Who your shoppers are, why they visit you and how they behave provide clues as to what your offer should be and how you should be servicing them. However, the way the industry currently looks at itself (how it divides up or segments the convenience channel) doesn’t really look at shopper needs.
Traditional convenience channel segmentations include:
* Tier 1, 2 and 3 based on store footprint and sales
* Fuel vs non fuel vs dual
* Chains vs independents, based on whether you’re owned by a supermarket, or what banner/franchise/buying group you are or aren’t part of.

All of these are numeric, structural or operational. Whilst they provide an overview of the industry, they are not helpful to you in micromarketing an individual stores because they miss the intricacies of looking at where you are located, why shoppers choose you, and who you compete with, among other indicators.

We’ve started to have a think about how this could be approached differently – to provide a shopper overlay to the numeric and structural approaches. Based on a number of shopper related indices and dynamics, we suggest there are at least 5 different channel segments. As a starting point, we’ve called these segments Locals, MiniMarts, Arterial, Transit, and Roadhouse. There may well be some others, but these will do as a start.  The key principle is that your location – where you are -  largely dictates who your shoppers are and why they visit.

At the bottom of this article is an outline of what these segments look like, and some opportunities for each. These are just initial thoughts, we’ll build on it over time. Note that the channel segments outlined here are currently hypothetical, yet to be quantified with research.

What does this mean for opportunities and growth?

Why use the below table or start to think about what your store type is? Understanding who your audience is and why they are there helps identify ways you can grow, and they will differ slightly by segment. Some initial ideas are:

• Local: Community based programs (like IGA does). Expand range of essential items (compete with supermarket for small baskets). Expand services offer – you’re a destination anyway!

• Minimart: Similar opportunities to Local stores – expand range of essential items and services offer where you’re the regular go-to place for local apartment dwellers. Maps, guidebooks and other travellers needs for tourist locations

• Arterial: Daypart marketing – breakfast, afternoon pick-me-up, dinner on the run/dinner essentials, based on whether you’re inbound (breakfast) or outbound (dinner). Improved food range, eg meats and sauces , for ‘dinner tonight’ shops in outbound. Facilitate less queuing (open more registers during peak periods) to drive loyalty through efficiency

• Transit: Cross category bundles – snack, drink; non-spill format beverages; books and CDs, not just magazines. Work/date night essentials – stockings, cough/cold, pain relief, condoms

• Roadhouse: Differentiate from other roadhouses – expanded food offer with a point of difference (not just fried stuff). Kids toys & games suitable for travel (including electronic).

Here’s the reference table of hypothetical channel segments:

Types of Convenience Stores © ShopAbility 2010

Fig 1: Convenience Store hypothetical segmentation. © ShopAbility 2010

So that’s a very general outline on some potential different convenience store types. We welcome your feedback on the types and where your store fits (or doesn’t) as we discuss the opportunities per convenience store type further in later articles.

Until then!

JBDP: Joint Business Development Planning or Joint Business Planning. ‘Where do you start?’  some cynics ask. With two dominant (some say dominating) grocery retailers calling the shots, is there really room for joint planning?

Joint Business Planning was fairly common a few years ago. But with changes in senior executives across all of the major retailers, new entrants to the market, and new owners/ shareholders, all with different priorities and growth strategies, how prevalent is it or should it be today?

A few underlying questions that regularly get debated in the FMCG industry include:

* Will the goodwill and creative initiatives be abandoned at the first sign of stalled growth, by either party?
* Will Operations (stores and field teams) fully execute when, and the way that, has been agreed?
* Will we truly share the pain and the gain?
* Will other mid-senior level executives be as committed as the Planning team to abide by what has been agreed, and ostensibly paid for?
* What will other Retailers or Suppliers do if they find out what has been committed to with a competitor – especially if increased trade spend is involved?
* How do I react when our agreed Plans are nothing more than a perceived Terms grab and little has been achieved despite all of the great rhetoric?

WHY DO A JBDP?

The commercial decisions that surround a JBDP are certainly complex and can create confusion, frustration and indecision with many suppliers. The questions we pose are commonly asked across most FMCG suppliers, especially at the moment. A JBDP is only worth the paper it’s written on when initiatives are not just agreed to but actually implemented – which we will discuss later.

So what is a JBDP?

“JBDPs are written, formal annual business plans or goals, developed in collaboration and with equal contribution by both the supplier & the retailer, outlining how they are going to work together in developing the Category over the next 12 months to achieve their goals.”

Typically a JBDP contains top level business strategy for the Category including historical and current research data, marketing plans, tactical plans, time frames and financial forecasts including responsibilities and accountabilities for achievement across each party.

Let’s separate JBDP from Business Reviews, which are a means of monitoring the JBDP on a regular basis, usually quarterly of more frequently if agreed and required, and quite tactical in application and measurement. We will cover these in more detail in a future article later in the year.

So what are the benefits of a JBDP?

1. Joint commitment to growth, aligning Category plans and strategies to increase Sales and Profits for both parties – logical and fairly basic
2. Have a clear understanding how this will occur – who does what and when
3. Align the two companies behind one plan, all of the silos line up
4. Develop the relationship for the future, and hopefully develop a bit of Trust along the way.

WHEN TO BROACH THE PLAN IDEA?

Before embarking on the process of developing a JBDP, ensure that there is internal alliance to both the process and the potential outcomes. Obviously clarity of your expected outcomes will be critical prior to commencement, but also understanding what unexpected requirements may be tabled or aggressively leveraged by your trading partner. Anticipating and understanding your level of flexibility prior to commencing the process is really a must.

When should we consider opening a discussion about a JBDP?

If you have a current or lapsed Plan, never too soon is the answer. If last year’s Plan was a success, usually restarting is easy, however a new conversation can be awkward especially if there is an incumbent supplier you want to usurp. Usually prior to the start of the financial trading period for both participants is a good time as a clear line of sight exists between the JDBP with each retailer and the Corporate Plan. Each is a jigsaw piece that fits in to build the overall Company budget.

WHAT’S IN A JOINT BUSINESS DEVELOPMENT PLAN?

There are six basic steps to creating a JBDP, somewhat similar to a Corporate planning session that is part of the Annual Budget Planning process. The focus here however is very much on the Category, or on multiple Categories if your trade in more than one Category.

Step 1 – Assembling and filtering background information is a key step in the preparation of the key performance criteria of the Category – last year’s Plan (what worked/ what didn’t/ why) sales and profit performance, supply/ inventory management and retail/ field operations, ranging, promotional performance, new line performance, Shopper data for that Retailer etc. Construct and circulate to the key participants as well as internal stake holders, having everyone singing from the same hymn book focuses on the same data and reduces confusion and distraction

Step 2 – Situational analysis or overview completed both externally and internally. What does a current snapshot of the Category look like? Determine what has changed over the ensuing period – a new competitor, changed Category dynamics such as ranging, source of supply or alternate usage (eg rice vs pasta consumption), GP%  to name a few.

Step 3 – Internal and external SWOT analysis. This also identifies the key strengths that need to be leveraged as a point of potency for the future year, as well as weaknesses that must be identified and worked on.

Step 4 – What are the key commercial or financial objectives that will form the basis of this year’s Joint Business Development Plan – what do we both want out of the process? Sales growth? Profit growth? Inventory measures? Promotional investment? NPD? PL involvement and Retailer goals?

Step 5 – develop the Category growth strategy, or Category Development Plan. The key disciplines of RSVPPP are identified, clarified and developed :
* Range
* Space
* Visibility
* Price
* Promotion
* Persuasion
(The plan also needs to include retail/shopper objectives eg traffic, penetration, AWOP, spend, frequency).

Step 6 – Implementing is usually the hard part – see our questions at the start of the article. This is where the internal fortitude of each participant is tested, sometimes quite hard. Especially when a competitor arrives with an aggressive offer that tempts or gains agreement from the retailer. Or despite assurances from senior execs, initiatives are stalled or given a lesser priority.

The addition of an extra step,   Step 7 is the most important, this is where the JBDP is monitored and fine tuned to ensure compliance, implementation, hopefully success and if not, the development of alternatives to further focus on achieving the commercial targets that have been agreed. Everything else is little steps to get to these measures, this is what ‘success’ is measured by, not how close we have been or what happened that resulted in missed Goals

So there is the theory and a step by step guide on how to develop a JBDP – there are plenty of templates around that can be used, or certainly the majors have their own templates that they preferred to use

WHERE TO FROM HERE?

So how relevant are they in today’s market?

It feels like we are going backwards at the moment, with focus given to Price/ Terms/ Projects that are “resetting” the way the industry has worked – the question is whether this is a cycle or this is now the way the industry will now work -  a Darwinian evolution of sorts.

Not sure on that one yet, it is probably a little too early to give a clear indication, most likely in 12 months or so the answer will be clear, and will probably be driven by the relative and comparable performance of each of the dominant chains.

One clear sign that will answer the question is the implementation of the agreed initiatives that have cost suppliers new trading arrangements. Non-implementation with new terms would indicate that new relationship dynamics are being forced within a narrow time frame, without the agreed benefits accruing to both parties, certainly a lop sided result.

Implementation, either in full or in part, would indicate some degree of commitment to both the process, the relationship and on-going delivery, and therefore rationalize the relevant commercial arrangements. This means Trust – something that is running a little thin these days.

Geoff Frost

As former CEO of Bartter / Steggles, Geoff headed up the company’s transition from a $35 million company in 1987 to more than $900 million in 2008, implementing business improvement programs to reduce debt by $20 million per annum and restructuring the Sales function to better meet customer needs.

Since 2008, Geoff has been involved in various due diligence roles and has assisted with the evaluation of potential business acquisitions by individuals and equity investors.

John Day

With a reputation for strategic thinking and a realistic approach John has had more than 25 years of General Management and Senior Management experience in blue chip companies such as National Foods, Simplot, Mars Confectionery, Masterfoods, Uncle Bens and Bowater Scott. He has held General Manager roles across a number of functional streams including Sales (all Channels), Marketing, Distribution and International and Domestic Business Development. In addition he was General Manager of National Foods Milk Operation (Victoria) and on the Board of Management with Simplot, heading up the Shelf Stable Division with brands including Leggos, Edgell, and Plumrose.

John’s expertise covers all channels including Grocery, Convenience, General Route, Catering, Institutional, Distributor, Delicatessen and other Foodservice Channels. Whilst he has had many successes and achievements in this time, from a Grocery perspective he led the team which achieved the biggest Housebrand Tender in FMCG, that being the Woolworths National Milk Contract in 2002 for National Foods.

Geoff and John join our core members Peter Huskins (ex Senior Exec & Board levels with Franklins, Millers & Grace Bros) and Margaret Haseltine (ex CEO Mars / Masterfoods) to provide a comprehensive and results-focussed business strategy service for our clients.

Click on the links to find out more about our Business Regeneration & Strategy services.

You can also download our handy Business Success Scorecard.

By Peter Huskins for Retail World Magazine.

Rather than write about the theories and well trodden path of Relationships in general, I’d like to frame this article more about challenging you to identify what capabilities and competencies matter to you and your business when you are managing your Customer relationships NOW. We all know, and have been trained in our careers, about Customer management and how to influence the sale. We know we need a win/ win relationship, good networks across our Customer’s business and a reputation for trust, confidentiality and achievement.

But how do you measure how good you really are, and how good you want to be?

In our last article on Scorecarding Your Business, Norrelle mentioned the importance of key factors in building and using a Scorecard. One specific area of competence that was identified was Customer Engagement – read Relationship Management.

But what does it mean in a Scorecard context and then in an application context? Measuring and assessing performance on a Company or Individual level is one thing, but the ability to transform a relationship into a powerful partnership focussed on joint growth and profitability is quite another challenge.

Being able to adequately assess the capability of your business (and of individuals) to manage Customer Engagement, in other words Relationship Management, is a critical first step in understanding if it is a core strength that can be leveraged, or an underlying weakness that needs development. A thoughtfully developed Scorecard also allows for future re-assessment that enables progress to be measured and fine tuning to take place.

So let’s look at the basic framework around Customer Engagement and the possible criteria to look at if want to apply a specific lens to this fundamental discipline, what we call

The 5 R’s of a Relationship

Relevant – Rigorous – Respect – Resourceful – Right Time

We believe these are the key competencies and capabilities that Customer facing people need to have and use when they engage with their Customer. They also apply to functions that may not have direct day to day responsibility for Relationship Management but in many instances their decisions or actions have a direct impact on a Customer…and someone else has to sort out the mess.

The next time a Brand decision is taken in apparent isolation to the Sales function, and to the bewilderment of a Retail Customer, will not be the last! Likewise the next time a promotional price point is promoted to the bewilderment of both Sales and Marketing will not be the last! These are the day to day challenges of managing a Relationship, both external and internal.

Now let’s expand on these 5 R words, using other words that hopefully will strike a chord and assist in building your own Scorecard and identifying areas of improvement for your Customer Relationships:

1. Relevant – how appropriate and significant you and your Company are in your dealings with your Customer.
Words like current knowledge (of the Category), product and competitors, store conscious, future focussed, clear and concise, objective, informative, KPI driven, cost conscious or low cost come to mind

2. Rigorous -  how thorough and accurate you are in managing your Customer’s business
Focussed, applied, consistent, curious, speedy, interested, targeted, well planned, analytical and diagnostic are good descriptors

3. Respect – is there a high mutual admiration and opinion of each other?
Committed to the Retailer, single minded focus internally, your Customer’s champion, loyal, flexible,

4. Resourceful – how practical yet creative you are?
Being different, exclusive, innovative, imaginative, knowledgeable, strategic, whole of business,

5. Right time – balancing a sense of urgency with timeliness and applicability
Urgent, available, timely, opportune, sensible and appropriate.

Now it should be a fairly simple exercise to identify the words you would like to use to fashion into this table featuring the 5 x R’s (or another set of key words/ titles that you would like to use to benchmark your business)

There is a level of complexity and thought that needs to be applied to develop a ‘fair’ scaling methodology to the Scorecard. By scaling, I mean what does good – better – best look like for Relationship Management? The words and phrases must describe exactly what you mean for each level of Relationship Management, and these may vary by Company based on the emphasis you place on these from a strategic sense as well as an application sense.

The best and most engaging way to do it is to develop what you believe best describes each scale for the Scorecard and then distribute the draft around to key people in the business asking for their input and amendments.

Sometimes you hear that it is an easy solution to “ask your Retail Customer” however in reality it is a lot more difficult than that. Different Buyers in different categories within the same Retail company have different hot buttons. Some KPI’s and business strategies will be the same however each Category (read Buyers) is unique. Also the ability to be able to benchmark against your peers is beneficial as strategic and tactical opportunities are frequently highlighted.

Everyone has days where everything just seems to go wrong – think about asking a Buyer to candidly rate your business the day after a particularly heavy negotiation session over Trading Terms or a competitor’s hot promotional price point, note the word ‘candidly’. Of course they will be distracted, the outcome of your business rating will be dependent on the success (or not) of the previous day.

Strategically some companies also wish to excel in some areas and not in others, much like the alternatives offered in The Discipline of Market Leaders (Treacy & Wiersema) where one of either Operational Excellence, Product Leadership or Customer Intimacy are selected as the core strategic Company capability. Your chosen discipline is the driver for your business, one that you master vs your Competitors, however the model requires at least normal/ average capability in the other two disciplines in order for the chosen model to succeed.

If you do wish to pursue the Customer Intimacy model, the key indicators are:

* Deliver to specific Customer needs, not broad market requirements
* Know the people you sell to & exactly what products & services they need
* Continually tailor products & services at reasonable prices
* Customer loyalty is a key asset; cultivate Relationships rather than pursue transactions
* Give the Customer more than they expect, constantly upgrading offerings
* Consider Customers a lifetime value, not just profit & loss on a few transactions
* Tailored mix of services or customized products; using 3rd parties to supplement internal activities
* Obsession with solution development, results management, and relationship management

The above descriptors also provide a neat alternative to use in the Customer Relationship Scorecard as well.

The overall message here is do not try to be all things to all people, select your Customer Relationship criteria and scaling methodology and  then strongly measure and apply it, as the capabilities and competencies you design for your business must become a key strength in your relationship with your Retail Customer.

Relationship management is not all one sided, although it may definitely appear to be the case sometimes. The ability to see over the seemingly large immediate issues and then be able to contextualise for the benefit of a sound on-going relationship is the key – and that works both ways!

So what are Trials, who does them, when and why….and how do I go about even starting to run a Trial?
Common questions with an equally evasive answer, as the points to consider are complex at best and downright confusing at worst.

What is a Trial?

So, let’s start off with a broad definition of what a Trial actually is:
“the implementation of a business initiative, measured through a controlled assessment that as closely as possible reflects the regular trading environment of the category”
Trials are run by Retailer and Supplier alike to test a business hypothesis – usually an initiative or business case that has been developed targeting total category growth.
For a retailer it may be:
* A new store format such as a small store or an alternative offer(eg Thomas Dux)
* An environmentally friendly format stuffed with new technologies and applications all designed to leave a negative operating footprint (continual focus of all retailers)
* Alternative category layout, adjacencies or flows within a store
* Secondary location alternatives
* POS or Shopper engagement strategies (eg the new Coles tickets)
* New fixture designs
The new Coles formats that been trialled in various guises in various State locations are a really good example of the above.

For a Supplier it may be:
* A Category based solution (eg the Cantarella coffee unit)
* A themed seasonal secondary location (eg Xmas cards and wrap, or boxed chocolates)
* A new fixture or stand targeting a particular Shopper trip (eg a refrigerated front end drinks unit targeting immediate consumption or an impulse confectionary gum unit)
* A particular layout reflecting usage occasions or a possible add-on sales opportunities
* A fresh location in the store, a new aisle location for the category for example
* Pack sizes, shapes and formats for particular channels or usage occasions
* NPD initiatives

So, why implement Trials in the first place?

1. Shopper and Consumer information is essential to be able to truly work with the retailers to manage and develop Category growth strategies, regardless of Channel.  Leading companies are then using this information as a basis for strategic planning, and then undertake controlled Trials to prove their strategic hypotheses.

2. With the changes occurring throughout the retail trade, it is essential that we establish and properly Trial the corporate position on many aspects of our offer to the Shopper and the Consumer

3. Trials are used to not only prove a hypothesis but also to show your retailer partners your commitment to driving total Category growth.  Often the Trial enhances your role as the thought leader in the category.

4. Enrols the Retailer not only in the process, but also the reason why the trial is undertaken in the first place – to test a category growth strategy in that retailer, in that channel.

5. Enrols responsibility and commitment across the internal silos of both the retailer and the Supplier

6. Proven knowledge of specific in-store activity and the corresponding responses is becoming vital as we move to store specific marketing in Space, Visibility, Range, Price, POS and Promotion. Well run trials of targeted programs provide this knowledge.

7. Shoppers are becoming more promiscuous based on Trip type, and traditional methods of “one size fits all….well nearly” is not appropriate. Continual fine tuning and differentiation is essential.

8. Trip type Shopper marketing is an evolving science and as the Baby Bomer, Gen X, Gen Y and soon to be  Gen Z profiles further evolve, Trial management will be instrumental in fine tuning the differences

9. We need to have justifiable results that our sales and field people can use to “sell the story of our category” to all our retail partners across other Channels or within the existing Channel.

10. Differentiates Tactical from Strategic initiatives

The common denominator for both Retailer and Supplier trials are that they are testing a hypothesis – the concept is only a theory until actually proven in the context of the real trading environment where Shoppers determine the success or failure of the initiative.

The real key for a Supplier is Retailer engagement. Retailers must be involved in every step of developing the initiative, from as far back as commissioning the Shopper research questions and content to the design of the final unit or fixture. Joint ownership of the initiative and the final outcome is the only way to secure internal commitment from both participants.

There are a number of issues where the Retailer can have a critical input into the success of a trial. These are not strategic issues, but a set of important tactical considerations that can influence the timing and success of a trial.

Examples could include:
* Customer range changes post a range review
* Availability of in-store secondary display slots
* Meeting seasonal requirement eg Xmas
* Availability of warehouse slots
* Customer systems capability and compatibility
* Retail Operations consultation and acceptance

Retailers may also have minimum hurdle rates that must be met:
* Specific target % Gross Margin
* Net category profit (accounting for cannibalisation)
* Minimum number of units or cases sold per week per store
* Minimum or maximum SOH
* Specific OP or product sizes and weights

Implementing a Trial

When agreement is secured for a Trial a critical path schedule must be jointly developed.  This will help ensure that commitments are met and will go a long way to remove barriers to implementing the Trial

Establishing carefully audited trials and widely publishing results is a critical success factor.

Evaluation of the trials must be carefully made to measure against the pre-set KPI’s or an agreed set of measurable goals before commencing. Often this will be factors other than just sales. Consider exit interviews – interviews with store & merchandising staff, also transaction size, profitability, associated category sales etc.

Agreement must be reached on how the results will be measured and then results must be presented vs goals/ KPI’s that have been agreed. Sources of the agreed data are also agreed and responsibilities assigned to gather and group the data, and interpret the findings, including interim recommendations.

Each partner must fully understand what they are setting out to test and pass that understanding on to those implementing the trials. Launch booklets from all of the information gathered through the development of the Trial parameters and any other discussions that may have occurred will form the basis of the selling presentation made by Field teams to the trial stores. These launch booklets are given to each trial store to ensure consistency of implementation between Field and Stores.

Conduct the trial over a minimum of 6 weeks, ideally 8-12 weeks. Maintain a running register of the trial stores vs the benchmark stores during the trial period.  If the trial is obviously failing then serious consideration must be given to abandoning the trial and revisiting the key tenants of the trial

Ensure that the trial conditions are rigidly adhered to at store level during the period of the trial – any changes must be reported (these may abort the trial at worst or effect the measurement at best). Running a Trial in a store where there is an imminent refurbishment, or a major competitor opening will skew the results terminally. These impacts need to be considered and changes accommodated to ensure both the Trial and control stores are clear of any internal or external influences that will taint the agreed measurement criteria

Once the trial is complete, a fully documented report must be submitted to the retail partner, together with clear recommendations for the next steps. The format and reporting style is based on the previously agreed KPI’s and parameters and the final presentation is made to the key Retailer and Supplier sponsors and stake holders to ensure that the key decision makers are aware of the results and are in a clear position to make a decision to further roll out the Trial concept.
The Trial has then moved from category concept to category realisation, and becomes a fundamental basis of how the Category is marketed.
The evolvement of Shopper marketing hinges on the creation, trial and implementation of new  Category initiatives , and progressive Retailers and Suppliers alike are continually developing new concepts to address different and ever changing Shopper purchase behaviours.
It is clearly felt for example, that the current global economic meltdown has indelibly changed the way Shoppers are wired to make purchase decisions. Out with premium product assortments and eating out to be replaced with house brands, weekly specials/ multi buys and eating at home.
So how are you developing your inititiatives and getting them to market?
Are you maximising your opportunities?
Are you managing the critically important aspects of Trial management to the best possible outcome?

WHY SCORECARD YOUR BUSINESS?

Rather than point out the icebergs, or where your company Titanic may or may not have holes, scorecards are designed to help you rank where you’re good and not so good across the business and then improve them incrementally. Evolution rather than revolution.

Once you’ve ranked each area you can then prioritise where you need to get from bad to OK, or from good to great. Scorecards help you identify the broken bits that need fixing vs the bits to leave alone, and then to determine the relative importance of the bits that need improving.

Do you want to fix what’s broken, or if what’s broken isn’t that important in the scheme of things will you get a better result from shifting some areas from good to great?

Done correctly, scorecards act as a form of progress barometer for your business and often spark a series of important initiatives.

GETTING STARTED  – HOW LONG IS A PIECE OF STRING?

Who to Measure?
Ideally each function of the company should be scorecarded. This includes externally facing disciplines (external being consumers, shoppers, customers/retailers) including:

• Marketing
• Sales (account and field)
• Category/trade/customer/shopper marketing
• Insights
• Supply & Operations

… and also internal functions such as

• Human Resources
• IT
• Finance.

The examples we’ll discuss focus on the externally facing functions.

Within each function, you’re effectively scorecarding a rolled up or average ‘take’ on the entire department based on a number of individuals’ opinions within it. You’re not measuring individuals, you’re measuring departmental outputs and approaches.

The responsibility of building and completing a scorecard for each department or business function lies with, and needs to be driven by, the head of that department/function with the support and encouragement of top management in the business.

How to Measure

You can really only measure where you sit by knowing what the market is doing.
A good scorecard takes into account where you are, where you’ve come from and how you compare against the market.

Note however that the market – ie the average of your competitors’ activities – might not be at the level you determine aspirational or ideal either. Ie current ‘best practice’ may still be only at Average, particularly for disciplines and in areas that are new and emerging such as sustainability.

So to build the scorecard you need to start with an intelligence gathering review of competitor activity in each business function.

This activity should be amalgamated into a series of competence headings (see below) with each area of competence summarised and ranked eg Below Average, Average, Above Average and Ideal/Best Practice.

Measurement Scope – Areas of Competence

The lenses you use and some measures will be common across business functions, and other measures/competencies will be function specific.

Overall lenses to use might include macro areas such as Industry, Company, Operational, and Cultural.

Areas of common competence across all business functions and generally relate to industry, market and company knowledge are include aspects such as:

• Industry makeup – key competitors and customers/retailers
• Company product and category knowledge
• Company structure, culture and processes.

There will then be lenses that are specific to certain functions. For example, Customer Engagement is important for Sales, Category/Trade Marketing and to a lesser extent Brand Marketing and Insights.

Planning and Operational (in various function specific forms) applies to Sales, Marketing and Category/Trade Marketing.

Something like Brand Performance is largely specific to Marketing (although bits will also apply to Sales).

Building the Scorecard

Once you’ve identified the common and function specific areas of competence (‘lens’), next you flesh out the aspects of each area as they apply to that function.

So for Operational for instance, aspects that might apply to Sales are Presentations, Territory Management, Reporting and Retail Maths.  For Category/Trade Marketing, Operational aspects might include Trials Management and Category Reports Distribution.

For a lens like Planning,  for Marketing the aspects might include Strategic Planning and Brand Planning, where for Sales the Planning aspects could be things like Account & Customer Plans, Promotional Planning, Territory Mapping.

So now have a scorecard containing a number of levels that looks a bit like this:

GETTING ENGAGEMENT

The easiest way to get engagement within your department is to involve a number of individuals across various levels and job types in the ranking and prioritising part of building the scorecard.

Using the scorecard you’ve developed, for each aspect of each Competence area you’re after a group consensus on:

• Current score (where we are now)
• Aspirational score (where we want to be in 12-18 months, based on what’s realistic ie if you’re currently a 2 on something, getting to a 5 over 12-18 months is more realistic than trying to achieve a 9)
• Where the biggest gaps are (current vs aspirational scores)
• For where the biggest gaps are, closing which of them will make the biggest difference (ie, ranking the gaps in importance).

Once the departmental scorecard is completed the department heads should get together to share, challenge and agree results as a cross functional team. This is because departments will have different views of each others’ competencies, and what you’re after here is a 360 degree company view that minimises departmental turf protection.

The last step is then to determine what actions will be taken to close the gaps.

MAKING IT STICK – APPLYING IT

So now you’ve developed, completed and scored yourselves, what are you going to do with it? This is the most crucial part of scorecarding. Unless you’ve turned your scorecards into actions, you’ve really only conducted an extensive naval gazing exercise.

Scorecard uses include (but are not limited to):

• Departmental capability and training needs identification (eg training courses)
• Build into new processes eg changing the promotional planning process
• Build into strategic plans as enablers eg category knowledge required to build customer plans
• Identify knowledge gaps that will help inform innovation into new products, services and markets/channels
• Initiatives and trials for the department or business to undertake to close the gap
• Determining inter- and intra-departmental organisation structure changes required.

Progress against the initiatives outlined should be monitored by department heads and senior management monthly as part of ongoing business review.

So that’s it for the Business Regeneration series. Comments welcome.

For 2010 we’ll be talking about Customer Relationship Management, Shopper Marketing Evolution, and best practice Shopper Research from a number of angles.  In the meantime, we welcome feedback about what you’d like to see discussed. Email us at enquiries@shop-ability.com.au

Aside from range, pricing (and price promotion) is the area that retailers and manufacturers tend to spend the most time on and is the most hotly contested, because it has such an impact on the bottom line.

The contention also comes because there sometimes isn’t an overarching pricing strategy on one or both sides … prices may have been historically set by slapping on specific margins across the board, or slavishly matching the competition.

In this and future articles we’re going to discuss considerations that go into building a pricing strategy.

Levels of pricing

Like with ranging, pricing strategy needs to be looked at from a ‘top down’ (or left to right) perspective, starting with store level and finishing at sku level. This is illustrated in Figure 1. This article discusses store level. We will discuss the other levels in subsequent articles dealing with price and promotion.

Pricing roles and objectives – store level

Similar to our first article on ranging and what it says about your store, you need to think about what your pricing says about you in the context of who you are and what you’re trying to do, and which of the retail objectives you’re talking to.

Given the high percentage of pharmacy traffic that is script driven, and that most front of store categories are destination or stress purchase rather than impulse, it could be argued that a pharmacy doesn’t need low prices to drive traffic.

From a number of shopper and pricing studies we have conducted across channels and categories, most shoppers choose their store based on location, convenience and service. They don’t drive miles out of their way to save 3 cents on something (unless it’s petrol). Most are aware of price ranges for a category or product type, but not specific price points (low income families on tight budgets are the exception, and that’s driven by catalogues allowing price comparisons). They compute a store’s value by the average prices the store charges across the board, and how many specials they see each time they go in, weighed against the service they get … but these computations are largely subconscious.

It’s a bit like coffee … they can tell you what’s a good one or a bad one (ie who is a store providing value and who isn’t), but not the components contributing to this perception. This means you have room to move in your pricing strategy and still be considered value without price gouging.

In setting your pricing strategy, have a think about what your pricing is trying to do:

• Drive traffic? From whom – walk past impulse traffic?  Which categories? What type of traffic – one off vs repeat traffic? (What’s the role of your store type and location in this?)
• Steal traffic and purchase from other stores? Other pharmacies or other retail channels? Is this realistic, based on what you know of why people come into your pharmacy in the first place?
• Increase the basket size (AWOP, basket penetration) of the shoppers already in your store?
• Drive profit by taking the highest margin possible?
• Drive existing shopper frequency by offering best value? Is this possible if frequency is script driven and/or ailment driven?

Competitive pricing

Once you’ve figured out what you’re trying to achieve with your pricing it then obviously needs to be put in competitive context based on who your direct and indirect competitors are.

This requires understanding, defining and mapping who your competition is, at a whole store and department/category level. Who do your shoppers perceive your competition as being?

Why do shoppers come to you vs other similar stores? When do they choose other stores over yours? Answers to this give some indication as to how you should price vs your competition (and how that may need to differ per category). You don’t need to loss lead when you don’t have to.

There are basically three ways to price vs competitors: Lead, Follow or Independent (maverick).

If you’re going to price lead, this assumes that shoppers see you as a leader, that you can and do lead the market and set the expectations, and that you’re proactive in your stance. If you price lead, unless it’s a major event, you don’t generally react to competitors’ moves.

Price leadership generally means being first to increase or drop price. Price leaders need to be prepared to take the consequences – good or bad – of changing the market price perceptions.

Price following (or market pricing, or price matching) is a reactive strategy and the path of least resistance for many. However it can lead to unnecessarily doing yourself out of dough if you’re following the price leaders and discounters into a price war. If you’re going to price follow, you need to figure out what the price ranges in the market are, and where you want to sit in them based on the value perceptions you want your shoppers to have.

Independent pricing is where you run your own race irrespective of what the competition does, based on your unique offer or proposition. You may decide you want to be known for exceptional service, or stay open late for example, and that this justifies a price premium.

A simple way to figure out what your current stance is vs competitors is to ask the question: “If our competitors do this, what will we do? Do we care?’”

Pricing levers to pull

Once you’ve decided your competitive price position and to what extent you are sensitive to competition, your next decision is which pricing lever (strategy, operating ethos) you will pull.

In general there are three overarching pricing strategies:

1. EDLP: everyday low price (this is where the Big Ws of the world position themselves, and often involves price matching/price beating competitors)
2. EDP: everyday price (not necessarily low)
3. High/Low: everyday prices are higher but you have reasonably frequent price promotions to achieve lower prices. The thing here is that if you’re a market leader and  you do Low often enough it winds up resetting (lowering) the shopper’s perception of the average price … we’ll discuss this more in subsequent articles.

Note that you can change the strategy per category depending on its dynamics, but it helps to have an overarching view first.

Summary

In setting your store level pricing strategy, key questions to ask yourself are:

• What is our current pricing strategy? Do we have one and is it working? Why is this the pricing paradigm? Does it need to change, and if so, what to?
• How do our shoppers compute value? Why do they choose us or others and what’s the role of price in this?
• Who is our competition and do we care how they price? Will we price lead, follow or act independently?
• What is the best pricing strategy for us? EDLP, EDP or Hi/Lo?

Next time, pricing by category, brand and product, and discussion of price promotions.

We welcome feedback on these articles – what you agree with, what you don’t – and what you’d like to hear about. Email us with feedback on enquiries@shop-ability.com.au

In our article on symptoms of a business in crisis, we discussed using crisis diagnosis as an opportunity to review the business holistically. Strategic (Enterprise) Risk Management carries a similar theme.

Rather than turning an organisation’s risk management efforts into a low value compliance task, the Leadership Team should reframe their risk discussions on the basis that superior performance comes from focussing the organisations finite resources on what must go right, rather than concentrating on what can go wrong.  Taking this strategic approach will align the organisational resources on the key levers and maximise the organisation’s potential for success.

Common Failings of ERM Programs

In “The Seven Deadly Sins of Enterprise Risk Management and how to avoid them”1, author Frank Edelblut identifies the main areas that organisations have incorrectly applied Enterprise Risk Management (ERM):
1. Lack of a clear vision for ERM.  Installation of ERM systems to respond to external pressures (eg shareholder expectations) rather than designing the ERM system and process to deliver long term value creation
2. Building unnecessary organisation, function and process.  Establishment of incremental activities and costs rather than utilising risk management activities and capabilities embedded in the organisation
3. Lack of support from leaders. Absence of strong leadership that aligns the organisation around common Risk philosophy and Risk appetite definitions, which leads to an inconsistent perspective and response to risk
4. Bottom-up approach. Identification, assessment and observation of all the things that could go wrong, resulting in consumption of unnecessary resources on risks that are unlikely to occur or cannot be mitigated
5. Risk Confusion. Plethora of terms (eg risk philosophy, risk appetite, risk tolerance, risk assessment, risk response) are not clearly defined and understood by the organisation, leading to miscommunication and wasted time, effort and resources
6. Overly Complex Risk Assessment. Replacement of management judgement with complex quantitative models (which are ultimately skewed to match management judgement), and too much focus on Risk Assessment (likelihood and impact) rather than on how to respond to the Assessment (given success profile of responding to previous concerns and available resources)
7. Making ERM the Endgame.  Allowing ERM to become an objective unto itself, with too much time spent on compliance and risk rather than strategy and objective setting

The Strategic Risk Management Trinity

Whilst The Seven Deadly Sins identify a range of traps that organisations tend to fall into, I can offer you the Strategic ERM Trinity:
1. Focus first on what must go right, not on what can go wrong
2. Harness the Leadership Team
3. Embed Risk Management into your ways of working

1. Focus on What Must Go Right
The fundamental difference between the proposed approach, and that adopted in many organisations, is the change in mindset away from the identification, quantification and elimination of all the things that can go wrong, to a strategic mindset that accepts that many things will not go according to plan, and that the organisation must be ready and able to respond to the best of its ability.  Whilst the approach of concentrating the Strategic ERM efforts on only a portion of the business will result in less attention on some areas, the investment of time on the high impact areas will pay much larger dividends for the organisation.

“What Must Go Right” will vary according to the context of each business, and can only be determined through an understanding of the business strategy. A good business strategy will have an understanding of four key elements:
* What Ambition (Vision, objectives and goals)
* Where To Play (Profit Pools where the business will focus)
* How To Win (Strategies and initiatives to achieve the objectives)
* How to Mobilise (organisation and resources to support strategies)

Any dialogue around strategic risk will be ineffective unless the organisation has a relatively strong grasp over the first three elements.  Whilst embedding a Strategic ERM process will be instrumental in developing the fourth element (How To Mobilise).

2. Harness the Leadership Team
The business strategy must be delivered through the concerted efforts of the Leadership Team.  The best chance of achieving this result is by harnessing the best the team has to offer, and by building an aligned and engaged team.

The team guiding the delivery of the strategic plan are by definition, a set of individuals that have successfully negotiated the trials and tribulations of their experiences to become a member of the current Leadership team.  These valuable experiences need to be recognised and incorporated into the ERM process.  This is achieved by using the team’s collective judgement when identifying and assessing risks, and also when determining how best to respond to these perceived risks Maximising team diversity will help to reduce the risk of group-think and ensure that a broad perspective is available.

Even if the organisation has developed a strong strategy, when participants of a strategic planning process walk out of the room without testing their alignment on the key deployment activities, the program execution could well be compromised.  The ERM process gives a legitimate space to the team to encourage a robust discussion of contrary points of view.  This full and frank discussion helps to clarify exactly where the team is aligned, where there are still underlying areas of misalignment on priorities and activities.

The opportunity for team members to have their experiences valued and their perspectives legitimised not only helps to improve deployment, but also helps to build an engaged team, who are committed to the program that they helped co-create.

3. Embed Risk Management into your Ways of Working
Risk Management is a fluid process.  What is considered a major risk today, may become irrelevant tomorrow, and conversely what is insignificant today may become a major obstacle to success tomorrow, in four weeks or next quarter.  That is why part of the ERM process needs to include a facility to check back with the Leadership Team to see if the team view has changed.

After conducting an initial ERM workshop to align the team, it is recommended that the ERM dashboard is reviewed monthly.  This thirty minute session once a month results in greater understanding, team and individual ownership, and a sense of purpose as actions are completed and risks are mitigated.

To assist in this process the ERM workbook is treated as a dynamic document where risk ratings, risks and actions are rigorously reviewed and updated.  This activity is used to focus the actions of the team throughout the year as additional pressures and actions surface.  Team members critically review the risks and alter the level of resources or actions to suit the current needs.  Additionally, the belief that “if we can crack these issues, we will deliver the Plan” creates a shared commitment and reduces “silo” mentality. This belief leads to a willing re-allocation of resources as required for the best interests of the organisation.

Being mindful of the second of the Seven Deadly Sins, this process needs to avoid the requirement for any additional resources where possible.  This can be achieved by incorporating the ERM dashboard into existing business scorecards. (We will be discussing scorecards in more detail in our next article.)

Additionally, the Leadership Team meeting schedule needs to be reviewed to determine how best to incorporate this discussion into their agenda.

Starting the ERM journey in your organisation
Prior to the commencement of the ERM journey, it is critical have the necessary support structures in place.  In particular ERM requires a passionate sponsor and caretaker of the process willing to invest the time necessary (typically Finance), plus a leader (Chair, CEO, GM) who believes in the value of ERM and provides strong and visible support.

The best time to start the ERM journey is just before the end of an organisational planning process.  This could either be a Strategic Planning process (three plus years) or the Operating Plan process (next years activities and budget).

Starting before the completion of the planning process allows the team to come to the discussions with a strong awareness of the underlying issues and rationale for proposed actions and strategies, whilst still leaving some room for movement if the team recognise the requirement for a fundamental change in plans during the ERM discussions.  Apart from providing the valuable understanding of “How To Win”, the planning process enables the team to gain clarity on the SMART outcomes that constitute success for the business (these should be Specific Measurable Achievable Realistic Time bound objectives).

To kick-off the process, a one day workshop with the Leadership Team is necessary to build a shared view of the strategic priorities, the risks facing the business and the actions required to mitigate these risks.  With the removal of all those distracting PowerPoint slides, and the focus on the strategic few levers of the business, these discussions allow for a more in-depth conversation than is typically possible during standard Leadership Team meetings and generates new insights for all team members involved.

Consistent feedback from over forty workshops has identified a handful of factors that improve the outcomes for all participants and the organisation.
* Preparation.  In particular giving team members time to reflect on the issues, and gathering input from a large and diverse team prior to the workshop are instrumental to gaining buy-in, avoiding group-think, and ensuring time in the workshop is focused on actions due to the higher level of understanding of the initiatives and risks
* Facilitation. Strong external facilitation allows the Leadership Team to concentrate on the content rather than the process.  Additionally, the “Open Floor” and use of anonymous voting in the Workshop allow team members to air views traditionally seen as too negative
* High Performing Team behaviours, such as openness to own vulnerabilities, commitment to the team winning, comfort dealing with conflict, and asking for help play a role is promoting the right discussions
* Full attendance of the Leadership Team is critical to obtain the diversity of opinion, drive strong alignment of the team to a common goal, and where necessary enable the re-deployment of resources.

Once the kick-off ERM workshop has been completed, the outcomes need to be rigorously followed up to ensure this is not just another fad or Planning compliance task.

Summary – Benefits of Strategic ERM
Businesses undertaking this process have substantially improved delivery of their strategic objectives via improved Leadership Team alignment, acceleration of the “critical few” projects, clarification of performance requirements (KPI’s), unlocking cross-functional support for the key levers and improved agility in the face of crises as they emerge.

Next time (final article in the series): Developing your business scorecards.

In the meantime, we welcome feedback from you.
Email us at enquiries@shop-ability.com.au

-  By ShopAbility for Retail World Magazine

Last time, Alex discussed measuring your business performance as part of a crisis assessment. This assumes that you’re in the right business in the first place. Ie, that the things being measured are the right things.

In the first article, Margie alluded to determining your core business proposition as a core part of determining your diagnosis and what needs curing. We’re going to explore this further here.

Why is your business here?

What business are you in? Yes, the old clichéd management questions that are currently being jokily used in a banking ad on television are the ones we’re going to dig into here.  This is the first one.

Defining your core business proposition sounds straightforward on paper but is more difficult to define simply. Define your business too narrowly and you miss opportunities and the market might move on without you, like the American railroad company in the late 1800s who defined themselves as being in the railroad business rather than the transport business. In Australia Cobb & Co did the same thing, they thought they were in the stagecoach business not the courier or mail delivery business. Defining the medium can narrow your options.

On the other hand if you’re too broad in your definition you lose vision and flounder in a morass of indirect competitors. An example of this might be if you’re a confectionery manufacturer, and you define yourself as being in the ‘happiness’ business. This puts you in competition with a whole lot of leisure categories such as toys, games, entertainment, and escape/indulgence services like day spas. Useful to look for distribution opportunities and links perhaps, but not a clear proposition for consumers and difficult to do meaningful competitive analysis.

Your business definition needs to be easily understood by your staff, your retail customers and your end shoppers and consumers. It needs to consider the history of the sectors you’ve traditionally played in and the likely future of these and allied sectors.

Keep it straightforward and free of fluffy marketing waffle. Answer the question ‘why are we here?’ by answering ‘what do we do?’ and ‘what need does it satisfy?’

Using confectionery as an example, Figure 1 below provides some levels from a category and consumer perspective to help you pinpoint how wide or narrow you want to go.

Defining your business based on needs and capabilities may uncover sector or channel opportunities. Using the chocolate example above, if a chocolate manufacturer defined themselves as being in the desserts (occasion) business as well as treats business that opens up a whole lot of foodservice applications and opportunities. Or if defined as the ‘ingredient component’ business then the chocolate can be applied to ice cream, biscuits etc.

Making the right stuff

So now you’ve defined the business you’re in, are you making the right stuff to fit that definition? What new opportunities exist?

How is the market performing? Are the categories you are in – or now want to be in as a result of your new business definition – up, down, or static?  Static or even growing share of a declining category spells death in the long term, cash cows die eventually. If you’re in this situation – can the category be turned around? What would that take?

For the categories you are or want to be in, will you drive change or follow it?

What will it take to be truly innovative, vs merely renovating what you already do with line extensions and brand extensions?

To be clear here, the majority of ‘new products’ in the FMCG sector are flavour or pack size variants of existing brands and lines, and therefore have a reasonably high degree of cannibalisation and substitutability. Trying to turn your company around by doing line extensions is like trying to save yourself rich. It’s incrementalism, and perhaps playing the existing game a bit better, but it’s not changing the game.

What is the role of brand to you? Do you need more brands or new brands? Should you be a company playing in brands or in private label, or both?

How extensible are your brands? Traditionally FMCG uses umbrella and sub brands (Arnott’s Tim Tam for instance) where companies like Virgin use the same brand across diverse categories (airlines, credit cards, mobile phones).

If you’ve identified new category or sector opportunities as a result of your business definition you need to determine whether your existing brands can play there or whether you need new ones, or at least new sub-brands.

How full is your innovation (not renovation) pipeline?

Doing the right stuff, for the right people

Once you’ve defined your business and therefore product and brand opportunities, it’s time to review who your customers and consumers should be, and the best options for servicing them.

Who are your target consumers, based on the occasions and categories you’ve identified? Where are they? Where will they buy and consume your product? What are the implications of this for who your retail customers should be?

By reviewing your consumer and shopper targets there will be both channel strategy and  route to market implications. This may throw out opportunities to amend your supply chain, eg to backward or vertically integrate. Or alternatively, to divest or outsource elements of your supply chain so you can be more focussed on manufacture.

This is also an opportunity to identify all potential channels you could be in and to size/prioritise them based on what the product/brand offer in each would be and what the degree of difficulty is in servicing them – barriers to retail entry, competitors etc.

This requires a review of the parts of the route to market you operate in – manufacturer, wholesaler, distributor, reseller, retailer.

In Summary

The above is a set of thought starters to get you thinking about your business at a broader level and get you out of the day-to-day. This type of review should be done every few years, not just waiting until the market has changed and the train has left the station.

Looking at your business purpose, your product offer and your customers (both consumer and retailer) is core in determining whether you’ve still got the ladder against the right wall, or even in the right room.

Next time: Risk Management. In the meantime, we welcome feedback from you. Email us at enquiries@shop-ability.com.au

By ShopAbility for Retail World Magazine

In the first article, Margie discussed how Business Regeneration differs from improving your everyday operations, the types of areas Business Regeneration considers, and the need for diagnosis and a regular ‘health checkup’.

Here we’re going to further this theme with an outline of the symptoms of a business in or approaching crisis, to help you diagnose where your business is, and which areas might need ‘curing’.

Divining signals using all six senses, not just financials

In interpreting signals that the business model has failed or is under intense pressure to survive, the obvious place to start is with financial statements, or amongst the market data you collect.

However, a true investigation requires the use of your six senses to spot the symptoms, so we’re going to outline analysis from a number of angles.

That said, we’re going to start with financials anyway.

Financial Lens

1. Start with the macro view
Review current performance against the competitive set.  This can quickly indicate areas where the business model may be working well or highlight area of risk of failure. Key indicators include:
* Total Sales $ (scale advantage)
* Organic Growth % (wining with the consumer)
* Total Growth % (tapping the sources of growth effectively)
* Gross margin % (effective buying and efficient operations)
* Earnings % (sustainable overheads and marketing investments)
* Cash $ (funds for the future)
* Sales : Total Assets (asset utilisation)
* Sales : Employee (workforce productivity)
* Sales : Equity (financial leverage)

Sources of industry comparisons include web searches (eg www.ibisworld.com.au,  http://biz.yahoo.com/ic, ), Brokers Reports, Industry Groups.

2. What’s the trend, and is it your friend?
It is critical to look beyond a one year view and understand the business trajectory over a multi-year timeframe (say 4-6 years):
* Does Sales Growth oscillate between strong growth and stagnation (perhaps the impact of trade loading?)
* Are Margins on a steady decline or is recent performance an outlier?
* Is the sudden improvement in cash delivery sustainable or has the business turned off the tap on business regeneration activities?

People now understand the power of compounding interest on their superannuation (or at least that was the theory prior to the GFC!).  This same logic applies to businesses.  Over a five year period, a business’ performance can increase many-fold simply by delivering something as small as a 1% annual improvement in each of growth, cost reduction and asset utilisation.

3. The  Cash Crunch
The proximate cause of business failure is running out of cash.  But the signs should appear in the financial reports in the lead-up to this event:
* Declining cash flows (absolute $ or as a % of sales)
* Increase in accounts receivables – income recognised but cash not recouped. This may indicate the business taking on customers with increasing risk in order to stay afloat in the hope they don’t go bust. If this strategy is unsuccessful it will lead to higher risk of delinquency
* Decline in the ability to quickly service short term liabilities.  A useful measure is the Quick Ratio which is calculated as (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities. The relationship with the bank is important here and sometimes businesses have not invested in those relationships whilst times were good. The bank can be your best friend and very valuable in times of need, as long as they truly understand you have a good strategy and business model
* Increase in Current Liabilities due to lengthening payment of suppliers. Whilst you want to increase you current liabilities and hold on to your cash, you need to ensure that the business does so without damaging relationships or the viability of suppliers
* A poor or worsening debt rating. Check reference agency watchlists for this.

4. Adverse Selection, aka Doing the Wrong Stuff
A common trap that can befall a business is the attraction of the wrong customers or delivery of the wrong products or services.  A common cause of this phenomenon is the conscious sacrificing of margin in the hope that the business can make it up on increased volume or by up-trading over the long run.  Sometimes the introduction of a product or service leads to the business incurring costs to service customers that were not envisaged.

Reviewing sub-segment margins can identify this business model failure.  Are there particular geographies, customers, or products that are experiencing a performance decline? Or is sub-segment performance constant, with business mix the cause of the decline?

5. The Egg Cup Game
Contrary to the popular belief that accountants are boring and lack any creativity, the Financial Statements provide many opportunities to show discretion.  Application of this discretion can be difficult to identify even with very detailed accounting standards and guidelines that have evolved over many years, but taking a multi-year view makes the task a little easier.

Take the example of accruals and provisions on the profit and loss.  Businesses use accruals and provisions to recognise estimated expenses or future liabilities they know have been, or expect with some certainty to be, incurred in relation to the operations of the business but for which they have not yet been invoiced or there is not a clear final calculation of the cost. A significant change in the way these items are reflected in the profit and loss or balance sheet could indicate a business scrambling to avoid delivering bad news or hiding the true performance of the business.

A review of the financial statement notes should identify if there are any changes in accounting policies such as revenue recognition, depreciation rates and off-balance sheet debt.

6. Sabotaging the Future
As a business starts to feel the impact of a failing model, it pulls the easiest levers it can first.  Typically these levers relate to areas where the pay-offs are more ambiguous and longer term.  Whilst this is appropriate to meet various short-term goals, the failure to invest in these longer term areas will compromise the organisation’s capabilities:
* You slash Marketing and advertising budgets on a continuous basis
* Sustained investment in fixed assets lower than depreciation (follow up with visual inspections of the assets … are they run-down/tired?) Ian McLeod, the Coles chief, recognised this recently in an article in BRW (May 14) and Coles have now made significant investment in their checkouts and scanning technology
* Your innovation pipeline is empty, and you’re not sure where your future growth will come from
* You pull money out of staff development and training to shore up the immediate term, leading to higher staff turnover in the medium term.

Market Lens

Look at your business vs similar businesses in the sector. Have similar businesses in your industry fallen over recently? What happened to them – what can you avoid? Is the industry highly sensitive to economic cycles – do businesses fall over at regular and repeated intervals?
7. Customer Failure
One of the key indications of a failed business model, is the failure to convert or retain customers.  Depending on the category and your access to data, there are a range of metrics that could indicate a failure with your customer base:
* decreasing share of shelf
* increasing trade spend % of sales
* falling market share
* customer repurchase rate declines
* declining customer satisfaction
* falling size of sales ($/order, $/unit, $/kg)
* increasing finished goods inventories
* increasing returns/write-offs.

Look, Listen, Touch, Taste and Smell
In conjunction with a review of financial or market data, you should use all your experience and judgement to help you spot those lurking inconsistencies or issues.

Whilst there is a lot to find in the data that you can look at sitting at your desk, there are a lot of other inputs you can only get from getting out and talking to people within the business (sales, customer service, non manager level) and working closely with customers and suppliers.

8. “People are your most important asset”
A business cannot operate without people, and a motivated workforce has been shown to be an enabler to superior business performance.  Whilst a review of staff turnover levels or conducting employee “engagement” or satisfaction surveys can provide a measure of science, there is no substitute to looking and listening to the staff in their work environment.  Do they appear happy and involved in their tasks? Do they take pride in their work? Are customer facing staff providing the appropriate level of service?

9. Compromising Safety
Far from being a cost impost, an uncompromising stance on quality and safety will ensure that the company is there for the long haul.  Walk around the office, the warehouse, the factory, and the store with a critical perspective:
* Are there clearly visible signs of procedures and processes in place
* Is the equipment protected to eliminate serious injuries
* Are there shortcomings in the design of the area / equipment
* Is hygiene an issue (particularly in Food / Chemical businesses)
* Are there any intriguing odours
* Is there a safety and Quality Assurance officer?

10. “No Bad News” Culture
Perhaps the hardest obstacle to overcome is an organisational culture that is unwilling to recognise its shortcomings and deal with the situation that presents itself.  Some of the tell-tale signs of this culture could include:
* Unanticipated results (management unwilling to communicate until it is too late)
* Managers fired for poor business results (the messenger gets shot – who wants to be the bearer of bad news?)
* Change in accounting policy.

In Summary

The above questions will help you determine where your business sits in the STARS model Margie discussed:  are you in Start-Up, Turnaround, Realignment or Sustaining Success?

Now you’ve done your diagnosis, what needs curing?

Next time: Putting your ladder against the right wall – Getting your core proposition right. In the meantime, we welcome feedback from you. Email us at enquiries@sh-opportunity.com.au

By Margaret Haseltine of  ShopAbility for Retail World Magazine

This is the first in a series of five articles about Regenerating Your Business from the team at ShopAbility. Our first article centres on what ‘Business Regeneration’ is, how it differs from improving your everyday operations, and the types of areas Business Regeneration considers.

Future articles will cover:
2.      Tell Tale Signs of a Business in Crisis
3.      Avoiding meteorites – Risk Management
4.      Putting the ladder against the right wall – getting your core proposition right
5.      How are we doing? – Scoring your business.

Rather than tweaking yesterday’s results or fighting today’s fires, Business Regeneration is about future proofing your business for long term sustainable growth.

Why Business Regeneration?

“In the past 12 months, around 8898 companies have been placed in administration, liquidation or receivership. Also a concern is the number of big brands that have collapsed, including household names such as ABC Learning, Kleins, Kleenmaid, Strathfield and Midas.”
(Reference Smart company, James Thompson,12 February 2009)

Could this be you?

What is Business regeneration?

In simple terms, Business Regeneration is about revamping your entire business.
Now is a good time to do this, as the nature and balance of economic and retail markets is changing, and old business models won’t necessarily hold up in the future.

What’s your diagnosis?

An equivalent analogy is going to the doctor for the annual health check. It’s important to have the independent opinion! None of us ever want to believe we eat and drink too much, and should exercise more!

Business is no different, as it is the same human beings leading and making decisions. We can get too close and become blinded.

Once you’ve worked out what’s wrong, or how fantastic you’re feeling – the ‘diagnostic’ – then you can decide next steps. In business this equates to what you need to do, or where you must improve, or what strategies you need to realign, to either cost reduce and/or grow your business.

What needs curing?

Recognising when change is required is probably one of the toughest decisions a leader has to make. Every successful company firstly “has”, and secondly “operates”, with a well proven business model. Recognition of when the model needs to change is the tough part, and is what Business Regeneration is all about.  Execution and ‘doing’ is then the easy part, putting the plans and measurable actions in place, and getting on with it. Figuring out what needs to change first up puts the ‘doing’ in perspective.

Don’t waste an endemic business crisis. This is the ideal time for change and taking the lead on your competitors. There is no better time than now, for action. Your staff understands the need for change, as does the entire supply chain, as they too are operating in these challenging times.

Figuring out where your business is vs where it needs to be

Inaction is not the solution, nor is an uncoordinated or disorganised approach – in these times of uncertainty this could quickly destabilise any business. Be careful not to unnecessarily scare the horses.

Many companies fail to take advantage of the opportunities presented in a crisis, or use the external environment to be the catalyst for much needed change. The best companies are using the current global financial crisis to position themselves for the future, and remain sustainable for the longer term.

All too often businesses get caught “in” the business and forget about the helicopter view “of the business”. A diagnostic or health check, coupled with the CEO leadership and clear and focussed strategic goals enable a business to put together a prioritised action plan.

Some key questions to ask yourself of your business:
1. What is the single minded purpose of your business? Why do you exist?
2. What is your unique point of difference – why will your customers buy your products or services?
3. What is your proven business model? Eg. Quality, lean, service
4. What has driven your success or failure to date? What makes it work, or detracts from improving?
5. What insures you from future risk? How sustainable is your business in the longer term? Can someone or something take you out? Eg. Ipod

Once you’re clear on your purpose, then you need to work out how you’re going. What are your exposures, your risks and your opportunities?

A simple high level tool to match the strategy to the situation is the STARS model (courtesy of Michael Watkins, The First 90 Days, page 63).

Is your business in Start-Up, Turnaround, Realignment or Sustaining success? The real test here is reality vs belief or opinion.

Once the situation is clear, there needs to be a structured process to review each function and key drivers of the business and in turn the P&L shape. Using diagnostic checklists across Finance, Human Resources, Supply chain, Sales and Marketing and in particular your growth pipeline, this will allow prioritising your focus for quick wins.

Business Regeneration helps improve performance

Through the following means:

1.Strategy
Is your strategic plan clear and focussed to keep you growing even through the tough times?
Do you understand what it will take to have a clear and competitive position and competitor strategy?

Are your objectives, goals, strategies and measures in place?

2. Business Models

In any change management program, clarity of the goals, transparent communication and demonstrating quick wins and early results is essential to staff morale and leadership confidence.

Here are some warning signs that your business model needs to change, or you need to revamp your business:
* Growth has slowed, and your costs are rising at a faster rate than growth
* Staff morale and productivity is deteriorating
* You spend your time worrying more about your what your competitors are doing than your own progress
* Cash flow is an issue
* Marketing and advertising budgets are slashed on a continuous basis
* Your innovation pipeline is empty, and you’re not sure where your future growth will come from
* The list that keeps you awake at night is growing
* Your time is spent on fire fighting and actions rather than strategy and thinking.

3. Financials – Are the results you have the ones you want?

Any diagnostic must start with the financial shape and drivers of the business:
* Making sure your cash position is sound
* Understanding whether your immediate focus is cost control or growth
* Are your sales and marketing budgets intact or slashed?
* Are you attempting to ‘save yourself rich’?
Will you regret in times to come the opportunity cost of the investments you didn’t make, because you were not sure what the real problems were, and how you should prioritise your resources?

4. New Products, Services and Markets

* Is your pipeline full, do you have enough regrowth to generate stronger growth than costs?
* Do you have a process to grow your business?
* Do you know where and who your target market is?

5. Processes and structures

Do your processes and structures match your business model, and are they fit for the future? A sustainable business is all about removing waste, and making sure everything that counts, is counted. Businesses have limited resources and energy it is important that what gets done, adds value.
End to end application is essential.

6. Culture and Communication

Change is a constant.
Is the organisation structure right? How many layers from top to bottom, is the reporting structure built for management decisiveness and clarity?

Restructuring whilst painful, at times can be the most effective tool to unblock and free an organisation. How effective is your organisation?
Is the culture one that you’re proud of, that is aligned to the strategies of your unique point of difference and your single minded business purpose. Are your staff adding value or detracting?

It is critical that in any change management strategy that the organisation and staff move with the change. To do this, open communication and transparency are essential. This will allow open discussion and engage the staff to speed the process, not become road blocks. A well thought-through communication plan, that is shared to allow feedback and input, will enable quick wins, and early successes.

7. Reporting  – The leaders’ eyes must be on the numbers and trends at all times
If it’s worth measuring it’s worth reporting.
Reporting is key to open communication, signalling the progress and the trends, to motivate an organisation in to change, or recognition of either a job well done, or one that involves commitment and all hands to the deck, to turn the results around.
Your financials are like the thermometer, guiding you on what to do next.

When the going gets tough, the tough get going

Business regeneration is about, working out what’s working, or not working, in your business. The ever painful diagnostic, that look in the mirror.

Remember the toughest decision to make is to know you need to change, and doing something about it.

With the right strategy and business model, together with the right people in the right jobs, using the right processes, with commitment and clarity of direction, the business will deliver the right rewards.

Next time: Tell Tale Signs of a Business in Crisis. In the meantime, we welcome feedback from you. Email us at enquiries@sh-opportunity.com.au

References:
Seize Advantage in a Downturn, by David Rhodes and Daniel Stelter. HBR Feb 2009
Reinventing your business model. Mark Johnson, Clayton Christensen, Henning Kagerman, HBR Dec 2008.