Given the uncertainties resulting from the global financial crisis, it is vital that suppliers identify and manage their risk-exposure in a positive way, aimed at optimising the opportunities that arise from unprecedented change, while others attempt to stand still and await a return to normal…
Whilst pro-active risk-management should be applied to all customers, it is vital that suppliers at least focus on those retailers that have made a feature of risk-management in their corporate strategies. To ignore risk in making presentations to such customers can often send a signal of complete mismatch between needs of supplier and retailer.
The degree of a customer’s risk-sensitivity can usually be gauged from the extent of its coverage of risk in their latest annual report. As it happens, Amazon devotes ten pages to risk in its annual report, but as Debenhams may be more relevant to many suppliers it is perhaps more productive to focus on the six-page treatment in its 2012 Annual Report (Download a copy from their website).
Debenhams’ Risk Review (annual Report 2012, P39-45)
A virtual primer on risk-management, the latest Annual Report devotes six pages to defining and spelling out Debenhams’ position on risk, in terms of chance-of-occurrence and impact-on-the-business. Any NAMs wanting to optimise their trading partnerships with the retailer will need to demonstrate how their policies and processes are compatible and complementary in terms of the supplier-type risks covered in the Debenhams’ report, or risk being ignored…
Know your own Risk-Profile
Firstly it is important to agree a consistent corporate risk-profile for the supplier organisation. In other words ask colleagues to label the company as risk-seeking, risk-neutral or risk-averse, using the following criteria:
- Risk-Seeking: taking a calculated gamble on a business investment, focus on sales building
- Risk-Neutral: a more conservative approach; balancing careful sales building and cost control
- Risk-Averse: avoiding all business risk; focus on sales maintenance and cost-cutting
(Incidentally, risk-seeking colleagues who as a result of a uniform response to the exercise then realise that they are working for a risk-averse company will at last have an answer to their increasing frustration over the years, if they are still working for the company…).
It may be worth emphasising that ‘risk-seeking’ does not mean recklessness, but is merely a carefully calculated approach to taking business chances, albeit with other people’s money.
In practice, the result of the corporate analysis will be a spread of risk profiles from risk-averse to risk-seeking, probably reflecting personalities and functions within the organisation, ideally providing the checks and balances in the day-to-day operation of the company. However, it is important that key customer facing people operate to a consistent version of the company risk profile, in order to minimise customer confusion.
In practice, this means that the supplier needs to be clear in terms of relative risk profiles of the two organisations, knowing whether as a supplier in their category they are risk-seeking, risk-neutral or risk-averse, and being pretty clear on how Debenhams views itself on the same measures, in that same category.
Incidentally, the category-specific criterion is important, given the difference between fashion-clothing and, say Health & Beauty business models.
Risk-Match with the Customer
In terms of being complementary, a supplier can either have the same appetite for risk (i.e. both are risk-neutral), or be more adventurous (risk-seeking) based on knowledge of the category, where the retailer is more conservative (risk-neutral) in the same category.
Either way, framing your presentations as ways of helping the retailer to manage their perceived risks has to be a way of differentiating your offering from competitors that make a pitch in the traditional manner…
Ignoring the risk-content of the Annual Report could prove to be a major ‘missed-trick’ for NAMs…, whereas seeing an opportunity to jointly manage relative risk with Debenhams, has to be a no-brainer for pro-active NAMs…
Moving from Risk to Opportunity
Having clearly established risk management as a tool in the process, it can be helpful to capitalise on the insight by corporately conducting an opportunity analysis. This means listing the top ten things that could go right for the company as a result of a positive relationship.
However, more importantly, there will now be a basis for seeking ways of enhancing the impact and increasing the chances of capitalising upon key opportunities in the marketplace.
A risk-averse stance may feel safer, but the company will be slower, darker and slightly boring….until reality kicks in.
