Why Toll Holdings should be open about its strategy

When assessing shareholder value, analysts are always keen to conduct an evaluation of future cash flow – especially the way it’ll be impacted on by the most critical challenges the company is likely to face in the future.

In many cases, the natural source of such information is the strategy, but disappointingly, this often turns out to be not much more than a list of generic operational objectives.

Understandably, detailed strategy is sometimes omitted from public viewing; it is considered too confidential to be discussed in public.

Realistically, though, it is the Strategic Management Institute’s (SMI) observation that greater disclosure of at least ‘non-sensitive’ aspects of strategy results in an improved understanding of company prospects and as a result, exerts a positive influence on its share price.

It is surprising, therefore, that many companies shy away from free and open disclosure of strategy; especially the non-sensitive components, when appropriate.

Toll Holdings is an example of an organisation that could benefit from greater disclosure in this area. As a freight and transport company Toll faces significant challenges in the future. These include: a requirement to significantly reduce its reliance on fossil fuels; a need to address problems caused by increased traffic congestion (driver stress and slower delivery times), while meeting increased in demand for capital as the use of advanced technology in the areas of safety, security and hazard management add to infrastructure costs.

When communicating strategy, though, Toll emphasises only one strategic imperative that immediately focuses analysts’ attention on operational efficiency and effectiveness.

That objective is “to generate superior returns for (Toll’s) shareholders by driving superior performance”. Realisation of this ambition is expressed through a few specific objectives that are also operational in nature: “develop a full service capability covering the international supply chain; strive to achieve operational excellence; generate efficiencies and superior service delivery; develop a supply chain offering with a specific focus across Asia.”

As with most organisations operating in a highly commoditised industry, Toll faces the same strategic issues as its competitors. This begs the question: is it appropriate to ignore these issues, or at the least, hold the more detailed strategy content close to your chest”?

The most sensitive aspect of strategy that could justify secrecy is the protection of the firm’s sustainable competitive advantage. A description of the way the company will prepare for the realities of a future operating environment that is the same for all companies in its industry is another story.

In fact, it is more probable that an open and honest assessment of the timing and impact of these emerging industry issues, and the way the company plans to address them, can only have a positive impact on image and as a result, share price. Currently, Toll is labouring under a deflated share price and a new chief strategy officer has recently been appointed.

Attempts at explaining and communicating strategy can disappoint in other ways.

Take professional services company Spotless, for example, which made the primary content of its strategy the description of a four- to five-year journey of transformation; a journey that can best be described as a need to restructure in four stages – 1: Restore accountability. 2: Deliver sustained cost reductions; consolidate the organisation. 3: Reinvest in: systems, governance, safety and risk management. 4: Realise potential.