Tales of the unexpected.

Looking back over the last two weeks ago I was struck by how much can happen in a very short time and by how much of this was not really expected.  I suppose it is a big world with infinite numbers of things going on in it so by the law of averages quite a lot can happen that we don’t expect.  In spite of this most of us run our lives, relationships, work and businesses on the basis that nothing unexpected will happen.

Looking at some of the big events one thing that continued entirely as expected is the ongoing tragedy that is Gaza.  One side started shooting at the other a few weeks ago, predictably the other side shoots back and away we go again.  I find it heart rending to look into the eyes of the children of Gaza on the news knowing that there seems no hope at all of this ever stopping.  Inevitably many of those young children will be operating the rocket launchers in 5 years or so – unless something changes.  Yet most of the main players involved just keep on doing what they have always done and expect the result to be different.  It seems to come as a surprise when yet again civilians do most of the dying and nothing changes.

On the subject of mindless violence what was not expected was the shooting down of the Malaysian Airways airliner over Ukrainian airspace.  I suspect that what many, like me, didn’t expect was that airliners were still actually flying over this conflict zone at all.  If before passengers boarded the flight they had been told they would be flying over a war zone, just how many would still have boarded the flight I wonder?

This unexpected and tragic event has triggered another unexpected event, namely the EU agreeing to impose tough economic sanctions on the Russians.  When I say “agreed” I think they have agreed they will do this.  However what they will do, to whom and whether they will actually “do” something is, in the tradition of EU decision making on anything other than the standard length of a cucumber, still ongoing.

If meaningful and tough sanctions really are imposed then this will have unexpected and unpredictable consequences for business, energy supplies, financial markets etc.  Putin’s attitude, and his government’s complete disregard for the rule of law meant that this would inevitably blow up in someone’s face eventually.  But I wonder how many governments and business had factored this into their dealings with Russia.

Here’s a couple more surprises.  Philip Clarke the now outgoing CE of Tesco, said just a few weeks ago that “he wasn’t going anywhere”.  It would be reasonable to judge him a little optimistic about his job security, but to be replaced so soon by a man from Unilever who knows nothing about retail?  In cricket England Captain Alastair Cook, after a string of poor batting performances and test losses was universally judged to be not up to the job and needed to be replaced, both in the team and as its captain.  There was the little matter of a dearth of competent candidates to replace him but you couldn’t argue with the stats.  What happened next?  Cook scored 95 in his first innings, 70 not out in the second and England won the test convincingly, levelling the series with India.

So as the last two weeks demonstrates the unexpected happens all the time, yet we mostly base our own plans and schemes on what we expect will happen.  But can you really plan for something you don’t expect, for something you don’t know is going to happen?  Well you can think about what might happen and what you would do to cope with it if it does.  You can also “prepare” for the unexpected.  Not for a specific event or outcome but by having a mind-set that is ready to respond and to do this fast.  The most significant factor in this mind-set is the willingness to accept the new reality the unexpected has created and then to deal with it.  And that's easier said than done!

So what are you NOT expecting to happen in the next couple of weeks?

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

Week ending 27th June 2014

It’s all over for England – again!

A lot happens over two weeks.  For example two weeks ago England were still in the World Cup, poised to achieve one of their shortest survival times in this competition for many years.  Much has and will be written and spoken about why England did not do better.  I am not much of a football fan and certainly not a football expert but a few points do occur to me.

First we have been trying to win the World Cup for 64 years and have only managed to do it once, back in 1966.  The FA have been in charge of the England World Cup campaigns throughout that time and have failed 15 out of 16 times, yet it is assumed they will continue to be in charge of future campaigns.  If there was a World Cup for doing the same thing over and over again but not getting a different result, then the FA wins hands down.

Second this was probably the most highly paid squad of England players we have ever sent to a World Cup.  As a group their combined earnings as professional footballers are higher than most if not all of the teams from the other countries in the competition.  Yet their skills, pace and all round footballing nous are clearly not matching the standards of many other countries’ teams.  Even though we see this demonstrated every four years no one in football will recognise that we need to address the problem of “not being good enough”. Top dollar does not guarantee top performance, in fact it is the other way round.  Consistent and continuously improving top performance will deliver top dollar.

Juncker Muncker

Talking of not being good enough this is what our Prime Minister has been saying about Jean-Claude Juncker, the ex-Prime Minister of Luxembourg who, in spite of Mr. Cameron’s efforts has been nominated as President of the EU Commission.  Juncker himself seems to think he was already elected but there you go.

Cameron saw him as an arch-federalist who believes that more integration and regulation from Brussels is the future for the EU.  As usual with this kind of appointment no one had ever heard of Juncker when he was proposed for this post.  He ought to be grateful to Cameron because at least we all know who he is now – he is the man in the grey suit with a drinking problem.

In the end only Cameron and the Hungarian PM voted against Juncker.  EU leaders are now so used to fudges and compromise that they appear incapable of any other kind of decision or is it non-decision.  They seem more upset that Cameron forced a vote on the matter thus requiring them to make a decision than by his actual objections to Juncker having the job.  Whilst Cameron has had his critics for the way he has handled this in my view he has actually started from the right place.  When something needs to change but no one is prepared to recognise this then you have to confront those people with the need for change.  This is the only way of getting people engaged, even if initially this engagement takes the form of resistance to change and being pretty upset with you.  This is exactly what happened so I think Cameron has done this right.  My concern is does he know he has and does he know what to do next?  Or was he just being a politician and playing to the Euro sceptic gallery in the Tory party?

Tesco and its officer corps

The Tesco story continued with an understandably fractious AGM last week. However what interested me more were two appointments made in the latest reshuffle of Tesco’s top management.  They now have a “Chief Customer Officer” and a “Chief Creative Officer”.  The latter position was filled by Matt Atkinson, previously Chief Marketing Officer.  I hadn’t realised that Tesco had so many “Chiefs” and that they were all officers.   So many Chief Officers implies there must be lots of other “officers” around who, whilst they may not be Chiefs must still be officers and jolly important they sound too.

On the other hand though when a business is losing market share because it is clearly losing touch with its customers and where all its other ranks/Indians are looking thoroughly miserable is this Chief Officer stuff just a manifestation of the problem?  I mean I ask you, “Chief Customer Officer”!  Does that sound like an answer to the problem?

Strong pound – last thing we need!

With the British economy growing faster than any other in the so called developed world and good news coming so fast and so often that it almost becoming boring, there had to be some bad news in the mix somewhere.  It is creeping up on us in the form of a strong pound.  With the economy performing well and the prospect of interest rates increasing the pound will strengthen, making our exports more expensive with the risk that this will choke off both the recovery and the rebalancing of the economy towards exports.

For some reason in this country we seem to think we need to have it both ways, strong economy and a weak currency.  The fact is that if you have a strong, vibrant economy then you are going to have a relatively strong currency to go with it.  If we can only export successfully on the back of a weak currency then the reality is that we are just not competitive enough to achieve the long term and sustained rebalancing of our economy towards exporting.

The key factor is our productivity.  GDP is only just back above the point it reached before the financial crisis.  Spare capacity in the economy has so far provided all the productive capacity to achieve this.  Whilst there is now some tightening in certain sectors, overall businesses are still saying that they have capacity to fill.  What does not seem to be kicking in is an improvement in our economy’s ability to produce – productivity.  Interestingly studies show that successful exporters are often amongst the top performers in their sector – because they have had to be.  Exporting is good for your business because it forces you to be a better business, to cope with challenges like a strengthening currency.  If a stronger pound makes our exports too expensive then the problem is not with the currency, it is because we just aren’t good enough, like the England football team.

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

Week ending 13th June 2014

This week's TWb4TW looks back over the last “two weeks before this week”, partly due to me being on holiday.  I could extend this to “three weeks before this week”, but if I missed that deadline the next opportunity would then be “ten weeks before this week”.  That is not going to work, so as long as something from the last two weeks inspires me to put digits to key board TWb4TW will continue to look back over the last one or two weeks.

When will they ever learn?

War has been a feature of the news over the last two weeks, especially with 70^th anniversary of the D-Day landings and 100 years since the outbreak of World War I.  Also a little known group of religious fundamentalists conquered a third of Iraq in a weekend, helped by the opposition simply running away!  I don’t mention a particular religion because the combination of “religious” and “fundamentalism” has consistently meant big trouble throughout human history.  These people seem to be able to build an effective fighting force from a disparate bunch of people, united only by a common cause which makes some kind of sense to them, however twisted that sense might be.  The UK equivalent would perhaps mean recruiting from a group of people who go to the same dodgy pub, support the same continuously underperforming football team and like fighting.

What this has done is to throw years of Western diplomacy in the Middle East out of the window.  Suddenly we are best mates with Iran.  After this and the Ukraine crisis, which is still rumbling on, you wouldn’t think there would be anyone left who does not now know why we need to push on with fracking and nuclear power.  However there are plenty left who will continue to oppose this.  I can only think that, even in this 70^th year since the D-Day landings, these people still don’t understand that people just like them could have stopped Hitler in the 1930s, but they chose not to.  I wonder if any of the troops who jumped off those landing craft on to the Normandy beaches ground their teeth in frustration at having to do that job for them – the hard way!

It were better in my day

Talking of battles there has been a lot of news and comment about UK retailers over the last two weeks – who is up, who is down and who is going round in circles.  Tesco reported the biggest drop in sales (3.7pc) in the whole 40 years of CE Philip Clarke’s career with the retailer.  You would think this would lead Clarke straight to the exit but he announced “I’m not going anywhere”.  The analysts, commentators and Tesco’s major shareholders just about came down on his side for the time being, saying it is too early to judge whether his turn round strategy will work or not.  Bit like my tennis at the moment!  However for me there is one single thing that will tell me if and when Tesco has really changed.  Right now the staff in their stores do not look like they really want to be there.  If one day they do, then the strategy is working.  But if they continue to look like they have left most of their brains and motivation at home, then Tesco’s decline will also continue.

Former CE Terry Leahy announced that “as a shareholder I am very disappointed”.  You have to give full marks to Leahy for executing a strategy that built the Tesco ship into the world’s third largest retailer.  He gets less than full marks for not judging when this strategy had to change due to unforeseen rocks, such as discount supermarkets, online, Justin King at Sainsbury’s etc.  Same goes for launching the good ship Fresh ’n’ Easy in the US that went straight down the launching ramp and under the water.  He can probably quietly award himself full marks for handing over the ship just before anyone noticed these rocks.  He gets no marks at all for not keeping his mouth shut!

Morrison’s also had its previous Chairman and now Life President Sir Ken Morrison laying into current CE Dalton Philips after the company reported a loss of £176m and warned that profits this year would be half what the city had been expecting.  Sir Ken didn’t mince words saying that Phillips strategy was bulls**t and that he wasn’t capable of running the core business much less a chain of convenience stores.

Sir Ken conveniently forgets that it was he who was leading the company when Morrison’s bought Safeway.  Whilst the company could run the Morrison’s business effectively as it was then, it was not capable of pulling off the integration of Safeway, which dragged on for years.  Morrison’s antiquated systems, quite literally pen and paper systems in many cases were wholly inadequate for the larger business.  This produced a drag on the business that Sir Ken’s successors have been wrestling with ever since.  The consequences have included being very late getting into convenience stores, still having no online offer in spite of the fanfare announcement of the deal with Ocado and completely forgetting what used to make the business successful.

This is a classic illustration of a business that only finds out what its limitations really are when it has gone past them.  Dalton Phillips may or may not be the man to turn it round but in his shoes my response to Sir Ken would be “you are right about the bulls**t, I am still digging” and Philip Clarke might say “me too”.

No guarantees

Two weeks ago the shares of online fashion retailer Asos lost a third of their value after a fresh profits warning. However to put this in context Asos was trading at more than 100 times earnings, compared to Next, one of the most consistent retail performers whose shares trade at just 17 times earnings.  Fear and greed rule on the stock market with common sense only making rare and brief appearances.  Clearly greed drove the Asos share price to an unreal and unsustainable over valuation as if future growth was guaranteed.  Fear has kicked in now the totally predictable has happened.  We may be in for a brief period of common sense at which point the Asos share price will be about half of what it was at its height.

I sometimes wonder what it would be like to be the CE of a company where you know the market has massively overvalued your company.  It seems most go with the flow.  One who does not is Simon Wolfson of Next.  He has consistently down played market expectations and then consistently out-performed them.  I know where I would put my retail investment.

Is there a right business model for a retail business?

Current opinion amongst retail industry analysts and commentators on retail is that the only viable retail business model now is multi-channel - a combination of in store, online, click and collect etc.  It follows therefore that as Asos is only online it may be vulnerable to the likes of Next with their multi-channel offer.  British fashion brand Ted Baker has a multi-channel offer and recently reported a 19pc rise in sales with online sales up by 48pc.  So more support for the “multi-channel is the way to go” argument.  However Primark, whose sales grew by 14pc is about to close a deal to buy the Pavilions shopping centre in Birmingham.  Half the centre will be a Primark store (three times the size of its current Birmingham store) with the rest sub-let to other retailers.  This is a £60m investment in traditional bricks and mortar retail space from a company that has no online sales at all.

What this all tells us is that concentrating continuously on making your business better and better is the only fundamentally viable business model for any business in any sector.  In today’s fiercely competitive and fast moving business world if you are not getting better you are getting worse.  This is what Next, Ted Baker and Primark understand and Tesco and Morrison’s really don’t.  As for Asos it is more difficult to tell because that third of the share price that was lost was clearly never really there in the first place.  So we will have to wait and see how they respond.

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

Week ending 19th April 2013

Whenever you look back on the previous week, whether it’s your own week or the world’s in general it has usually been a series of ups and downs and this is the theme for TWb4TW this week.

What goes up must also come down.

This has certainly applied to two particular investments recently, gold and shares in Apple.  Last week gold hit a two year low and is down over 20pc from its previous record high of $1,921, dropping almost 13pc in just two days.  Apple shares, having hit $700 in September, making it the world’s most valuable company went below $400 last week.

This demonstrates once again that human emotion can be a much more significant factor than the realities of supply and demand, economic conditions, or even world events.  For example investing in gold is supposed to be a means of “storing wealth”, to protect its value against inflation, currency devaluation and other economic and financial shocks that can reduce the value of cash and other investments.  So fear causes investors to buy gold to protect their wealth.  This causes the gold price to rise.  Then the greed factor kicks in and it becomes not about protecting wealth but about increasing wealth so more and more investors pile in.  Then someone notices that some of the underpinning assumptions no longer apply or different factors have emerged such as Cyprus’ proposals to sell its gold reserves to finance its bailout.  Fear takes over again and the price goes down, often quite rapidly.

In the case of Apple it was the greed factor that drove the share price up on the assumption that it could produce blockbuster new products and profits on a more or less continuous basis.  Then it dawned on people that Apple is run by human beings not some super race and the likelihood of new I phones, pods or pads generating ever increasing profits for ever and ever was, in a word, unlikely.  The adjustment to this reality was bound to happen when the fear factor kicked in.

If you can stand apart and observe the greed and fear at work you have a chance of making rational decisions.  However this is more difficult to do than you might think as illustrated by legendary Wall Street investor John Paulson.  He made billions from betting against the US sub-prime bubble.  However his bullish stand on the gold price is estimated to have cost him hundreds of millions of dollars over the past two weeks.  So if even people like John Paulson can go up and down so can almost everything else.

Facebook – down and staying down?

Last week Sheryl Sandberg, Facebook’s COO, made a rare visit to their HQ in Britain.  Ms Sandberg has recently published a book and judging by the content of her press conferences and interviews promoting her book was the main reason for her visit.

One thing she did not appear to comment on was Facebook’s share price.  Just about a year ago it carried out an IPO at $38 a share.  Since then the shares have mostly gone south and ended last week at $26.59.  Greed having driven the rush to buy the shares soon turned to fear when it became apparent Facebook did not know how to make money out of mobile phone content.  This was actually apparent before the IPO but was ignored in the rush to get in on the “next big thing”.

Apart from announcing that “To say that mobile is important to Facebook is the biggest under-exaggeration of all time” Ms Sandberg was giving nothing away.  I suspect that this is because there is nothing to give away and that we are left with just fear and greed to determine where Facebook’s share price goes next.

Tesco- down but maybe going up?

Staying with the emotional theme Tesco is not one of those businesses that people like, but many still shop there.  Many of the people who vehemently oppose a new Tesco superstore still go and shop there when it opens based on an unemotional judgement about convenience and low prices.  Consumers don’t “love” Tesco like they “love” John Lewis so many have been quietly pleased to see them struggling recently.

Last week we learnt that Tesco had taken the unemotional and rational business decision to pull the plug on its US venture and to write down the value of its land bank in the UK as they called a halt to further large scale store expansion here.  Given both the financial and emotional investment involved this is a text book example of business brain over ruling heart.  Big as the losses are Tesco can afford to do it right now, so right now is the time to do it.

CE Charles Clarke stated that “I have been working for Tesco for nearly 40 years and I can tell you this – it already looks, feels and acts like a different and a better business”.   However if Tesco is really to become a “different and better business” then Mr. Clarke will have to find a way of getting to rest of the business to share his enthusiasm and excitement for his vision of the future.  Tesco has done the hard nosed, rational and unemotional business stuff very well for years.  What people are looking for now is something that makes them feel good about spending their money with Tesco that is not about fear and greed.

What this tells us is that rational business logic on its own is never enough.  You need the emotional factors as well and the trick is to get the balance right and that is the challenge for Tesco to get back to growth.

Dell – going down to get back up

Earlier this year Dell Computer founder Michael Dell put forward an offer to take Dell private at $13.65 a share.  The logic is that as a private business removed from the pressure of quarterly results, Michael Dell will be more able to take the decisions and actions needed to switch the company’s focus from PCs to faster growing software sales and services.   This is because in the strange world of public companies shareholders will often not tolerate the adverse short term consequences of decisions that need to be taken in the longer term interest of the business.

Michael Dell’s offer took account of the fact that in order to go back up you may first have to go down.  So inevitably some shareholders complained he was buying the business on the cheap.  It also prompted private equity firm Blackstone to put in a rival bid at $14.25.  However after the slump in PC sales worldwide in the first quarter Blackstone withdrew their offer.  This pretty much vindicates Michael Dell’s proposition and even though he still has to persuade some shareholders to accept his chances are looking better.

Michael Dell clearly has considerable emotional investment in the company he founded so he has both personal and financial motivation to secure its future.  However in order to make the hard and rational business decisions needed to turn the company round he must first remove it from an arena where the emotions of fear and greed rule.

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 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.

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.

That was week ending 20th April 2012

When is BIG TOO BIG?

On Wednesday we had the long trailed statement from Tesco’s Chief Executive Philip Clarke confirming reduced profits in their UK operation. He announced a £1bn investment in UK stores focusing on improving staffing levels, smartening up stores and delivering better prices and product ranges. Clarke said this plan would “… put the heart and soul back in to Tesco”.

However commentators have warned that Tesco is now so big that it will be very difficult if not impossible to achieve a turn around fast enough to out pace the competition. So apart from wondering what Tesco have been doing if they have not been “improving staffing levels, smartening up stores and delivering better prices and product ranges” this also made us think about when is BIG just TOO BIG.

There are different types of TOO BIG - too big to manage, too big for stretched financial resources, too big for market demand and so on. However we think the real issue is when a business becomes TOO BIG TO CHANGE. So size doesn’t matter, what really matters is CHANGEABILITY, the personal and organisational ability and capacity for change. If your business has grown beyond your CHANGEABILITY then it is TOO BIG, for you at least.

So think about what might cause you to need to change your business significantly and rapidly and how you would do that, fast and effectively. How good are you right now at implementing changes in your business, fast and effectively? One tip – if you think this is “change management” you are likely to miss the point.

Off their Marks

M&S also announced disappointing sales figures. By way of explanation, they stated how many items of shoes and clothing they did not sell because they did not buy enough stock. We think it is pretty clever of M&S to actually track what they did not sell but are perplexed as to why they were not clever enough to anticipate a cold snap in February.  Have M&S now become so clever with systems that they have lost sight of some the “arts” of retailing?  Tesco also perhaps?

More Women of the Year please

Congratulations to British fashion designer Anya Hindmarch, for winning the Veuve Clicquot Business Woman of the Year Award. The run up to the awards stimulated more debate on women in the boardroom, or rather the lack of them.  There are many different views on why there are still so few women in senior positions in British companies and just as many on what should be done about it.

For us though a fundamental factor in the debate has somehow been lost. It may be considered non PC to say this but …. “women are different from men and men are different from women”. Part of the problem is an unwillingness and lack of skill to manage these differences in ways that can unlock the potential from those differences. It is easier to prefer someone who “will fit in”, “won’t rock the boat”, “will be a team player” in our team and playing the way we think it always has and always should be played.

Show us a board or management group that is largely composed of the same kind of person, male or female and we will show a group of people less productive, innovative and effective than they could be. They may have a nice time together but eventually they will waste away and fail. The “differences” are the reason why we need both women and men at all levels in all organisations.

Women showing how it's done

Finally, CIPD published a labour market analysis which reported that there are 271,000 more women over 50 in the labour market since 2008, an 8pc increase. Of these 172,000 are self-employed, up 16.3%.  By contrast only 3,000 older men are in work.

The report suggest various reason for this. However for us there is a clear message. When the going got tough these older women got going. Now isn’t that the attitude we all want to see in our businesses at all levels?

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.