Week ending 11th July 2014

The value of experience.

Looking back through the business news over the last two weeks I found myself thinking about “experience”.  This is generally perceived to be a “good thing”.  Even when things go wrong we comfort ourselves with the thought that we can “put it down to experience”.  However as I mentioned last week the FA have failed to win the World Cup in 15 out of 16 attempts, with 2014 being yet another opportunity to “put it down to experience”.  They must now be the most experienced (and well paid) supposedly top flight football governing body at NOT winning the World Cup that there has ever been!

For those of us with rather more grey hairs than we would like there is the comfort that these are the result of years of acquired experience.  We like to think that this experience is valuable because that means we too must be “valuable”.  So here are few of last week’s business stories where experience or the lack of it have played a part and from which we can perhaps learn how to really get value out of experience.

Pounding along

Poundland floated on the stock market earlier this year and unlike a number of recent IPO’s has proved successful.  The shares are up nearly 13pc on the IPO price with sales reaching almost £1bn in the year ending March 2014.  But it wasn’t always like this.  Poundland was founded in 1990 by Steve Smith but by 2006 its growth was stalling.  The current Chief Exec Jim McCarthy was brought in to turn things round.  McCarthy had been running Sainsbury’s convenience stores but had left the company to return home to the Midlands because of family illnesses.  He accepted an offer to become CE of Poundland because they were based in Wolverhampton.  So Poundland were able to attract a much more experienced leader than otherwise they might have.

However McCarthy did not solely rely on his own experience, being experienced enough to know he didn’t know everything.  He recruited directors with experience of working with other retailers and a new Chairman, Andrew Higginson, former finance and strategy director of Tesco.  He didn’t stop there.  He travelled to the US to learn from the experience of discount chain Dollar Tree.  Here he learned that Poundland had to learn to work with the biggest suppliers, rather than treating them as the enemy.  Today Poundland works with leading fast-moving consumer brands to develop unique pack sizes that it can sell for £1.

So experience, plus even more experience, plus a willingness to learn from other’s experience delivers success.

Safe pair of hands

Justin King has now left Sainsbury’s leaving the business in far better shape than he found it 10 years ago.  He is handing over to Mike Coupe the groups’ commercial director.  He was one of King’s first appointments when he joined Sainsbury’s in 2004 and has been his right hand man for nearly a decade.  So he certainly has plenty of experience and quite possibly the right experience.

However the times they are a’ changing!  Sainsbury’s has now had two consecutive quarters of falling sales so is feeling the effect of the intense competition.  In King’s own judgement growth in the sector will go largely if not entirely to online, convenience and the discounters.  Sainsbury’s is well positioned strategically in the first two and with the announcement of its joint venture with Netto appears to have created an opportunity in the discount sector.  So the pieces are in play but they will have to be played a little differently and at least one, Netto, is a new piece.

Succession at the top of well-established and currently successful business is a fine judgment.  Is it more of the same, which Mike Coupe’s appointment seems to be, or do you need something completely different?  I think his challenge will be can he do more of the same but differently enough to capture the growth that is not going to come from his supermarkets.  He will need his own and others’ experience to do this.

Slippering away?

M&S went through what is now becoming an annual festival of excuses for not quite hitting the targets it has set for itself.  This time its online business was down 8% due to “teething problems” with its revamped website, compared to double digit growth in retail as a whole.  Apparently customers had “taken time to establish how to use the new site”.  So this is all down to customers’ lack of experience it would seem and sales should rebound when customers make the effort to use the new website properly.

On the other hand just maybe a lack of experience in online retailing within M&S’ management is more the problem.  How else do you explain why existing online customers are required to re-register just because you have spent £150m revamping your website?

One interesting statistic slipped in by style director Belinda Earl was that one in five British men is wearing M&S slippers.  Now given that one of their key challenges is to get the fashion offer right I am not sure that boasting about how you are number one in men’s slippers exactly squares with that.  Is the experience of conquering the slipper market really what’s needed here?  Experience is all very well but it does need to be the right experience.

You have got to be Kiddiecaring!

Morrison’s is selling its Kiddiecare business taking £160m write off in the process.  It bought Kiddiecare in 2011 in an effort to boost its non-food and online offer.  In 2012 it announced the business would double in size as it bought a number of superstores from the failed electrical business BestBuy.  However less than two years later it is losing so much money, Morrison’s are having to offload it at a rock bottom price.

Quite rightly Morrison’s’ management recognised that it lacked “experience” in this sector and decided the way to solve this was to buy someone else’s (Kiddiecare’s) experience.  That is all very well but as this “experience” has shown to do this by buying into a sector where you have no experience at all is not the way to do it.  It is one thing to recognise you need experience, it is another to recognise what experience you actually need and how will you know it when you see it.

On that note

Here is a final thought from me.  I have a lot of experience in business from many years of getting things wrong in order to learn how to get them right.  That wasn’t necessarily the plan at the time but it seems to have worked out and some people have been kind enough to credit me with having a lot of experience.  However I always caution them not to think that all they have to do is to do what I did and they will get the same result.  The thing is that it is MY experience and it was THEN.  You are YOU and the time is NOW.  Some of what worked for me then will work for you now but not all of it.  So the final trick is to select what will work for you now from other people’s experience.  Something Jim McCarthy appears to be really good at.

Week ending 24th May 2013

Change is coming – but what change?

Either because there really are some positive signs of growth in the economy or because everyone is bored with being miserable the media are beginning to talk about the possibility of better times ahead.  However, just in case optimism breaks out our attention is also being drawn to some of the implications of economic recovery.

One of these is interest rates.  BoE base rate has been at a record low of 0.5pc for four years now.  Should economic activity pick up then how long can this continue?  The BoE allowed price inflation to rise as they judged correctly that this was unlikely to produce wage inflation whilst the economy remains subdued.  However if the economy really does start to grow then wage increases are likely to be one of the consequences.  If this was to happen the BoE would have to increase base rates to dampen demand so as to head off inflation.  Even base rates of 2 - 3 pc, previously regarded as low could, on the face of it, have significant implications for many already stretched consumer and business borrowers.

So are we damned if we don’t grow and damned if we do?  Well as with many aspects of this recession and its aftermath little is straightforward.  Mortgage lending fell for an unprecedented fourth consecutive month in April with householders paying off £241m more than they borrowed.  There appears to be a change in mindset amongst consumers resulting in little appetite for borrowing.  Similarly with businesses, whilst investment intentions amongst SMEs appear to be on the up this is mainly for replacing older plant rather than for expansion.  A combination of lack of confidence about growth prospects plus a lack of trust in their banks appears to have blunted business’ appetite for borrowing as well.

So an increase in interest rates may not have the effect we might expect.  Furthermore the actual interest rates being paid by many consumer and business borrowers are much higher than the low base rate would imply and was supposed to bring about.  A combination of restricted supply of credit, lenders being more risk averse and attempting to increase their margins has pushed rates up.  Of course if base rate rises then lenders will attempt to pass on the increase to borrowers but this may not be so easy to do.  RBS alone currently has £20bn of deposits for lending to businesses but can’t find any takers.

What it all adds up to is that some change is coming but what changes and what the effects will be are far from certain and very difficult to forecast.  We did not know what the effect of a record low base rate would be or of printing money on the scale we have been.  Now we do, but we don’t know what will happen when (and it is when and not if) these measures start to be reversed.  We don’t know because we have not been here before.

Now is the time to test your business model against a range of possible change scenarios.  Ask what might go up, what might go down, what would the effects be on your business model and could you respond fast enough?  The option of just sitting there and waiting to see what happens is now a high risk strategy.

Getting “radical” at M&S

Talking of sitting and then talking and then talking some more but not doing anything, I noted some comments last week from M&S Chairman Robert Swannell in connection with the underwhelming annual results. He declared that the changes being made in the business were “one of the most radical transformations in British retail or indeed in European retail, any European business of scale”.  He didn’t quite go on to add “or in the world or even the universe”, but what he did say was “the board has spent the last two and a half years talking about this plan”.

Two and half years “talking” about this plan!  I know that oil tankers can take a while to turn round but if you spend two and a half years talking about the plan to turn it round you will likely discover that when you come to turn the wheel you are already stuck on the rocks.  When competitors like Zara can get new lines into their stores in two and half weeks, how on earth can the M&S board think it has the luxury of two and half years to talk about its plan for change!  If that’s”radical"”, then I am a left handed teacup!  Change is coming, get ready now.

Yahoo promises not to screw up

Talking of “radical” in an unprecedented statement on the acquisition of blogging website Tumblr for $1.1bn, Yahoo’s (latest) CE Marissa Mayer promised “not to screw it up”.  By this she meant Tumblr would be operated independently, founder David Karp would remain as CEO and generally they would be left to get on with what has made Tumblr successful to date.  That success however does not include making anything much in the way of profit.

Yahoo’s problem is that they don’t any longer have an audience.  Their strategy now is to buy other peoples’ audiences, which in addition to Tumblr has included Astrid, described as a “get it done” app (or diary to you and me) for an “undisclosed sum” and of course Summly, the mobile news app for $30m.  However Ms Mayer’s promise not to “screw it up” refers to Yahoo’s previous acquisitions which include Flickr, Delicious, Broadcast.com and Geocities.  Remember them, probably not.

The real challenge for a corporate such as Yahoo is that it is not so much will it screw up the business but will it screw up the people?  Tumblr especially is all about David Karp and his team.  Ms Mayer has already upset many Yahoo employees by banning working from home.  With $250m in his bank account how long before Mr. Karp gets fed up with being required to be “in the office” whenever Ms Mayer wants him there?  Saying one thing and then doing something which is completely at odds with what you say will screw up the people faster than anything else you can think of.

He saw it coming, but wasn't watching

Talking of screw ups last week saw the departure of Nick Buckles, CE of G4S.  In spite of the botched attempt to acquire ISS and the Olympics fiasco, Mr. Buckles had retained the backing of shareholders.  However a recent profits warning that took 15pc off the share price was one “misfortune” too many and he realised he had to go.  He went so fast (his successor has only been in the business seven weeks!) that I think he had been expecting that his time at G4S did not have long to go in any case.

The curious thing about Mr. Buckles track record at G4S is that overall it is not bad.  The share price has outperformed the FTSE by 174pc during his tenure.  So what went wrong?

My take on this is that he did not know when to get involved in the detail to make sure a robust process was in place and working to get the intended result.  I know he was the boss of a very big company but there are times when you have to get more closely involved in the ball game in order to win.  On the Olympics I find it staggering that on such a high profile project with huge risk both financially and to reputation if it went wrong that Mr. Buckles was not monitoring it closely day by day.  It is clear that the failings were as big a surprise to him as to anyone.

This is not about doing other people’s job for them but it is about making sure they are doing the job you expect them to do.

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.