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Friday, 25 September 2009

Oh, What a Surprise! Get your Bacon with your Beauty?

There are companies who consistently exhibit both agility and inventiveness. They are more likely to “think outside the box”, to be “a bit of a maverick”, to do “something surprising”. Once the dust has settled and the consequences of the innovation can be seen clearly, the “surprise” is frequently downplayed by commentators with 20/20 hindsight as being “just common sense” and “obvious”. It wasn’t obvious then, it isn’t now and it won’t be in the future – agility and inventiveness has become part of the genetic structure of such companies. They will always surprise.

This ability to surprise is both a consequence, and a symptom, of the highest level of Comparative Competitive Strength, the condition we call Free. Robust research has proved that these companies produce financial results that massively outperform both their direct competitors and the general pattern of corporate returns. Their superior profitability endows them with a much greater freedom of strategic and tactical choice, and that in turn, allows them to consider greater risks to obtain larger returns. And, here is the elegant Catch 22, the vastly superior competence that enables them to deliver their high profitability can also underwrite their innovative enterprises so that, for them, the risks can be much lower than for others. Their true difference lies in the leadership, managerial and operational culture that pervades the whole of their business. Succinctly, they Act Different because they Think Different. So, unlike most of their competitors, they can afford to surprise.

Here is a wonderful example. In the news today, 25th September 2009 –

Waitrose is aiming to double the number of its grocery stores by making a push into the convenience market, the company revealed yesterday. Its food will go on sale in Boots as part of the plan.

The employee-owned retailer said there is potential to open up to 300 convenience stores. This would be boosted by the huge store portfolio of more than 2,000 outlets owned by Boots. In return, Boots’ health products will be sold by Waitrose.

This looks like one of the biggest “Win –Win” deals of all time in UK Retail. As its competitors race around fighting endless Planning battles to secure “Convenience Store” sites (making local newspaper headlines right across the UK) and then reaching deep into their pockets to build and outfit them, Waitrose sails serenely past with 2,000 ready to run new outlets at little cost. Talk about being the swan in the duck pond!

And, what’s in it for Boots? Two things, increased footfall in their current premises, and more volume for their healthcare products. Sounds like a bit of a moorhen moment?

Well, it is better than nothing – and to be brutally frank, nothing is what Boots has had to look forward to, for a long time. Boots is a classic example of a once great company that remained in the Comparative Competitive Strength frame of mind we call Comfortable until, one day, its leadership and its shareholders were shocked to find that it was on a road to nowhere with the real prospect of sliding into serious financial trouble. The world around it had changed, and it had not. They had fallen into the Comparative Competitive Strength condition we call Constrained. They were truly headed for The Abyss.

Over the last few years Boots has struggled to innovate. They have had apparently “good ideas”, such as the Dental Clinics that disappointed, and their Opticians that, at one time, was losing a fortune. However, they had become a Constrained culture – and that meant that they did not have the cultural leadership, managerial and operational competence to manage such innovations effectively. So they didn’t.

There have been significant changes in the leadership at Boots since the merger with Allianz and returning to private capital ownership. It is interesting to note that, seen only through the anecdotal “cultural thermometer” of Customer Service experience, there are signs that the long march back is under way. This deal with Waitrose looks like a comparatively low risk innovation for Boots which should not be outside the competence of an organisation that is now travelling from the Comparative Competitive Strength condition of Constrained, through Comfortable and is obviously aiming for Excellent.

From the Boots point of view, there is another benefit that is unlikely to be spotted by conventional business analysts. It has such a substantial potential value that it would make it worth them paying Waitrose rent to be in their sites. It is the opportunity to learn from this commercial partnership, to gain insight and understanding of the cultural realities of a Free organisation. But, are they ready and do they have the ability to listen, look and learn?

On the other hand, there is a potential threat to Waitrose which again, conventional analysis will not have highlighted. Have they spotted it and are they prepared for action?

This threat has been observed in a number of mergers and acquisitions where a company with a high level of Comparative Competitive Strength has deployed its financial muscle to scoop up a competitor with a much lower level of such strength. In many cases they have not taken into account, or have been blithely unaware of, the substantial cultural differences between the organisations. Generally, an Excellent level culture mixed into a Constrained level organisation has not produced, through some magic, an Excellent level outcome. Diagnosis can be muddy because, in many cases, such moves have been accompanied by financial engineering that, through excessive gearing, has had the effect of simultaneously moving the buyer, unconsciously, towards a Constrained condition. This has been a typical outcome of the lack of awareness of Comparative Competitive Strength cultural factors

As a general rule, in mergers and acquisitions, it appears that the lowest common denominator of Comparative Competitive Strength will prevail. There is the same risk in commercial partnership.

Waitrose must be on their guard. They will need to work out how much extra effort they will be prepared to put into managing the consequences of the lower levels of managerial and operational competence they are likely to meet in their Boots interactions. They should be prepared to be disappointed and to have strategies ready to manage this constructively. The overall economics are not likely to compare to those 100% within their own control. This is tangible stuff, necessary otherwise it could all end in tears.

Waitrose must be doubly on their guard. Much more important, they have “the Partnership”, a unique and spectacularly successful working culture. They will need to think about how to protect the cultural integrity of those partners they require to work with Boots. Their partners have acquired a complex mix of attitudes, habits and ways of thinking and working that, outside the Waitrose environment, may prove to be quite fragile. Waitrose have to make sure that they do not allow the lower common denominator, the Boots culture, in any way to contaminate and destroy their working way of life. This is intangible stuff, essential otherwise it could all end in tragedy.

So let’s hope that the operational leadership and management of Waitrose are as consciously competent in their understanding of their own culture as their strategic leaders in the John Lewis Group. The key to the future prosperity of UK plc lies in the whole economy striving to approach their level of Comparative Competitive Strength.

Our unique Competitive Strength Report is a rapid and inexpensive way for any organisation to compare itself with the very best in the world and to find out whether its prevailing culture is Free, Excellent, Comfortable or Constrained and to fully understand the financial and strategic implications of that result. We know that the insights from the Comparative Competitive Strength point of view will show you things you had not previously seen and illuminate unexpected opportunities.

You can find out more about Comparative Competitive Strength and The Abyss from our ChangeWORLD site or the Competitive Strength Report site. Why not meet us to explore the ideas further?

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs are "You're having a laugh ... Seriously?", Business Bloop of the Month Award", "Capitalism or ... Common Sense" .