Stepping-back, without missing a beat…?
(When the time comes for a strong leader to step back from the front line …)
By Brian Moore, Global retail consultant and CEO EMR-NAMNEWS, mailbox@namnews.com

The recent decision by Sir Ken Morrison to step back from day-to-day management of Morrisons, the UK No.4 retail multiple, has already been the subject of extensive press coverage, but little has been written about the impact upon the vendor role.

Given the scale of integration problems involved in combining a successful company with a former competitor, almost twice its size, performing at approximately half its rate on key ratios, and using diametrically opposite platforms of Hi-Lo vs. EDLP, when Morrisons took over Safeway, the marriage did not need the added complication of the contrasting styles of democratic and autocratic management, following an over-long and value-destructive assessment by the competition authorities.

The end-game had to be ROCE performance dilution, driven by a rapidly changing and unpredictable cost-base, resulting in four profit warnings, and compounded by an unwillingness of the company to take a guess at probable profit performance in an uncertain short-term future.

Changes for the vendor in managing Morrisons

Whilst the City and Morrisons will have to find a share-price compromise that reflects their medium term relationship, the key issue for vendors is how to play the Morrisons game in the interim.

In order to appreciate the internal pressures on Morrisons to make an acceptable transition in leadership approach, it might be worth bearing in mind that the change is in some ways like the move a NAM or KAM makes from solo management of a customer to integrated multifunctional team management as a customer assumes a higher share of the vendor’s business, becomes more complex and joint dealings become more transparent, accountable and achieves a higher profile within and outside the company.  Careers can be made or compromised in the process.

Essentially, vendors have to make a judgement on the probable timing and extent of the step back, and take a view on where that leaves a company accustomed to many years of strong, focused and successful leadership.

Coping with a customer in ‘holding mode’

Whilst risk-averse vendors will be tempted to freeze all current initiatives with the company and divert resources elsewhere, it is important to keep in mind that Morrisons is still a strong No.4 contender, with Sainsbury's by no means out of the woods yet.

Moreover, it is unlikely that current management will attempt to make radical changes, other than to try to achieve acceptable levels of financial transparency as quickly as possible, probably via outsourcing. This process will have to be conducted on a financially conservative basis, in order to facilitate a smooth transition to the control of the new finance director in October. Any change more fundamental might also compromise the extent of the step back.

This policy may include critical reviews of the payment process and in the short-term could result in delays in paying vendor invoices. The answer for vendors obviously lies in accurate, transparent and zero-defect order fulfilment. There can be no ‘benefits of the doubt’ in the current circumstances. The company will continue to conduct an EDLP policy and in view of their vulnerable position, will be eager to ensure compliance, all things being equal.

Freeze on new products

Finally, it is likely that new product introductions will represent too uncertain an impact on performance to form any part of the immediate future.  In effect this means business as usual, at least as far as established vendor relationships are concerned. New vendors might achieve better returns elsewhere for the remainder of 2005.

If Morrisons is to succeed, it needs to apply the basics of good retailing, a return to fundamentals in terms of shopper satisfaction, expressed unambiguously in the key financial ratios, all with the help of vendor-partners that can effectively bridge the entrepreneurial-gap between what made Morrisons great, and the potential synergies of the merged organisation.  It has to be worth one last try before the music stops…   

Managing a customer in transition…

Whilst Morrisons is the focus of this approach, the process can be used in managing any customer in transition from owner-driven small scale to a size of organisation requiring a more democratic style of management.

The key to managing the ‘new’ Morrisons is to keep in mind how it reached its current position. For thirty-seven years, the company has been lead and driven by a highly focused, benign autocrat, who happened to own most of the equity.

This leadership approach including decisiveness, speed of decision-making, clarity of direction and command, and above all efficiency, especially at times of crisis, have realised all the positives that were all evident in Morrisons key ratios’ performance before the bid.  Moreover, with 60% ownership of the business, it was possible for the CEO to back his own judgement, pay minimal dividends and re-invest most of the profit in the business.

However, whilst this style was appropriate in a tightening UK market, and should have been even more appropriate in dealing with the Safeway crisis, the implementation of the bid actually highlighted the attendant baggage of lack of delegation, less involvement by the team in decision-making, and difficulties for successors to emerge.

Providing the strategic input

From a vendor perspective, it is important to adopt an appropriate mode in managing Morrisons through its transition by contributing most of the pro-active approach required as a company turns inward, slows down innovation and tries to stabilise the business.

In effect, this means assessing Morrisons’ competitive appeal vs. other retailers, from the point of view of the current and potential shoppers, and in the vendor’s categories. (see free EMR Buying Mix Analysis tool at www.kamcity.com/NAMCalc/BMA/BMA.htm)

Next, seek ways of reducing inappropriate elements of assortment based upon consumer-shopper need. The company is in ‘cutting’ mode and may respond to filling the resulting gaps with more of the important current SKUs.

Power changes within the customer

Attempting to influence the customer can be made more effective by analysing the changes in power balance within the organisation. This means systematically evaluating how the different types of power are operating, given the latest changes in the organisation. These include powers of Expert, Ideas, Goodwill or Referent Power, Information, Gatekeeper, Status, Reward, Political, and Coercive Power. Think how these types of power are now operating within the company, and how they are impacting the decision-making-process.  Then systematically build a complementary power-platform within the vendor and customer’s organisations to complement and optimise the process.

The importance of networking

In doing so, it can be useful to cultivate the following types of partner within the customer: Information Partners, who show and tell, but do not act on your behalf,   Action Partners, who will work with you but not for you, Advocate Partners, who will speak on your behalf but are not doers, and Mentor Partners, who will guide you through political systems; steer you towards supporters and away from delayers/excusers/and people who say ‘no’. While this approach should be routine in account management, it is particularly important when an organisation distributes little real power down the line.

Building and maintaining an effective network in the current circumstances, combined with attempting to become the eyes, ears and brain of the customer, evolving pragmatic strategies and attempting to implement them under impossible conditions will not only help in optimising the current ‘impasse’ at Morrisons, but will hopefully become more productive as the company slowly renews itself under a different type of leadership, and assumes an ‘acceptable’ management style.

This combination of skills will hopefully benefit Morrisons but will certainly raise the KAM’s profile in company and market…  Alternatively, why not slip into neutral mode and allow another KAM to demonstrate how to optimise the Morrisons’ transition…?