Framework 48 Orica Approach

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Introduction

Malcolm Broomhead, as CEO for 4 years, successfully turned around Orica (explosive maker; formerly belonging to ICI). Before Broomhead, Orica was a declining chemical group at the mercy of commodity cycles in a business focused on the high-growth explosive sector

While at Orica, Broomhead trained several senior executives who are now CEOs in their own right, including Gordon Davies (AWB's CEO), Graeme Liebelt (Orica's current CEO), Guy Roberts (Managing Director of Penrice Soda Holdings and Julian Segal (Managing Director of Initec Pivot).

His approach was similar to that used by Wesfarmers and GE, ie return on assets. He applied a principle of an 18% return on net assets; then subtracted overheads, tax and interest to calculate a return to shareholders.

Broomhead's approach

It is a disciplined approach, including the principle a CEO should concentrate on the top 3 or 4 things that will have the greatest impact on the organisation's performance

Central to Broomhead's strategy was a multi-pronged approach, ie developing strict benchmarks for performance (especially financial), including a cost-focused approach, and driving culture from bottom up. In other words

- initially you need to reduce costs for survival

- next, you sent targets, ie 18% return on net assets

- then you implement a cultural change program starting at the bottom of the organisation

- then, and only then, do you look at strategic growth options such as acquisitions, capital investments, etc (based on the 18% return on net assets)

In Orica's case, Broomhead reduce costs by $115 million; he spent 3 months conducting a program that encouraged employees to regard the organisation as their own. Each program involved around 20 people who were asked the following questions

i. what do we do well?

ii. what don't we do well?

iii. if we were the best organisation in the world, what would we be like?

Almost all staff had never been asked their opinion before. This strategy helped to develop trust in the organisation and develop a focus on shared, common behaviours and outcomes.

Other comments

Broomfield was not interested in excuses, such as seasonal conditions - his only interest was in performance He kept it simple

(source: Tracy Lee, 2008)