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Resilience Inc.
Building an adaptive business

June 2016, by Stephanie Matthews, Director

 

When Heraclitus (535 – c. 475 BCE) coined the phrase ‘the only thing that is constant is change’ he could hardly have known that his words would become a business cliché in the 21st century.

Modern leaders are acutely aware that to grow they must become more responsive and adaptable to the ever-changing environment. Business models, processes, product and service offerings – every aspect of organisational life, hard and soft – must be constantly renewed to remain relevant and resilient in these turbulent times.

The recent demise of BHS in the UK and other famous cases of brands like Kodak, Woolworths, HMV and Nokia failing to respond quickly enough puts the topic of long-term resilience high on the agenda for any CEO.

Agile hearts

Everyone knows a resilient brand when they see one. They’re the brands we envy – able to sustain profitable growth even during times of turbulence and recession (Amazon, Lego, Walmart), fend off aggressive competition and disruption (Waitrose) and recover quickly from internal crises and blows to their external reputation (Apple, Toyota). They’re very quick to flex, acting decisively to shed volatile or irrelevant offerings, capture new opportunities, diversify and extend into new categories and markets in a brand-appropriate way without damaging their core (Google, Virgin, Nike).

This level of resilience is the sign of a business with insight at the heart – a business that knows what it’s about, what its customers love (and don’t) and how to use its brand to achieve solid performance. The intimacy they have with their customers – their ability to second guess their changing needs and adapt themselves accordingly fits with the new ‘always in beta’ approach to brand building. The closer and deeper their connection with customers, the more forgiveness they bake in. This allows them to have short innovation cycles, to experiment, test, learn and adjust. Though the term is somewhat overused and conjures images of big technology transformation programmes and processes, this is a next generation agile mindset and arguably the only viable modus operandi for brands today.

Iteration not reinvention

The high failure rate of traditional, multilayered transformation programmes is well known. While some do succeed, the question is whether it’s really worth the gamble. So-called game-changing programmes are high risk. They tend to swallow up resources and the scale of the ambition behind them can paralyse an organisation, ultimately leaving it worse off.

That original objectives are not realised is not merely the result of operational and cultural issues like lack of leadership buy-in and poor internal communication but very often because the time horizon applied is simply too far out. With the pace of technological change accelerating and consumer preferences shifting all the time, windows of opportunity for innovation are narrower than ever.

When either the external operating environment or the internal organisation is volatile, forward plans quickly become unrealistic, even irrelevant.

BHS is a case in point. Aside from the £571m pension deficit that proved an insurmountable hurdle for prospective buyers, the truth is that BHS hadn’t turned a profit in years. They had neglected a proper rethink of their strategy and proposition until too late in the game, failed to invest in the omnichannel experience, slashed marketing budgets and paid the price.

While systemic change may be the only option left open to some organisations, those who aren’t yet at crisis point would be wise to start experimenting with more focused ways to make continuous improvements.

The two clocks

At BrandCap we help clients across a broad range of sectors to adapt their businesses – and the brands at the heart of them – to the changing world. Brand adaptation works at two speeds:

  • The slow clock of strategy: Revisiting the big picture idea that guides the business to make sure it still resonates with the target market.
  • The fast clock of tactics: In parallel, investing in the creation of new revenue and loyalty driving products, services and experiences that people will want to try and recommend to others.

Here is a recent example of a client we worked with that shows this approach in action.

Example: Budgens (UK grocery retailer)

Back in 2014 Budgens – the UK-based grocery retailer formerly owned by Musgrave – was in turnaround. Sales were slow and profitability suffering. The management team had a clear goal: move the brand’s market position out of the crowded middle ground by appealing to a more affluent customer. They needed to understand if this was feasible, and what change might look like in practice.

At the time the UK grocery retail market was being profoundly restructured – they knew they had no time to lose. With a renewed sense of urgency the new MD decided not to allow the business to dictate the pace of change but instead pushed for progress in a very tight timeframe, his hope being that increased pressure would generate more decisive action and creative solutions. He was right. In just a few short months a cross-functional team delivered a radical plan that began with a rapid insight, customer segmentation and rebranding process and ended with a series of trial stores being launched in three locations.

An initial quick and dirty research study – qualitative and quantitative – was conclusive: their stores were in more affluent catchment areas but shoppers were suffering from what they called ‘mission myopia’, only buying what they came in for. The average spend was some way below the industry average and yet the research suggested they were open to being inspired. What’s more, many of their stores served small local communities where word of mouth counts for a lot. There was a very real opportunity to spread momentum quickly if they could start making precise changes to key aspects of the customer experience.

Based on these insights they defined a few key performance indicators. Aside from improving overall sales and margin, it made sense that the needles they decided to move were average basket size and NPS. This gave us the starting point for renewing the brand.

 

Based around the idea of discovery, the new brand strategy and identity provided an inspiring focus for action. Instead of shooting for perfection first time, they encouraged a ‘test and learn’ approach where trial stores became labs for trying out new ideas live on local communities.

High margin opportunities were identified and maximised. New ranges, new pricing strategies, new customer experiences and communication tactics were rolled out. This was underpinned by regular tracking studies to assess the impact of changes on financial and non-financial metrics.

The results were impressive. Two months after the first pilot store was launched sales were 30% higher than before the work. Six weeks after the second store opened, sales were 48% up. And the change was sustained. Six months after launch the average basket size had increased from £11.67 to £19.22, with shopper Net Promoter Score shifting from 7% to 64%. If the MD and his colleagues had decided to transform everything at once it would more than likely have taken a good deal longer to achieve results like these.

Booker Group acquired Budgens (and its sister brand Londis) from Musgrave in 2015, with a deal value that was significantly increased by work on the brand proposition. Since then performance reports have shown that Budgens is making a significant contribution to improved performance at Booker Group. Total revenues, including Budgens and Londis, rose 10.6% in the fourth quarter of 2015, driven by a successful integration of the brands. While Booker’s like-for-like sales slipped 1.9%, Budgens and Londis’s contribution rose 5% year on year to £5bn. These results make a persuasive case that shows the enlightened approach to renewal thinking in both Budgens’ original parent company Musgrave and the brand’s new owner.

First principles

Whatever your brand or sector, the same first principles for this agile form of brand renewal hold true.

  1. Made to measure: When planning changes, choose the needles you want to move then put tracking in place. Hard evidence will help you to build the business case for scaling up quickly if the work is successful.
  2. Brand focused: A clear big picture strategy ensures delivery is not just slick; it’s distinctive, compelling and differentiating in the marketplace. Whatever tactics you then employ – new products or service elements, campaigns, loyalty schemes, frontline employee engagement activities – use long-term brand thinking to improve their impact and avoid them becoming gimmicks or isolated initiatives.
  3. Bang for buck: If you want to shift performance at pace, zero in on the areas where modest investment is likely to make a disproportionately high impact on business performance. These are often aspects that directly touch the end customer – visible, tangible elements that people value, that will trigger positive word of mouth and give you a competitive advantage.
  4. Test and learn culture: Adopting an agile approach requires an environment in which people are free to try out new ideas, fail fast and learn. Communicate and promote the culture you want to create and back it up by symbolic leadership actions to demonstrate commitment.

Next time you have a conversation about future resilience, try thinking next generation and ask what incremental adjustments to the brand and its experience could do for business performance.

 

Photo and artwork by Tonkin Liu Architects