The Challenge of Leadership Succession in Retail
This year has already seen a reshuffling at the top of several large retailers, including Gap, CVS and Wal-Mart, and more changes are expected.
As retailers take stock of their performance during the past holiday season and evaluate their needs as they grow both domestically and internationally, they will be taking a close look at the type of leaders they need at the helm in the coming year and beyond. Unfortunately, many retailers do not have strong internal candidates for senior executive roles, so they will be either searching externally for new leaders or placing current employees in challenging stretch roles, neither of which is an optimal approach to succession.
With strategy changes rampant in the industry, retailers are forced to make significant changes to their leadership teams in order to execute new initiatives. But, many retailers have significant talent gaps when it comes to filling new roles and replacing those that have been forced aside.
For example, in identifying new merchant leaders, organizations are realizing that the ability of the leader to structure an effective merchandising team that works effectively with its planning, allocation and marketing partners is more important than having the answer to which products will resonate with finicky shoppers. For others, the unrealized promise of e-commerce has retailers searching for the right mix of technology savvy, merchandising, operations and boardroom presence to drive an online strategy.
So where will these leaders come from? For many retailers, the answer is not clear.
Although all industries face similar challenges, we have found that retailers in particular have often insufficiently invested in strong leadership pipelines. As a result, they tend to promote through functional ranks and have an artificially narrow talent profile for top leadership roles.
Retailers can enhance the leadership succession process by focusing on the following:
• Recognize the strategic challenges the organization faces and specifically incorporate the challenges into talent management and succession planning. Building new design centers, developing new formats and expanding overseas may offer the best hope for regaining growth, but they also put strain on the organization and the talent pipeline.
Whether firms are creating new design heads or new country manger roles where there were none before, the management demands of retailers’ strategies are outpacing their efforts to grow talent.
• Consider both supply and demand in leadership succession decisions. Define the types of roles that will need to be filled and conduct rigorous assessments of the competencies of potential leaders.
While many retailers undoubtedly use new succession opportunities to elevate “high potential” internal candidates into senior roles, the notion that any high potential can take on any type of leadership role is risky. Executing international expansion requires a very different skill set than managing the strategy processes that led to that expansion, and retailers need to ensure they understand the competencies required for specific types of roles and whether candidates possess those competencies.
• Build a leadership pipeline well in advance of the need to make leadership changes. Retail operates in very rapid cycles and can be highly opportunistic. Many retailers are now changing strategies as a result of performance from the past holiday season. Others have been opportunistic about international growth (e.g., M&A). While the rapid change makes it hard to plan for specific roles, all retailers should be attempting to anticipate the type of leadership roles and capabilities that will be required years in advance.
The impact of giving sufficient attention to leadership succession is clear. According to Hay Group’s 2010 study on the Best Companies for Leadership, the very best companies for leadership report having a sufficient number of qualified internal candidates to assume leadership roles at all levels by a ratio of nearly 2 to 1. And these companies reap the rewards as well — consistently outperforming the S&P 500 in total shareholder returns over one-, five- and 10-year periods.
While retailers seek to regain a competitive edge in 2011, those with weak leadership pipelines will find themselves wasting valuable time and effort conducting difficult searches, rather than focusing on executing their business strategies. Those that take steps to enhance their approach to leadership succession will be in a better position to elevate and deploy leaders as needed and succeed in executing new strategies.
Maryam Morse is national retail reward practice leader, Hay Group, and Ryan Dixon is senior consultant, Hay Group.
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A Winning Game Plan
For the past couple of years, retail survival has largely been about controlling the controllable. But in 2011, as spending starts to loosen in the face of a brightening economy, retailers have a lot more to look forward to, according to Natalie Berg, global research director for Planet Retail, London.
Speaking at the National Retail Federation’s 100th Annual Convention & EXPO, at the session, “Power Players in Focus: How to Be a Retail Winner,” Berg said that to be successful in 2011, retailers need to do the following:
• Focus on core assets and drivers of profitability;
• Aim for a targeted globalization approach;
• Leverage multichannel; and,
• Put shoppers at the core.
“A shopper-centric strategy will be crucial in 2011,” said Berg, who added that a honed focus on the customer has become critical to success.
Going forward, shoppers are looking for value and a sense of discovery. Berg pointed to Carrefour as a good example of a retailer that has added discovery to its mix. The chain is trying to reinvent its hypermarket concept with a weighty use of in-store technology and such added services as child care and hair care.
Partnering with specialists will also be a top success strategy in 2011, according to Berg. Carrefour and Virgin Records, for example, have entered into a global partnership in which Carrefour has expanded its music offerings with Virgin in-store shops. And J.C. Penney continues to expand its ongoing partnership with Sephora by rolling out more in-store beauty shops.
“Use technology to capitalize on frugality through new formats and innovative promotions,” Berg said. Applications like ShopKick are engaging customers; promotions such as Groupon on Facebook provide innovative ways to grab interest and generate sales.
“Multichannel is the way forward,” she added. “And retailers will have to strike a balance between value and discovery.”
DYNAMIC BUSINESS: Successful retailers of the future will be those that embrace the concept of “dynamic business,” said Kirill Tatarinov, corporate VP, Microsoft Business Solutions, Microsoft.
“A dynamic business is one whose operations are seamlessly connected, that thoroughly understands its customers’ preferences, and maximizes the productivity of its people, according to Tatarinov, who addressed attendees at the NRF session, “Making the Retail Business Dynamic.”
“To become a dynamic business,” Tatarinov explained, “companies must put themselves in a position to meet trends and adopt new practices before consumers start demanding them.” This is a change from today, a time when “consumers are moving faster than the retailers,” he added.
As to how retailers can go about making their business dynamic, Tatarinov offered the following best practices:
• Focus on customer-centricity or “clienteling” programs: Research customer information, including birthdays and shopping preferences, in order to be able to cater to desires.
• Provide shoppers a connected retail experience: Whether online, in-store or via mobile device, retailers should present a singular “point of truth” to the customer with seamless execution across all channels.
• Be adaptable: Ensure business processes and systems are able to be modified quickly to meet changing economic and consumer demands.
• Loyalty management: Monitor and manage loyalty programs to encourage the best shopping behaviors from good customers.
• Direct-marketing optimization: Assess marketing program effectiveness, whether online, mobile or in-store, to determine what works and doesn’t work for your company.
• Maximize worker productivity: Provide a connected retail experience between stores and headquarters to ensure associates have timely access to sales, promotional and inventory information to better serve customers.
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