Week ending 12th April 2013

Last week the death of Margaret Thatcher pushed every other story about almost anything else off the front pages.  Even Fat Boy Kim who is threatening to blow up the world was relegated to the middle pages, which won’t have improved his temper I fear.

So I will not attempt to add more to what has already been written and broadcast about Margaret Thatcher.  However if there is one thing from her life and career that I think holds a lesson for us all it is that she knew what she was there for. Everything she did she did with a clear purpose to achieve a clear outcome and this is the theme for this week’s TWb4TW.

Two speed M&S.

Sales at M&S for the 13 weeks to March 30^th squeezed out a 0.6pc overall increase, down 3.8pc in clothing but up by 4pc in food.  The drop in clothing was not as bad as feared and M&S shares rose by 4.3pc in response.

Food is now 55pc of total sales and is growing faster than the grocery sector as a whole, in spite of not selling online.  Commentators were unanimous in being perplexed by how M&S can get their food offering so right but their clothing so wrong.  In food they continue to innovate whilst their competition can only emulate.  By contrast in clothing they flounder and watch the competition speed past them.  You can see clearly what M&S food is there for but as for their clothing, you wonder why they still bother.

CE Marc Bolland says he needs more time to turn round the clothing division and has bought in a new team including Belinda Earl as the company’s first style director.  A number of commentators and retail analysts are urging Mr Bolland to replicate the success of the food business in clothing – summed up as directional, not trying to do everything for everyone and value for money but skewed towards the high end of the market.  Whilst this may well be part of the answer I am not sure it is the entire problem.

When you have a problem the temptation is first too look for the new, different idea that will solve the problem.  However M&S dropped the ball in clothing about 20 years ago, just about the same time it picked up the ball in food and started to run with it.  Whilst it was some time before this showed in the numbers they gradually lost sight of what their clothing division was there for, whilst becoming steadily clearer about what they were there to do in food.

I would suggest that Mr. Bolland needs first to understand how M&S lost its way on clothing whilst at the same time finding its way on food. How did the present situation arise?  What was it that used to work and now does not and why?   This process would also help him discover what purpose would be served profitably and who for by the clothing division today and then the problem and the solution will become clear.  Perhaps M&S only has one ball!

PCHP

Talking of sales figures global sales of personal computers fell by 14pc in the first three months of the year, the biggest fall since 1994.  HP which is still the world’s biggest PC seller saw one of the biggest falls, shipping 24pc less in the first quarter.

Clearly a big change is going on and if you are the biggest loser in a product area that has “loser” written all over it you had better sort yourself out pretty soon or you’re dead.  Here are some of Meg Whitman’s (CEO of HP) responses last week.

“We are aggressively pursuing a multi-form strategy” – “In the end I would very much like to be in smart phones” – “I worry about Lenovo and all of HP’s competitors”.

And on her claim of accounting improprieties at Autonomy when HP bought them.

“When the news about Autonomy broke the remaining employees were unsettled – that’s the best word” – “HP is still incredibly committed to Autonomy”  - “This is terrific technology. It’s almost magical technology.  What it allows customers to do is to understand all the unstructured data, the application of legal and compliance – it is terrific technology”.

So that’s all clear then. Can you spot what Meg Whitman is there for and what the purpose of HP is to be?

Swann song

I have written about Kate Swann previously but it is worth looking again at her remarkable record at WH Smith as she hands over the reins to her successor as CE, Steve Clarke.  She has turned WH Smith from a loss making, uncompetitive near basket case with no clear reason to exist into a highly profitable business that knows what it’s doing and why.

Swann was very clear about her purpose at WH Smith which was to make profits.  She was not afraid to take difficult, contrary decisions to achieve this.  Taking out low margin entertainment products actually reduced sales, almost a blasphemy in the retail world, but she showed how concentrating on higher margin products made much more money.

She is ready for another challenge and she won’t be short of offers.  However whoever gets her needs to understand she will do the job her way, she’ll be clear about that.  Does that remind you of someone?

French disconnection

If there is anything worse to be in than the PC market at the moment it is the French economy.  The economy contracts, competitiveness evaporates, taxes go ever higher and their sovereign debt accelerates to over 90pc of GDP.  Francois Hollande has managed to become the most unpopular President ever, even though voters still think they should continue to receive all the benefits the French state can no longer afford.  This also reminds me of something.  Oh yes I remember, the state of the British economy before Margaret Thatcher.

And finally

I read last week in an article by Sun Baohong in the Telegraph that when Coca-Cola first entered the Chinese market its name was represented by the Chinese characters that meant “Bite the wax tadpole”.

I can’t help feeling that somewhere there is a product for which the brand “Bite the wax tadpole” would be perfect.  Any ideas, I would be pleased to hear them.

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 May 2012

Queen speaks – government creaks

It is difficult to find much inspiration in this year’s Queen’s Speech. It contained only one piece of proposed legislation – overhaul of employment tribunals – that had anything to do with encouraging economic growth. Yet just the day before the PM and Deputy PM had declared that economic growth was the coalition’s first priority. We keep hearing this ambitious talk about growth from this government but this is not matched by ambitious action for growth.

The deficit reduction policy and programme has been clear and decisive and consequently has been supported by UK business and the financial markets. By contrast economic growth policy is muddled, piece meal at best and there is a growing suspicion that the government does not actually know what to do. There are also signs that concern about the UK economy in financial markets is shifting from the deficit to lack of growth. Waiting to see what happens and a reluctance to take risks is the way many businesses are thinking and government is feeding this rather than taking action to change it.

The budget did deliver some welcome measures.  However if economic growth is the first priority then what does taxing grannies and putting VAT on takeaway pasties have to do with it?  We are all in favour of “tax simplification” but the right now only simplification measures that are directly connected to economic growth should be considered.

As we have said before we would like to see three things – more spending on infrastructure – a significant reduction in employers national insurance for firms that take on more people – more generous tax relief on capital investment. On the latter the government argues that reductions in corporation tax have made up for the reduction in tax relief on investment. We would argue that right now that is putting too much of the incentive at the wrong end.

These three measures or something like them would be seen as bold and decisive action to boost the economy. This would show that the government is as serious about economic growth as it is about deficit reduction and it knows how to make it happen.

Deficit – what is that really all about?

Last week saw another day of strikes and protest by public sector workers. Feelings are clearly running high which is understandable given that much of the fallout from reducing government expenditure will affect public sector workers.

However there is a bigger challenge to come and that challenge is the reform of public services themselves. British Industry in the 1970’s was over manned, badly managed, in thrall to the unions and just hopelessly uncompetitive on just about any measure you cared to use. Our public sector looks very like this now. For example Steve Hilton, David Cameron’s director of implementation who is leaving to take up a university post in America has told the Prime Minister that the Civil Service could function effectively with just 10 per cent of the current staff.

It would be easy to dismiss this opinion as the scale of change it implies is almost unbelievable. However it is a similar scale of change to that which was needed to make British businesses competitive again and the process is still going on.  Current public sector cuts are simply reducing expenditure. The job of reforming our public sector to deliver affordable public services has hardly begun.

JP Morgan – fear and greed in action

In our last article we wrote about those two powerful human emotions, fear and greed and the need to understand how they influenced the behaviour that led to the financial crisis. Now JP Morgan has given us a classic demonstration of how these emotions led to a $2bn trading loss.

The Chief Investment Office (CIO) was supposed to be hedging or de- risking the bank’s exposure to credit. Then the greed kicked in and they began to push the trades further towards proprietary trading. This produced what looked like really attractive returns, doing great things for bank profits and for individuals’ reward packages. Then the fear kicked in. No one wanted to lose those profits and rewards so they kept the game going even though the bank’s senior executives were warned that the CIO was “an accident waiting to happen”.

Another characteristic of these disasters is that at least one of the key players has been given a silly nickname.  A senior trader at the CIO collected two of these. Bruno Iksil was known as the “London whale” and “Lord Voldemort”. This really is a sign of that both the individual and the organisation he works for have lost all touch with reality.

Holywell springs eternal

Finally a great David & Goliath story. Two years ago CocaCola closed down Malvern Water and refused to sell the Malvern brand to any other buyers. Now tiny (just 6 employees) Holywell Spring Water have registered the trademark Holywell Malvern Spring Water and they have got away with it. Holywell spring in Malvern Wells was deemed to be the original source of Malvern water so EU trademark law allows Holywell to use the Malvern branding on its products.

Ironically the company tried for two years to buy the Malvern trade name from CocaCola, but were refused. CocaCola just don’t seem to be able to get this bottled water business right do they?

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.