Week ending 29th March 2013

This week’s TWb4TW is more politics than business for a change, though as always there are lessons we can learn. 

Aspiration Nation

This week sees the start of some of the biggest changes in decades for the NHS.  These changes are made even more significant given that the Tories said in their election manifesto that this is one thing they would not do.  We are used to politicians not doing what they promised but this may be a first where they do what they promised not to do.

As a precursor to these changes there has been a rewrite of the NHS “constitution” as the framework for the new look NHS.  Robert Francis in his report on the Mid-Staffs hospitals scandal recommended that patients’ rights be formally enshrined in this new constitution.  He wanted to make it explicit that “patients are put first” and that “everything done by the NHS should be informed by this ethos”.  A good idea would be the response from most of us I suspect.  However all that Jeremy Hunt the Health Secretary has come up with is that the health service will “aspire to put patients first”.

Yes I kid you not, these are the actual words that have been written in to the new NHS constitution and published last week.  Coming hard on the heels of George Osborne’s “aspiration nation” budget speech it seems that “aspire” is the new theme for this government as the alternative to actually delivering a result.  After all it has a loftier almost spiritual feel to it when compared to “doing your best” or “trying hard”.  In fact as long as you are “aspiring” you don’t even have to bother with either of those.

The other thought that occurred to me was if the patient has not been at the core of the NHS constitution previously than what was?  Could it have been?

“The NHS exists to enable doctors’ receptionists to satisfy their need to exercise complete power and control over the rest of the human race”.

Or

“The NHS exists to increase the income and egos of medical consultants in equal proportion for ever and ever”.

Or

“The NHS exists for politicians to mess about with, even when they say they won’t and so they can feel they have done something worthwhile”.

OK I am using 3 stereotypes to make a point (and get a cheap laugh) but to actually put the words “aspire to put patients first” into the NHS constitution is just as big a nonsense.  The question is how could this happen?  I have a horrible feeling it is because:

Clever people do clever things

A lot of clever people would have worked on the new NHS constitution, politicians, lawyers, civil servants, representatives of medical professional organisations and so on.  We know these people are clever because they all have firsts from top universities and say things the rest of us can barely understand.  They will have worked far in to the night to produce a set of words about patients that would ensure that it would be difficult or even impossible to be held to account for anything that actually happens to them.  The person who came up with the word “aspire” may well feature in the next honours list!

However what has got lost amongst all this cleverness is a clear sense of purpose.  Without a clear sense of purpose which everyone involved can understand and relate their own role to then the project is doomed to fail.  This has been proven in research and practice time and time again in both private and public sectors but still clever people almost invariably get this wrong. The problem is that for clever people having a clear sense of purpose is just too simple and keeping it simple is not what clever people do.

 

I don’t like your attitude

The Francis report on the Mid-Staffs scandal is an example.  Whilst the recommendation for patients’ rights to be enshrined in the NHS constitution is spot on, Robert Francis and his inquiry team could not resist going further and coming up with no less than 290 recommendations on how to do this.  Now if you want to make something actually happen 29 would have been too many and 290 introduces such an enormous drag factor on change that any meaningful change is unlikely to be achieved.

The number of recommendations is a product of getting into too much of the detail of what should be done, rather than focusing on what needs to change and then holding people to account for making that change happen.  The Mid-Staffs scandal is being used to demonstrate that the standard of patient care throughout the NHS is sub-standard and that this in turn is down to the “attitude” of nursing staff in particular.  One recommendation for fixing this is that nurses should spend a year on the wards caring for patients including feeding and washing before they qualify.  I suspect like me many people were surprised to find this did not form part of current nursing training.  However the inference here is that this will sort out the “carers” from the rest and fix the “attitude” problem, at least Jeremy Hunt seems to think so.

The very worst place to start trying to change people’s attitude is to tell them it needs to change.  What is more the attitude of rank and file staff in any organisation is a direct result of the attitude of the leadership.  Consequently attempting to change attitudes amongst staff without first changing the thinking and behaviour at the leadership level is bound to fail, as all the research and practice again demonstrates.  For the NHS this leadership “attitude” problem goes right up to the top political level.  Perhaps if any politician “aspiring to reform” the NHS was required first to work for a year on the wards, caring for and washing patients, we might get better outcomes for the NHS and all of us who use it.

Arising from the ashes

Back to business now and one good story last week was the news that Jessops photographic shops will be returning to the high street.  TV dragon Peter Jones acquired the brand, stock and other assets from the administrator in a joint venture with restructuring specialists Hilco.

The return to the high street was a surprise as Jones was expected to relaunch Jessops as an online retailer only.  He is smart enough to know that in spite of the best efforts of previous managements and owners Jessops is still the leading brand in the specialist photographic equipment market.  What’s more because, as Jones himself says Jessops sells a “technical product” the click and collect model that a combined high street and online presence enables is best suited to the core Jessops customer’s needs.  So absolutely the right business model and Jones expects to have around 40 stores open by the end of April enabling him to cover the UK with click and collect and to offer the technical advice that the Jessops customer values.  Half the 500 staff will be previous Jessops employees.

The only slight doubt I have is that Jones is to be both Chairman and Chief Exec.  Given his many commitments it will be a challenge for him to give the attention to detail that will be needed to make this all work.  He will need to find leaders amongst his management and staff to help him with this.

And finally

Congratulations to Nick D’Aloisio the 17 year old who sold his app Summly to Yahoo! for £20m.  Apparently this app detects the key points in news stories and automatically rewrites it to fit on to an Iphone screen.  Even though this is still bigger than the average Sun reader’s attention span Yahoo! is very excited about it and maybe they are right to be.  However as they are also the company who took over the management of the Sky e-mail service last week and promptly emptied over 10,000 old e-mails from my business partner going back years into my two mail boxes, I am not so sure.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good Easter break and hope you have a great week this week.

Week ending 22nd March 2013

The budget dominated the business, economic and political news last week.  You will be pretty fed up with reading about it by the time this week’s TWb4TW is published.  So apart from a small mention at the end this is a budget free zone.

Cunning Foxtons

One positive sign that maybe an economic recovery could be stirring is a revival of interest from investors in Initial Public Offerings (IPO) or “floating a company on the stock market” to you and me.  Investors are encouraged that both Esures and estate agents Countrywide’s IPOs got away smoothly last week and have even begun trading above their float price, which is a first for some time.

This has prompted reports that another high profile firm of estate agents, Foxtons, are considering a potential £780m IPO.  You may remember Foxtons prospered during the London property boom and became famous for the brightly painted Minis it provided to its staff which promoted its brand as they hurtled round the streets of London.  Foxtons expanded rapidly on the back of the London property boom.  However, whilst it was high profile it was not very highly thought of by people who had bought or sold property with them.  Over optimistic valuations and putting sold signs on properties that were not yet sold to boost their apparent sales success were just two examples of practices their clients complained of.

In 2007 BC Partners (BCP) paid £375m for the business of which £300m went to Jon Hunt the founder.  Then the London residential property collapsed and so did Foxton’s profits.  The deal had loaded the company with debt and initially the banks involved took control with a debt for equity swap and BCP writing off a significant proportion of their investment.  However, surprisingly BCP then decided to buy back both the debt and the equity.

Perhaps not so surprisingly.  The buy backs were achieved at an advantageous price as the banks were happy to get rid of the problem.  The timing was good as the London residential property market recovered and Foxton’s high market share enabled them to deliver record sales and profits.  So it would not be surprising if the next stage of BCP’s cunning plan for Foxtons is an IPO.  If they were to achieve £780m this would be a pretty good return despite the earlier problems.  But what would investors be getting?

Now even my dog knew that the first property market to recover would be London.  So, on the face of it you would be investing in the dominant player in a resurgent London property market which sounds pretty good.  However Buzzel and Gale in their book “The PIMS Principles” demonstrated that whilst high market share is indeed highly beneficial to profitability, it depended on “how” that market share had been achieved as to whether that profitability could be sustained.  Market share achieved through delivering “superior relative quality” of product and service to the customer would sustain high profitability.  Market share achieved through other means, such as opening lots of estate agent offices, contains inherent weaknesses which eventually become detrimental to profits.

This was backed up by Zook and Allen in their examination of the long term performance of over 2,000 companies in 2001 and then repeated in 2011.  They concluded that:

“A common misconception is that rapid, sustainable growth can only occur in “hot” markets—markets that are growing rapidly—and that being in a hot market is the best way to generate high profit levels. Our data refutes that. A variance analysis of our database demonstrated that relative competitive position within an industry is more than four times more significant than the choice of industry in determining the economic returns of companies. In other words, it’s how you play the game that matters, not which game you play”.

All the commentary around the possibility of a Foxtons IPO centres on the “hot” London residential property market as the key to success.  If Foxtons have also upped their game on the quality of service they provide their clients, the acid test being would most of their clients definitely recommend them to others, then you would have the best of both worlds, a quality company dominating a currently hot market.  However if not much has changed at Foxtons then an IPO would be no more than an opportunity to have a punt on the London residential property market.  Each is a valid proposition provided it is clear which one you are being offered.  Is it real "competitive strength" or just high and possibly temporary market share advantage?  So beware the cunning Foxtons and look carefully at the other IPOs being lined up for launch this year.

ARM – keeping cool in a hot market

In case anyone has not heard of ARM they are a Cambridge based company that designs microchips and generates its revenues from licensing these designs to those that wish to incorporate them in their products.  Its chip designs are used in nearly all the world’s mobile phones and you won’t find a hotter market than that.

ARM was created from a spin off from Acorn computers, a company that prospered for a while but just could not keep up with the big boys in PCs.  However what they did know was that could design better micro chips than Intel and others.  Because they did not have experience or facilities for manufacturing they came up with the licensing model.  This has proved to be spot on and so resilient that ARM safely worked its way through the dotcom boom and volatility in semi-conductor markets.  In 2012 they achieved £577m of sales and £221m of profit.

ARM is an outstanding example of how "competitive strength" creates the "changeability" that delivers even more "competitive strength".  They demonstrated this again last week when their CEO Warren East announced he would be leaving after 12 years in charge, handing over to Simon Segars who has been with ARM even longer than East.  Given that the opportunities for ARM to go for another major phase of growth have never been better it is perhaps surprising that East has decided to go now.  His reasoning is that as it will take 6 years for ARM’s next design blueprints to be in products and with the company being in a strong financial and market position now is the right time to make this change.

This is a superb example of clear thinking and the understanding that it is not the “hot” market that really matters but the company’s ability to successfully exploit the opportunities.  East has ensured ARM can do this in every respect, right down to deciding that a change of leadership was required.  We don’t have enough people like him in top positions in UK businesses.

Italian Job

The financial crisis in Cyprus was a big economic and political story last week.  The Cypriot government is trying to raise the €6bn it needs to secure an EU bailout and proposed to do this by taking a slice out of citizens and exp-pats’ bank accounts.  Tactically actually having a government is where the Cypriots may have put themselves at a disadvantage in their negotiations with the EU.  Let me explain.

By contrast it is now more than a month since the Italian elections and they still haven’t actually got a government.  In fact as 25% of the vote went to a party that said it would not be part of any government Italian voters in effect voted not to have government and that’s what they got, or didn’t get.  This confirms the observation of a previous UK ambassador to Italy that “it is not difficult to govern the Italians, it is simply unnecessary”.

So Italy is probably a country that can get by perfectly well without a government. When it comes to negotiating with the EU (or Germany to be more accurate) this puts them at an advantage as the Italians have contrived a situation where there is no one for the EU to talk to.  This leaves the EU with little choice but to carry on as before which suits the Italians, both voters and politicians perfectly.  Cyprus and maybe Spain take note!

Rhyming slang

Briefly on the budget I was struck by George Osborne’s little catch phrase, “aspiration nation”.  This sounded like a trial run for the Tory election slogan in 2015.  Ed Milliband countered with “a degraded budget from a degraded chancellor”.  However without the little rhyme it isn’t memorable enough to be an election slogan.

However the overall reception from UK business to the budget was that we are an “anticipation nation”.  In other words we are still waiting for George Osborne to redress the balance between just making announcements and actually doing something.  Even some of the things that sounded like they might be about to doing something are not planned to happen for 12 months or more.  A bit less of the politics and a bit more focus on the day job of getting the UK economy moving is what business is still looking for.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

Week ending 15th March 2013

TWb4TW is back.  Sorry for the gap, have had a very busy two months (good)  plus some health problems with immediate family (not so good) that took up a lot of time.  So here we go with some of last week's news.

Is there a nasty side to John Lewis?

Last week John Lewis Partnership (JLP) was accused by the Forum of Private Business (FPB) of bullying its suppliers when it was revealed it was demanding a “growth rebate” of up to 5.25% from its suppliers.  JLP’s argument is that its exceptional sales performance is due to its investments in new stores, refurbishments and its growing e-commerce operations.  Therefore it is only reasonable that suppliers who benefited from increased profits through efficiencies provided from the increase in volumes should make a contribution towards the investment that brought this about.

On the face of it this does look as though JLP, who are often praised by government as a model British business, love their customers and love their staff, but are just as capable of putting the boot into their suppliers as any of those nasty supermarket people.  I am not going to try to resolve the argument between JLP and FPB in this article as this is a case of “they would say that wouldn’t they” on both sides.  What it has made me think about though is the relationship between suppliers and retailers.

Manufacturers and suppliers of consumer goods have one fundamental challenge. Their expertise and assets are in developing and producing the products.  However even if you have invented and can produce the best mousetrap in the world if you do not have the means to put in front of customers in a way that enables them to buy it, then you don’t have a business.  Retailers provide the space to stock and display product, the footfall of customers who might buy the product and the means of making the transaction.  If a consumer goods supplier cannot find an alternative way of doing all this themselves then they have to work with a retailer, otherwise no sales!

These suppliers need to think hard about what this means for the balance of power in the relationship.  Apart from a few “must have” products and brands (a costly position to achieve and often temporary) this generally means the balance of power is always going to be with the retailer, so don’t be surprised if the retailers use it.

James Dyson had to face up to this some years ago.  Even though he had invented the best vacuum cleaner on the market, the expectations of customers for household electrical goods were that prices did not increase and over time they reduced.  Dyson’s retailers had to respond to this if they were to compete and so did Dyson.  This is why he closed his UK manufacturing facilities (much criticised at the time) and moved to Malaysia to lower his costs.  Because Dyson faced up to the reality of the market in which they operated and adjusted their business model to compete effectively they are now a global brand and business and employ more people in the UK than they did when they manufactured here.

So if you are a JLP supplier and feel they are now showing their nasty side, which you didn’t see coming, then ask yourself this question.  Would you rather have them as a customer who, with their “competitive strength” can invest and change to meet the new challenges in the market or would you rather have been a supplier to HMV and Jessops whose lack of “competitive strength” meant they couldn’t and didn’t?

Zara – another way

Talking of retailers the world’s largest clothing retailer is the Spanish company Inditex, best known in the UK for its Zara fashion shops.  In spite of the global financial crisis and economic chaos in Spain the company’s value has grown from €37bn in 2007 to €65bn now.  Profits increased by 22pc in 2012 alone.

Inditex is not only the world’s largest clothing retailer but also one of the largest clothing designers and manufacturers.  The company produces more than half of its products itself and every item of clothing passes through its Spanish manufacturing and logistics facilities.  All this started when Inditex’s founder and owner Amancio Ortega opened a shop in La Coruna to sell products from his nearby factory.

So it’s another business model but in Inditex‘s case it’s a fast fashion model, capable of taking a design from catwalk to shopfloor in two weeks.  What’s more if a design does not sell it can be withdrawn, the lessons learned and then replaced in the same time frame.

Contrast this with the situation at M&S where the only change they have made to their clothing business model was to move their British based supply chain offshore.  M&S are desperate to get their clothing business right but the next opportunity they will have is not till they launch their Autumn Winter ranges later this year.

This is not to say that the answer for M&S is to move into manufacturing.  What this and the Dyson example illustrates is the crucial importance of getting your business model right, taking full account of all the challenges involved, including the possibility of your customers demanding retrospective discounts.  I so often hear about business ideas and business plans, but not so often about how a business is supposed to work.  Successful businesses have robust business models and you can see why they work.

Morrisons – why are we waiting!

Another retail struggler is Morrisons who last week reported sales down by 2.1pc and profits by 7.2pc.  CE Dalton Phillips blamed this on lack of an online business, limited presence in the fast growing convenience store market and failure to promote the points of difference.  All very well and “bleedin' obvious” Mr. Phillips but when are you actually going to do something about it?

He has had a bit of luck with the convenience stores as other retail failures have enabled Morrisons to acquire 62 sites to expand the “M Local” stores.  On the points of difference they have hired that irritating Geordie pair Ant and Dec (not all Geordies are irritating, just Ant and Dec) to front an advertising campaign to promote the fact that Morrisons are the second biggest manufacturer of fresh food.  This has been reported on repeatedly in the business and trade media but no actual sign of the campaign itself yet.  Morrisons also failed to capitalise on the horse meat scandal, with only a few press adverts and the odd interview with Mr. Phillips being the sum total of their efforts.

On the internet he has stated “ we have a specific plan on the proposition and how we will be different” but no more details as these are apparently “commercially sensitive”.  This appears to be still stuck somewhere between the idea and the planning stage.

All this points to a lack of “changeability” in Morrisons’ culture and business processes.  This was evident in spades when they bought Safeway and the integration of the two businesses took forever.  They don’t seem to have shaken this off and until they do I don’t see them overcoming the challenges they are creating for themselves.  If Morrisons start demanding rebates from their suppliers before they have delivered sales growth then this won’t be a sign of smart business, just one of desperation.

Merve swerves but Heseltine on the money

In an interview last week Mervyn King, the soon to retire governor of the Bank for England actually said that economic recovery is now “in sight”.  Coming from the biggest misery guts in the whole economy I take this as the strongest signal yet that we can actually look forward to better times and that they are not too far off.

However far more significant for me was a radio interview with Michael Heseltine earlier in the week, as part of the usual “what do think will/ought to be in the budget” run up to the actual budget.  Heseltine replied that “what government, the public and private sector, in fact everyone in this country has got to realise is that we have got to do everything much better than we have ever done in the past”.  The big theme for the budget is “growth” but whether we get anything that is really about growth is another matter.  However I am pleased to find that Lord Heseltine agrees with me (note agrees with me) that growth is about “getting better” not about “getting bigger”.  Take note Morrissons, M&S and any of you JLP suppliers feeling hard done by.

Quote of the week

In a party political broadcast last week David Cameron stated that he had not gone into politics to be “the popular guy”.  My first thought was “that explains a lot” but my second was could this signal a new direction in political campaigning?  After years of politicians trying and failing to make themselves popular has Cameron spotted a truly left of field strategy for electoral success?  If so he will have sidestepped Ed Milliband who is desperate to make himself popular (or even for people to know who he is) and Nick Clegg who thinks he must be popular because what’s not to like about a fair minded Lib Dem like him.  Perhaps the killer ticket to capture the "unpopular vote" at the next election could be David Cameron and Ed Balls?

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

Week ending 18th January 2013

Once again a number of stories and themes to choose from for this week’s article in a week when finally snow arrived in quantities vaguely in line with apocalyptic Daily Mail weather headlines. I shall start with:

Confusion over the Community

Delivery by David Cameron of his long trailed speech on the future of our membership of the EU and a possible referendum was postponed due to the tragic events in Algeria. This was the right thing to do. In the short term at least there are some things that take precedence even over something as significant as our future membership of the EU.

However voters (or this voter anyway) must be completely confused as to where our leaders stand on the EU. Should we be in, should we be out or even, should we be shaking it all about? The referendum issue is making it worse as there are now two arguments going on. The first is about whether or not we should remain in the EU and if so on what terms. The second is about whether we should have a referendum and when. Add in Messrs Milliband and Cable who maintain we must stay in Europe but reform it (and the chances of succeeding on that are ...?) but don’t want a referendum and the confusion is complete.

It’s a bit like watching Morris dancing in the fog. You have been told a troupe of Morris dancers is going to perform. You can see shadowy figures moving about in the gloom and hear the occasional chink of bells and clack of sticks but whether there is any actual dancing going on and what sort of dancing is impossible to tell. Let’s hope that Cameron’s speech makes things clearer when he finally gets to deliver it. However that is more hope than expectation and I suspect on this one he prefers dancing in the fog right now.

Business on the Community

All this confusion worries business leaders because “business does not like uncertainty”. Personally I can’t remember when we last had the sort of certainty in business, the economy and politics that this seems to imply but perhaps others lead a more sheltered life than I do.

Roughly business opinion appears to be split between those that want us in the EU and don’t want to rock the boat with any talk of re-negotiation and those that want to see change and think that if this resulted in us leaving then we could manage very nicely thank you. The first group tends to be people who make things and sell a lot of them to Europe (like the UK MD of Honda) whilst the second don’t (like Simon Wolfson of Next). Further dire warnings come from the financial sector about the consequences for London as a financial centre but are then countered by others who see little or no threat even if we were to leave the EU.

One problem for the pro EU business lobby, especially for those who don’t want the boat rocked is that their warnings are very similar to those used to argue the case for us joining the Euro. As none of those dire consequences came to pass, in fact the opposite, it rather makes you think that an alternative relationship with the EU, including being outside might work in the same way that staying out of the Euro has.

In fact we could make any outcome work for us if (i) we were clear about the outcome we wanted, (ii) we had the will to make it work and (iii) we had the freedom of action to do what was needed to make it work.  Right now we have none of these.

Well burger me!

Sorry but I can’t let the “horsemeat in burgers” debacle go by without comment. Like many my first reaction was surprise that a pack of frozen “value burgers” contained any meat at all. They are not, after all labelled “beef burgers” just “burgers”. Burgers are grey, flat, round things made of mashed up “stuff” held together by God knows what.

What was not a surprise was that Tesco were the main focus of the problem. Other retailers withdrew burger products from their stores as a precautionary measure but Tesco’s value burgers did actually contain horsemeat. You would think that if a retailer puts its own name on a food product then it would have a pretty tight specification on what went into it. It seems this is not the case and that as long as they were “cheap” Tesco didn’t bother to check what they contained. This is just another manifestation of how far the change in culture has to go at Tesco with regards to its perception of what “customer care” really means. Throwing £1bn at the business is no substitute for “caring about your customers”.

It also makes you wonder what all those regulators in Brussels have been doing. They can tell us what light bulbs to buy but appear to have missed the opportunity to bring in “euro burger” regulations. Given all the expensive restaurants in Brussels and Strasbourg that they all eat in at our expense they may well have not come across the “value burger”.

How many channels in “multi-channel”?

More results from retailers last week and more administrations. Invariably the comment on the failures is that they were not quick enough to change (which is right) and did not get into online and multi-channel quickly enough (which is not necessarily right).

I was interested to come across a small chain of Danish homeware stores called Tiger, who added 5 new stores to its UK chain taking their total to 18. It plans to add another 8 in 2013 with demand for its products showing no sign of slowing down. All the shops are profitable. They achieved 55% sales growth during the Christmas period without any online sales at all! Whilst they have a website where you can browse products and find out where the shops are located they have no plans currently to go into online sales.

This makes sense right now because with an average transaction value of around £7 and many items which are bulky and fragile selling online presents more of a problem than a solution for both Tiger and its customers. Tiger concentrates on getting stores in the right locations where the footfall is sufficient to bring high volumes of potential customers into its stores. Then, to quote Managing Director Philip Bier “to be successful now you need to offer good value and a pleasant experience”.

So “good value and a pleasant experience” is this the real “multi-channel”? If you get these two factors right, whether in store, online or from your garden shed then you will win. Online retailing is valid only when it enables you to offer “good value and a pleasant experience”. Tesco, please note, it is both and.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 11th January 2013

Best wishes for the New Year everyone from me and this first article of 2013.  Usually a first article in a new year starts with predictions for the coming year. I am not going to do that for three reasons. First everyone else has already done this. Second I haven’t a clue (at least not a useful clue) about what is going to happen in 2013. Third TWb4TW is about looking back and drawing lessons from the recent past to use in the future. There were plenty of these from last week’s news and here’s a few that caught my attention.

Super not so super anymore?

Last week the big and not so big retail names reported on Christmas trading. In the supermarket sector winners appeared to be Tesco (+2.5pc), albeit having thrown £1bn at the problem, Waitrose (+4.3pc) and Sainsburys (+0.9pc, so only just). A significant loser appeared to be Morrisons where like for like sales fell 2.5%. Interestingly Booths, a privately owned supermarket group with just 28 stores all in the Northwest managed +3.5%.

Those of us who have thought “do we really need another supermarket” every time we saw yet another planning application for one can begin to feel a little smug as overall in the UK it now appears we don’t. The market is not just “mature” it’s becoming pretty much dormant as far as overall growth prospects are concerned. However much of the financial media and comment from financial analysts is still focused on like for like sales. But is this what is really going to matter?

In an insightful article in the Telegraph on Thursday Damien Reece pointed out that what really matters and always has is return on investment. i.e. profitability. Sales growth can drive profitability but when this is hard to come by then maybe other factors matter more. He contrasts Sainsburys profitability prospects with Morrisons.  On £23bn of sales Sainsburys is expected make around £752m. Whereas Morrisons, the apparent loser over the Christmas period is expected make £888m on around £18bn sales.

Justin King at Sainsburys has done an admirable job in growing market share, including moving into online and convenience stores. However this has been primarily a sales led strategy and is maybe running out of steam. Morrisons CEO Dalton Philips has been criticised for not moving fast enough into online retailing and convenience stores but this does not seem to have done significant damage to profits. He has started the move into convenience with his “M” Stores and is working on the online offer. Coming at these later than his competition may prove to be no bad thing in the long run.

However the lesson from all this is neatly summed up by Damien Reece in his article. “The conclusion is that neither company has got things quite right and both need to change. The reality is that only one of them admits it”. The world has and is changing, are we admitting that we and our businesses need to change as well?

Highs and lows on the high street

Contrasting fortunes on the high street over the Christmas period as well. An example of how you can be both a winner and a loser was Debenhams who reported their highest ever Christmas sales. However this was achieved largely through heavy discounting and a big increase in online sales. The discounting and extra costs incurred combined to produce only a tiny 0.1pc increase in margin. So all Debenhams got for its record sales was a reduction in its share price of 6.5pc.

The real low however was the collapse of Jessops the specialist camera and photography chain.  All its stores will close with the loss of up to 2,000 jobs. I am both frustrated and angry about this because it really did not have to happen.

The demise actually started back in 1996 when Alan Jessop retired and sold the business to a venture capital backed MBO. The business had grown from one shop to become a nationwide chain of over 200 stores and was consistently a “first mover” in its market. The buyers thought all they had to do was to buy the market leader, add more stores and then float the company to make a juicy profit. Unfortunately along with Alan Jessop a number of his senior team also left clutching nice cheques for their shareholdings. What walked out the door with them was the understanding of what it was that had made Jessops so successful.

The MBO did not get it and neither did the venture capital arm of ABN Amro when they bought the business in 2002. The company floated in 2004 with a deeply discounted IPO but the investors did not get it and were wiped out in 2009 when HSBC rescued the business with a debt for equity swap. HSBC didn’t get it either and is likely to lose £30m.

The collapse of Jessops is nothing to do with recession on the high street. It steadily declined even during the retail boom. Nor was it to do with camera phones or any of the other trite conclusions being trotted out. I am in no doubt that if the ethos that had driven the success of the business up to 1996 had been allowed to continue to flourish then the company would have as well. Instead the collapse became inevitable but it did not have to be this way.

Time to pay

One of the key business principles of the Jessops business under Alan Jessop was that suppliers were always paid on time, every time. Suppliers were expected to perform but if they did they knew they would get their money when they expected it. Consequently Jessops got the best prices, the best products and service from their suppliers and were always offered new technology first. This practice faded under succeeding managements. So much so that the reason there was no chance of selling any of the business as a going concern is that the suppliers were not prepared to support the business any longer.

This brings me to something I don’t do often, saying “well done” to a politician. This goes to Michael Fallon, Business and Enterprise Minister who has written to 350 FTSE companies asking them to sign up to the prompt payment code (PPC). What’s more he is threatening to “name and shame” any business that refuses to comply.

This is a good start but he has a big challenge on his hands and just how big is illustrated by the response from some big companies. Sainsburys' response was “We already abide by the spirit of the code and will be responding in the coming weeks”. Morrison’s claimed that it already paid suppliers within a “mutually agreed time frame”. GSK has just changed its payment terms to “within the first five calendar days of the month following the expiry of 60 calendar days from the date of receipt of the relevant invoice”. This is gobbledegook for “we have just pushed our payment terms out to 90 days plus”.

Pushing out payment terms to suppliers is not clever at all and in fact is bad business practice and verging on the dishonest. It pushes up costs as the customer employs people to spend time delaying and disputing payments and the supplier employs people to try to counter this. However the biggest disruption is to the business process down the supply chain as the end customer hoards a pile of cash that should be put to work through the system. In effect this causes blockages and interruptions to the “blood supply” which at the very least weakens the effective operation of the process and sometimes kills it off altogether. If the majority of businesses paid their suppliers within 30 to 45 days maximum this would release a huge lump of working capital into the business sector and is consequently in the national interest to do so. So good luck Mr. Fallon but you will need to be uncompromising and tenacious to push this one home.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 14th December 2012

This is the last TWb4TW until after the Christmas and New Year break. I started writing these articles in April and can hardly believe it is now nearly the end of the year and I am still writing them. I have been encouraged by the kind responses from you the people that read them and I thank you for those.

This week I thought it appropriate to produce my Christmas wish list, wishes for myself and others.  Here goes.

Cable not able

Last week Vince Cable took yet another swipe at big global companies that don’t pay enough or any UK tax. For Mr. Cable it is still the moral high ground that matters so no mention of our unfit for any purpose tax system. If the companies concerned are obeying the law then it is clearly the law that needs changing if it is not producing the result the country needs and that is the job of government.

Whilst Mr. Cable has done some good work at BIS underneath he is fundamentally anti business, or if isn’t he certainly sounds like it. I once heard him speak and claim that he was experienced in business because he had spent time as an economist at Shell. Anyone who knows anything about what economists do in organisations like Shell will know this doesn’t count as business experience.

So my Christmas wish for Mr. Cable is that he should get another job.  Minister for Overseas Development might suit his moralising better or perhaps being made to run an SME for a year might give him some “real” business experience.

It’s the economy stupid

Talking of experience my Christmas wish for George Osborne is that he too should find an opportunity to get some real experience. He is an example of yet another politician who is no doubt very intelligent but has done nothing but politics almost since he left primary school. This was demonstrated in the Autumn Statement and its aftermath where he was clearly more interested in scoring political points over Ed Balls than coming up with radical policies that would really get the economy moving. You can usually leave Ed Balls to score political points over himself, so why not get on with the job we pay you for, George because it really is the economy that matters and you are not stupid.

Does one more make a difference?

After the announcement that Canadian Mark Carney is to succeed Sir Mervyn King as Governor of the Bank of England last week we heard that Hector Sants was to join Barclays as head of compliance. Sants was previously Chief Executive at the FSA.

Now you can’t blame all the FSA’s failings on Sants. However he did step up to Chief Executive in time to rubber stamp RBS’ acquisition of ABN AMRO and he did publish just a 12 line press release on the FSA’s investigation into RBS, rather than publish the full report.

I understand that Barclays already have around 1800 compliance officers. So whilst Carney’s appointment does represent a new direction at the BoE you have to ask what real difference appointing a regulator to head up compliance will really make at Barclays.  My Christmas wish for Mr. Sants is good luck, but I have a feeling he will end up between a rock and a hard place with this one.

Train the trainers

The investigation into what went wrong at the DfT over the West Coast Mainline fiasco continues but with growing signs of avoidance tactics from anyone in the DfT who could possibly be blamed. My Christmas wish is that anyone at senior level in the DfT should be given a train set for Christmas and  required to assemble it in to a working model of the West Coast line in 30 minutes or be shown the door. Simple and effective.

HP used to work

I own an HP printer which I bought in the days when you could truly say buy HP because you just plug it in, turn it on and it works. What’s more my printer still does work, even though HP has had about 5 CEOs since I bought it. My Christmas wish for HP is that they should make me an offer for my old printer, with a suitable Autonomy sized premium and I would be delighted to sell it back to them. Then they could examine it and discover what it was that they used be really good at.

Oh no it's Silvio

You could not make it up; Silvio Berlusconi is running for Prime Minister of Italy again. This proves the view of a previous British ambassador to Italy who said “it is not difficult to govern the Italians, it is simply unnecessary”. Sr B’s first public pronouncement was to state “who cares about how much interest we pay to people who invest in our debt obligations compared to Germany”. This will be music to many Italian’s ears but maybe this time not enough of them will buy the message. So I wish Silvio Berlusconi everything he deserves.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. TWb4TW will be back in the New Year so have a great Christmas and New Year holiday.

That was week ending 7th December 2012

The theme for this week’s TWb4TW is “and now for something completely different” or not as the case may be.

This is the Autumn of our discontent - or should that be Winter?

Last week the Chancellor delivered his Autumn Statement. Now I may be a bit pedantic and old fashioned but for me December is winter. In fact over the last few weeks I kept thinking I must have missed the Autumn Statement, we seemed to wait a long time for it to appear. Given that it required the Chancellor to admit he is going to miss almost every target that he has been telling us are essential to achieve, he may have needed more time to think of plausible excuses.

Much has already been written and spoken about the statement so I am not going to add to that. However one thought did strike me.  Suppose you are on the board of a holding company reviewing the performance of the MD of one of your subsidiaries, which has been making losses for some time. He tells you that sales are static, that whilst he has cut some costs overall they are still increasing and that several new projects he announced either haven’t started or are taking longer to deliver results. However he assures you that everything is on track, but it may take 2 or 3 years longer before profitability is restored. When you quiz him about what he is doing different that might get a different result he mutters vaguely about taking some of the spend from one part of his operation to spend in another.

How long would you put up with an MD who keeps on doing the same things and assuring you that this will deliver a different result? Not long I suspect. Did the Autumn Statement contain anything really different that looked like it might deliver a different result? Well I couldn’t spot it.

What could be different?

Most commentators had some sympathy for the Chancellor saying that he had a difficult hand to play. However I am grateful to Fraser Nelson of the Daily Telegraph who highlighted some countries that have tried something completely different and are getting different results.

Estonia is a tiny country surrounded by large and powerful neighbours, with every reason to blame global forces for its own economic problems. However throughout the downturn it has kept its tax rates low at 21pc. It cut state spending by a tenth in one year compared to our average of 2.5pc a year. The result is Estonia now has the fastest growth in Europe.

Socialist Sweden made a permanent tax cut for the lower paid that encouraged so many people back to work that the extra revenue covered the cost of the policy. The tax cut amounted to a whole extra month’s salary a year. The increase in tax allowances here will benefit about 20 million people, but the tax cut amounts to 90p a week. Not enough to spend in pound shop, much less kick start the economy!

The Swedes also reduced corporation tax from 26pc to 22pc, but they did it in 3 months, whilst our reductions are being phased over several years. So is it time to try something completely different like significant tax cuts, delivered hard and fast that will stimulate significant economic activity that in turn will deliver higher tax revenues and lower government spending? Just a thought.

No change from Tesco

It is now a year since Tesco’s Chief Executive Philip Clarke launched a £1bn turnaround plan. However like for like sales fell again in the third quarter and now around 29pc of UK consumers choose to do the majority of their food shopping at Tesco, down from 35pc in 2011.

Some analysts have said it may be too early for consumers to have noticed the improvements Tesco has been making in staff and products. I believe that the problem is more that they have not noticed anything really different and that’s because it isn’t. Some of you may recall the experience recently of my business partner who when he was unable to access an offer on Tesco’s website reported it to customer services. They insisted first that there wasn’t a problem with their site it must be with my partner’s system. They went further suggesting ways he could spend his time fixing what was their problem and of course “nobody else has complained”. Eventually last week he was contacted by a technical person (significantly not from customer service) who admitted there was a problem with the Tesco website and there had been hundreds of messages about it.

So does £1bn to revitalise stores and products and hire 8,000 extra staff make a difference? Not so far apparently and maybe it’s because it won’t make the slightest difference to Tesco’s attitude to its customers, because Tesco doesn’t think it has an attitude problem.

HP full steam on to the rocks

Last week HP’s market value fell to $27bn which is now below the $31bn it has spent on acquisitions in the last 5 years. Research has consistently shown that mergers and acquisitions usually destroy value. HP’s management seem bent on proving this by setting an all time record for value destruction. Indeed they may have already achieved it.

Market speculation is that the company may be broken up as the sum of its parts now looks significantly greater than the whole. What is clear is that it needs to do something radically different as the current strategy which is to straighten out the huge mess that is today’s HP seems highly unlikely to succeed.

Other stories from last week, worth a mention

Starbucks offer to pay voluntary corporation tax was an appropriate way to kick off the pantomime season and it was different!

Sir Philip Green’s 25pc sale of TopShop leaves his Arcadia Group debt free and with £600m to fuel further growth. Sir Philip doesn’t have to do anything different, just carry on doing what he is really good at. Unlike HP who seem determined not to do what they used to be really good at.

The report into the West Coast rail bid fiasco was published confirming what we already knew about the levels of incompetence and dishonesty at the DfT. Now it’s official will it make a difference? Not holding my breath.

The Tchenguiz brothers started their claim for £200m against the Serious Farce Office for losses incurred as a result of their wrongful arrest. This is the largest claim ever brought against a government department. You could almost wish them well until you remember it is us the taxpayers who will have to stump up the £200m. Those responsible for the mess at the SFO at the time have all left with large payoffs, again paid by us. So no change there then.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.