4 Lessons on Innovation

What some call innovation, others say is simply staying close to their customers, but surely there’s more to it than that? Here, we highlight four key learnings on how to nurture innovation in order to keep your organisation fresh and relevant.

During the recent Criticaleye Global Conference Call, Creating Innovation Teams, we heard from two speakers, Andrew Miller former CEO of Guardian Media Group (GMG) and Non-executive Director at The Automobile Association (The AA) and Anita Chandraker, Head of Digital at PA Consulting Group.

Here, we highlight four key themes to emerge from the event:

Start with Your Core Offering

According to Charlie Wagstaff, Managing Director at Criticaleye: “It’s not about what you do, it’s about why you’re doing it. As a leader you need to understand your organisation’s purpose, that’s your starting point.”

This is something Andrew, who is also former CFO of Auto Trader, has found to be true. “I’ve been lucky to have organisations that know what they are at the heart,” he said. “Some forget the real thing they should be innovating is what they are at the core.”

At the Guardian the mission was to envisage how its readers wanted to consume news now, as well as in the future, whereas at Auto Trader the focus was on moving its marketplace for people to buy and sell cars online.

When Andrew joined Auto Trader in 2002, the business had around £18 million profit, 24 magazines and no digital presence. Now all of its content is solely online and it’s valued at over £3 billion.

“You should celebrate the heritage of the business but accept that ‘celebrate’ doesn’t mean ‘protect’. You’ve got to know what you are to get that excitement back in the organisation and then innovate around it,” Andrew added.

Anita from PA Consulting Group, noted: “Innovation has to be linked to the core of the business, its objectives and challenges, and what customers or clients want. If an organisation is under threat from disruption then the imperative should be to solve that.”

It’s About Leadership, Not Technology

“A lot of people overthink what has to get done, but actually the fundamentals of innovation and change are what most people would refer to as common sense. It’s not really about technology, it’s about leadership,” Andrew said.

“It’s getting the leadership team, the board and your employees to accept that there is a need for change. Unless there is a real desire to change then there’s no point investing time and money.”

It has to start with the CEO and the board, and then the CEO has to get the exec team behind it. “You have to be quite brutal and accept that some people won’t make that journey and proactively manage that,” Andrew commented.

Charlie added: “Scale is no longer a differentiator for businesses, it’s all about speed and leaders need to work out how to drive that in their organisations. They need to provide a framework that supports that.”

Find Out What ‘Agile’ Means to Your Company

Businesses must learn how to exhibit speed and build momentum. “It’s about iterating fast,” Andrew said. “It’s about seeing ideas that work and trying things. The speed at which I see tech companies iterate is phenomenal. Look at Snapchat, which is the fastest growing media distribution brand.”

Change won’t happen overnight, especially in large organisations, but big businesses need to trial new ways of working. Anita noted: “There has been a lot of talk about agile from a software development perspective; now that conversation has moved on to how you make large organisations more agile, how to break down siloes to make an organisation simpler and faster so it delivers results.”

Matt Barry, Chief Operating Officer for Mass Hosting at web company Host Europe Group (HEG), has worked both in organisations in which innovation is kept separate from the core business, as well as one with a more collaborative cross-functional approach.

Prior to joining HEG, he spent four years at a Fortune 50 cable TV company as Product Manager in its newly formed Converged Products division, tasked with rebuilding the experience from the ground up.

“They realised they needed to get something going quickly without the normal politics you get in a big organisation,” he explained. “So, they set up a completely separate team, got new blood in – web people rather than TV – and put us in a new office.”

At his current organisation Matt has implemented a group-wide way of working that uses agile development practices whereby a number of small teams take ownership of a particular project, which is typical of software development companies.

Andrew also had two different experiences at Auto Trader and GMG. “At Auto Trader we set up new business… that essentially cannibalised the old,” he explained.

“At the guardian it was about the disruption of content in the new world therefore we couldn’t isolate the new from the old, it had to be much more intertwined – that was much more complex.”

Don’t Get Hung Up on ROI

New propositions will call for different metrics and measures, rather than return on investment alone.

Anita noted: “If you’re encouraging the organisation to come up with ideas, you’re not going to be looking at financial return over a short period. You might be looking at the potential for an idea to disrupt a market, or the opportunity for growing market share. That can be a big challenge for large companies.”

Small wins in terms of revenue can be huge in terms of customer engagement; it’s about changing the mindset.

Andrew, a former CFO with a financial background, agrees that ROI can be stifling: “At Auto Trader the targets were the number of dealers that we had on our CMS system, then the number of people on the website, followed by revenue. If we had set ROI parameters, we would probably have shut down in 15 months. At the Guardian, the most important measure was the engagement of users.”

You do, however, need limits on investment and this can often come down to ownership structure. Matt explained: “Realistically, it depends on which stage the company is in to answer the question about metrics. A PE-backed company in late stage investment will argue that it’s all about ROI — and that’s true if you are preparing for sale.

“However, early-stage investment companies or one that is well-funded and seeking market share, or one that holds a leader position and wishes to maintain it, will be more flexible.”

By Dawn Murden, Editor, Advisory

What are your thoughts on innovation? If you have an opinion that you’d like to share, please email Dawn at dawn@criticaleye.com

Want to know more about agile project management? Read our article Agile by Design

Find out more about our upcoming Global Conference Call, Sector Watch – Building Partnerships in Financial Services

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What Innovation Really Means

Comm update_28MayNew ideas and fresh thinking are fundamental if companies are to retain a competitive edge. To drive innovation, you need to create a culture where ideas come from both within an organisation and by working with others. Increasingly, the art of doing this successfully lies in being able to utilise various channels and by harnessing the skills at a company’s disposal to capture those moments of inspiration.

It’s crucial that, when it comes to innovation, employees don’t fear failure. Anand Gupta, Principle Innovation Evangelist for Europe at business solutions company TCS (Tata Consultancy Services), says: “We have an annual competition across the group… all companies are required to submit entries under broad categories such as, ‘Promising Innovation’, ‘ Leading Edge’ and ‘Dare to Try’.

“The ‘Dare to Try’ category is interesting because it rewards people who try to make something completely new work in the business that actually turns out to be a total disaster. But unless we encourage people to try they’ll always be scared. We want them to go beyond this fear and decide if the idea is worth it. It cannot be a wild decision, it needs to be valid within the environment… but then, if they fail, that’s perfectly OK.”

Jane Griffiths, Company Group Chairman for EMEA at Janssen, the pharmaceutical division of Johnson & Johnson, comments: “We’ve had projects going on recently where some have worked and some actually haven’t done so well; I think you have to make sure heads don’t roll as a result of attempts at innovation that don’t work out, because if you come down heavily on people who try to innovate… that stops other people from trying new things.”

There has to be consistency. Costas Markides, Criticaleye Thought Leader and Professor of Strategy and Entrepreneurship at London Business School, questions how many corporates actually get this right: “Companies ask people for certain behaviours to promote innovation, but in reality they have an environment or incentive system in place that does not encourage those things.”

If employees are to believe they have a licence to think differently, then executives have to lead by example. Costas continues: “[When] the leadership of an organisation begins questioning; going outside their industry for ideas and starts experimenting… once they start behaving in the way they want everybody else to behave, pretty soon everybody else in the organisation will follow suit. That’s how you create a culture of innovation.”

Cath Keers, Non-executive Director of Home Retail Group, says: “There has to be a brave, passionate and determined leadership to really take those risks on innovation. Encouraging cross-functional teams, who share, collaborate and adopt the ‘have-a-go’ mentality with a clear view of what success looks like, is essential.”

Once the ecosystem is right ideas will, in theory, be able to flow through an organisation far more easily. Martin Hess, Vice President of Enterprise Services at IT company Hewlett Packard, comments: “Most innovation in business comes from being close to the customer, [it] doesn’t start at head office. Try and keep an organisation as flat as possible… so the ideas don’t get diffused and diluted as they go up through the company.”

Businesses need to remain agile and if new ideas are to come through, it may be necessary to develop them in isolation to the core business. Mark Wood, SVP and Managing Director of EMEA for US-based cosmetics firm Revlon, comments: “Our normal new product development pipeline may take two-and-a-half to three years to bring an idea from concept to getting it onto the shelf, because you’ve got lots of internal processes, checks and ‘stage gates’ that you need to go through.

“We acquired a business that was run on a completely different platform. It was all about bringing the latest catwalk trends into cosmetics quickly. To maintain the ethos of that brand… we kept it outside of our normal processes.”

Going outside of the business to tap into ideas can also prove game-changing. Martin Grieve, SVP of Corporate Business Planning at FTSE 100 listed consumer goods company, Reckitt Benckiser, says: “We have many external collaborations with third parties. In today’s world, business leaders are increasingly recognising that collaborative work with third parties will deliver breakthrough innovation.”

Show your appreciation

Rewards and recognition are significant motivators. Jane comments: “We have a system of reward in the company called ‘Global Standards of Leadership Awards’, which reward good behaviour within our Credo, and innovation is one of these.

“But one of the principles I ensure happens is publicly recognising people – even if it’s only on email, or a formal memo to somebody that copies in their boss or their colleagues, that says: ‘What you’ve done is fantastic’. I think recognition is very important… the ultimate recognition of someone who is consistently innovative and contributing a lot to business is that their career advances.”

Whether it’s inhibiting corporate processes, external regulations, fear of cannibalisation or a question of talent, the barriers to innovation are high. Nonetheless, it’s vital that the senior leadership team does whatever it can to allow for progressive disruption of the status quo so the necessary breakthroughs are made.

Martin Hess explains: “I don’t think companies can succeed… without constantly looking to change and innovate. You might become a leader in one technology wave, but you won’t be able to succeed in being a leader in successive waves.

“It’s one of the few things that an organisation has to be extremely good at and to encourage if it’s to prosper.”

Martin Grieve comments: “Innovation is the lifeblood of what we do. It is what fuels the growth of the business; it’s about keeping our brands relevant to consumers, continually improving performance and consumer benefits.”

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk 

Leadership in a Digital World

Comm update_21MayAs technology continues to transform business models, a new breed of corporate leader is emerging who is digitally-savvy and assiduously curious. Rather than fearing change and obsessively trying to retain control, the most accomplished CEOs accept that for an organisation to compete globally and attract and retain the best talent, they must be highly collaborative, operationally focused and ruthlessly strategic.

These are just some of the outtakes from our Divisional CEO Retreat, held in association with Accenture. Over the course of 24-hours, our Members discussed the leadership skills and experience now required if global organisations are to thrive in the digital age.

“We’ve reached a tipping point with digital, but it’s not as frightening a proposition as we might think,” said Oliver Benzecry, Managing Director for the UK & Ireland at Accenture. “Large organisations are now institutionalising ‘digital’ into their business model and, increasingly, they are becoming the disrupter not the disrupted.”

Bal Samra, Commercial Director at the BBC, who is responsible for a budget in excess of £1 billion and over 1,000 staff, commented: “Digital disruption is inevitable so business leaders need to recognise it, collaborate and foster a culture of learning within the organisation so that more is understood with every new project.”

Speed is absolutely essential. Ruchir Rodrigues, UK Managing Director for Digital Banking (retail and business banking) at Barclays, said: “The pace of change in digital is dramatically accelerating, forcing companies to provide better products, services and customer experience… Remember, if you are not there for your customers they now have the choice to go elsewhere.”

Simon Johnson, Group Managing Director for UK & International at publisher HarperCollins, said: “Innovative digital leaders are those who are completely obsessed with inventing things and with customer experience… They also need to create the right culture internally, encouraging the people within the business to think more like a start-up.

“This might mean starting-up a skunkworks for innovation, for example… or setting up new business units in direct competition with legacy ones.”

Embracing change

According to Mark Spelman, Global Head of Strategy at Accenture, “New business models are coming to the fore that will require a new style of collaborative leadership. The first quality required of today’s leaders is therefore to explain context and synthesise complexity.”

Bal said: “Creating a disruptive business proposition isn’t easy because it means breaking all the rules and often challenging existing business models… In large organisations, big and disruptive digital projects will benefit from the support of the CEO but you’ll also need to build a coalition from within.

“That means creating champions below the board level and across boundaries within the business… because they’ll be the people interested in the product rather than who’s in charge.”

Likewise, the ‘digital natives’ in an organisation have to be fully cognisant of what the business wants to achieve in the short, medium and long term. Ruth Cairnie, Non-executive Director at both food manufacturer ABF and engineering concern Keller Group, commented: “The obligation is on the digital experts to remove the mystique and complexity for the board by communicating clearly and simply what really matters for the business.”

Donald Brydon, Chairman of software provider Sage, said: “In a large company like ours where there are 50,000 small decisions being made daily, the CEO needs to both understand these, yet also hold to a very clear and simple strategy based on rigorous analysis.”

It was widely agreed that Divisional CEOs must create an infrastructure which supports and enables connections for customers, employees, partners and communities. Ruchir said: “The biggest risk for companies is to do nothing with digital. If you’re not constantly testing, learning and evolving, you will be left behind.”

In one sense, the challenges facing Divisional CEOs in today’s digital world do require new skills and an entrepreneurial mentality. But it is also just a new manifestation of change – albeit highly disruptive – which good leaders will absorb, understand and navigate like any other.

“Rather than being in fear of digital disruption, you should be full of optimism and ready to embrace it,” said Donald.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

Brand Champions on the Board

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The stock of the CMO is rising as boards realise that you can’t dismiss ‘brand’ as a buzzword. At a time when loyalty is hard to come by, clued-in directors fully appreciate that a strong and trusted brand is the difference between those organisations which have a bond with their customers, shareholders and employees, and those that are marginalised and mired in an identity crisis.

“There is a general awakening to the power of brands across the board level,” says Stephen Smith, Chief Marketing Officer at supermarket chain ASDA. “A transition has taken place from reputation management to brand management, stemming from the many crises of reputation which have damaged or even destroyed companies and their brands.”

Whether you’re B2B or B2C, you need brand champions in the boardroom. Catherine Green, Marketing and Communications Director at international construction and consultancy firm Mace, says: “Really understanding what makes your business different and better from the competition is all wrapped up in your brand strategy. Boards need to be much more fluent in this because employees and consumers are savvy about values and whether they are authentic… What people say about your brand through social media and third-party endorsements is now much more important.”

Nicolas Mamier, Managing Director at brand consultancy Appetite, comments: “Brand is an organising principle not an extension of the marketing department. It’s too important to be left only to the marketeers, however good they might be, because if a trusted brand means a trusted organisation, it simply must command the attention of the C-suite.”

Traditional consumer behaviour has been atomised by the financial crisis and convergence. “Brand loyalty is nowhere near as strong as it used to be because consumer promiscuity is up,” says Steve Parkin, CEO of Mayborn Group, which makes baby and child products. “Boards need to work a lot harder on getting that interface back with their consumer on a one-to-one basis, which means new techniques are needed to build a connection with your consumer and maintain it, so that loyalty is never taken for granted.”

Pam Powell, Non-executive Director at Premier Foods and formerly Group Marketing Strategy and Innovation Director at brewer SABMiller, says: “In this market, you’ve really got to earn your customer loyalty. Strong brands can communicate quality and reliability so there’s a reassurance in the value you’re getting, where as weak brands will be shown up in this respect.”

This goes beyond customers. Ian Wright, Corporate Relations Director at Diageo, which controls some of the biggest alcohol brands including Johnnie Walker and Guinness, says: “Institutional investors are more discerning about where they place their funds and apportion investment… The way you gain the confidence of investors and get them to stick with your business is by having a great brand. It represents a reason for confidence in the management of your business.”

Out with the old

If a brand has lost its allure, or has been compromised, you have to act quickly and decisively, either opting for a substantial rethink about how to establish relevance or axing it completely. Before joining ASDAStephen was tasked with replacing a range of shops called Kash n’ Karry with a new brand, Sweetbay. The former had been in steep decline and, having changed its strategy and leadership team on several occasions, had lost customer loyalty.

“Any transition starts with people offering you a new choice but finishes with taking the old choice away,” says Stephen. “We were very clear that one was gracefully retiring and that there was something brand new sprouting up in its place… 

“When you’re making dramatic changes you are quite dependent on new customers coming in and reappraising you. Of course, you’ll always have some detractors who liked the old store and didn’t want something shiny and new, but the ultimate goal is to have more people coming in than going out. You have to try and stay ahead.”

If a global rebrand is necessary, clarity on what the business stands for is paramount. “The project that we did to refresh the BBC brand was all about understanding how we could make the brand work across all of the countries,” says Peter Horrocks, Director of BBC Global News and World Service. “The challenge is: how do we make it more engaging while still maintaining the authority and trust that there is in the brand?

“When you’re talking about a global organisation with a variety of products, [the brand] needs to be something that is unifying and that hits the sweet spot for multiple countries… if you can get that right it can be tremendously powerful because you’ve got massive scale to work with.”

Companies must always be on the lookout for new ways to get their message across. “A brand is the ultimate differentiator,” says Professor Dominique Turpin, President of IMD and Criticaleye Thought Leader. “Great global brands stand out, and they make our lives easier, better and cheaper. Nobody wrote an e-mail one day to Steve Jobs saying they needed an iPhone or iPad. Very few business leaders ask themselves, ‘What are my customer’s headaches?’ But this is such a good question. Provide a product or service that solves a customer headache and you’re on the right track.”

Steve comments: “In terms of what drives our brand strategy, it’s all about consumer recommendation. If we can get mums talking to other mums positively about their experience with our brand, particularly with the onset of social media and digital, that’s the number one driver that gives us the trust in our brand.”

There is a tendency among underperforming boards to only realise how vital a brand is after a calamity has occurred, or a competitor has stolen a march on them. It takes years of investment and personnel change to try and regain former glories. Some never get it back. 

Don’t be one of those businesses. 

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Why the US Still Packs a Punch

For all the long-term potential of the emerging markets, it’s easy to forget that the US has a mighty $15 trillion economy tailor-made for the express purpose of doing business. So if you’re serious about competing with the best globally, chances are the so-called ‘land of opportunity’ is either a core part of your operations already or, for younger businesses looking to scale the heights, it certainly ought to be.

“I wouldn’t ignore America,” says Lady Barbara Judge, Chairman of the Pension Protection Fund and a former Commissioner of the US Securities & Exchange Commission (SEC). “It’s a big market and there are many people with vast amounts of wealth. The developing markets are important but it’s also vital to understand the optimism and economic potential of America.”

Gary Kildare, Vice President of HR for the Americas, Europe & Asia Pacific at IBM, comments: “The US continues to be one of the most important markets in the world. For many businesses it is attractive because of its size and scale, ease of doing business, language, receptivity to new ideas, innovation and products.

“The prospect of cornering or conquering the US market is certainly included in the growth plans of many businesses – big and small. Clearly, a lot depends on product, services, industry and market. It’s a fiercely competitive environment with an economy facing many of the same problems and issues as Europe and the US – though tackling them in a different way.”

Wise decisions

With a domestic market of over 300 million consumers, the ability to rapidly achieve scale in the US remains hard to beat. But, that said, the fierce regional differences, bureaucracy and culture of litigation can come as a surprise to those who imagine the country to be open, homogenous and easy to navigate.

Robin Buchanan, Non-executive Director of asset manager Schroders, warns: “Far too often Europeans make some fundamental mistakes when competing in the US. The most common involve underestimating the speed, innovativeness and intensity of competitors’ responses in the most competitive nation on earth.

“Then there is the assumption that the US is the world’s purest free market when hidden tariff barriers and complex, expensive regulations abound… If, however, you have the resources, skills, appetite and stamina to compete, the economic and strategic rewards can be enormous.”

David Wither, CEO of UK-based technology company Sarantel, says that with the right relationships and an offering that is not merely a ‘me-too’ product, even smaller businesses can make impressive in-roads: “If you’ve got people that are good and can make personal connections with customers then, I think, in a way, the US can be one of the easiest places to do business.”

Success takes planning, investment and having skilled and trustworthy staff on the ground who understand a particular market. Lady Judge says: “You have to be a little more focused than just saying: ‘I want to go and do business in America.’ Whether you’re a branded business or not, you have to decide whether you want to be regionally focused or to cover the whole country.

“There are regional differences in tastes and the scale of the opportunities. Texas thinks it’s its own country, so does California. One of the risks is in not understanding that cultural difference and the various ways of doing business.”

When Andy Houghton was in the US, driving the expansion of YSC, an international organisation of business psychologists, he believed clarity of purpose was essential if the company was going to succeed. “You have to decide why you’re going and why you’re putting your business there,” says Andy, YSC’s Managing Director.

In the beginning, this entailed opening offices in the North-East and in Texas to meet the needs of clients already there, but the next stage involved a test of the company’s ambition. Andy explains: “The two bets we made were in the West Coast and the Midwest. In part, I think to be treated seriously in the US you need to have reach in the key commercial markets and, actually, adding a presence in Chicago and San Francisco were entirely for that reason. Without those offices, we looked like a regional as opposed to a global player.”

Don Elgie, CEO of the UK-based insight and communications company Creston, led the acquisition of two healthcare companies to expand into the US. He explains: “Our view is that, in order to be credible, you need to have some scale in the States because it is such a huge market and, therefore, we decided on acquisitions rather than being a pure start up.”

When it came to selections locations, Don says the preference was for the East Coast: “That was simply because of management time and time zones. We’ve already got two companies in New York, so adding more there was easier to manage than buying something on the West Coast.”

Rule of law
The regulatory regime, especially for listed companies, is not to be trifled with. Although wrongdoing cannot be condoned, the fact that territorial boundaries count for little these days if a business has operations in the US or, for that matter, dealings with US citizens, is a worrying development.

Nicholas Fell, SVP Corporate Services & General Counsel for BW Maritime, who practised law in the US for 12 years at a different company, comments: “The difficult thing about the US legal system is on the criminal side as they do like to make examples of companies.

“As for the prosecutors, one gets the feeling that some are in it to make a name for themselves, not just to administer justice. You see a lot of successful politicians who started out as prosecutors and they’re looking for cases to enhance their careers.”

According to Andrew John, Group Legal Director and Company Secretary at TUI Travel, which has around twenty subsidiaries spread throughout the US, the legal framework is unlike anywhere else in the world. “Risk management in the United States is very important,” he explains. “Particularly if you are selling a product or service to American consumers where you are likely to be sued from time to time. You need to understand how your risk management strategy interacts with your litigation management strategy.”

For the majority of businesses coming to America, the real headache in setting up a business will derive from the cost of HR and the relationship between employer and employee. Don gives an example of some of the differences: “When you’re negotiating new terms and conditions for employees that you’re particularly keen to keep, the typical notice period that we offer in the UK would be at least six months.

“You would think that would be welcomed because America has a ‘hire-and-fire at will’ policy. However, when we bought our first company in New York, people thought six-months’ notice would be a handicap for them in getting a new job as and when they wanted. It was extraordinary; we imagined it would be a no-brainer in terms of security of employment, but it took a lot of selling.”

Andy says that the setting-up costs in the US are significant, particularly around healthcare. “Sometimes the employment relationship in the US can feel like it can be structured on an explicit understanding of the benefits an employer will give an employee. It’s not unusual in an interview for people to ask you to talk through your private healthcare scheme or how your 401k [pension plan] works, whereas the equivalent of that in the UK would probably never really raise its head until the final stages of the conversation.”

Think big

Expanding into the US needs commitment, but there’s a reason why it continues to be the UK’s largest non-European Union export partner (accounting for 25.8 per cent of trade) and its largest non-EU import partner too (15.9 per cent of the total value of trade).

The risks aren’t to be underestimated but for those companies not in the firing line of regulators in an Election Year (think financial services), the bureaucracy and legal framework is manageable. Nick says: “The Europeans do have fears because of all the scare stories. But it’s not the Wild West completely when it comes to the application of the law, so people shouldn’t be put off by what they hear.”

Although Lady Judge does recommend that businesses new to the US hire a good lawyer, she doesn’t believe that the differences in regulation between the UK and US are so far apart. “There seems to be more regulation in the UK because you have to add on the numerous regulations of the EU and their constantly changing nature,” she says.

Opinion may be divided, but there must be something right about the business environment in the US, stretching as it does from Silicon Valley to Wall Street, given the ease with which it regularly creates companies that go from start up to blue-chip status in the blink of an eye.

“It is such a great market, full of conspicuous consumers,” says Andrew. “There is nowhere else like it in the rest of the world.”

What’s in Store for Retail?

Reports of ‘the death of the store’ have been greatly exaggerated, although knowing exactly what to do with the real estate itself remains something of a work in progress. It’s all part of the enormous challenge of reinventing dated and expensive retail models at a time when customers expect nothing less than a seamless multichannel service.
 
David Adams, Senior Independent Director at JJB Sports, says: “I’ve been involved in some very interesting discussions about right-sizing store changes. I think some people are too glib to just say that you ought to get out of stores as quickly as possible. It’s not that simple.”
 
As ever, the ability of retailers to adapt will be dictated by the financial position of the business and the imagination of those who sit on the board. Clearly, there are some awkward questions for directors to address:

• Do stores still add value? 
• With so many channels, how do you get a single view of the customer?
• In a flatlining economy, where does growth come from?
• Do you have the talent in the organisation to deliver? 
• How do you encourage innovation and also manage risk? 
 
It’s interesting that a purely online operator like Amazon is looking to open its first physical store, reinforcing the point that bricks and mortar has a future, if the business proposition is sound. David says: “I’m not sure the store is the centre of the business anymore, but I do think it’s a crucial element. It may well be that you increasingly look at your stores as a distribution network; it’s part of your grand representation, but it’s also a place for research and finding information.”
 
Destination unknown

For traditional retailers, a new kind of ‘space race’ is underway, which goes beyond just thinking about the store itself. Helen Dickinson, Partner and Head of Retail at professional services firm KPMG, says: “The leading retailers are looking at how to move from the current model, which is complex and laden with legacy issues, and therefore expensive, to a model where there is ‘one view’ of the customer across all of the channels, and the back office supply chain is set up to deliver against that. It is a whole shift in terms of thinking about profitability.”
 
Retailers are yet to find a formula that delivers what customers want in ways that are profitable. However, looking ahead, the question for retailers is not: ‘How do I make money from stores and websites?’ but: ‘How do I make money out of an individual customer or customer segments?’
 
Innovation and transformation are the order of the day. A pity then that this coincides with a true beast of an economy, marked as it is by uncertainty, around inflation, the sovereign debt crisis, trust in our financial institutions and the new superpowers emerging into the global market. 
 
Dominic Swords, an economist at Henley Business School and a Criticaleye Thought Leader, says: “It’s a tough proposition for retailers, and is compounded by the volatility in commodity prices. Energy and oil prices in particular, as well as depressing real incomes for consumers, are having a huge, direct effect on retailing because they’re so dependent on transport and the logistics dimension of the value chain. 
 
“Over the past decade, retailers have been able to find many ways to absorb these increases, either by taking a cut in margins or by finding much better efficiencies, through the value chain, suppliers or stocking and delivery systems. However, you do wonder how much further cost efficiencies can be achieved before they are felt by the consumer. These factors will tend to drive restructuring in the industry.”

Saul Estrin, another Criticaleye Thought Leader and Professor of Management and Head of Department at the London School of Economics, comments: “Over a five-year horizon, the view is that the UK economy will flatline and that most of the risks are on the downside. If the eurozone does crash, the spillover effect is likely to be extremely serious. At best, the most you can hope for is that the UK will grow extremely sluggishly. And that would be classed as a good outcome.”
 
Retailers, especially the large ones, are on the front line. Saul continues: “Competition is going to sharpen as the barriers to entry of the big supermarkets, which were mainly defined by their land bank and geography, are based on a model which is 30 years out-of-date. 
 
“It seems likely that the hallmarks of a successful retail strategy for the coming five years will be flat revenues and declining margins. In order to counteract this, there has to be some sort of access into growing markets, which for the most part, British retailers have failed to do well.”
 
Every industry goes through a period where it is reborn. Mike Hayes, who until recently was CEO of SEGA Europe & America, oversaw major reforms as the organisation made a fundamental transition from hardware to digital gaming. He explains: “The tensions of implementing these changes have mostly been internal, structural ones. You are fundamentally changing your business so there will be a land grab. 
 
“We decentralised the brand, putting it into individual studios, then redirected the studios to different platforms, which creates internal tensions. I don’t see this as anything other than perfectly natural and legitimate – a strong management with a strong strategy should be able to overcome this, as everyone understands what was going on.”
 
The risk level is high for those calling the shots, even in sectors where the opportunities are enormous. Justin Ash, CEO of private-equity backed dentistry provider, Oasis Healthcare, says: “There is little room for error, especially in the PE environment. Growth plans, therefore, need to be well-justified and researched, subject to challenge and perfectly executed.”
 
Retailers are in the eye of the storm in terms of the impact of the recession, innovation and changing customer behaviour. For Paul Danos, Dean of Tuck School of Business and a Criticaleye Thought Leader, it’s vital that the issues, no matter how ugly and complex, are tackled head-on and that all opportunities are seized. “In this environment, you can lose creativity and risk-taking in leadership,” he says. 
 
Helen adds: “The hard thing is that retail is a very immediate industry and you have to keep a close watch on today’s business. However, there is a shift in how things are being done and that requires strategy, vision and defining a clear path in how you achieve change.”
 
Please get in touch if you have any comments about the issues raised here.
 
I hope to see you soon.
 
Matthew
www.twitter.com/criticaleyeuk