delivered 10.9 per cent in the third quarter.
The Maersk Line case shows that a CEO and leadership team can address both immediate short-term pressures and the need to reshape a company fundamentally to be successful in the future.
By developing an aligned and focused three-stage agenda, Mr Skou and his team balanced these competing demands and prevented one priority from overwhelming the others.
The writer is professor of strategy and general management at IMD
This case is adapted from ‘Ready: The 3Rs of Preparing Your Organization for the Future’, co-authored with Tracey Keys and Kees van der Graaf
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