Installing a new company culture is no easy task, but it is a challenge that big retailers from DSGi to B&Q are having to take on. George MacDonald examines how they are managing the shift
A cultural revolution is sweeping through the retail industry. Confronted not just by tough trading conditions but, crucially, by rapidly changing markets and consumers, store groups are finding that the old ways of doing things are no longer sufficient.
Transforming company cultures to adapt to contemporary circumstances and position retailers for future growth is top of the agenda for some of the industry’s biggest names.
DSGi chief executive John Browett has been most explicit so far about the necessity for renewal. He has stated that he intends to “change the very DNA” of the electricals store group. Unveiling his turnaround strategy, Browett pulled no punches. He pledged: “This is a fundamental cultural shift. We are going to make this business almost unrecognisable from what it is today.”
Browett was following in well-trod footsteps. Kingfisher chief executive Ian Cheshire is working on a turnaround plan that will alter priorities and performance criteria at the international DIY group dramatically.
And both come in the wake of dramatic cultural change at Marks & Spencer – where Sir Stuart Rose has overseen a return to the original values that made the retailer a star – and Sainsbury’s, where chief Justin King has driven a programme to make the grocer great again.
While the need for change is often recognised within affected businesses, outsiders – in particular investors, whose priorities may be more short term – can be dismissive of such initiatives. Archie Norman, who turned around Asda by changing its culture and is now doing the same at Australian grocer Coles following its acquisition by Wesfarmers, says that culture is key to a retailer’s success or failure.
He says: “Retailing is one of the oldest-fashioned industries in the world. Most of what you do is done manually by individuals and the way in which they work is formed by habit and attitude.” One shelf-stacker, for instance, may be 50 per cent more productive than another. The point is to make the business as productive as possible by forging a culture that appeals to and engages people, spurring them towards achievement and success.
Norman observes: “The culture is intrinsic to strategy. You ask yourself: ‘What is the personality I want to have in the business and what can I deliver, given its roots?’”
Although a cultural change programme is likely to take about three years to complete, speed is essential to each stage of the process and physical changes can modify mindsets. Norman says: “The important thing is pace. It would take a decade to sandpaper away established attitudes.” New desks, a new office layout and new colleagues can usefully reinforce the fact that tangible change is under way.
But Norman warns that chief executives should not instigate cultural change without getting some of the difficult jobs – such as cost-cutting or redundancies – out of the way first. “It’s so easy to take cultural leadership long before you have a platform on which to do so – get yourself a platform from which people can follow you,” he advises.
Chris Henderson, former head of operations at Boots health and beauty services, is managing director of Leadership Connections, a specialist advisor on cultural change in business that has worked with retailers including Boots and Sainsbury’s.
He says: “Organisations comprise three things: structures, processes and behaviours. Add all the behaviours together and you get culture. Focusing on structure and processes is the easy bit, but all three determine effectiveness.”
Henderson identifies four levers for cultural change: effective leadership, training, ensuring incentive programmes are aligned to objectives, and creating structures that support aims. “70 per cent of company culture is driven by leadership behaviour,” he notes. “A bullying senior executive team, for instance, will be replicated in shops. That’s why you often get change [of people]. You’re asking who will be able to change quickly and who will undermine change, even if involuntarily.”
Changes made at Coles since Wesfarmers’ acquisition support that view. Former Halfords chief executive Ian McLeod started at the grocer last week. The former Asda man, with Norman as “chief coach”, will preside over a way of doing things not seen before at Coles.
Norman says that, since the Wesfarmers takeover, central headcount has been slashed from 5,200 to 3,500 as emphasis shifts to stores and customers.
He notes the obstacles when cultural change is under way. “The sad thing is that, in most companies, the middle management will stand in your way. You’ve got to bypass them and get to the frontline,” he says. “The only communication that counts is eyeball to eyeball.”
In his first fortnight in Australia, McLeod is spending almost the entire time with store managers and is likely to meet about 1,700 altogether. Norman says that that in itself will be a powerful signal that change is under way and the old culture is dead. “Listening to stores is the message. It will be the first time they’ve been listened to in a long time – it’s been run by the centre for the centre,” he says.
That comment pinpoints one of the guarantors of successful cultural change – ensuring people throughout the business are engaged and feel they can make a difference. “You can’t do megaphone management,” says Norman.
Cheshire believes the need for change must be accepted and driven at all levels of the business. “To lead change effectively is a real paradox. Leaders at all levels must set very clear frameworks and demand clear outcomes; otherwise teams flail around,” he says.
“But, having set the boundaries, they must then step back and let the team figure out the detailed solution, which means they will own it and provide the energy to make the change sustainable. Real change happens when leaders create the clarity and space for teams to deliver, rather than trying to micromanage their people to success.”
Browett’s reinvigoration programme at DSGi seems to match the key criteria outlined by Henderson. At senior management level, there have been significant changes, such as the hiring of former John Menzies chief executive Patrick Macdonald as chief operating officer.
Browett has signalled that training will be improved and the bonus structure will be changed. While opportunities may be created for individuals to be rewarded for particularly strong performance, the focus of the programme will remain on store teams. And, although Browett is leading the change, DSGi will learn from itself. Best practice in sales techniques and service standards, for example, are likely to be imported to the UK chains from Scandinavian stablemate Elkjøp.
Similarly, there have been high-profile management changes since Cheshire took the helm at Kingfisher and the business is being restructured along international geographical lines. Business performance monitoring and “challenge processes” will help ensure that the retailer comes good on its ambitions.
Henderson thinks that incentives and processes such as recruitment are especially vital when a company is undergoing cultural transformation. “Your incentive programmes have to be aligned with what you want to do. If teamwork is important, but bonuses are on an individual basis, it won’t work,” he says.
“And, when you’re recruiting, you need to select on cultural fit. When people arrive, induct them into the business to show why the culture is important and how it’s delivering success.”
Cultural change takes time – typically three years – but there is plenty of evidence of its success. Sainsbury’s, for instance, addressed the problem of senior management being perceived to be out of touch with consumers by ensuring all executives spend a specified amount of time in stores and are trained in how most usefully to interact with store staff. Tesco, observes Henderson, made a big shift 10 to 15 years ago: now its intense customer focus has given it one of the most distinct cultures in retail.
And, today, new retailers are emerging that have built their powerful market positions on a pervasive internal culture. Carphone Warehouse, for instance, was built as an unstuffy, independently minded business that is absolutely in tune with changing consumer behaviour and needs.
And fashion brand Ted Baker was created in the image of founder Ray Kelvin’s eponymous alter ego as a playful, eccentric and individualistic business, reflected in the fact that its unique head office is called The Ugly Brown Building, right through to the question everyone in the business asks when making a decision – “What would Ted think?”
Consummate trading skills, efficiency and compelling product will always be at the centre of retail. But those things are more likely when the company culture is right and it now seems to be culture that is at the front of chief executives’ minds.
Anyone working in a business undergoing cultural change is likely to find the going turbulent for a while. Those who can embrace the shock of the new, thrive on it and drive it will prosper. Those who cannot will be likely to be collecting their P45.