IREU 500

Flexible perfection and agile excellence

Organisational silos are an often unacknowledged problem within retailers. Ian Jindal considers the tensions of being both highly optimised and highly flexible

Retailers are confronted with two conflicting imperatives when they discuss performance. The first is to achieve operational excellence – the repeatable, scalable, effective and profitable way of running a business. The second is to be agile, responsive and flexible – adapting so as to bend with the hurricanes of change, while setting sails for the breezes of progress.

Unfortunately, it’s difficult to be both highly optimised and highly adaptable at the same time. This is a modern challenge for retailers, generally referred to as a problem of silos. The hypothesis here is that departmental hierarchies and politics inhibit the retailer from adapting at the necessary speed in order to fend off competition from Amazon, competitors, ‘Uberfication’ and so on.

It’s worth pausing, though, to consider the nature of silos. Silos arise largely as a function of specialism and expertise. As professionals in an area optimise their procedures, skills, knowledge and craft to become ever better at a set of tasks within a domain, so they became ‘less like’ other people. In evolutionary terms, they optimise for their tasks and their environment. Hummingbirds hover with long nectar-sucking beaks, while flamingos stand on one leg being pink. Equally, an operations person deals with process flows, mean times to fail and service levels, while a visual merchandiser deals with presentation, brands and on-floor sales effectiveness.

When we ask silos to flex and change, we have to acknowledge the cost of that change. If we believe in testing in order to optimise then we must also believe in – and support – failure. By definition, in an A:B test both results cannot be optimal, and so we need to give our permission for performance to be ‘sub-optimal’ during experimentation. This means we need to give people permission to fail, or to deliver lower returns. We don’t see this discussed very often at the board level – a ‘failure and learning’ budget, or a reduction in efficiency allowed…

A second point here is that perhaps the notion of operational excellence is itself outmoded. If the pace of change is so rapid, then it’s possible that we will not get time to optimise changes before it’s time to iterate and change again. If true, this could herald a time of lower margins as the twin effect of never-achieving optimisation meets the ongoing cost of change. Newer businesses, often funded for years to make losses while they achieve market dominance, have been able to learn without the pressure of quarterly profits. This is not the case in established retail.

Leadership issues

When considering silos within the organisation, it’s therefore important to acknowledge the role of leadership and culture to effect change. We must maintain and exploit the expertise of the staff who lead the silos, yet we also need them to work together, across specialisms. This requires a change in how we talk about and measure performance. In addition to rewarding leaders for running their own areas well, they need to be tasked with how they’ve contributed to and learned from the work of others. KPIs need to be removed from solely silo-focused metrics. We need to give permission for experimentation and resource it appropriately.

There are certain trends that are helping this transition. The free(r) flow of data across the organisation enables a new conversation: how much have you contributed to data collection? How well have you exploited the aggregate data? How well does your team enable the success of others? In addition, a change to focusing upon the customer’s experience – across all touchpoints, over many interactions and channels – is becoming a binding narrative and offers sets of performance measures that help us to look outside of our silos.

Sporting and military analogies abound. In a football team each player has a definite skill (their ‘silo’) but they need to work together effectively for the team to win. Unlike American football (where the 11 field players come from a swappable troupe of 45, including specialist kickers to do one thing only), in retail we expect our ‘bench’ of silo-leaders to be adaptable and flexible too, and not simply one-trick ponies.

A final consideration is the perceived risk of change. In order to run a silo, an individual leader has been top of the game for many years. In asking for flexibility and change, we need to ensure that we don’t undermine the very basis of expertise, but rather seek new ways to deploy those skills, capabilities and experiences.

Organisationally, there’s also a perceived risk. This can be seen in the maxim of the ‘local maxima’ [see diagram]. This analogy is drawn from topology and can be imagined as a mountain range. Upon reaching a minor peak (a local maximum) every step taken thereafter is a ‘step down’, a reduction in height (achievement). If a retailer is narrow or parochial in their views, they will be happy at this small summit. If, however, their field of view extends to the wider range they can see the higher peaks (the ‘global maximum’) and assess the cost of getting there: the reduction in height + the period of travel + the effort of climbing the newly found maximum.

It’s a temptation to think that we can stand still and defend our local maximum. However, if we change the analogy from mountains to the sea, then the ‘peak’ is a crest of a wave that is itself unstable and temporary. As such, our business analogy moves from one of conquering and keeping territory – what we might call a ‘capital’ view – to one of surfing and adapting to waves, surges, peaks and flows.

The business, not the silo

This, then, is the strategic challenge to boards that sits behind the ‘silo’ comments. We need to provide leadership, cultural support, metrics and techniques that enables all our expert leaders to work together within a performance framework focused upon business success rather than silo success. We need to value adaptability in process and approach, especially where working across (current) silos is involved. We need to give permission for some sub-optimal returns, or even let go of the notion of optimisation within a season or year. We need to be tolerant of failures when the reasons and approaches were valid.

We also, of course, need to give our customers the service they demand at the price they will pay. In the last century, capital was a competitive advantage in retail. The ability to buy the best location, the best machinery, invest in stock. Then systems (technology and business processes) became an advantage. The change in recent years is that technologies can be rented cheaply via SaaS and deployed rapidly. Start-ups can have enterprise-grade capabilities from their outset and therefore competitive advantage is now more about customer connection and reach, product and service differentiation, and data. We need our business structures to be effective for the new differentiators, and not the last century’s.

Squaring the circle of modern, flexible performance is not easy, and we’ll continue to map the efforts in the sector to accomplish this feat. We can be certain though that ‘silos’ in abstract are not the problem: our challenge is to create a framework for the collaborative deployment of expertise that’s suited to the fast-paced reality of modern, experiential and customer-focused retail.

This piece first appeared in the IREU Top500 Strategy & Innovation Performance Dimension Report. To explore the report further click here, and to find out more about the series of reports, click here.

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  • InternetRetailing

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