Sterling Performance

When does strong leadership become dictatorship?  May 2009 sees the celebration of Margaret Thatcher entering Downing Street 30 years ago, but like many corporate careers, her style of management fell out of favour after too many years in office. 

Lady Thatcher could be confrontational as prime minister. Her re-assertion of government’s right to govern paved the way to changes that the country arguably benefits from still today.

But her confrontational style extended to her Conservative cabinet colleagues too. Those men not prepared to say yes to her plans were likely to be ousted. It is not a model for running a boardroom.

There are many examples of domineering business chiefs who have defied corporate governance principles — Robert Maxwell, Tiny Rowland and more recently Sir Fred Goodwin — and suffered as a result. 

And while they should have been kept in check by shareholders, just as voters can ultimately decide the fate of politicians, investors were prepared to ignore the flaws while they thought strong leadership was producing results. 

Thatcher was resolute in a political world where U-turns are common as soon as it becomes difficult to pursue objectives. She undoubtedly delivered.

She pushed through a reduction in the role of the state through privatisations. How many chairman have demerged their groups without pressure from investors? And she remained popular with her customers - the voters who put her into Downing Street three times. 

In the end she was ousted not by the electorate or beaten by the opposition but ejected by her own fellow ministers. Rightly or wrongly, those colleagues assumed a role in reforming their own organisation that few directors dare do in companies. The Royal Bank of Scotland board, for example, made no attempt to remove Sir Fred even when the institution was crumbling. 

The lesson for both the boardroom and the cabinet room is that strong leadership can produce significant change that less bold executives would not tackle. However checks and balances cannot be forfeited and should not be overridden by the domineering leader.

(Pic Steve Punter cc 2.0)

A report  by DDI, “Holding Women Back”, suggests women are better at leading in a crisis. Leaders, it says, need to “concentrate on managing with discipline and focus and leading with equanimity to keep the workforce calm and focused on the task.”

When DDI analysed these characteristics against a group of 3,600 global business leaders, there was little difference between men and women when it came to building trust or driving execution.  But it did find that men were potentially more likely to buckle in a crisis than women “because of underlying impulsive or volatile behaviour”, while emotional detachment left them at a disadvantage when it came to empathising or offering support.

But differences between women and men in leadership roles are pretty insignificant overall, the report hastens to add.

This is surely the point - apologies for stating the blindingly obvious, but not all women are supportive and nurturing in a crisis; not all men are subsumed by unexpressed stress.

A few weeks ago, I posted an article on this site called The Top Five Innovation Killers.  One of you asked a good question: if the rules of innovation are so clear, why do so few companies embrace them?

Coincidentally, I hosted a roundtable discussion of UK Strategy Directors on this topic earlier this week. The conclusion of the group was that there are five misconceptions inhibiting innovation.

1. It threatens the core business. Innovation is disruptive.  A mature, successful business can become defensive and unwilling to cannibalise its success. That is why new entrants more commonly drive innovation. RyanAir and EasyJet, not BA or Air France, for example, drove the growth in low cost flying. As a consequence, many companies wait until they are in real trouble before doing the right thing. Asda, for example, was at its most innovative in the early 1990’s — creating George, their ground-breaking clothing brand –- as a response to its poor trading and competitive position. 
2. Innovation is high-cost and lengthy. Many business leaders believe that innovation requires deep pockets and long arms, but this is not the case. New entrants, for example, don’t have huge resources but are the source of the majority of industry-shifting innovations. A mindset change is required to prototype ideas quickly and cheaply, committing thousands or less rather than millions, in order to understand where the big opportunities lie. 
3. For innovation, ask customers. Most companies use focus groups to ask customers what they want. The problem is they can’t tell you –- people are poor predictors of their future behaviour. Instead, you need to observe customers. P&G, the consumer goods giant, for example, focuses much of its research on watching people in their homes use their, and their competitors’ products. By observing rather than asking consumers, development teams can better identify the unmet needs that exist.
4. Failure is not an option. Get it right first time may be the mantra for existing operations, but is exactly the wrong approach to innovation where the focus is on failure. The secret is to fail quickly and cheaply. Executives who demand 100% success can find it difficult to deal with the uncertainty of innovation.
5. Innovation lacks structure. Innovation does not happen in a vacuum. It needs a simple, but structured process to encourage, test and develop new ideas. One organisation we discussed at the roundtable meeting, for example, ring-fenced a certain amount of money for researching ideas. It then held monthly meetings to review ideas. Importantly, the CEO attended these sessions. Many people were encouraged to participate in the process not so much by the investment available, but by the recognition they received from the CEO and the executive team.

The recession is demanding that all businesses find new solutions to the changes in customers’ needs. The companies that succeed will be those that best overcome these five barriers to innovation.

(Pic WTL photos cc 2.0)

When is a pay cut a pay rise? When the economy is in deflation. If prices are falling, then the same amount of money buys more goods so a wage freeze is a real increase. Employees may start to find that forfeiting a pay rise may be better than forgoing their pay entirely.

Just as a 10 per cent pay rise when prices were soaring by 20 per cent was a real fall in income, a small pay cut now could secure jobs while maintaining spending power.

Given that most business has taken pay rises off the agenda, according to a survey by the British Chambers of Commerce, it is something employees need to consider. Some 58 per cent of firms claim they will freeze pay this year and another 12 per cent will cut pay.

High inflation is an opportunity for business to rebalance labour costs — it allows for uneven rises in pay. But negative inflation is an opportunity, too — if some salaries rise while others fall, differentials can be widened or narrowed to suit changed circumstances. It gives management the flexibility to manage.

But make no mistake — pay cuts apply to management as much as entry level jobs. Cutting employment costs can keep a sinking business afloat, providing the cashflow to cut debt or even the capital to expand.

In a market economy, pay should reflect supply and demand. Just as wages rise when there is a shortage of workers, they should fall when there is a surplus.

The self-employed and those relying on commission have seen their pay fall as prices and sales volumes tumble.

New managers can be recruited at rates below their predecessors’,  but in practical terms, most employee pay can be cut only by reducing hours and overtime, or in real terms by failing to match inflation.

Freezing wages when inflation is negative is an increase in real pay but it is a useful reminder why annual wage increases should not be automatic.

The Post Office faces a fight with its unions to implement a proposed pay freeze, but the Chambers survey suggests it will have many allies in the private sector.

A bold government would now see that the easiest start to its planned cuts in public spending would be to deny increases to all public-sector workers — at all levels.

Most employees recognise, too, that a job without a pay rise is better than no job at all — better we all take a one per cent cut in income than we add one per cent to unemployment and then tax the well-paid majority to finance the additional jobless.

If unions want an issue to fight, then trading pay cuts against job guarantees is a good start. Deflation will provide the pay rises.

Tara Hunt

Tara Hunt is a name that means a lot to Social Media experts but enterprise marketers should be familiar with her earlier attempts at promoting a new form of marketing philosophy entitled Pinko Marketing, the aim of which was to prolong the work that had been initiated by the cluetrain manifesto team at the end of the 1990’s. Beside her involvement in Barcamp and the coworking project, the San Francisco-based Canadian online marketer has got back to writing a new book The Whuffie Factor, which is now available in the UK.

BNET: Why did you choose that name and what is the message behind it?

TH: The name was suggested by the publisher. The working title of the book was ‘How to Be a Social Capitalist: building your business with online communities’ but the publisher thought that was too vague and meant too many things. When the editor, John Mahaney saw that I told the story of Cory Doctorow’s Whuffie, he shopped the word around and found that people really responded to it. First they would laugh, then after the term was explained, they would remember it. The Whuffie Factor means, in basic terms, that people should pay attention to their actions in online communities.

BNET: And what has it got to do with Social Media and marketing?

TH: The key point to understand about social media is that it is meant to be social. Facebook and Twitter and Flickr weren’t built as platforms for sales pitches, they were built as platforms for human interaction. The Whuffie Factor is about how well you do on that level. The ’marketing’ part will just happen naturally in these communities because people are talking about their everyday lives, looking for guidance on their purchases and choices and looking to get that guidance from their trusted circle of friends. If you’ve built good relationships, you will do well.

At the same time, the one-way communication of mass media started to lose it’s power. There have been a few good studies lately that show that word-of-mouth recommendations between friends and ‘people like me’ are only getting stronger. Therefore, the marketing that uses pure bullhorn type techniques are missing out on a huge opportunity.

BNET: How can marketers get to grips with the new opportunities?

TH: Take off your marketers hat and put on your customer hat. When you hang out with your friends, what do you talk about? I’m guessing you are open and honest with them. You share stuff with them. You ask them about their lives. You figure out what their needs are so you can help out as a friend. And…when the time is right…you can help one another out. There are just more sophisticated tools available so you can do this with more people.

BNET: Is there a role for a dedicated communities manager in marketing?

TH: I’m torn on that one. On the one hand, having the role puts priority on it. It says, “community is important to us, so we’re paying an employee to make sure it is taken care of.” On the other hand, by delegating that role to one person, a company loses many opportunities to build multiple relationships between customers and the company.

BNET: If you had only one piece of advice for our readers to get the Whuffie factor right, what would it be?

TH: Imagine yourself at a party. How do you act if you want to meet people and make friends? Do you enter the party and just talk about yourself and leave once you get what you want? Or do you slowly enter the
conversations, listening to people, joining in when you have something to contribute, asking people about themselves, exchanging jokes and being light-hearted? Probably the latter. That’s also how you need to approach online communities if you want to raise your Whuffie.

(Pic Lane Hartwell, all rights reserved)

Can we dream ourselves out of the recession? That was the parting question at a round table discussion run by INSEAD last week. The event was hosted by technology hardware supplier HP across three cities: London, Munich and Paris, with the aid of a telepresence link.

Two leading lights at INSEAD were there. Ludo Van der Hayden is a former director of the school’s Advanced Management Programme (AMP) and Marc Le Menestrel is visiting professor of ethics.

AMP students who take the elective Dreaming in Business are asked to consider their own dreams and aspirations when they began their careers and ask themselves how these dreams have changed over the years and whether they have been fulfilled.

Le Menestrel argues that this approach is different to business vision, because dreams include goals which may be farfetched, just as a young athlete dreams of becoming a champion, even though the chances of doing so are slight.

He adds that while dreams have been the genesis of many of the global companies that dominate the business landscape, they have little place in contemporary business, where managers are driven by performance metrics and shareholder value.

Goal-setting using these criteria, not real-world benefits, has played a significant factor in causing the downturn — people cared more about securing a bonus based on a profit margin than they did about the risk to which they were exposing their own company and customers.

Conversely, by incorporating each member of the company’s dreams into the overall goals of the organisation, businesses open the door to innovation, motivate the workforce and fulfil the needs of the wider world responsibly, argue Le Menestral and Van Der Hayden.

The panel agreed that in order to rise above a tough economic environment, it’s essential to consider the business’s circumstances post-recession, so that you can work towards making them a reality.

But it’s also essential that the people within the business focus on specific tasks, rather than their own desires. As employees, we all set aside our own dreams to an extent and subscribe to a strategic vision set by the leaders of the business.

Perhaps there is a space for dreams in business and that they are essential in rising above the recession. But it may be only a lucky few at the top that can allow their dreams to shape the direction of the company.

(pic tibchris cc 2.0)

The private equity (PE) industry has had a rough three or four years. After a slew of heavily leveraged and rather massive buyouts - that in many cases delivered stunning returns to the PE houses which didn’t appear to have done much for their investee businesses - and some unseemly press related to job cuts and lack of transparency, the British Association of Venture Capital (BVCA) commissioned a review of public conduct for its members.

The result was the Walker Guidelines, issued last year and to which many firms signed up. But even before they’d started to get their PR in order, the credit crunch hit - making the old PE model (buy a company with a tonne of debt, crack the whip on the management and squeeze the balance sheet to pay it down, then flog it on for a handsome equity multiple) somewhat difficult to execute.

That’s not all: having raised some spectacular sums of money (see slide nine) from investors desperate to see the kind of returns unavailable in the public equity or debt markets, many PE firms have also been left with stacks of cash they can’t (or won’t) invest. Deals have been hard to come by (partly because the prices for companies are still high and there’s no debt to inject into them). There’s masses of debt from older leveraged deals just waiting to roll over and out of bed (because the banks are frit). And even City folk are turning against the industry.

It sounds pretty doomish, doesn’t it? But it needn’t be. For a start, there’s still plenty of money being raised. True, it’s a lot less than a couple of years ago, but a total of £32bn for 71 private equity funds in the first quarter of the year isn’t loose change. PE firms are looking to developing markets - where there’s both growth and relatively cheap assets for sale - to invest a lot of this cash. But they’re also keeping their powder dry for opportunities in the UK.

That’s the argument put by the PE managers I’ve been speaking to, anyway. And it makes a lot of sense. Wait for the corporates to start running low of cash, and when they need to flog a division or two, back the management team to buy it. That on its own is obviously a good opportunity to invigorate British business. But I’d love to see them go a stage further.

Bold PE firms could start to wean themselves off both big deals and massive leverage. By committing more of their own cash to deals, they’d reduce their reliance on the banks. And a bank is more more likely to inject debt into a deal where the PE firm has more to lose. Yes, the return goes down as a result. But that just places the emphasis on PE managers to drive better performance from their investments, not just crank the handle on a rather exploitative financial engineering machine.

Better yet, looking at deals in the mid market - where companies are nimble, more responsive to PE strategies and can innovate or grow even during a recession - would win them huge plaudits from the business community and government. The lending banks have seen their reputation with business plummet - but these investment bankers could save the day. Heck, they might even set up umbrella funds to plug the equity gap - and become super-Business Angels in the process.

Best of all, the industry’s centre of gravity would move back to people with real skills - in turnaround, portfolio management and strategy - rather than financial engineers and wheeler-dealers. So c’mon private equity: this is your chance to be heroes.

I was chatting to a couple of CFOs about their approach to 2009 and it became plain people aren’t completely cutting out all of their luxuries, even though the recession has begun to bite.

Peter Hatherly, CFO of Simple Health & Beauty explained that one of the last “semi-luxury” items out of a woman’s shopping basket would be her moisturiser. Over at United Biscuits, Jeff van der Eems was similarly bullish. Pound-for-pound, a chocolate biscuit probably gives more pleasure than a new car or a foreign holiday, and the unit cost is low enough for even the hard-up to enjoy.

The news that Game, purveyor of console games, peripherals and software - has reported sales up by 32.2 per cent backs this up. The company puts this outstanding performance down to a well-managed supply chain, expert staff and smart acquisitions.

But I think there’s another reason Game is doing so well at a time when spending on discretionary items, and luxuries in particular, is falling.

People have cut back big-ticket purchases. So car plants are on short time or shuttered and Luxury clothes-makers are suffering. More UK holidaymakers are choosing to stay to home. According to research firm TNS, 38 per cent of Brits won’t venture overseas this year and large numbers are scaling back the number of holidays they plan to take.

The comparison between Game and the holiday industry is important, and tells us a lot about this recession. Simply put, people are focusing their hard-earned cash on making their life at home as entertaining and enjoyable as possible. So buying video games is still very much on the agenda, but a week in the Maldives is out of the question.

As van der Eems told me, “exposure to the in-home market is where it’s at right now.” Game has it. So do many other businesses. Mothercare, for example, is also trading well (like-for-like sales up 1.4 per cent for the quarter just ended) because new parents won’t skip on budget baby-grows.

The lesson? Smart businesses - that are already tweaking their business model to reflect not just the downturn, but longer-term shifts in consumption and attitude - know that life’s little affordable luxuries remain a strong play. Volumes hold up, and the margins needn’t be wafer thin.

If you haven’t got products in your inventory that have the ability brighten people’s days at relatively low unit costs, you’re missing out.

(Pic DaveCrosby cc 2.0)

In a year when retailers are folding at a rate of seven a day, online fashion retailer Asos has yet again defied the downturn with sales doubling to £165m in the year ending March 31st.

It’s not the first time Asos has defied expectations. In its nine years in business, it has survived the tech crash of 2000 and a fire that wiped out almost all its stock and caused it to stop trading for two months in 2005.

But the etailer founded by Nick Robertson, the great-grandson of the founder of upmarket clothing brand Austin Reed, has survived and thrived.

What’s it doing so right?

Speed and opportunism seem to be the keys — Asos has mastered the art of newness for its young buyers, who relish affordability and variety.

Its ethos is fast fashion, from stock to supply — it is quick to interpret catwalk trends and delivery of goods is usually next day.

The business model itself has changed with the times, from a site copying celebrity clothes (called As Seen on Screen) in 2000 to its current iteration, which sells own-label, discounted and full-price brands that include such as Hackett, Mango and Mini Boden.

Arguably, its demographic insulates it from recession, with young women still spending despite the recession.

It’s also a growth market: online sales currently account for only a small part of Europe’s clothing market, which is worth about €300bn a year, says retail researcher Verdict.

E-commerce consultancy Forrester forecasts online clothing sales in the UK will grow by more than 50 per cent to £7.1bn by 2014.

But it’s also done several things at once to ensure it stays on top:

1. Diversity It picked up on the discount trend with Asos Red outlet, a branded clearance section launched last year that is expected to double turnover in the next three years. It adds more than 800 new lines each week, and keeps fresh in other ways, by adding new ‘departments’ such as maternity, launched in 2008, and ‘Little Asos’ for kids, which launched in February. And the luxury end’s covered through Designers at Asos.
   
2. International expansion The job switch of Asos FD Jon Kamaluddin to international director is a clear signal of where Asos is focusing its attention while sterling remains weak. International customers make up some 16 per cent of overall sales and Robertson’s already identified international expansion as a big focal point this year. International sales at Asos have gone stratospheric, rising 173 per cent in the four weeks to end of March, compared to 2008.
   
3. Customer communication Underpinning this is constant communication with its 1.2 million active customers via email newsletters, which encourage visitors, and a glossy magazine that offers a secondary income stream through advertising.
   
4. Minding the shop Asos has made a virtue of quick-change nature of websites by adding new departments and revamping the site often. It is about to launch its online shopping community, which will feature blogs and a help forum that lets customers answer each other’s questions.
   
5. Investing in the business — Robertson hired Top Shop buying director Caren Downie in 2008, and implemented new marketing systems and warehousing to cope with a 60 per cent rise in orders.
   

Consolidation appears to be the trend among online retailers, with Asos amassing a huge number of brands to become a fashion portal.

It looks as if Robertson has bricks-and-clicks retailer Next in his sights — it has a seven per cent share of the online clothing market and Asos has nearly five per cent, more than Top Shop or New Look.

“Can I see 10 per cent of clothes being bought online? Yes,”, says Robertson “and I can see that two to three years away.”

(Photo: LeeLeeLu, CC2.0)

This morning’s launch of the Equality Bill, which seeks to tighten up equal pay with an open pay audit, has come under criticism from all sides — either not doing enough or doing too much.

Campaigners for more action to diminish the 17.2 per cent average pay difference between men and women in the workplace said not making pay audits mandatory was a sop to institutions that so far have not done anything to pay women on a par with men.

Meanwhile, opponents to the bill say there is more legislation than employers can cope with and this is not the time to be heaping more on them.

Clearly, it’s indefensible for an employer to apportion pay on any other terms than skills and experience, regardless of gender, age, colour or any other human characteristic and how successive UK governments have got around enforcing the existing laws on equal pay is quite frankly shameful.

Seeking to open up what people are paid in comparison with one another, which is what the Bill does, could be a minefield for managers if a long-standing, but ill-favoured employee finds out they are being paid below the market rate.

But, it was a lack of clarity on how and what for people were being rewarded is a significant cause for the current economic climate.

If pay auditing, for the purposes of equal pay or any other reason were commonplace, would we be in such a sorry situation now?

It may be that the level of women’s pay is what the employment market will bear, begging the question of whether the men who get paid more are being overpaid.

But what will happen in areas where, all other things being equal, there is a big discrepancy in the pay for men and women within a workforce?

It’s unlikely that women’s pay will be brought up to their male peers’ pay levels. What is more likely is that men’s pay will be reduced, (by paying new entrants less) to create parity.

This will ultimately drive down the earnings of families with a male breadwinner.

How the women who’ve quit work to start a family will feel about their partner’s pay prospects being stunted to feather the wage-slips of working women will I’m sure be the subject of much discussion.

Nevertheless, rights to equal pay in a democratic society have to be enforced. Once parity has been established, it will become as ordinary and accepted as universal suffrage. Along the way though, some people are going to lose out.

What do you think — is the Equality Bill long overdue or another example of red-tape Britain?

(Photo: raggle cc 2.0)