Sainsbury’s share price fell by nearly 25 per cent last week after new chief executive Sir Peter Davis reported falling profits and failed to deliver an upbeat message to investors. Analysts are reported to be aghast at the scale of investment needed in infrastructure – distribution centres, stores, information systems – merely to catch up with rivals such as Tesco, never mind overtake them. As one senior Sainsbury’s executive admitted recently, “Ten to 15 years of neglect and complacency have got us in this way”.
But why the shock? Surely, by this time, the Sainsbury’s board – and Sainsbury’s investors – should have known about these things. After all, Sainsbury’s isn’t new to the doldrums.
What happened at Sainsbury’s is a warning for every business and brand manager. It’s incredibly easy to spot errors of commission – things people do wrong, such as a silly ad campaign that insults staff, or a Value to Shout About initiative that makes the in-store environment look like a Kwik Save from 1980. But it’s something else to spot the errors of omission – the things managers should have been doing, but are failing to do.
Year after year, Sainsbury’s managers failed to invest enough in the guts of the business. When Sainsbury’s was reporting ever better growth and profits, what we were seeing was the results of decisions made by managers years before. The same goes for what we see today. Just as, when we look into the sky at night we see light from stars from perhaps a million years ago so, when we see the performance of a business or brand, we are not really seeing the present at all. We are seeing the effect of decisions from the past, unfolding. We’ll only see today’s decisions (or lack of them) some time in the future.
That is why errors of omission always come as such a shock. They only hit you much later, after the event. It’s only in the past few months, for example, that Marks & Spencer has begun moving to a system that decides what a store will stock based on location and catchment area rather than size. For years, other retailers have struggled to use new, better information systems to match barcodes to postcodes, to align local ranges to local demographics.
But in a glorious sin of omission M&S continued to sail on, acting like the Ministry of Underpants. And it took years for this omission to be noted, and acted upon. (Watch out for another sin of omission at Sainsbury’s: management’s long-term failure to dismantle desperately over-siloed ways of working).
But how are managers supposed to spot sins of omission at the time, rather than when it’s too late? One brave attempt to address this challenge comes from Insead, where professor of marketing Jean-Claude LarrÃ©chÃ© is leading a massive, multi-year project that tracks the competitive fitness of global firms.
Currently, the only way we test for competitiveness fitness is by after-the-event results, like testing an athlete’s fitness by seeing who wins the race, notes LarrÃ©chÃ©. But some basic fitness checks – such as how well the heart and lungs are working – would provide useful leading indicators that could help you pick winners, he suggests. His research is aimed at pinpointing these leading indicators. Using a bank of 150 detailed questions, he is benchmarking leading companies’ achievements in 12 fundamental capabilities such as customer orientation, organisation and systems, innovation, market strategy and market operations against their peers.
Sometimes the results are glaringly obvious. Among the world class companies taking part in the survey, for example, Renault’s big “sin of omission” is its international presence. Daimler Chrysler’s marketing operations are excellent but it is struggling with its mission and vision and its corporate culture – again, an obvious weakness considering the nature of its recent merger.
But relative weaknesses are less obvious. Compared with its superb performance on most things, Nokia lags on technical resources, planning and intelligence, for example. Walt Disney’s human resources and information systems could be improved. Johnson and Johnson’s relative weak point is technical resources.
Exxon’s marketing operations are excellent, but its customer orientation is dire. Hewlett Packard, Fiat, and Philips’ biggest weakness lies in marketing operations, while innovation is the big bug bear for Diageo, Heineken, and Sara Lee. And so on.
Looking over a three-year period, it’s amazing how Unilever’s competitive fitness has improved on most scores, including customer orientation and innovation. But scores for others, such as Heineken, are falling.
LarrÃ©chÃ©’s research also reveals where “the best of the best” are getting ahead. It’s not obvious areas such as product quality and price competitiveness. Everyone’s performance here is pretty good. It’s other things such as managersÃ international experience, rates of new product introductions, and use of customer satisfaction research.
One worrying indicator is that, overall, the area where leading companies are struggling the most is innovation – which also has the highest correlation to financial performance. Also, for most companies, current financial results are racing ahead of their current capabilities. Like Sainsbury’s failure to invest in infrastructure, LarrÃ©chÃ© fears that companies are “squeezing the lemon” to please shareholders today while failing to build the capabilities that will sustain that performance into the future. Significantly, one of the biggest concerns among senior managers is that their company’s objectives are too ambitious.
But the most disturbing finding is that top managers are isolated from the real world. Generally speaking, the more senior they get the more rose-tinted their assessment of their own company’s relative competitive fitness. “By the design of corporations, the people at the top don’t have an objective perspective on the world,” warns LarrÃ©chÃ©. “At least 90 per cent of leaders of corporations lose touch with reality.”
In a famous story, super-detective Sherlock Holmes solved his case by listening for the dog that didn’t bark. In business and brand management that ability to keep listening for the dogs that aren’t barking – to sniff out crucial sins of omission – is a truly elusive skill that lies at the heart of sustained success.