On Leading and Managing the Retail Company
A decade or two ago, strategic and business planners commonly worked with a five year planning horizon. Technology adoption and implementation time-frames, market share change rates, and consumer behavior patterns could be relied upon to span several years.
Strategic planning is now
Today, however, things have speeded up to the point where new business strategies are implemented and benefited from during the current fiscal year. Consider, for example:
• With current enterprise computer network technology, packaged application software can be rapidly installed chain wide to achieve current year pay-back. This has created two separate classes of retail company - those with enterprise open systems networks and those without.
• Big box store formats grab huge chunks of market share wherever they are rolled out. As they expand, they change forever the price/value awareness of consumers who have learned to vote with their feet for the format that meets their needs.
• The Internet has raised the specter of a market where every product can be serviced and priced by a competitor with less capital investment and lower operating costs.
Strategic planning is about determining the nature and direction of the business - what we are actually going to do. Only now it's about what we are going to do this year.
This creates new emphasis on the need for a top management team that can think strategically while employing modern management techniques to change and grow the business.
Defining the mission
We are often puzzled by the reluctance of some companies to develop and disseminate a corporate mission statement. It seems obvious, that in the absence of a written mission statement, each employee is invited to invent or assume one of their own - with a predictable level of misinformation and cynicism built in. The actual wording in a mission statement should have very specific meaning to top management as it represents the blueprint for strategic planning and leadership.
As retail companies grow beyond the one billion dollar annual sales level they reach out to find the wide range of technical talent and experience they need - inventory management specialists, real estate professionals, and even Internet merchants. They can afford to have one of everything and the hiring standard is "best in class". Best practices and winning strategies can be developed in-house by experienced executives.
For companies on their way to the one billion mark the problem is more acute. Home grown talent is utilized to manage an ever expanding complexity and span of control. Frequently the company outgrows the incumbent executives. Often, vital strategies are developed and implemented by outside resources. Sometimes, great ideas like vendor partnership or labor scheduling are ignored because nobody has been made accountable for championing their introduction.
Further, each department head is likely to be motivated and molded by the nature of the specific job itself. Store operations executives tend not to be involved in the design and implementation of new systems and practices. Merchants are inclined to focus on the art rather than the science of merchandising. Financial executives are reluctant to interfere in the qualitative aspects of the business.
In this environment, the CEO is likely to be frustrated by a common complaint - people don't know what they don't know! Furthermore, even when they are encouraged to think outside the box - they just don't seem to get it!
Winning strategies are those ideas or practices that put management in a position to drive the business. In the past, many retailers have tended to rely on a single strategy when the customers didn't come - run a price promotion - even if we give up more in gross margin than we gain in sales. This is simply no longer a viable competitive strategy.
Just what the best strategic alternatives are will obviously depend upon the particular situation. Once in while, someone comes along and develops a revolutionary concept that changes the face and nature of retailing (Sol Price and Sam Walton for example). However, most of the best ideas will have already been developed and used by other retailers somewhere. We call these ideas or strategies "best practices".
To get the management group thinking outside of the box, we can pose a series of basic questions about the business. For example:
• Is there an alternative store size and location (occupancy cost) strategy that would grow market share and increase return on assets?
• What is our optimum marketing and advertising strategy in terms of return on investment?
• What is our value proposition and is it credible to the customer?
• Should our merchandising strategy be push or pull? What general supply chain and merchandising rules should apply? (These questions are much too important to be left to the buyers!).
• What is the selling system and how do the store operations, marketing and merchandising processes support it?
• How do we define customer service and do we deliver it?
The point is, the answers to these questions cut across organizational boundaries. Obviously, we would expect that each department or pyramid head would have an integrated set of business processes. For example, the top merchant needs to empower the buyers, inventory management specialists and marketers to achieve continuous improvement by defining the rules and benchmarks for day to day decision making.
However, the many changes going on within one area of the business tend to create new problems and opportunities in another. The top management team needs to work together to formulate integrated strategies - to make one and one add up to three.
Just how top management teamwork trumps the alternative can best be illustrated through two recent client case studies:
• A national specialty retailer was plagued by high store staff turnover which made an adequate level of training expensive and difficult to maintain. By rethinking (zero base budgeting) the assortment plan the retailer was able to develop value added signage for the customer. The resulting display and signage program made the stores easier to shop and provided instant self-training for store personnel. The result was increased sales, lower training costs and improved customer service.
• A large chain store retailer had a complex portfolio of real estate leases. Decisions on new stores, renewals, kick-outs, refurbishment, and moves were made case by case without a clear mechanism for setting priorities and capital budgets. By tying the real estate strategy to marketing priorities and by establishing return on asset benchmarks, it was possible to develop reliable decision support systems for all real estate decisions.
The role of the Executive Committee
The primary role of the Executive Committee of management is to agree the mission and to decide what the company is actually going to do! Implicit in this role is the concept of teamwork in strategic planning. Each member is responsible for managing their own area of the business but they must also demonstrate a broad understanding of the big picture.
To achieve this understanding they will have to apply themselves in new ways:
• Think outside the box - including the box of their own career experience which may or may not be relevant to today's business environment.
• Think conceptually and with analytical rigor.
• Prepare reports and analysis with the needs of other executives in mind and thoroughly study the work of other Committee executives.
• Once a decision is made by the Executive Committee, support it and make sure that proper coordination takes place.
Basic stuff, but in the real world this standard of behavior is tough to achieve. Personalities, egos, intellectual laziness and the press of business all tend to undermine the Executive Committee strategic planning process. Thus the process has to be aggressively led and managed by the CEO.
The role of the Chief Executive
In large or small organizations, the CEO will generally get best results by constantly striving to match the organization to the mission. This means making sure that each business process is clearly articulated and individual management responsibilities and accountabilities are properly assigned. This results in increased management leverage and assures that effective management teamwork is feasible.
Failure to make an individual executive truly accountable for a critical strategy or business process usually results in heroic (and often futile) attempts by staff or field personnel to work around deficiencies in the program.
In such a structured environment, the CEO's major role is to run the Executive Committee by determining who participates, establishing the rules of behavior, setting the agenda and controlling the dialogue.
The meaning of information
Just because we have data warehouses and reports on demand doesn't mean that we make the right day to day decisions. Whether we are talking about store construction, assortment planning or customer service, we need to agree on how much is enough. The logical place to start is the mission statement (what are we trying to do?).
There is no substitute for a properly articulated strategy with defined rules for decision making. Strategies must be fully integrated across the supply chain, the merchandising process and the selling system. Only then can we use the data to create decision support systems that will drive the business.
The role of management
As a management consultant I am often guilty of explaining business problems in terms of management abdication. As one of my Partners puts it "to the man with a hammer, every problem is a nail". However, I have a strong belief that basic management skills on the part of the Executive Committee members are essential if the overall program is to succeed.
My belief is that you are managing someone when they know exactly what is expected of them - when to start, when it must be finished, what resources they will need, what the end product will look like and so on. In most cases, a manager will only need to explain a task once - but remember, when a subordinate does not deliver on time or delivers a poor piece of work - it’s a management failure.
In an era of increasing specialization, maintaining this level of management integrity is a challenge. Today the people we must manage tend to be personal computer literate and trained on sophisticated application systems at their current or prior place of employment. They may not have had to work on the development of new policies, systems and procedures. They may lack objectivity or the ability to imagine something that does not currently exist. Great managers have to be coaches as well as task masters.
The only way to know whether an executive really is committed to a shared mission, is a team player, is coordinating activities with other departments and has a program of continuous improvement is to demand a written (summary) business plan. Development of such a plan need not consume vast amounts of time. It should, however, reflect the best thinking of the executive. It should say loud and clear - "I get it, this is what I'm leading and managing my staff to achieve, and I am in a position to coordinate activities with other executives in support of the mission".
Making sure that everyone gets it
In today's rapidly evolving retail management environment it becomes more and more important to make sure that each executive understands exactly what the company needs them to do. Thus each executive's position description needs to be documented, up to date, and action oriented.
In addition to delineating the responsibility and authority of the job, the position description should address the following issues:
• Accountabilities - the measurable output or end result of the executive doing their job. Often, as in the example, the importance or value of these end results can lead to an upgrading of the position to the level of recognition that it deserves. At year end the review conversation can start with a discussion of how well the executive performed against these specific issues.
• Position tasks - a realistic assessment of how the executive will spend their time. Many key executives spend the majority of their time in working committee meetings. Maximum management leverage or effectiveness will be achieved when we have the right working groups, with the right agenda, with adequate staff work and analysis.
• Best practices - those business processes that we need to be championed and introduced to the company. By assigning specific responsibility to individual executives we empower them to demonstrate analytical rigor and management leadership.
By Bartlett Joseph AssociatesABOUT THE AUTHOR: Robert Bartlett, Principal, Bartlett Joseph Associates
Retail Industry Management Consultant and Expert Witness
Retail Industry Management Consultant and Expert Witness
Mr. Bartlett is a career management consultant with over twenty five years of experience in serving the retailing industry. His current practice focuses on the needs of emerging and/or high-growth retail companies in the areas of strategic and business planning, capital formation, and the rapid implementation of core business strategies.
Copyright Bartlett Joseph Associates
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.