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Going Fast: Executive Retention Challenges and Solutions for the Retail Industry

By Christine Rivers, Hay Group

In the retail industry, only the strong survive. In comparison with many other industries, retail companies face shorter time horizons and tighter metrics. The pressure to perform is great, which perhaps explains why many retail firms are having trouble holding onto their top executives.

For example, one major U.S. retailer recently suffered the departures of a senior marketing executive, a division president and another executive vice president all within the space of a few months. One of those executives had lasted only five months, while another had a tenure of less than two years.

This high turnover problem goes right to the top of the retail executive ranks. A recent study of more than 80 major U.S. retailers with over $1 billion in annual revenues found that retail CEOs were 80 percent more likely than their Fortune 1000 CEO peers to leave within two years of being hired.  Such CEO turnover often has a ripple effect on turnover throughout the executive ranks as potential candidates who feel they were passed over for the top spot may be more likely to jump ship and look for opportunities elsewhere.

How can the retail industry find a way to reduce executive turnover and improve retention? Here are five suggestions:

1.  Make hiring decisions based on where the company is headed, not where it has been. Australia’s Business Spectator newspaper ran a story last year covering CEO succession at Woolworths. The article described how the board ended up bypassing one qualified candidate with strong credentials in the group’s core food and liquor business in favor of another who had taken a more circuitous route into new business development and help forge a partnership that led Woolworths to enter the hardware sector. The lesson here is that operational excellence should be an important consideration in CEO succession, but it should not be the determining factor. Rapid technological change is pushing companies to reinvent the way their business models and rethink the way they reach customers. In this environment, it is crucial to have executives at the top who fully understand the stakes and are willing to take risks, make mistakes and focus on top-line growth even if such actions fly in the face of conventional operational excellence beliefs.

2.  Realign the culture to embrace innovation. The best executive talent with the strongest alignment with a retailer’s strategic goals will still end up exhausted and thinking about jumping ship if they have to fight constant battles with the corporate culture. Hiring an executive for his or her capabilities as a strategic thinker does not make sense if the overall organization continues to worship at the altar of operational excellence.

3.  Build bridges; break down silos. Retail companies want their leaders to be innovative, but most innovation requires an interplay of opinions, perspectives and ideas. When a workforce is segregated into silos, there is little room or opportunity for innovation to take place. Conversations across silos take time to develop and do not always lead to obvious outcomes, but cross-boundary collaboration nevertheless needs to be prioritized and given the respect and attention it deserves. One way to start the long process of breaking down silos is to make sure that leadership development tracks give executives a chance to experience both the functional and commercial side of the business. Ensuring that executives have a broad perspective helps companies avoid the danger of functional leaders managing the development of products or services that are perfectly crafted from a technical standpoint but unappealing to consumers. Shared accountability between commercial and functional leaders can help build bridges among departments, prevent turf wars and ultimately lead to the sort of commercially-viable innovation that drives growth and profitability. As long as silos are allowed to persist, they will impede innovation, causing frustration among creative senior leaders and ultimately making it harder to retain the sort of forward-thinking executives that companies need most.

4.  Don’t ask an individual to move a mountain. Individual leaders may be talented, strategic and creative, but they do not operate in a vacuum. Retention becomes less of a challenge when executives feel supported and enabled by their company. Asking an executive to lead change in a static and entrenched organizational culture is like asking a single person to move a mountain northward when thousands of others are being paid to push the mountain in the other direction. Having leaders fighting the corporate culture is a sure recipe for retention problems. Instead, CEOs should find ways to leverage their strong relationships with their boards to get buy-in and support for whatever operational model they feel is necessary to foster innovation. Yes, it is important for companies to have innovative executives in key positions, but it is equally important to develop governance structures, systems and processes to support these executives, foster a culture of debate and encourage calculated and strategic risk-taking.

5.  Make sure HR has a seat at the table. Having the head of HR on the senior leadership team makes a strong statement that the company values human capital as one of its strongest assets. Having a CFO or General Counsel responsible for HR issues sends the wrong message and says that the company view HR from either a transactional or compliance perspective. Beyond showing that the CEO understands human capital is a strategic concern, having a HR representative on the top leadership team gives companies an opportunity to map out the organization’s talent demands several years into the future. This talent map gives companies the ability to build, develop and recruit leaders whose skills, temperament and vision match the company’s own culture, strategy and objectives. Or conversely, if the organization’s leaders recognize that cultural change is needed, they can be begin the process of attracting and cultivating leaders who can join forces and work together to make that change take place. By taking this thoughtful, deliberate and coordinated approach to human capital, retailers can go a long way toward reducing executive churn and improving retention.

Christine Rivers is a VP and leader of Hay Group’s Leadership and Talent practice for the Retail sector.


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