When Icelandic investment group Baugur took over Iceland in 2005, the frozen food retailer was close to bankruptcy and morale among staff – particularly its store managers – was at an all time low.
According to the management team heading the retailer now, the 2001 merger with Booker Cash & Carry marked the start of a decline in fortunes for Iceland. In the subsequent years, the business experienced significant falls in customer numbers, sales and profits, as well as escalating costs.
The Baugur-backed management team – led by returning founder Malcolm Walker – discovered the answer to many of the retailer’s problems lay in establishing an environment where store managers had the skills, support and motivation to take on responsibility and make the necessary changes on the ground. As a result, in its efforts to revitalise the business, a great deal of focus was placed on turning around the HR department’s structure and approach.
Iceland HR director Sue Yell says: “We were facing bankruptcy – everything was in the wrong direction. HR has contributed significantly to the success story. The HR team has helped the business make the best use of its people and improved profitability.”
Iceland managing director Andy Pritchard explains: “Iceland was a very bureaucratic and process-based organisation and people felt quite stifled by that.”
Pritchard says that part of the problem was cumbersome bureaucracy, which hindered managers’ progression and soured relations between the stores and head office. “There was a them and us culture between retail and head office, as there was always something new to be done for no apparent reason. We simplified our processes so everyone knew what they had to do and – more importantly – why. If a task didn’t serve a purpose, we stopped doing it,” he says.
Tough measures for tough times
However, streamlining and simplifying the business also meant there were some tough decisions to be made. The overhaul of the company began with a restructure that led to 400 jobs going and a huge reduction in the cost-base. “We had to harmonise terms and conditions for 17,000 people and we managed to do this smoothly,” says Yell.
Once that difficult stage was complete, getting back to basics was at the heart of HR’s turnaround strategy. The company invested heavily in internal training programmes and in management leadership development in particular. Yell says opting for developing its own internal training programmes made sense to the business and saved a great deal of money at the same time. For example, its Coaching Programme cost£25,000 to design and deliver in-house; it would have cost an estimated£90,000 if it had used the services of an external consultant.
During the programme, store managers are trained to implement and take overall responsibility of the business’s “Get, grow and keep” strategy in their stores.
“Managers being able and willing to take responsibility and ownership is key”, says Pritchard. “Every manager has responsibility to make sure they recruit, retain and motivate their people.”
The group completed a Tough Talk (TT) programme for store managers at the end of June. It was designed to help people manage difficult conversations when managing performance. Pritchard says: “This is important because we feel that we should always be honest about how someone is performing.”
He believes these new skills, priorities and behaviours have enabled the business to move quickly at all levels. “Our store and head office staff have a very positive mindset and they rise to every challenge. We are not about fancy ideas – we are steeped in common sense.”
Yell sums up Iceland’s approach as “rewarding the highest performers and dealing efficiently with the lowest performers”. Making improvements to pay packages and reward and recognition schemes has also proved fruitful. Store managers’ pay has risen 25 per cent over the past two years, supervisors’ by 15 per cent and all store staff receive a minimum of£6 an hour.
Pritchard claims the reward and recognition packages are unique. Cash payouts are given to the best performing stores and the managers of those stores can win cars as well. And as a thank you to the store managers for their hard work, the company took them to Disneyland, Paris for a company-wide team building exercise and conference.
To ensure this new positive and productive atmosphere is sustained, Iceland has set up a Talking Shop forum to give staff a channel for new ideas and help maintain a sense of momentum. According to Pritchard, staff, and indeed the business as a whole, could not have achieved all they have without a “sense of involvement and engagement”.
Iceland also believes that these changes have driven significant improvements in its ability to recruit and retain staff. In 2005, the retailer had 100 store manager vacancies nationally, now it has fewer than 10. Pritchard says: “People are clearly telling us they are satisfied with Iceland and feel part of it. Owing to their feedback we are now an accredited Best Company to Work For.”
Yell is proud of the way the HR function has been integral to turning Iceland around. “Like other parts of the business, we have to demonstrate pace, energy and a willingness to change things as well. We don’t focus on the reactive elements of HR. It’s important to be constant and fair, but for us it’s about moving things forward.”
Store manager’s perspective
Campbell McArthur joined Iceland eight years ago. He has managed four stores and is in charge of the retailer’s Stirling branch in Scotland at present. He has previously worked for Aldi and Rosebys.
When McArthur first joined the business he said it had a good reputation, but in 2001 things began to go downhill. “The fun had gone out of the business,” he says, “but there’s a much better culture now since Malcolm [Walker] has come back.”
McArthur puts this down to proper succession planning and training, as well as better rewards and recognition for all staff.
A new role of senior supervisor in stores has been created and there is now a structured route for staff progression, right up to area management. And McArthur says the reward and recognition packages are much-improved for store staff as well as managers. If they perform, managers can expect to earn 10 per cent pay increases every year and “there are incentives to reward staff as well”, he says. For winning the company’s mystery shop competition over Christmas, the Stirling branch was awarded£10,000 to share among staff and McArthur himself won a Mini. “That was fantastic. The store was on a high for months afterwards – it went down really well,” he says.
The relationships between stores and head office, and HR in particular, have also improved immeasurably. “HR is much closer to the shopfloor. They are very proactive. You don’t have to chase them and they are very much in contact with stores since the takeover. They are constantly keeping us updated and sending out briefs.”
According to McArthur, the results of the regular staff surveys and the fact that more customers are applying to work in the store provides evidence of the significant culture shift the business has had.