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On the Dangers of Navel Gazing: Lessons Learned from UK Retailer’s Lack of External Market View

Posted by | Fuld & Company

Being too “inward looking”

Steve Rowe, CEO of UK-based retailer Marks & Spencer (M&S), last week acknowledged the secret that most corporate executives try to keep hidden: that his company has become too “inward looking.” In an interview with the BBC, Rowe admitted that part of the retail chain’s troubles are due to its failure to keep pace with external trends, namely consumer behavior and e-commerce.

The retailer suffered a 62% decline in annual profits, attributable in part to one-time restructuring charges related to its plans to shutter 100 of its high street stores throughout the United Kingdom by 2022, according to an article in The Guardian, demonstrating the negative impact of an internally focused culture.

Kudos to Mr. Rowe for acknowledging that part of M&S’s struggles are due to aspects of its own culture, particularly the tendency to ignore external trends.  Rowe’s admission reinforces an observation made by management consulting guru Peter Drucker, who famously observed that “ninety percent of the information used in organizations is internally focused and only ten percent about the outside environment.  This is exactly backwards.”

The question then becomes one of rectification – how does Rowe and his executive team – or any other executive for that matter – create a culture that analytically embraces the external environment? We see it as part of our mission at Fuld & Company to help organizations become less inwardly focused and to include an objective analysis of market dynamics, trends and competition when developing and implementing strategy. Unfortunately, it’s not as simple as looking out the window. In our almost forty years in business, we have seen countless failed or misdirected efforts by all sorts of organizations to confront the external environment. The most successful of our clients have a firm understanding of their position in the market and use knowledge of competitive, technology, regulatory, and other industry forces to create differentiating strategies.

Based on our experience, here are things that Marks & Spencer should avoid as it corrects its inwardly focused nature:

1. Unfocused, misguided industry “monitoring.”

While it sounds good on the surface, simply “monitoring” the external environment will not help an organization become more externally aware. The proliferation of available information makes unfocused, broad monitoring a futile exercise. Organizations that attempt to monitor all types of external stimuli quickly become overwhelmed, paralyzed and incapable of separating irrelevant “noise” from diagnostic “signals” in the information. Such efforts quickly fizzle.

2. Soliciting unspecified internal knowledge about “the market.”

Part of good competitive strategy is good competitive intelligence, and there’s an adage in the competitive intelligence world that as much as 80% of what you want to know about your competition is already inside your company.  Yet, many executives incorrectly assume that just asking employees to share observations about competitors will suddenly provide a rich trove of meaningful competitor insights.  Such directionless requests often result in two outcomes: first, employees disregard the request due to a lack of specificity about what, exactly, management wants, or second, the observations employees do choose to share are irrelevant to the competitive challenges the organization actually faces. The result is either confusion or one-off observations that help little in the way of diagnostic insights.

3. Predicting the future.

Another common salve for a culture that is too inwardly focused is to spend considerable time and effort preparing single-point predictions of the future.  The thinking here is that, if a company conducts an overwhelming amount of research and puts the best minds on divining a certain future from that research, then it can develop a sophisticated strategy perfectly attuned to thrive in that predicted future.  The problem, of course, beyond paying £800/hour consultants, is the one certainty about such predictions: they are wrong.  Predicting the future is impossible, and any strategy that is hard-wired to a single-point prediction of the future puts a company at risk in the lack of contingencies when it becomes clear that the predicted future is not, in fact, going to occur.

Steve Rowe is to be commended for acknowledging that the inward-focused nature of Marks & Spencer has contributed to the retailer’s recent misfortunes. He is also to be commended for taking action, announcing a restructuring plan to carve £340 million out of the firm’s operating costs by 2022, and predicting that as much as one-third of M&S retail business will eventually be online.  But, to truly shed a myopic culture, an organization needs to do much more than restructure its retail operations.  Such work requires changes of behavior and processes that become imbedded in the culture. M&S, and other organizations suffering the same malady, must take a structured and disciplined approach to understand, confront, and incorporate external conditions in their planning processes. Finally, the organization must plan and execute in consideration of both current and emerging environments in order to anticipate avoidable situations that result in reactive, costly solutions, or failure.

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