Dealing with Crises

In the past week, UK retail has seen the collapse, for the second time, of the music retailer HMV and, following a significant corporate fraud, the collapse of the café chain, Patisserie Valerie.

Both of these businesses could be considered as being in crisis for a significant period of time.

In the last blog entry we discussed economists views of risk and the variety of risk attitudes businesses and individuals may have.  Whatever, the risk profile, it is likely that at some time in its lifespan, a business will face a crisis.

Currently the UK is approaching the deadline for Brexit.  If your business is not making contingency plans for the various potential outcomes of the Brexit process, you may be facing a potential crisis.  In fact it is highly likely that the UK will face some form of national crisis, particularly if a withdrawal agreement cannot be reached.  The UK government preparation papers give some idea to the level of crisis the nation may experience.  For example, the Department for the Environment, Food and rural affairs, it is rumoured, is planning a mass slaughter of one-third of the UK’s sheep in the event of a no deal Brexit as a measure to maintain stock prices.

Mintzberg et al. in The Strategy Process: Concepts, Contexts and Cases (Prentice Hall International, 1988) described organisations in crisis as like ‘living in collapsing palaces’.

These palaces are built of tightly interlocking beams and stone blocks.  They are filled with fine and elegant components.  But these palaces are built atop crumbling mountains.

The rigid, cohesive structure of the palaces look completely rational to those existing inside them.  Indeed they look beautiful.  However viewed from the outside, the palace has foundations that are rapidly eroding away.

Such a position is shown by the collapse of HMV.  For decades, HMV was the model of how to sell music.  It easily survived the movement of music sales from vinyl to compact disc.  It easily coped with the shift in physical technology.  It was an elegant palace.  However, it didn’t foresee the arrival of digital downloads and the rise of streaming services.  The movement to digital music files eroded the foundations of HMV’s palace.

The management of HMV continued to shore up their elegant palace despite clear warnings.  it was obvious to those outside that HMV was operating a declining business model.  Some competitors, such as Our Price Music and Tower Records went bankrupt.  HMV’s main competitor, Richard Branson’s Virgin Megastore was sold off as Branson divested much of his music empire shifting his business into areas such as airlines and train services.

Often the more elegant the palace, the less able it is to cope with a crisis.  Its rigid components mesh together so tightly that it cannot react appropriately. The organisation’s perceptions, goals, capabilities and methods of working are beams and blocks tightly aligned and preventing flexibility.  The elegant palace is rigid, solid, stuck and unable to flex.  Such movement is necessary to cope with the shifting foundations.

However in many crisis, despite flexibility, the foundations fail and the organisation begins to crack:

  • Top managers are viewed as making faulty predictions
  • Doubts arise as to the ability of managers to make crisis decisions
  • Managers as a result are seen as incompetent liars
  • Idealism and commitment to goals fade
  • Cynicism and opportunism thrives
  • Cuts and reorganisation lead to power games and empire-building.  Cooperation is undermined
  • The processes of disintegration feedback on themselves and are reinforced.

An organisation’s ability to achieve often depends on the expectations of its stakeholders.  If stakeholders expect failure, failures become more likely and other expectations of failure multiply.  The organisation enters a downward spiral of failed expectations

Achievement often relies on ability and effort.  If people expect failure, they leave, and they take their ability, expertise and effort with them.  As a result the level of ability in the organisation falls.  This is particularly the case if potential candidates outside the organisation see it as failing and therefore do not consider joining it.

As a result, job performance falls as staff take on unfamiliar roles.  Staff begin to receive proportionally less reward for their efforts.  Job satisfaction slides.

Conflicts and power struggles develop between managers and teams. Some in the organisation become cynical opportunists.  They make unreasonable demands which elicit exhortations from senior management.  This may result in these manages, in turn being seen as opportunistic cynics.

Such conflicts could be seen across UK industry in the 1970s as nationalised industries suffered crises and unions made increasingly exaggerated claims for pay rises.  It got to the stage where the most minor of disputes ended with all out strikes which hobbled productivity.

Such power struggles often ended with the centralisation of power and responsibility.  In the nationalised industries this meant the appointment of figurehead senior managers who micro-managed.  Senior managers often grabbed powers even though they had little knowledge of how to use them.

In such positions, for an organisation to move forward, it must allow the disintegration to take place.  Take HMV as an example.  When the firm first collapsed, there was an opportunity for its new owners to change its business model; to move into downloads, internet sales and music streaming.  However, the new owners retained the old business model whilst taking significant levels of cash out of the organisation.

In retaining the old business systems the ‘rescuers’ of HMV failed to learn the lessons of the original administration process and it once again failed.

So how do you avoid crises:

  1.  Avoid excesses:  Excessively sticking to processes and prescriptions for management.  This is the ‘computer says no’ response.  It often leads to contingency plans being ignored and issues being oversimplified.  Crises caused by environmental change can be exacerbated.  Such excesses can result in complacency i.e. plans become annual events not continually evolving processes and documents.  To avoid such excesses, employ critical friends, carry out both marketing and market research, benchmark, allow dissenters to speak out, don’t become an organisation of ‘Yes Men’.  Plan to employ strategic strengths and eliminate strategic weaknesses through developing SWOT strategies. Have a Plan A, and a Plan B, and a Plan C,…….
  2. Consider Replacing Top Managers:  Often this is a move needed to end or avoid a crisis.  However competent the existing top management, they can build up an existing ‘group think’.  replacing them gets rid of personal enmities and old assumptions.
  3. Reject Implicit Assumptions:  which underlie existing managerial perceptions and behaviours.
  4. Experiment with Portfolios:  Invest in new products, enter new markets, develop new technologies, develop new operational models and employ new people.  Look at Ansoff’s methods of business growth, market expansion, new product development, brand extension and diversification.
  5. Managing Ideology:  Top management are often seen as the villains of a crisis.  They can exacerbate a crisis by delaying action.  They can steer their organisations into crises.  See Fred Goodwin at RBS or the board of Carillion.  However, if they successfully drive the organisation through the crisis, they can become the organisation’s heroes, for example, Steve Jobs at Apple.  By managing organisational ideology, managers can define their status. Crisis are times of danger but they are also times of opportunity.  Shaping ideology can nurture enthusiasm amongst stakeholders.  Let the language and actions of senior managers mould the organisational ideology.  Let managers become the heroes of surviving the crisis.


Revitalising a brand

The other day whilst watching television, I spotted something I had not seen since I was a very young; an advertisement for Lyon’s Golden Syrup.

Lyon’s Golden Syrup is one of the United Kingdom’s oldest brands.  It has been on shop shelves almost from the beginning of modern retail dating back to the beginning of the 19th century.  It is a staple store cupboard product for both home and professional bakers.

In recent years, Lyon’s have not advertised their products on television.  They have relied upon prominent shelf position in supermarkets and advertising in specialist magazines.  As a very mature product line, the strategic marketing objective may be to hold onto the current market position of the product.  The strategic focus is to protect market share with the objective of encouraging brand loyalty.  promotion of the product should be to encourage repeat purchase and to maintain existing brand awareness.  This should be achieved for the lowest possible price.

So what has prompted the new television advertisements for Golden Syrup?

I have no firm facts regarding the new promotional strategy at Lyons but I can think of one possible reason.  In recent years, there has been a growth in the number of people baking at home.  This has been driven by television programmes such as The great British Bake Off.  Fans of that programme tend to be younger and more trendy than the traditional image of the home baker.

I suspect that, as a result of the show’s success, Lyons have seen an increase in sales of their baking products, in particular Golden Syrup and Treacle.

In recent weeks however, there has been a crisis at the heart of Bake Off.  The format has been purchased by Channel Four (for a huge amount of money).  The show has also lost three of its four regular hosts, the presenters Mel and Sue; and the judge Mary Berry.  it is a fact that Channel Four has much lower viewing figures than BBC1.

Given events, and the possibility that the chaos caused by the show’s station move, Lyons may believe the fad for home baking may be coming to an end.  The new television advertising campaign is a clear attempt to remind Lyon’s new trendier customer base that their products still exist and that baking is still fun.

In his book, The New Strategic Brand Management, J N Kapferer lists factors which are indicators that a brand’s equity is in decline.  These include:

  • A degradation of product quality – Pressure from lower cost competition forces a reduction in the quality of components.  There is an incentive to produce products at an equivalent cost to those competitors.  An example is Marks and Spencer’s who were known for high quality clothing at a reasonable price.  New firms such as Primark entered the UK market.  Their clothes were of a lower quality to those of M & S but at a far lower price.  Primark were happy with a high level of disposability in their products.  As a result, M & S cut prices and switched suppliers.  Consumers used to the high quality of M & S clothing were disappointed with the lower levels of quality in their products and sales fell.
  • Missing new trends – A tired brand may miss the changing expectations of their customers.  An example is the golf club manufacturer Taylor Made.  In the late 1980’s Taylor Made was America’s leading supplier of golf clubs.  However, they missed the trend of larger club head sizes, particularly for drivers.  Calloway introduced the Big Bertha driver and swept the market.  Taylor Made and other club manufacturers had to play catch up.
  • Mono-product syndrome – Brands may become associated with a single product – as is the case with Lyon’s and their Golden Syrup.  One such example is Wonderbra.  The Wonderbra was launched in Europe by Playtex in 1994.  Sales peaked in 1995 but since then they have collapsed dramatically.  The term Wonderbra became generic, describing a type of bra rather than a particular brand.  Competitors entered the padded bra market and traded off the generic name.  Playtex based its European marketing team in the UK.  It appeared that market research was based on UK consumers only.  Playtex failed to recognise changing fashions elsewhere in Europe.  European sales figures were increasingly dominated by the UK market.  UK sales became European sales.  The Wonderbra brand stayed strictly in the padded bra market and failed to move into other clothing/lingerie categories.
  • A faltering distribution chain – for example, cosmetics were traditionally sold in chemists and department stores.  This was the well used sales channel preferred by Vichy cosmetics.  Other cosmetics manufacturers developed lines specifically for sale in supermarkets.  Vichy ignored this change and their brand faltered.  Similarly, it was traditional for wines and spirits to be sold in specialist stores; off licences.  In the 1980’s supermarkets started to get liquor licences for off sales.  Several well-respected off licence chains went bust.
  • Increasing below-the-line investments – When a brand is struggling, many firms reduce the level of promotion and communication and turn to the use of in-store promotions to drive sales.  This reduces the brand’s share of voice and it withers.
  • Increased use of sub-brands – This can fragment a brand’s image as its identity can be lost in the multitude of options being offered to consumers.
  • Brand acquisition – Big groups can weaken the brands they purchase.  For example, it was incredibly difficult for L’Oréal to imbue The Body Shop brand with the same independent and authentic image imbued by its creator Anita Roddick.
    • Big conglomerates can impose more bureaucratic decision-making onto smaller brands which reduces creativity and adaptability to rapidly changing market conditions
    • Big conglomerates often lump purchased brands together to reduce overhead costs.  this is what happened when Martell bought the Seagram brand.  Martell moved the brand to its New York head office and placed Seagram in its spirits division.  The Seagram brand stalled.  Only when it was purchased by Pernod -Ricard and returned to its home in Cognac, France, did the Seagram brand begin to recover.  Moving to New York killed the brand’s individuality.
  • Brand dilution – Brands can become generic when the abandon communication on the specific nature of their products, e.g. Hoover, Jacuzzi, Lycra, Nylon.

Managing brands is about managing change.  If, for whatever reason, you stand still, your brand can stall as your market moves away from you.

Jobber and Jobber identified several strategies for reinvigorating brands.  I suspect this is the approach being taken by Lyon’s.  These are:

  • Product facelift – Modify the product but keep the rest of the marketing mix the same.  For example, changing the recipe of a food to imply improved quality.
  • Inconspicuous technological change – again no change to the mix but a change to the technology of the product; or its production; which is not obvious to the consumer
  • Remerchandising – no change to the product but a change to the way it is marketed (the approach taken by Lyon’s in relation to Golden syrup by changing its promotional channel mix)
  • Relaunch – Modify the product (as in product facelift) and remix its marketing
  • Conspicuous technological change – make a significant change to the technology of the product and make it the focus of changes in its marketing (e.g. The Calloway Big Bertha)
  • Intangible repositioning – The basic product remains the same but it is advertised to a new market segment (geographic or demographic)
  • Tangible repositioning – A modified product is marketed to a new market segment (geographic or demographic)
  • Neo-innovation – Fundamental changes to both the product and to the marketing strategy, e.g. Nokia moving from the paper industry into the manufacture of mobile phones.

The marketing of products and brands is a constantly changing and evolving managerial process.  Those brands and products which succeed long-term are willing to adapt to suit changing consumer expectations and market conditions.  Philmus Consulting can help your firm to identify strategies which assist this process.

Marketing strategy: Central to your organisation

The traditional view of marketing is that it deals with the relationships between an organisation and its external stakeholders.  This view, that marketing relates to the promotion of goods and services alone, is long out of date.  Modern theory states that marketing as a strategic function of business is as concerned with the internal culture and processes of an organisation as it is with external commercial relations.

For example, in his book Marketing Strategy: The Difference Between Marketing and Markets, Paul Fifield presents his model of developing a marketing strategy.  He uses the mnemonic SCORPIO:

  • Segmentation
  • Consumers
  • Organisation (processes and culture)
  • Retention Strategies
  • Positioning and Branding
  • Industry or Market thinking
  • Offerings

Note that Fifield places the internal relationships within an organisation, its culture and processes at the heart of developing a successful marketing strategy.

The Oxford English Dictionary defines an organisation as “an organised body of people with a particular purpose e.g. business”.

When developing a marketing strategy, the following internal aspects of an organisation need to be taken into account:

  1.  A clear definition of what makes up the organisation and what people are in it, i.e. does it include sub-contractors, agency staff or franchisees?
  2. Who are the management, what roles do they have and do they address the four basic tenets of management –
    1. Managing change;
    2. Resolving conflict;
    3. Optimising efficiency; and,
    4. Delivering strategy.
  3. Who are the staff, the people who actually deliver the organisation’s benefits to stakeholders and who satisfy customer needs.  Do they understand WHY they do certain activities and what benefits those activities bring to customers?  Is there a common view amongst staff as to the why? Do they properly understand what their role contributes to the organisation? Staff means all staff in the organisation, not just certain groups such as middle managers or a selected clique.
  4. Process – This is the glue which binds an organisation together.  It should unite customers, management and staff.
  5. Change – The lifeblood of organisations.  Those organisations which are best at handling change will always be among the most successful organisations.

It is important to note that People and Process are critical elements of the extended marketing mix.

To develop a successful marketing strategy, an organisation’s internal focus should be directed to satisfy the needs of external stakeholders.  This is a customer focused organisation.  An organisation that becomes obsessed with internal structures will not produce satisfactory results.

To develop a successful strategy, you need to concentrate on what an organisation is really good at and ensure those activities are what your customers want.  Those activities must :

  • Provide client benefits
  • Be difficult for competitors
  • Be leveraged widely to different targeted market segments.

An organisation must invest in those activities which provide difference and core competencies must be central to its operations.  Those core competencies must be a distinct source of differentiation in the marketplace.

An organisation’s culture does not belong to its management; it belongs to everyone within that organisation.  Management cannot control or impose a culture.  They can only influence that culture by defining clear and sensible processes which are fully understood by the membership of the organisation.  It is also difficult for someone who is part of an organisation to see exactly what the culture is. Organisational cultures can be self-protecting and can resist attempts to change their nature. ‘the way we do things round here’ belongs to the attitudes and beliefs of an organisation’s staff, not its management.

So if you are looking to change an organisation and the internal aspects of its marketing strategy, a top down, secretive, dictatorial approach will likely flounder.  Instead you need to involve staff in the process and give them sufficient information so that the understand the reasons why change is being made.  If staff feel they are not being trusted, there can be direct effects on the organisation’s relationships with its external stakeholders.

Management must behave internally as they expect their staff to behave externally and in a manner which is in accordance with the organisation’s offer.  Management of a firm offering a low-cost product or service should not behave as if they are operating a high margin business where money grows on trees.

I remember a local authority where management all signed up for car lease deals which provided prestige vehicles such as BMW’s and Mercedes.  The local authority, like most, was continually being asked to make efficiency savings and some services were being reduced.  Meanwhile, the council office car park increasingly looked like a luxury car showroom.  Even though the management were paying for the cars through their salaries, the impression given was that Council money was being wasted on expensive management perks whilst residents were having their services cut.  Suffice to say, there was significant cognitive dissonance amongst council tax payers and local politicians received many complaints.  This was a clear example of an organisations culture being at odds with its role and ‘market’ position.

Remember, marketing strategy is not just about the exterior gloss on an organisation.  It sits at an organisation’s core and it affects the internal operation of an organisation not just its external communication with stakeholders.