Leadership, Culture, Capital and Speed: Barriers or Boosters?
By Robin Lewis | July 25, 2018 | The Robin Report
The current thread of the many conversations I have with the top executives of the retail and consumer-facing industries is that all of commerce is still in the grip of techno-chaotic disruption, destruction and transformation. Alongside this mayhem is the equally startling and rapid flywheel of the creation of whole new business models, indeed, new industries. We have new subscription models such as the Dollar Shave Club and Stitchfix; resale models like luxury site RealReal; rent vs. own models like Rent-the-Runway or WeWork, and brands with a compelling backstory like Allbirds and Everlane. These are among the hundreds of startups rapidly populating the landscape and increasingly becoming household names. And then we have brands that are replacing entire industries including AirBnb with more rooms globally than Hilton and Uber, now with more cars in New York City than taxicabs, moving quickly to eat the world of personal transportation. Oh! And I forgot! I think we can say that Amazon upturned the entire retail industry and continues its get-bigger-faster pace to drown any contenders.
So, the big, and even smaller legacy retailers and brands I speak to, have watched the general unveiling of a new world, and as the fog is lifting see that chaos is giving way to clarity. Most of them know what they must do to successfully enter the new world. And most of them can articulate how they are going to do it.
However, all of them, in their own words, cite four major barriers to successful implementation of the strategies necessary to get there.
- The lack of enlightened leadership
- An “old world” siloed and sclerotic culture
- Capital requirements
- The speed necessary to complete the transformation before it’s too late
These barriers are common among big and small alike. In many ways, the smaller businesses have an advantage in their ability to change more quickly, but, may be disadvantaged in not having the necessary capital. In every case, these four barriers must be flipped over into “boosters.”
Leadership starts at the very top, at the CEO or ownership level. Now that the clear vision of what needs to be done has replaced the paralytic fog of disruption and chaos, the leaders who “get it” have extracted their entire mindset from the “old world” including everything that strategically and structurally defined it, especially the culture. Simultaneously, their direct teams must go through the same mental extraction from the old world or they are being replaced. As partners, they are creating a vision of what the transformed model will look like, infused with technology throughout the entire value chain from sourcing to the final link that touches the consumer at POS, online or off. This is a collaborative effort, not a top-down, command-and-control model. The teams are increasingly being populated by millennials who are more aligned with the new young consumer cohort, and they also have a better understanding of how to integrate technology throughout the value chain. Most importantly, the vision created by these collaborative teams is being aligned with the expectations and desires of the new-world consumer, drilled down to the individual person.
If you are one of these leaders (and we know who you are), this strategic planning exercise is the easy part. Ron Johnson is the poster child for the pitfalls of quickly and radically creating a vision, but he misjudged his day-one initiative at JC Penney of eliminating promotional pricing that essentially “fired” his consumer base, and it was downhill from there.
Next, these leaders must wade into perhaps the most difficult transformation the traditional legacy retailers and brands must make – changing the culture. These cultures were born to operate in a pre-technology and internet world. Retailers bought wholesalers’ goods and sold them to consumers who came to their stores to shop and buy. This was a highly structured marketplace that grew and grew in size, solidity and rigidity. The value chain from sourcing to the final sale had a thousand silos within which functionaries would do what they were trained to do in creating or moving the product along the chain. And then they would dump the product into the next silo, and so forth. Fiefdoms grew along with sclerotic bureaucracies, and the unenlightened cried out this was the “way it was always done.” Until it wasn’t.
Whammo!! Enter the technology revolution, and overnight these antiquated value chains and structures were rendered useless. Think about this: a new-world entrepreneur like Stitchfix intuitively understands the tools of technology and how they can be used to meet a consumer’s individual apparel desires. They get some funding (still lots of free money these days) and boom, they have an “asset-lite” subscription business. As I’ve said, thousands of these speedboats are starting to steal huge chunks of share from the old-world battleships.
These battleships must become agile, quick and de-massified if they are to survive. And to get there, their antiquated cultures and structures must be transformed. To do this requires radical, innovative leadership from the top. The culture must embrace the radical thinkers and doers throughout the value chain and support their demolition of the dysfunctional silos and structures to seamlessly integrate all of the functions. Leadership must promote these people internally, eliminate the recalcitrants and hire new radicals who embrace a collaborative, risk-taking culture.
Leaders can have a great vision and all of the right strategies to implement the vision, but if the culture is not created to manifest the vision, the business will fail in this new world
Need I even mention the gargantuan investments that must be made to transform the old world of brands and retailers? Every one of the CEO’s in the big box legacy sectors, who also happen to be publicly owned, will tell you that this is an enormous challenge and eats into their margins, big time. But the investment must be made. I believe this is one of the reasons that the Nordstrom brothers made a bid to take the business private. What about the billions Walmart is investing to transform its model? They invested $3.5 billion alone for Jet.com just for starters. I was fortunate to have witnessed a Target analyst meeting in person. Towards the end of CEO Brian Cornell’s brilliant presentation of his vision for the strategic transformation of Target, he declared to the analysts and journalists in the room that to achieve their vision they had committed to an investment of $3.5 billion in 2018. While acknowledging that this would affect their bottom line, he rightly said (in my opinion) that Target should be judged by its ROIC (return on invested capital). I totally agree with that position. Unfortunately, Wall Street thinks differently. A young analyst was sitting next to me with his computer open to Yahoo watching Target’s stock price. As Cornell was stating their investment needs pressing on its margin, I saw the stock price dropping on the analyst’s screen in real time.
These battleships are surrounded by the rapidly growing number of speedboats — the upstarts. Most will flame out, but there are enough that will thrive. And in the aggregate, they will severely eat into the old world’s share of market, killing off many of these icons. Amazon alone threatens most of them with a mind-boggling growth rate of 20 to 30 percent a year. Speed is of the essence. Unfortunately, culture change and capital requirements are real barriers to speed. Again, Walmart is a great example of committing to huge capital investments and they seem to be riding a nuclear rocket meteorically catapulting it into the new world. They may experience failures in some of the initiatives they launch, but that is emblematic of the change in their culture: from cautious, to try often and fail quickly — echoing Amazon’s mantra.
How to Overcome Four Barriers
The one common denominator for overcoming these enormous barriers to change in organizations established pre-technology and before the full impact of the internet (the year 2000) is to integrate and support radical, innovative thinkers and doers throughout the entire value chain, from creation to consumption. This includes design, merchandising, sourcing, logistics, distribution, marketing, IT, talent management, finance, etc.
Because, without the right people, all the dysfunctional strategies, structures, silos and fiefdoms will highjack the future. The necessary tech-infused concepts, consumer engagement and market relevance will not happen fast enough without new-world talent. And the capital needed to fuel it will not be there either.