Transformation –making the case for change

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In today’s competitive global environment, companies that consistently transform will survive and prosper.

 

They once were great – Leaders in their industry with large profit margins, they employed thousands of workers. They grew at what seemed like an astronomical pace. Then something happened, sales started dropping off. Profits fell. They cut employees and closed stores and offices. Finally, they ended up in receivership where they finally died, a slow and painful end – or they were bought out by a group that reorganised the management team, re-launched the company, and resold it at a massive profit.

How many times have you heard that story? How many companies have you seen that have been through this process?  Since the economic downturn in 2008, there have been significant increases in the number of known brands that have gone this route. Some examples that you’ll recognise include Woolworths, Empire Direct, Habitat, Waterford Wedgewood, HomeForm Group (Kitchens Direct, Moben Kitchens), Focus DIY and dozens of others. Some of these companies have survived in a smaller form of their previous selves, while others have simply disappeared.

When company leaders and consultants talk about the need for change, they have one goal – to keep the organisation at the forefront of the industry, driving higher profit and revenue. This goal, above all else, will help an organisation weather the bad times, and will make them capable of embracing the boom times.

Many times, the need for change is driven by competitiveness within the industry. Other times, it is driven by internal organisational issues, or past financial management choices. History is littered by stories of companies that have not kept up with the marketplace through constant transformational growth and change.

Empire Direct had a long history of more than 25 years. The company had grown to become the UK’s largest independent electrical retailer by the mid-2000’s. Benefiting from a relatively unique business model, and reliance on credit to drive sales, they were very successful. But when the economy soured they succumbed to falling sales, lost profitability and ultimately entered administration in 2009.

Companies need to be prepared for the unexpected. That might sound strange, but it’s not as difficult as it may seem. If organisations transform early, and often, they create a culture of change and improvement. This means that they can quickly adapt to changes in the market, and be innovative in their approaches. By combining the right structure, culture, and leadership & support mechanisms, companies are able to stay on top of the waves, no matter what the causes.

Habitat began life in the 1960’s and grew to more than 1,500 employees and more than 70 stores across Europe. They had tremendous success for most of their life span. Over time, though, they lost revenue due to the location of their stores, and to higher retail costs. This led to falling profits and generation of ever more significant losses for the retailer. After an attempted buyout and restructuring, most UK stores were shut down completely over the last year.

Focus DIY was launched in the early 1980’s, growing to become the second largest DIY company in the UK, with over 400 stores and 1.6B in revenue at their height. They acquired and divested several different companies over their lifetime, including Wickes, which made them 350M pounds of profit as a result. However, since 2007 they had been unable to make any profit. They suffered from large debts as a result, and also from poor ranging, store locations and pricing. They were bought for £1 by an investment company in 2007, and went into administration finally in July 2011, divesting their assets to the highest bidders.

Compare the Focus DIY story to that of B&Q, who has agreed to buy many of the Focus DIY stores. They have had a similar path of growth, through both acquisition and expansion. They have expanded into Europe and Asia, and have constantly worked to redefine the format, ranges and pricing. These activities have meant that they have succeeded where Focus has not. What makes the two companies different? B&Q embraces transformational change, creating the B&Q Depot first, and then later the B&Q Warehouse; constantly working to redefine product mix, costs, structure and operating model. This constant evolution has seen B&Q’s parent, KingFisher grow its profits in 2011 by 24%, while Focus has entered administration.

In most areas, if there is a company that has failed, there is at least one competitor that has done well.

As another example, Empire Direct can be compared to Dixons. Dixons spent the last couple of decades expanding, constantly restructuring and integrating new businesses, building upon their brand, and conducting transformation improvement programmes that allowed them to reduce costs, improve margins and continue to grow. Sales have slowed in retail significantly in 2011, including at several Dixons brands, but they remain better off than their peers. John Browett, the current head of Dixons, attributes this result to their on-going ”renewal and transformation” plan, which he stated would mean that its businesses “are well placed to emerge from the current weak consumer environments ahead of our competitors”. (Telegraph 12/05/11)

Transformation is really a process of radical change that moves an organisation to a much higher level ofeffectiveness. In general, it means that you’re constantly on the lookout for new ways of improving, no matter how radical they may seem. This renewal process helps the organisation remain at the cutting edge of performance, and in front of the marketplace. In times where the whole market is impacted, it provides a buffer that can save profits, while positioning a company to quickly adapt when the market turns.

Had Habitat, Empire Direct or Focus DIY reviewed and addressed their business fundamentals regularly, they could have foreseen the risks and avoided them before it was too late. This is true of many companies that fail.

Hindsight is always 20/20, but foresight can be equally as advantageous. The companies that spend time reviewing the market and gaining understanding of the fundamental shifts can use that information to remain at the top of the curve. They can make sure they are constantly transforming themselves, their operating models, and their structure, to drive additional shareholder value and cost savings, avoiding problems that so many are now facing.

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