Showing posts with label Mervyn King. Show all posts
Showing posts with label Mervyn King. Show all posts

16 March 2013

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.

7 May 2012

That was week ending 4th May 2012

Mervyn swervin’

In his BBC lecture last week Mervyn King, Governor of the Bank of England inferred that he had seen the banking crisis coming but had been unable to convince the government to take action.  “In hindsight … we should have shouted from the rooftops … we should have tried harder”.
I have seen Mervyn King speak and he comes across as logical and capable with considerable brain power throbbing away under that urbane and calm exterior. However when you reflect on what he says not all of it hangs together quite as neatly as it first sounds.
In particular, given that the BoE is to have a central role in regulation of the financial sector in future, he continues to duck the issue of an inquiry into the part played by the BoE itself in the financial crisis. Mervyn King has neatly side stepped any suggestions of this mainly on the grounds that the bank had no direct role in regulating the financial sector at the time.
For us this is just another indication that we have not really got to the core of what went wrong to cause the global financial crisis and subsequent recession.  Various proposed changes such as BoE becoming the key regulator and separation of retail from investment banking sound as though they might work. However they seem rather more “knee jerk” than based on thorough analysis and assessment of cause and effect. In particular we don’t think the “people factor” has been examined thoroughly.

The flaw in the machine

There is a widely held but flawed belief that organisations can be operated like machines. Operate them according to the manual, pull the right levers and they will produce the results you expect. However there is one highly unreliable and unpredictable component in these machines – people. People have emotions so they do not always behave or respond as you expect.
Two of the most powerful of human emotions are fear and greed and it has long been acknowledged that these are powerful drivers of financial markets. They don’t just influence the bankers, investors and so on; they also influence politicians and governments. Politicians were more than happy to let the credit dance go on because they believed voters would give them the credit for choosing the music.
We believe a more thorough study of the behaviours, both within BoE and elsewhere is needed before a really robust solution for preventing or at least containing future financial crises can be devised.

Shareholders – even more revolting

After a third of Barclay’s shareholders refused to support the company’s remuneration report, 59% of Aviva shareholders voted against theirs, in spite of last minute concessions over directors’ pay. At Immarsat 61% of shareholders refused to back its report. Now Sly Bailey, CE of Trinity Mirror Group will step down at the end of the year. Ms Bailey has received around £14m in the nine years she has been in the job whilst Trinity’s share price dropped over 90% in the same period.
It is beginning to look as though shareholders big and small are starting to demand better performance from their directors. Perhaps now is the time for Vince Cable to nip smartly through the gap that is opening up and touch down with some legislation for binding shareholder votes on directors’ pay. Or even better if companies get ahead of the game and do this themselves.

Effective government.

The coalition government managed to go a whole week without tripping over its own feet. However that’s mostly politics. We are more concerned about government’s inability to deliver effectively for UK citizens. Here are just a few examples.
HMRC sent out thousands of letters fining taxpayers for not submitting tax returns who did not need to submit tax returns. It was also reported that HMRC's response time to phone calls has increased to an average of 4 mins compared 1.5 min in 2010. In our experience anyone who gets through to HMRC in 4 minutes is on such a winning streak they should make serious investments in lottery tickets. The odds of winning are better than getting through to HMRC in 4 mins. As for the person who got through in 1.5 mins in 2010, well we'd like to meet them!
UK Border Force seems to think that the only way to prevent illegal or unwelcome visitors to the UK is to make life miserable for all travellers. We were told last week of a hospital paying £200 for a computer cable that you can buy almost anywhere for £29 and being charged £800 for moving 2 computers.  There are now 33 different schemes for helping unemployed teenagers. Soon there will be enough schemes to employ all the unemployed teenagers to help each other, job done!
It seems that just “doing something”, rather than delivering effective outcomes is seen as the primary purpose for their existence by too many government departments and agencies. Ministers talk about “efficiency” (and “efficiency savings” whatever those are). We would like to hear them using and understanding “effective”.

Got no satisfaction

Yet another study from CIPD, showing that whilst 80% of managers thought their staff were satisfied or very satisfied with them as a manager only 58% of their staff returned the compliment. CIPD, as you would expect puts this down to inadequate management training.
The word “satisfied” caught our attention. Our message to managers is never be satisfied with “satisfied”, “OK”, “not bad” and so on. Seek out dissatisfied; find out what could be better and what would be really, really good if it could be made to happen. This is the way to find those golden nuggets of opportunities to improve that will pay off for you, your staff and your business.


Any sympathy for ...?

Mark Zuckerberg founder of Facebook who will sell part of his shareholding when the company goes public and collect $1bn in the process. However it is reported he will have to pay most of this in tax. So he may be an internet genius but don't ask him for tax advice.


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.