Guide to Retailing: Part 2

There has been a lot of economic tectonic movement since the past year and we would all agree that retail has been one of the most severely hit industries. Most of the hit was due to the fact that organized or modern retail is only 5% of the total consumption in India and comprises of modern towns and cities where people are getting fired or going bankrupt. But the most important reason is the deteriorating market sentiment, the fear of dwindling personal cash flow and increase in savings.

Now, what I am writing about today is a piece of news that was released a few days by the leading modern retailers of India who claim that they are now planning to share backend functions and resources in order to lower costs and ride the storm. The news is good. I have mentioned earlier as well in my blog post 'The Downturn Brotherhood' that faced by an external threat, competitors usually shake hands to fight it together. However, the situation is a little different in retail.

It cannot be compared to Coca-Cola and Pepsi hiring a lobbyist to fight the pesticide campaign together neither can it be compared with telecom industry sharing towers. Why? Well it’s just because the real source of value lies somewhere completely different in these industries! One needs to further drill down into these pacts and realise the logical distance between the core and pact.

In retail, however, the majority of advantage has always been derived from the backend. Superior supply chain, purchasing power, optimised logistics, demand forecasting etc was always king. I don’t deny that front-end rationalization like shelving strategy, matching product characteristics with regional behaviour, location, format etc definitely are very important but it can never overshadow the advantage of a competitively better backend. Indian retail is very tricky and competitive and the players involved are aggressive. People who have stepped in too fast have got burnt on this field and are already suffering the consequences which were more to do with their impatience and lack of understanding than anything else.

One of the largest retailers in the country has no history of alliances and co-operation. They believe in backward integration which is deep -rooted in their philosophy. How can one then hope to share warehouses and purchasing with them when the only reason others are winning is because they have a better control over these factors?
My thought is this - the suggestion is honest and is the right thing to do considering the situation but it will never happen. Retailers in India can share power but never the source of power! In an industry marred with changing consumer behaviour and ever increasing value add, the stake is very high. What it takes to win here is not a single strategy but the whole package covering the entire value chain and all elements including culture working in tandem. Once the backend is exposed, the package opens for everyone to see which cannot be allowed. Low prices cannot be provided by merely competing on the front-end.

Factoring employee reaction in skill gap assement

Recently there was an article in the McKinsey Quarterly titled 'Identifying employee skill gaps'. The article is explores an optimal method to analyze skill gaps within and organizations and aims at focusing training programs on specific regions, management levels and employees. Doing this definitely saves a lot of training dollars by concentrating them on areas which actually need them.
This is indeed a the right way to go about analyzing the skill gaps in an organization. However, going one step further, in my experience, I have come to realize that when a skill gap assessment is announced, many employees subconsciously treat it as an appraisal of sorts. If there is a peer review of capabilities it almost sounds like a 360 appraisal.

To avoid these side effects, I would recommend that:

1. The motive of the exercise is communicated very well to the employees highlighting the fact that this is not an appraisal and the results will be used only to assign trainings.

2. Immediate superiors should not be involved in assessing skill gaps to avoid skewed reviews. Once people around the organizations know that their day-to-day managers will not be involved in the process, any attempt at collusion or artificially inflating or deflating the skills will be greatly reduced.

Competitor reactions need to be considered and factored into analytical equations before making strategic business decisions. Similarly, possible stakeholder reactions also need to be thought of and factored into before any mass strategic announcement is made to them. Every statement invites reactions and risks and some of them need to be hedged.

Turning around Service Based Companies

This current financial fiasco and economic downturn will definitely leave two sets of people very rich and happy. 'Bankruptcy experts' and 'Turnaround Consultants'.

Turnarounds have been extensively researched but most of the management writing and thinking has been around manufacturing companies or businesses with their outputs having a large tangible component. However, there is relatively lesser work done for turnarounds for service based companies in which the traditional strategies might prove to be counterproductive. This entry focuses on turnaround strategies for service based companies and how they necessitate a different mindset.

Fortune’s list of the “most admired” service companies is one of the most dynamic of the published company rankings marked by most number of basis changes every year. Thus, it can be safely inferred that service based companies are somehow more vulnerable and exposed to internal and external stimuli than other industries. Moreover, the basic nature of a failing service based business is quite different than any other manufacturing based company which makes it more difficult to borrow best practices from previous turnarounds.

A 'turnaround situation matrix' proposed by Marius Pretorius in the 'Journal of Business Strategy' provides different situations in which a company (not necessarily service based!) might find itself and also provides strategic options for each scenario.

Situation Matrix

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Strategic Options

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Now, I do understand that service based companies are fundamentally different from other industries but if looked at a little more closely, most concepts and terminology from these industries have non-tangible cousins in the service industry for instance Capacity, products, inventory, assets etc. most of which are employees.

Therefore, in the global interest of presenting all service based industries with a more intelligible framework (which they all would probably need when the sun starts shining again!)for them to work with , I have tweaked the situation matrix to make it lean towards service industries and provide service specific actions that businesses can take.


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of course, optimal capital structure for companies will now have to be revised considering various factors like future tax shields contributed by the current losses (No offense to anyone in particular!), high cost of debt, unavailability of funds etc.

Usually, combination of these strategies can be simultaneously pursued by the management to achieve the desired results. Application of a combination of actions suggested above can be usually seen in the’ last resort’ or the ‘forced repositioning’ preconditions.
As a disclaimer I would say that what follows after strategy is its implementation which is much more important and painstaking. Change is easier said than done and always leads to massive internal and external inertia. An entire discipline of change management is devoted to managing such obstacles. But as a general rule, we would advice all CEOs to make sure all key stakeholders are well informed of the process since their buy-in is indispensable to successfully carry out the effort.

Next on Strategy GCS!

Turning around Service Based Businesses: A practical framework

The Economic Downturn Brotherhood!

Desperate times, desperate measures. Competition is common in business but it is important to think of it in more granular terms. Strategic responses are different for each kind of competitive target, namely, companies or a line of products or maybe an entire industry.
Consider Slice, Frooty and Maaza. These are the top three mango drinks in India whose brand names have now become synonymous with the fruit. All the three drinks have been a favorite of children all over India and have been competing for market share since ages and many would agree that these are probably 3 drinks that are most similar in taste and smell, probably more than the colas. However, recently there has been a decline in the demand. Not just one product but for mango drinks in general.
As a common but effective response, all three have been airing new advertisements to boost demand. However, whats most imteresting is that all three campaigns have something startlingly common to them. Ads thats once targeted only children are now seen to target adults. In fact, one can actually imagine the three CEOs sitting together and agreeing to market their drinks in a way that increases the overall pie of the industry. Slice has come up with the 'aamsutra' campaign to give a romantic and sensuous touch to mangoes, a right which was until now reserved with strawberries or grapes. While, Frooty has a 'why grow up?' campaign showing adults making weird noises while sipping on a straw. Maaza shows an mango fanatic adult who cant sleep at night because of his obsession for the king of fruits. All three campaigns have been launched within days of each other.
As a response, we have always seen foes turning friends when an industry was attacked by any external market or non-market forces. Arch rivals Coke and Pepsi gave joint statements and hired common lobbyists to combat the pesticide problem and Wii attempted at extending the video game pie to families and adults (Nothing stops Sony or Microsoft fro launching family games and ride on the wave. These are just two of many examples. Some might argue that children will be ignored due to this new effort, but what is to be realized is that children will NOT stop drinking Mango drinks because the ads now focus on adults.
This can only increase the overall pie thus increasing total industry profits. Classical problem of the prisoners dilemma seems to have fit in perfectly in this situation and I am certain that game theory analysts were hired to figure out the potential of this move. I wouldn't be surprised if there was only one report circulated to all three.
Whether it was a coincidence or a pre-meditated move does not really matter now as it was an optimal response and would do only good. I only hope that this downturn makes businesses realize the potential of possible cooperation in some segments and regain some of the relatively easy profits they have been shooing away all this time.

The Right Track

The article in today's Economic Times (Indian version of the Financial times) seems to be a similar lines to what we tried to do for the retail industry. The difference is that the tactics proposed by Mr. Neil are for business-to-business sales people in the context of cold calling. However, the principle remains the same. "Focus the sales effort where and when it counts" "Focus on the best opportunities, don't go chasing everything that moves"

For those who would like to read the article, here's the link:

http://economictimes.indiatimes.com/quickiearticleshow/4180431.cms

Hitchhiker's Guide to Retailing : Part 1

The current economic difficulties have triggered a huge movement towards cost cutting and efficiency. Companies are cutting costs all across the entire value chain from installing motion sensing lights to code sharing to shutting down stores. This is all nice, necessary and obvious. I hope these guys are also following the conventional strategic wisdom of protecting or even enhancing efficiency, productivity and quality while cutting costs. The notion demands an independent blog inquiry but more of that later.

Today I would like to kick start a blog series to understand, on a very practical ground, as to how a business can emerge stronger than its competitors when the sun starts shining again. I start by taking a close look at the RETAIL industry.

Retail in all its forms, apparel, food or anything else has always seemed to operate under a basic set of rules. Very simply put, a brand was CREATED by marketing and advertising, USED by selling products through outlets and PROTECTED using customer loyalty programs (I am talking about sale strategies and I haven’t forgotten supply chain issues!!) The strategy was simple, the game was levelled but there were masters of the game who played it better and emerged as leaders. However, as the world tries to change the rules of business as we speak, I will try and do my bit for retail.

The original model relied upon making the customers reach out to the brand. There is a focus on grabbing every opportunity by mass marketing. Loyalty was created by arousing greed (which is bad only if banks have it of course!) and giving away free stuff as a fraction of a percentage of the profit and brand recall is achieved by advertising. The only thing missing was that the whole game relied on the fact that when a consumer needed something, he would remind himself to buy a particular brand.

Given the current circumstances, I think there ought to be shift in the paradigm in the way businesses reach out to the point of sale...not just in 'space' but in 'time' too! Sale strategies should now focus on grabbing opportunities when they appear in the form of consumer needs and when they will be wanted and accepted. A retail brand is these turbulent times have to operate their business like a car alternating between brakes and the accelerator. While costs are cut, investment should be made in practical CRM solutions. Customer information needs to be captured, interpreted, extrapolated in time and used when appropriate to drive sales. The eventual strategy of an unsolicited email or a SMS is to, by chance or luck, just happen to arrive when the consumer has a need. We all know by now that it doesn’t generate demand the way it is projected to. The same principle has to be used intelligently though.

Consider some examples. In apparel, customer information like age and current educational status should be used to predict occasions or a specific need to increase probability of sale. Colleges usually have graduation ceremonies during the same period. Send offers on suits and blazers when they do. Advertise wedding dresses if the customer is engaged. Discount kids wear for customers who purchased baby clothing for a new born. Babies outgrow faster than a bamboo tree!! Baby presents are usually clothes. Exploit these trends in other sectors as well. It’s neither evil nor breach of privacy...its business! For department stores, capture customer information about household needs, infer usage patterns and promote offers on cereals, food grains, soups and sauces when you think they might have run out. The idea can be imagined in any retail concept.

Basically REACH OUT by estimating when the consumers need you most.

The thought is, that a single one time investment in an intelligent information system which uses an almost free mode of communication like email will definitely increase the probability bringing back those consumers to you which business fight so hard to retain. The emotional angle of a business that CARES will generate free loyalty that others will struggle to maintain. Finally, considering competitor reactions, it is a fact that 82% of businesses react in the next natural line of action as a reaction to an external situation so getting ahead using this practical and new approach would be a much needed and less anticipated differentiator in the competitive retail industry. Using compassion and extending help when it’s needed to be profitable is a win-win and its high time retail businesses understand this and transform the way they invite their customers.

The Trust Fallacy

Out of the many management principles that are much talked about and which we try to emulate is the popular discussion on micro-management and all the evil that it bestows on an honest attempt by a leader to build trust in a team.

For those who have missed the 'taken-for-granted' concept, here it goes.

'Micro managers are those managers who like to take every decision, big or small, themselves and like to breath down a team members neck by dictating and controlling all the tasks performed'. Popular belief says that Micromanagement should be avoided at all costs as it ruins trust which is indispensable for healthy team play. Being a natural skeptic of all obvious principles, I think I rather dig deeper into this claim than take it at face value.

Consider this, You are a 'team leader' (I frankly don't agree with the term 'leader' but more on that later) and you have just been 'assigned' a team for your next project which just happens to be very critical. I emphasize the word 'assigned' because for the most of us who are trying to break the barrier of mediocrity and still climbing the lower rungs of the corporate ladder, this is the way life looks like. We are given resources with a pat on the back. We CAN'T choose them. Now how do you build trust amongst your team members and instill some of it for yourself when you haven't a clue as to what the resources and capabilities of each of the members are?? (I can hear the proponents and worshipers of 'historical performance' grunting right now) Isn't it obvious? Historical performance is a good indicator. Just look at their previous work, what they have done, where they have been, extrapolate and ASSUME performance on this project as well. The answer is no! If history has taught us anything, historical Performance is not an indicator of future behavior. Try arguing against this with Warren Buffet!! Now that I have added some credibility to the statement by mentioning Mr.Buffet, we can move on.

Maybe in part, but every project is different and the capabilities of all the resources on the team need to be assessed to locate a strategic fit between the project requirements and the individual qualities/behaviors (behavior is important!! We aren't talking assembly lines here). Misfits stick out like a sore thumb and one can be rest assured that this wont change with time. So how can it be done? and here lies the dilemma!

Most managers NEED to micromanage initially to realize the behavioral pattern of team members but this undermines trust. How is the task accepted by individual members? What steps do they take to reach a logical conclusion? Are they fact based or backed by mere experience and intuition? What are the causal explanations given? Is the level of detail satisfactory for this task or maybe too much? etc. These are important indicators needed by a managers to make a decision on the level of trust that he or she can assign to each team member (Another fact of life..people are different, even if they have the same profile!). Subordinates jumping to conclusions is not unnatural here. Managers and team leaders are quickly labeled as intrusive and distrustful and thus starts the crumbling of team cohesiveness. As trust starts to disappear and friction builds up, managers have to micromanage more to keep the project going, taking team dynamics in a downward spiral till it starts to compromise quality with increasing efficiency.

With a new team, initial micro-management is not a sign of lack of trust but should be more of a measurement and calibration exercise. Leaders have to learn to let go once they understand the roles and subordinates have to give their leaders a chance till they can. Patience might go a long way here. However, it is also not difficult to recognize managers who have micro-management as their blood type . In this case, I suggest a small cost-benefit analysis w.r.t. disagreeing with the manager. Look at the bigger picture and see the effectiveness of managers comments on the appraisal.

Micro-management is not all that bad if its a part of a bigger plan. The key is to make this plan vocal and transparent. Let your team members know that greater responsibility (although customized!) will follow the painstaking exercise of identifying strategic fits between tasks and capabilities. If possible, assign less weight to this phase of the project in order to skip expectations and reduce the impact of assumptions of future manager intrusion that drives most projects into a vicious circle of lower trust and mediocre deliveries.