Retail Organizations: The Problem Within
By George Anderson
A new study from Zenith Management Consulting says that retailers can be making money, growing year-over-year sales, outdoing the competition and satisfying consumers — and still be in trouble.
Many retail managers are not even aware their businesses are in trouble or, more likely, where they are vulnerable, says Race Cowgill, a principal with Zenith and a member of the RetailWire BrainTrust, “because retail organizations systematically mis-process uncomfortable, critical information” while focusing on distracting, good news instead.
The Zenith research shows that 94 percent of retail businesses have underlying critical problems that affect their top and/or bottom line performance, says Mr. Cowgill.
The study, Every Retail Organization is in Danger but Doesn’t Know It, found that distracted businesses focus most often on putting out small fires while preoccupying themselves with new technology and competitive trends.
The Zenith report shows that data specific to the retail organization, what Mr. Cowgill calls high intensity information, analyzed without the normal defensive mechanisms put up by individuals within companies, is necessary for underlying problems to be identified and solved.
“Our research shows that, if done this way, retail organizations are 16-times more likely to implement lasting, significant change,” says Mr. Cowgill.
Moderator’s Comment: Do you agree that many businesses are overlooking critical problems that may in the short or long-term damage their business? What
recommendations do you have for companies that will help them take the blinders off?
Click here for a copy of the Zenith Management Consulting report, Every
Retail Organization is in Danger but Doesn’t Know It. –
George Anderson – Moderator
What that there were an award for retailers having deep insight about their business and its future. That category of kudos would seem to rest mainly with outside evaluators.
What that there were a financial-enabling pathway to transfer the role of operators for at least one fiscal year with the role of those who judge them and vice versa. Which group would be more successful in such a role reversal?
Perhaps, as Fats Waller once said when quoted in The New Yorker, “One never knows, do one?”
Most retailers do not do enough of the following three activities: mystery shopping, employee feedback, and comparison shopping. Too many retailers are so focused on the issues at hand they fail to see the big picture and few things can shed light on the big picture as well as mystery shopping and getting out and looking at retailers in different channels.
To George’s question: “what will help them take the blinders off?”
We habitually find clients, both CPG and retailer, unwilling to ask their customers what they want and how well the client is satisfying those wants. The reason? They do not want to create an implied obligation to follow through with providing those things if they do not fit the client’s own corporate agenda.
On the one hand, it is probably smart not to create expectations you have no intention of fulfilling. But on the other hand, how do you ever identify the “hidden problems” described in Zenith’s study if you don’t ask these questions?
94% of retailers have critical problems and don’t know it? I think this is a bit of an exaggeration.
In my opinion, one of the biggest problems retailers have, or any organization for that matter, is their tendency to get caught up in unimportant things (such as too much research they don’t know how to interpret, or this and that new trend, or loads of technology that makes them more distant to their customers and to reality) and lose track of the importance to keep their strategy simple, focused and rational.
Yes, many retailers are overlooking critical problems. I had a chance to do a pre-read of the study and there are some good insights in the Zenith Report. As a retail/Channel outsider I think the two biggest problems out there are 1) a “silo” mentality of retailers, who continue to think internally, and 2) not thinking about the consumer/shopper and what they really want. Too often this is left to the CPG, leaving a disconnect and an unhappy consumer/shopper. On the first topic, retailers continue to go to the same consultants and expect to get different answers. I think someone said that is the definition of insanity. On the second issue, retailers need to start doing some/more of their own consumer/shopper research. This will make the CPGs mad but it will help the retailers get a better understanding of what consumers are looking for and why! So retailers are faced with big problems that are not going away and they need to get “out of the box” and get some outside help, or they can just continue on the road to Abilene.
Year over year sales and profit growth by themselves signal all is well, but is like a doctor making a diagnoses by only taking the patient’s temperature. These growth rates should be compared to external facts. First is inflation. Sales and profits should be adjusted for the correct inflation factor, which may not show growth, but a decrease. Second is market growth. A company growing at 5% in a market growing at 7% is losing market share. Third is rate of growth of profits to sales. Unless the profit growth rate is greater than the sales growth rate, the asset base utilization is declining.
Success is business’s biggest enemy, as it keeps an organization from changing or adapting to new situations. It’s the “If it worked in the past, then why change?” syndrome. Company cultures are internalized and therefore ‘invisible’ and take years to make or change. Moreover, from Leon Festinger’s 1957 ‘A Theory of Cognitive Dissonance,’ we have codified and learned how individuals deal with information, those that validate or run counter to existing/shared assumptions. Which leads us to change management theories, the inevitable organizational contradictions, and the difficulty in executing such efforts from within an organization. The current report findings are not unique to retail and identify the pitfalls organizations make in dealing (or not dealing) with what the report calls “High Intensity Information”. How well an organization (1) identifies and processes key information and (2) transforms those insights into value-adding actions that deliver sustained advantage in the marketplace, is the crux of the problem. Retail’s culture and management traditions will continue to limit the likelihood of meaningful breakthroughs in this area.
Most organizations, and in particular retail organizations, were not intentionally designed. They grew. They evolved. They assimilated. One store operations turn into local groups turn into regional turn into national. Or, a sound organization is created for a specific scope and scale, and succeeds. Success transcends the ability of the organization to manage effectively, requiring a redesign.
Who stops their business and does an organizational redesign until everything is broken? Not very many. And it’s exactly the wrong time to do it.
Here’s another way to look at Race’s observations. Organizations, like any complex system, are really just energy flows. Energy moves from one node to the next, is acted upon, and moves on. This energy takes the form of information. Is it really surprising that 94% of the organizations studied have information which is misdirected, delayed, improperly assembled, or presented in a counter productive format? Don’t we all really understand that?
My experience is entirely consistent with the conclusions reached by this study. How many business performance management processes and systems are actually designed? How often do they evolve based on the preferences of managers or executives for types and forms of information and decision making formats? Why wouldn’t it make a ton of sense that haphazard development, management and guidance of information flows will lead to hidden loss and waste?
Why is it heresy to say that the time to look into your organization is when it is doing well? When you have the resources, time, and breathing space to actually act upon something with appropriate timing and commitment? How easy is it to fix a sinking ship compared to doing constant maintenance?
Avoidance of the most important, difficult self-examination is understandable, since people avoid pain. I read somewhere that families spend less than 5 minutes a day discussing the issues most important to them. I have no idea whether this statistic is true or where it came from, but it fits the Zenith Consulting report theme. The first step in any 12-step program is to admit you’ve got a problem. The hardest problems to solve are the ones that have lasted the longest. Those are the ones that people assume are permanent, structural, and cannot be changed. Everyone wants to attack the problems that are easiest to control. It takes a great leader with vision and guts, including the guts to admit weakness and find effective help, to address the elephant in the room that no one talks about. The retailing industry is plagued by inconsistent and mediocre profitability, legendary staff turnover, and low customer expectations. Elephants are not endangered in the world of retailing.
The data shows that retail organizations with significant unsolved problems ALSO report sales growth, customer satisfaction, and all the rest. The point is that these positive signs do not mean there are NOT unsolved critical problems. This is a key finding of the study, so let me repeat it: you can have signs of success and still have unsolved critical problems. In fact, every successful organization in the study is in this situation. If we don’t put these two pieces of very important information together, we miss a huge chance to solve unseen problems. You can be successful, but once the business environment changes, the organization can perish. The report mentions some examples and how they occur. If we ignore this phenomenon, we lose the lessons these failed, successful organizations can teach us.
I agree it has to change but this is a cultural mindset in the corporate world and has been going on as long as I know and seems to be getting poorer by the day. Getting the latest, greatest IT programs, whether it’s for managing sales or any number of agendas (got to have it), is a constant focus rather than analyzing and solving with what you have now. Businesses lock on to their typical procedures and “damn the torpedoes, full speed ahead.” I’m not sure you can change these traditional ways and I can’t put it better as I’ve called this the “blinder effect” for years. As a marketer, one area that can be improved is to not use so much external assistance. Advertising with agencies can be curtailed, as the company then must concentrate squarely on the effect campaigns have. (Most agencies are only in the business of selling ads anyway.) I’m sorry if it’s cliché but “thinking outside the box” is crucial in evaluating processes and making the necessary shifts if needed.
94% is not an exaggeration. This figure is one that seems to surprise a number of people. It is a figure calculated from the number of retailers who were found to mis-process critical information in their organization, and from the number of executives who reported that critical problems were not being addressed because those problems had not surfaced. If this data is heeded, it could be a wake-up call to an industry with many un-taken opportunities. Or the data can be dismissed or minimized.
I think that Race is throwing too broad of a net here. If you are making money, outdoing your competition, satisfying your customers, and growing your sales year over year, you are definitely successful in the retail space. However, there are certainly areas which can be overlooked despite these factors, like employee satisfaction in the workplace, strategic planning to ensure continued performance, and logistical competencies. Any of these factors can certainly add to a better environment, but will not result in failure should they be overlooked. Despite this, changing organizational behaviors is a difficult task which may take many years to implement. These changes often involve processes and systems which may have been in place, and may be at the very heart of why the company excels in other areas. The key here is to initiate change without impact to the company’s ability to perform at an excellent level.
The most important problem being faced by retail organisations is that of meeting the customer expectations. No matter how well you train your sales staff, some customer is bound to feel dissatisfied by their behaviour or response for a particular situation. Each customer is different in approach and requires being dealt with differently. One thing we all have to agree about is that however rigorous the training we impart to our sales staff, still they do not have that instinct to interact as per customer psyche and change their approach from customer to customer. After all, they (sales staff) are the ones who are our first line of action and are the organisation’s face among the customers.
One does know, or better know, what issues, needs and
problems/opportunities ones business has! Or they are out,
whether it’s a bottom/up, or top/down management input approach.
Too few companies distinctly carve out a strategic direction and game plan! Most retailers seem to have the “me too” approach to yearly and short term business activity.
So the pricing and promotion battle begins and seldom leaves.
Notable retailers who have created a successful strategic
plan, and then a consumer marketing effort, are Target and
J.C.Penney. Importantly, both have addressed the consumer
issues, noted below.
And price is blended in the plan, but is not, by itself, a plan.
If a retailer doesn’t create a long term strategic plan, with
focus on its shoppers’ expectations to include service levels,
being an information source, and allowing for two way
communication, it’s a long day/year in gaining the bottom
line. Hmmmmmmmmmmmm