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Thursday, 10 January 2008

More like a Turkey?

From The Times January 10, 2008
Taylor Wimpey cuts payments to subcontractors in ‘urgent action’
Christine Buckley, Industrial Editor

Contractors working for Taylor Wimpey have been told they will be paid 5 per cent less than previously agreed as the housebuilder tries to cut costs.

A letter to contractors working for the Bryant Homes division of the business states: “We need to take urgent action to manage down our cost base. We are reviewing our overheads, house designs and build processes to drive out inefficiencies, but also need subcontractors to play their part. We are therefore introducing a 5 per cent reduction in price on all outstanding works on existing orders as well as all future orders placed after January 2, 2008, and will be looking for an equivalent reduction in future tenders.”

A subcontractor told Construction News that the housebuilder, which has sent the letters from its South East operation, was using bullying tactics to reduce its costs. The subcontractor said: “I don’t remember getting a letter when the market was booming saying: ‘Here, we’re doing so well we’re going to increase your rates.’ This is just bullying tactics. They’re still selling houses and it’s nothing like a recession – it’s a slowdown, at best.”

This is not the behaviour of a company that the Competitive Strength Report would report as Excellent – nor even as Comfortable. It is the pattern that is to be expected from a Constrained operation – just one step ahead of The Abyss.

At the beginning of November 2007 we posted our views about the combination of Taylor Woodrow with Wimpey under the headline

“Two Swallows do not a Summer Make – more like a Gulp”.

We could not believe that these “two swallows” would so soon look like a Turkey.

We warned then that, viewed through the penetrating lens of the Competitive Strength point of view, that the prospects for this merger looked bad.

To quote directly from our November post -

With no evidence of extremely rapid internal transformation, the most probable outcome is a larger “Constrained” business rather than a “better business”. Even if at the outset Wimpey might have rated a Competitive Strength of “Excellent” and assumed that they could absorb a “Constrained” company and remain “Excellent”, this was unlikely to be the outcome. The lower common denominator tends to prevail, as we have seen in so many previous mergers, which is why their success rate is barely 50%.

The Competitive Strength Report could have predicted this outcome.

Please look at the Competitive Strength web site to learn more about the only really objective measure of Comparative Competitive Strength.

Tuesday, 8 January 2008

Will DSG Spin or Nose Dive?

From Times Online January 4, 2008
Tempus: John Lewis has stolen DSG's thunder

John Lewis reveals record trading in Clearance Sale in further sign of pressure on the rest of the high-street
Steve Hawkes

The figures from John Lewis today show that its post-Christmas clearance sale is generating record volumes, with more than £20 million taken at the tills on December 27, up 8.7 per cent on a year ago.
Critically, electricals continues to be one of the major growth areas. The department store group sold one 50” Samsung plasma TV every six minutes on December 27. That is the equivalent of more than a mile of plasma TVs in a day.

This follows a blistering December, where again the most consistent sales growth came in areas such as MP3 players, cameras and digital-photo frames. With John Lewis aiming to double in size over the next decade, its effect on the rest of the high-street is only likely to grow.

What more can we say? Please see our previous post.

The relative Competitive Strength of these two is demonstrated yet again, within days!
If DSG cannot win the race in "The Sales" against a competitor that is rarely the lowest price seller, what is left for them?

At what point does a downward spiral become an uncontrollable spin or a terminal nose dive? A Competitive Strength analysis can foretell this - if it is not already too late.
Is it already too late for DSG?

Saturday, 5 January 2008

DSG – Predictable Train Crash? Competitive Strength foresaw this 2 years ago!

From The Times January 4, 2008
DSG hits 12-year low after profit warning sends shivers through the high street
Steve Hawkes and Siobhan Kennedy

John Browett, the new chief executive of DSG International, said yesterday it could take years to revive the Currys-to-PC World business as he issued a stark profit warning that sent a shudder through the high street.
Shares in DSG plummeted 27 per cent to a 12-year low of 78p, wiping £520 million from the embattled retailer’s value, as it became the first major casualty of the Christmas spending slowdown.
DSG said a 10 per cent slide in like-for-like sales at PC World since October meant it could miss full-year profit forecasts by £50 million.


Tony Shiret, the Credit Suisse retail analyst, said: “I think it’s a predictable train crash.”

But – the Analysts did not predict it – they could not predict it, at least not more than a few months ahead – they hardly ever do. Why? Because they remain focused on external factors such as Brands, Competition and Markets rather than the internal competencies of the companies upon which they pontificate.

Strong Markets provide an easy ride – that is so obvious it seems hardly worth saying.

What is less obvious and so often overlooked, is that within any such rising market some companies prosper relatively much more than others. How those relatively prosperous companies then make use of their relative financial strength has enormous influence on what happens when, inevitably, the Market weakens. We see three stereotypical behaviour types, Growers, Grabbers and Builders.

Growers are companies that choose to invest their profits on Organic Expansion in the belief that size and market share deliver strength. They do not invest heavily in internal change because “they are doing very well already”. They point to the ever expanding numbers in balance sheet as proof of their success. Financial Analysts regularly applaud such behaviours.

Grabbers are companies that choose to focus their profits plus any funds they can lever into Acquisitions in the belief that variety and/or spread deliver strength. They do not invest heavily in internal change because “they are doing very well already” and they need the P&L leverage for the borrowing that enables purchases. They point to the exploding numbers in balance sheet as proof of their success. Financial Analysts so often become lyrical in their praise of such behaviours.

Builders are companies that choose to invest heavily, as a normal business expense, in internal performance improvement, strengthening their core capabilities and achieving high levels of customer care. In the short term this may result in slower profit growth, but in the medium to long term they significantly outperform the other types of companies. However the short term slower growth (coupled with the tendency of these types of company not to splash money around the city – they don’t need to) often causes the analysts to attack them for lack of enterprise or ambition. It appears that they simply cannot see nor do they understand the connection between the investment in internal performance improvement and the highly positive outcomes this produces for future profit growth.

When the Market weakens the chickens come home to roost.

The Growers find that they very rapidly become unprofitable. They have no latent ability to change. They typically have relied on low pricing to gain sales but find that they can no longer afford these. Their customers’ “loyalty” has only ever been to price, so they go elsewhere.

The Grabbers find that their core business rapidly becomes a heavy drag on the other sectors and then they seek to unload it, or become vulnerable as another sector weakens. They have no internal ability to change rapidly. Often they also may have relied too heavily on pricing to win sales and lose customers fast.

The Builders find that their time won internal efficiencies, cost effectiveness and superior customer retention allow them to trade successfully and to grow market share while others are losing. They adapt rapidly and appropriately to different situations and keep their customers with them.

Which sort of company do you think DSG has been?
What sort of company do you think that John Lewis and Tesco, to name two examples, might be?
And, thinking about Builders, what sorts of companies has Warren Buffett selected over the years?

The Competitive Strength point of view foresaw this – 2 years ago when one of our clients was subjected to one of the worst customer service experience from PC World Business we have ever witnessed. It was clear their internal processes were incapable of delivering their promise to customers. Their response to complaints demonstrated that they neither understood nor cared about this. Financial commentators and analysts finally began to notice in August and September 2007 Links here - 29th August - 19th September.

We pointed out then that John Lewis was showing all the signs of having superior Competitive Strength – and that their competitors were not. John Lewis and Tesco show signs of having the level of Competitive Strength that we call Free. They can afford to make strategic choices even when times are hard – and both can be seen to be doing so as we write.

Stop Press - This morning's Telegraph reports-
John Lewis sales up 8% over the Christmas trading period including Christmas and the early NewYear sales period. Sales rose to £70.2m boosted by electricals and home technology, which had the most consistent growth. (Our emphasis)

DSG has exhibited for some considerable time* all the signs of the Competitive Strength level we call Constrained – just one step away from The Abyss, failure. They have few choices left.
* This information has been available, published customer comments being a critical indicator.
* Did the Financial Analysts attach proper weight to this? Do they have any dimension that enables them to assess this? We do not think so.

A Competitive Strength analysis would show the leadership of any business totally objectively their level of Comparative Competitive Strength and what their future potential might be. For example, for DSG it could show them where their salvation might lie, what their immediate choices are, and identify the key transformational steps they would need to take to achieve first Excellence and then move on to Free.

The Competitive Strength Report is the only independent measure that will enable a business leadership to rapidly and objectively assess how they compare with the Free. Within days they can establish what their business’ position is – and more importantly, decide what to do about it.

We say, please look at the Competitive Strength web site. Please see the spectacular difference in both financial strength and business resilience there is between the Constrained and the Excellent. You will also see, as the Analysts so often fail to do, just how deeply temporary and precarious is the position of the Constrained business and how traditional methods of analysis usually fail to spot this until it is too late.

This the time of year when the financial commentators and analysts give their share tips for the New Year.

Here are ours:

If you read the following in a company report: “We received over 2,000 suggestions for improvement from our employees this year and implemented over 65% of them”.
Then BUY!

However if you read: “Our people are of course our most valuable asset”.
Then SELL!

P.S. The Headline says “DSG hits 12-year low after profit warning sends shivers through the high street”
Why should DSG’s profit warning do that?
Do the journalists and the analysts think that all or most other retailers are as inefficient, customer indifferent and operationally incompetent as DSG, or very nearly so?
Is that why they think they should be afraid? We can understand it if they do.
However, we know of several retailers who remain confident in their ability to weather a downturn; their Excellence, (changeability, flexibility, agility, operational competence and exceptional customer care) will ensure they prosper while others writhe in Constrained agonies or the death throes of The Abyss.