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 12th October 2012

The merger that never was

The proposed merger between BAE Systems and EADS was killed off last week by stern Auntie Angela who made it very clear she wasn’t having any of it. What interested me about this was the human behavioural aspect and how people who are clearly very intelligent can get caught up with propositions that do not succeed.

BAE is now a pure defence company. Indeed it sold its 20% stake in Airbus to EADS in 2006 as part of its strategy to focus on the defence sector, especially in the US. However defence spending globally is now substantially reduced and likely to fall further so BAE needs to find a way of reducing its dependency on the defence sector. At the same time EADS is trying to find ways of reducing its dependency on its core Airbus commercial aircraft division.  The leaders of both companies appeared to take one look at each other and saw the solution to their problems. Let’s merge the businesses and hey presto, our problems are solved.

Something strange seems to happen to business leaders when they get involved in mergers and acquisitions, especially when they see it as the answer to their problems. They get so caught up with the idea that in one bold stroke they can transform their situation that it does not occur to them that other people whose support they will need do not see it the same way at all. It has happened with BAE and EADS and it is bedevilling the proposed Xstrata/Glencore merger right now. It happened with G4S' failed bid for ISS last year and with Prudential’s proposed $35bn dollar acquisition of AIA a few years earlier.

The other aspect of the BAE and EADS proposed merger is that each company had the same problem. How does merging two of the same problems produce a solution? I am not saying it never can but it should at least make you stop and think. However mostly people don’t stop and think.

These examples demonstrate once again that poor process produces poor results. Coming up with the brilliant idea (and it may well be a brilliant idea) but making that the focal point of the process will almost inevitably mean that you miss the other vital stages of what it takes to achieve success. Ask yourself how often a really good idea, project or proposition you tried to make happen in your business came to nothing for reasons you can’t quite understand. What did you miss out and why?

Swann song

Last week Kate Swann announced she would be stepping down as CEO of WH Smith next summer after 7 years during which she has transformed the company.

When she arrived the business was in a mess with hundreds of shops scattered across Britain’s high streets selling a bit of everything and doing nothing very well. Ms Swann’ strategy was a text book example of KISS (keep it simple stupid) and of applying robust process to implement it. First she separated the wholesale business from the retail business with separate management teams for each business. Then she identified which categories of merchandise customers wanted to buy at WH Smith and where they wanted to buy them. She then set about getting rid of products where they could not compete, such as entertainment and focusing on areas such as stationery, books, art & craft and others where they could.  Then she opened stores where customers wanted them including railway stations, airports, motorway service stations etc.

Then she concentrated on making WH Smith a better business, with ferocious attention to detail which has driven out £17m of costs to date with more to come (a further £12m this year).

In doing all this she sacrificed the sacred cow of retail investment analysts, like for like sales increases. If you are taking out product, as a retailer maintaining sales increases is hard work. In the year to August 31^st like for like sales fell 5% but profits rose 10% with the dividend up 22%. The shares have generated a total shareholder return of 306% in the 7 years Ms Swann has been in charge, more than M&S, Morrison's and Sainsbury’s put together.

All achieved without a single merger or acquisition. It could have been different, a merger with Woolworths perhaps or with HMV, both with similar problems to WH Smith 7 years ago. Now does that sound like a good idea?

Tesco – a straw in the wind

It is funny how a straw in the wind can sometimes tell you more about the state of the haystack than the farmer might know.

Last week, one of my partners had a promotional email from Tesco on his main computer. Unusually, he chose to follow one of the links. It did not work. Because he is a bit geeky, he checked it out on his laptop, where it did work. All of the other promotional emails he gets do work.

He decided to do Tesco a favour and let them know there was a problem – obviously thousands of others with the same (totally standard) PC set up were also not going to get to Tesco’s email promotions. Their Customer Services did an initial good response but managed to miss the point. Eventually they sent detailed advice on how to change the computer settings so that their advertising emails would work!  The fact that solution didn’t work is totally irrelevant to this story.

However, all the way through this tiny little saga, the Tesco tried to get the customer to do something to sort out the problem. They have not recognised that:

The customer doesn't want to read Tesco adverts badly enough to bother 

Tesco do want the customer to read their adverts 

TESCO OWNS THE PROBLEM, not the customer.

Tesco are not doing well in their competitive Market.  Overall, they are not winning hearts and minds – people just don’t seem to like them.  We know that attitudes, beliefs and behaviours have a massive effect on competitive success. 

Customer Service experiences can be one the most revealing insights into a corporate culture. If they can’t get these tiny little things right, because they are not thinking about them the right way round, then there is probably something much bigger to worry about.

Shares for rights

Normally the term “rights issue” means existing shareholders being offered the right to buy new shares in a business ahead of non-shareholders. The Tories announced a new twist on this at their party conference, give up your employment rights in exchange for shares in the business you work for.

Plenty has and will be written about this policy but once again this started me thinking about the process behind this idea. To me it is like a confectionery manufacturer thinking that there are people who like chili and there are people who like liquorice allsorts. What’s more there are lot of people who like both so maybe there is a market for a chili flavoured liquorice allsort.

However before developing and launching this new product it is a good idea to do some research and some market and product testing. Maybe the people who will like the product or the flavour combinations they prefer are not what you thought they would be. There are host of questions to find answers to before you can judge if this has a chance of success and if so, how to make it succeed.

To me, this looks like yet another policy that is announced then pushed out by government without applying a similar robust process and that may be why many good ideas in principle have failed at implementation.

By the way if anyone does come out with chili flavoured liquorice allsort, remember I thought of it first!

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.