Or just a bunch who know how to cut?
A little part of me dies on the inside when I see headlines such as “Retail turn to extreme bargains to lure shoppers” or “Another retailer bites the dust.”
Many businesses and retailers have been pushed to breaking point after facing a lacklustre Christmas trading season and weaker start to the year then budgeted (yet perhaps not unexpected). Inflation is boosting costs and expenses and this is weighing heavily on both consumers and retailers alike. We know through talking to our network and our own behaviour that heavy discounting isn’t enough. Even the strongest and high profile brands are struggling.
History has shown us that certain behaviours continue to reign in these troubled times of consumer strained budgets and high costs and inflation. Some are still trying to get into a clear cadence and rhythm as performance data as a result of covid and supply chain issues has screwed the scrum. The key behaviour we see - businesses cut and cut and cut. Some of this is incredibly necessary to “right size” to the trading requirements, and let’s be frank, when times are good businesses can become a little puffy and padded. Less effective and efficient. Less focused. But some is just because it is the only tool they know when the spotlight of performance remains heavily short term YOY results.
There is a great story about a race horse owner who’s stable of horses were under-performing. Very few wins all season. He thinks they may have got fat and lazy and had not enough training. But also driven by looming cost pressures, an outcome of non-performance, he cuts there feed in half and makes them train twice as much. Surprisingly, the next season the stable has a number of successful wins. There is money coming in and the management team think they are onto something. So they cut the feed even more and train even harder. And believe it or not, the performance is good, if not great. So exciting, that the race horse owner is often highlighted in the media and interviewed on the secret to his success. The following year, the business continues to apply its successful formula but the wins don’t appear again as all the horses are dead.
I might not have retold it perfectly, but you get the drift. Right-sizing and being adaptive in retail is not only all about cut, cut, cut. You cannot cut your way to growth. Right sizing is about reshaping the business you have to do that better than anyone to both survive and thrive. And then, exploring the growth potential.
“But it’s been hard to generate consistent growth. We have been dealing with extreme volatility. Why should growth even be a priority?”
You are right, if it was easy, then everyone would do it. But now is the time to recognise that continuing to just cut is going to kill your business. You need to simultaneously lean into positioning the culture and behaviour of the business (while surviving) so you can create distances from the pack in times of volatility – because if something is true, this isn’t going to settle anytime soon.
There is a quote by the late race car driver Ayrton Senna (my favourite of all time), that I find relevant and inspirational, “You can’t overtake 15 cars in sunny weather, but you can when it’s raining.” These are the times when the pecking order changes. But the business needs a certain culture, focus and discipline to achieve that.
Research completed by McKinsey coupled with a fabulous piece, Cracking the code: The ten rules of growth explained highlights “that those who pursue growth through a downturn and early recovery outperform their peers over the long run. These companies have the dry powder and capacity to grow, and they stick to their strategies even as the economy declines. They get so far ahead of their peers during the downturn that the peers can’t catch up. These players have long-term aspirations, and when the context changes, they may pull back in certain areas, such as administrative costs, but they double down in the areas that matter, be they digital capabilities, sales, or new growth markets. They have the financial flexibility to lean in and make things happen.”
And there is the key my friend, dry powder and capacity to grow. The big idea is that the best way to grow is to have a business that generates great returns, then scale it. The order is not growth followed by profit; it’s high returns followed by growth. In fact, companies that begin with returns on capital higher than the cost of capital go on to grow at double the rate of those that don’t start out that way. If you want to read more on strategies for growth performance, I can recommend diving into this piece.
The key number one issue I see in practically every company that we work and speak with is that they DO NOT / HAVE NOT built an innovation culture and mindset. And without that, growth will be close to impossible.
We work with (and have worked with), some wonderful leaders, their teams and frontline people. But few have fully committed to what is required to mobilise employees from the C-suite to the front line and build skills and capabilities that mean they are not afraid to take risks, improve the “way we work” and truly have a voice of collaboration. This takes a focused and committed effort. And culture that embraces an innovation mindset and culture can then super-power investments in R&D, digital capabilities, analytics, and AI.
There is a little “test” McKinsey created (which RX use) that analyses if a company really innovates (or just thinks or says it does).
Try it yourself OR if you are really brave, give me a call, I’ll buy you a coffee (or wine) and let’s go through and really stress test it and where you opportunities lay.
It’s confronting. I know as a leader I don’t tick all the boxes in my own business (at best 4 and the rest half-arsed).
Who has cracked the code?
The following case studies are on companies that foster bold mindsets and create strategies for deliberate growth prioritised by those that have the greatest value-creating potential. But not just that – there is some secret sauce we can all replicate for small steps forward to success:
They engage and mobilise employees and a sense of ownership by investing in building their skills and deepening their functional expertise with a focus on customers and the external ecosystem.
When capabilities cannot be grown internally, they acquire talent to fill those gaps.
They create rigorous performance management for both agile and traditional initiatives, establishing a baseline and KPIs tied to performance goals.
They socialise the concepts and talk about them consistently, over and over again, in the same language. They talk about them often and make them a key feature of the business agenda. They are a focus….not an add on.
These businesses:
continually talk about innovation on earnings calls at twice the rate of their peers,
convey achievable aspirations to employees,
set clear targets, and
foster a culture that is not afraid to take risks.
What’s holding you back?
Source: McKinsey. Note Jet.com was a disaster but this is a company not afraid to try and fail.
Source: McKinsey
Does this resonate with you? Are you fighting to get traction on new ideas and innovation because you are always sprinting. RX have the frameworks, experience and magic fairy dust to springboard you to success. Contact juanita@rxgroup for a no obligation discussion or phone 0274768073.