Inside
Secrets of a Happy Workforce
In Command but out of Control
Managing the Retail Return Nightmare
Customers Behaving Badly
Communicating in a Crisis
Why Strategies Fail to be Executed
Go
Global to
Grow
Issue 31 // Autumn 2011
www.som.cranfield.ac.uk/som/mf
Contents
20
“We must continually
review the challenges
but at the same time we
must explore the many
opportunities that arise
from a fast changing
business landscape.”
Go global to grow
Transforming knowledge into action is
at the heart of our mission at Cranfield.
We develop and transform people,
management practice and organisations
and conduct research which makes a
difference in the work managers do.
The ‘Cranfield experience’ immerses
executives and organisations in
exciting programmes of personal and
professional development.
Alongside our graduate, doctoral and open programmes that we deliver at
Cranfield, we work with organisations around the world customising programmes
to help them develop their people and transform their management practices and
organisation strategies.
As the business environment becomes ever more global and complex, we are
committed to supporting individuals and organisations to adapt and thrive in
these unpredictable times that we live in.
04
News
08
Secrets of
a happy
workforce
10
In command
but out of
control
12
Managing the
retail return
nightmare
Like any business we must continually review the challenges but at the same
time we must explore the many opportunities that arise from a fast changing
business landscape.
You can download the magazine at
som.cranfield.ac.uk/som/mf
14
Customers
behaving
badly
18
Communicating
in a crisis
24
Why
strategies
fail to be
executed
26
Alumni interview:
Carl Clump
(MBA 1980)
If you would prefer to receive the next
issue (due out Spring 2012) electronically,
or have any suggestions for future topics,
please contact Media Relations
on +44 (0)1234 754348 or email
sommediarelations@cranfield.ac.uk
There is a need for more sophisticated management and faster rates of
innovation. As a leading management school, it is our role to prepare and equip
our students with the skills and knowledge to make a real impact.
Our Faculty continue to work closely with business and governments to tackle the
vast problems and opportunities facing business today to develop future best practice.
This edition of Management Focus looks at some of the many issues facing
managers today. Dr Bruce Johnstone explores how taking your business global
can open up a world of new opportunities for growth and Dr Noeleen Doherty
reveals the secrets to a happy workforce.
I do hope you enjoy the read.
Design and production
Bulb studios Ltd
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FSC INFO
Editor and publisher
Media Relations
Cranfield School of Management
Cranfield, Bedfordshire, MK43 0AL, UK
e: sommediarelations@cranfield.ac.uk
t: +44 (0) 1234 754348
w: www.som.cranfield.ac.uk
ISSN 1474-1199
No part of this publication may be reproduced or
stored in any form whatsoever without the prior
written consent of Cranfield School of Management.
The views expressed herein are not necessarily the
opinion of Cranfield School of Management. Whilst
every care has been taken in the production of this
magazine, the publisher cannot be held responsible
for the accuracy of the information contained herein.
© 2011 Cranfield University.
All rights reserved.
Professor Frank M Horwitz
Director, Cranfield School of Management
News
SCHOOL NEWS
REPORTS & RESEARCH
Business leaders must become leaders in society
Report predicts major growth in IT outsourcing
IT outsourcing is set for major growth
according to a new report by Professor
Joe Peppard of Cranfield. The report
suggests that there is a pent up demand
in the market place for technology
which will cause organisations to
increasingly look to trusted outsourcing
partners. Professor Peppard commented:
“Computer hardware, software and
telecommunications are building blocks of
the modern ‘smart’ economy, as basic as
Lord Hastings of Scarisbrick CBE
“Now is the time for leaders in business to
become leaders in society, they must lead
the transformation.”
That was the message from acclaimed CSR
expert Lord Hastings of Scarisbrick CBE,
who was the guest speaker at the latest
Cranfield distinguished speaker evening.
DRA removal is a wake-up call for employers
Lord Hastings gave an inspiring lecture to a
packed room of alumni and current students. In
his lecture entitled ‘Getting a head for business;
keeping a heart throbbing for the poor’, he
talked about the need for business to drive
the sustainability and prosperity revolution to
guarantee that justice is done and freedom is
embedded in every corner of the globe.
Lord Hastings is Global Head of
Citizenship & Diversity at KPMG. Prior
to KPMG, he spent 12 years at the BBC
where he became the BBC’s first head of
Corporate Social Responsibility. He is
also a board member of Comic Relief,
Children in Need and the BBC World
Service Trust.
For the second year running, Cranfield
is ranked the top UK business school
for customised executive development.
The School’s customised programmes
are ranked 1st in the UK, 6th in Europe
and 12th in the world. More specifically,
Cranfield’s customised programmes are
ranked 1st in the world for both
4
Management Focus | Autumn 2011
“For the second year
running, Cranfield is ranked
the top UK business school
for customised executive
development.”
international participants and overseas
programmes and 2nd in the world for
partnerships with other international
business schools.
In the open
programmes’ ranking,
the School moved up
to 27th in the world
(from 28th last year) and
now ranks 3rd in the
UK and 11th in Europe.
The School’s open
programmes also ranked 4th in the world
for the level of follow up, reflecting the
high levels of support unique to Cranfield’s
general management programmes.
Dr Emma Parry commented: “The removal
of the DRA is both a wake-up call and an
opportunity for those employers whose
performance management systems may not
be robust enough to cope.
Our research has shown that there are great
benefits to be gained by those employers
who are willing to make the necessary
changes in terms of addressing skill shortages,
retaining the knowledge and experience of
older workers and meeting the needs of the
markets and communities that they serve.
It will allow employers to move to a system in
which decisions about how long an individual
works for an organisation are based purely on
their capability, rather than on their age.”
year that within four years a quarter of
senior bosses should be women. Despite
the jump, only 13.9% of FTSE 100 board
places are held by women. The FTSE 250
figure is only 8.7%, up from 7.8%. The
number of blue-chip companies without a
single woman on their boards has fallen to
14, down from 21 in 2010.
Women are under-represented on FTSE 100 boards
The removal of the Default Retirement Age
(DRA) is an opportunity for UK employers
to consider how to manage their workforce
more effectively according to a leading HR
expert at Cranfield.
First in the World for international delivery
The recent Financial Times ranking of
executive education providers brought good
news for Cranfield School of Management.
iron ore and coal were to the industrial
era and represent about half of all business
spending on equipment. During the
downturn organisations axed headcount
and turned to IT outsourcing. This allowed
them to fill in the gaps without having to
commit to long term fixed costs. As the
global economy recovers, organisations
will need to increase IT outsourcing in
order to be able to respond quickly to
market demands.”
Women on boards
The latest figures from Cranfield’s
International Centre for Women
Leaders have revealed Britain’s biggest
companies have more than doubled the
number of women they are appointing
to boardroom jobs since Lord Davies,
the government’s champion of female
board representation, told businesses this
Management Focus | Autumn 2011
5
News
Pioneering centre to support procurement and supply profession
The School has joined forces with the
Chartered Institute of Purchasing & Supply
(CIPS) to create the Centre for Strategic
Procurement and Supply Management
(CSPSM) at Cranfield. Adding to
Cranfield’s existing portfolio of research
centres, the CSPSM will be committed to
improving the leadership of procurement
and supply management across
industries, delivering quality, research-led
development and providing world class
links between business and academia.
Cranfield on iTunes U
You can now download interviews with
Cranfield faculty on the latest global
management issues from the Cranfield iTunes
U site. iTunes U is a section of the iTunes store
specifically for the education sector. It provides
a home and distribution system for digital
content which can be easily downloaded. It is
an innovative way to get educational content,
research and opinion pieces out to a variety of
audiences including students, alumni and faculty
all over the world.
Cranfield Management Research Institute (CMRI)
Thought leaders in trustworthy business behaviour
Professor David Grayson and Professor
Andrew Kakabadse have been named
in the Top 100 Thought Leaders for
Trustworthy Business Behaviour. The
list of the Top 100 Thought Leaders,
produced by Trust Across America
(TAA) and the Centre for Sustainability
& Excellence (CSE), recognises
individuals from the private sector,
academia and non-profit entities who
are making outstanding contributions
in championing business, social and
environmental change, in a transparent
and justifiable way.
BOOKS
Prof Andrew Kakabadse and Prof David Grayson
MIT Sloan Management Review
Prof Simon Knox, Dr Stan Maklan, Prof Joe Peppard
6
Management Focus | Autumn 2011
Dr Stan Maklan, Professor Simon Knox and
Professor Joe Peppard’s article on ‘Why
CRM (Customer Relationship Marketing)
fails and how to fix it’, has been published in
the leading business journal the MIT Sloan
Management Review (MIT SMR). The MIT
SMR is recognised around the world for
leading the conversation among thinkers,
professors, and managers about the coming
changes in management practice that will
transform how people innovate and lead.
In the article they explore how marketing
investments can be managed for the
greatest return.
Bilderberg People
Professor Andrew Kakabadse’s latest book Bilderberg People explores the hidden mechanisms
of influence at work in the private world, and personal interactions, of the transnational power
elite known as the Bilderberg Group. Andrew gained unprecedented access to thirteen of the
Bilderberg members who agreed to give anonymous interviews. This exciting new book sheds
light for the first time on the critical question of who runs the world, and why they run it the
way they do.
Explaining Cameron’s Coalition
Dr Paul Baines has co-authored a book with Sir Robert Worcester, founder of the MORI
polling and research organisation which provides an insightful analysis of the 2010 General
Election. The book explores why Labour lost, why the Liberals failed to break through
and why the Conservatives did not win. It provides a comprehensive study on how public
opinion changed during the election.
Management Focus | Autumn 2011
7
Secrets of a happy workforce
Secrets
of a
Dr Noeleen Doherty
Senior Research Fellow
Organisation Studies
Happy
Workforce
T
he happiness and wellbeing
of employees is a critical
business issue that impacts
directly on the bottom line. However,
achieving corporate buy-in, winning over
critics and fostering a happy workforce
remain considerable organisational
challenges. Companies have a duty of
care to maintain a happy workforce,
legislated through the Health and Safety
Act of 1974. This requires companies to
ensure, as far as is reasonably possible,
the health and safety, both mental and
physical, of their employees. However,
beyond legislation the benefits of
making employee wellbeing a central
organisational concern and promoting
a happy workforce are huge. Happier
people are more successful generally;
getting more from their jobs and
giving more in return. More contented
employees are more productive, focusing
on average 80% of their available time on
their tasks. Those who are least happy
tend to only be fully engaged two out of
five working days a week.
8
Management Focus | Autumn 2011
There is widespread recognition that
happiness is crucial to both national and
organisational success. In May 2011, the
Organisation for Economic Cooperation
and Development (OECD) launched its
‘Better Life Index’, a measure of happiness
in member countries which goes beyond
the cold hard numbers of GDP. It includes
metrics for community, education,
governance, health, life satisfaction, safety and
work-life balance, with the aim of providing
an overall index of progress to help deliver
better policies for better lives.
“Looking after the
wellbeing of employees is
not a luxury; it is a bottom
line imperative that should
be taken very seriously.”
Following this trend it is no coincidence that
the British Government is committed to
measuring national happiness and seeking
to improve it.
Metrics are being developed by the Office of
National Statistics (ONS) to gauge national
wellbeing, with a focus on quality of life,
environmental and sustainability issues; as well
as the economic performance of the country.
In both a national and organisational context,
surveying employee attitudes and opinions
can be a valuable litmus test of individual and
organisational wellbeing.
In fact, research suggests that happiness
levels have remained virtually the same in
industrialised countries since the Second
World War, even though incomes have
risen considerably. Despite growth in GDP
and economic prosperity, general levels of
happiness have tended to remain pretty
stable. Recent research from New Zealand
has indicated that the work environment,
company culture and workplace morale are
the most important factors for office-goers,
while salary is one of the least significant
of all, highlighting that factors other than
money must be given consideration in
supporting wellbeing.
One key challenge for organisations
is to recognise the importance of the
interconnected nature of employee
and organisational health. This is a
message promoted by bodies such as
the Chartered Institute of Personnel
and Development (CIPD). While most
business leaders know instinctively that a
happy, healthy and engaged workforce is a
productive one, many still approach wellness
like a bolt-on. In reality, there needs to be a
holistic view, supported from the top.
There is no one key factor that brings
happiness at work, but rather a recipe
that includes a number of ingredients.
We have known for quite some time
that within organisations there needs to
be a focus on elements such as climate,
philosophy and ethos. Another aspect
centres on social relationships and how
supportive management is. Managers
need the skills to manage their teams well
and to allow employees autonomy over
their workloads so that job satisfaction
increases alongside productivity. This
relies on trust which depends on
behaviour, not policies. Where employees
feel supported in achieving their career
and work aspirations with appropriate
training, development and support, they
are more likely to feel engaged and
committed to the company and happier.
Many organisations are now recognising
the need to be proactive and take
deliberate steps towards encouraging
wellness at work. The UK Department
for Work and Pensions has published
case studies on companies of all sizes
across industry sectors as models
of good practice. Ensuring good
management practices and developing a
conducive organisational environment
are the foundations for a happy
workforce. Wellness combined with
engagement drives sustained employee
performance. Looking after the wellbeing
of employees is not a luxury; it is a
bottom line imperative that should be
taken very seriously. MF
For further information contact the author at
noeleen.doherty@cranfield.ac.uk
Inevitably there are challenges to fostering
a happy workforce. As Abraham Lincoln
noted: “Most people are as happy as they let
themselves be.” He recognised the individual
propensity to a certain level of happiness.
However, some psychologists argue that
happiness is not hardwired. The inclination
towards happiness is only about 25%
determined as opposed to 40-60% for most
hereditary traits. Therefore happiness is
malleable. In an organisational context, money
or material wealth are given considerable
‘air-time’. It is interesting to note that recent
research has shown that lottery winners are
happy in the short term but after a while,
their happiness levels revert back to a norm.
to a norm.
Management Focus | Autumn 2011
9
In command but out of control
In
Dr Arnoud Franken
Senior Research Fellow
Strategy and Change
Command
but out of
Control
M
any businesses are created as the
result of an individual’s desire
to make the world a better
place. But in order to remain focused and
competitive, companies have to remain
sensitive to the world around them and
adapt their strategy. For managers and
leaders this means continually motivating
their workforce to move towards a
potentially unknown future with unfamiliar
risks and rewards. This can be tricky. It
involves igniting a passion and drive in
people to seek out new opportunities that
will deliver better results. But how do you
win the hearts and minds of those who
can turn your big ideas into reality, when
they may have different or even competing
viewpoints and time is limited?
In 2008, the Royal Marines of 3 Commando
Brigade found themselves confronted with
exactly this dilemma.
10
Management Focus | Autumn 2011
Three days after they had taken over
command of Task Force Helmand in
Afghanistan, information was coming in that
the Taliban were launching a major assault
on the provincial capital with the objective
of killing the governor and ejecting NATO’s
International Security Assistance Force (ISAF)
from central Helmand. The Royal Marines
had assumed the Taliban lacked the intent so
only light defence of the area was required.
Fortunately the outnumbered Royal Marines,
NATO and Afghan national security forces
in the area were able to cause the Taliban to
retreat, for the time being.
The temporary defeat of the Taliban was no
cause for celebration. Unless this unexpected
threat was addressed quickly, it could re-emerge
and cause havoc. The existing strategy was
unable to prevent this from happening and
was abandoned. A new strategy was needed
but time and resources were limited.
“To remain focused and
competitive, companies have
to remain sensitive to the
world around them and adapt
their strategy.”
Crucially, it required the support and
involvement of more than a dozen stakeholders,
many of whom the Royal Marines had little or
no control over. To complicate matters, not all
of the stakeholders agreed that a new strategy
was necessary and those that did agree had
different reservations about the implications.
The Royal Marines’ traditional planning
approach could not overcome these challenges.
It was well suited for predictable scenarios and
hierarchical structures, but not for reconciling
competing viewpoints into a shared goal and
unifying the efforts of a diverse network of
stakeholders under turbulent conditions.
To solve this problem, the Royal Marines used a
tool that accommodates multiple perspectives
and recognises uncertainty – wargaming.
Normally used for testing plans, the tool was
successfully modified for developing strategy
using a five step approach. The first step is
to engage with the experts who represent all
internal and external stakeholder groups. The
second step is to gain a shared understanding
of the situation by asking each stakeholder to
provide an explanation of the situation faced
from their perspective. It is at this point that
time is spent considering and discussing
events from others’ perspectives and
identifying potential causes and consequences
of events. These hypotheses are tested by
submitting each to the adversarial process of
action-reaction-counter-action, and uncovering
underpinning assumptions.
The third step in the process is to use this
shared situational understanding to find the
‘game changer’ that achieves a common
purpose and then identify a potential strategy
to make it happen. It is then necessary to
‘wargame’ these concepts to understand the
benefits, risks and implications before choosing
the best concept based on feasibility, viability
and desirability. The fourth step is to develop
the chosen strategy into a detailed plan of
action by drawing on the skills and experience
of each stakeholder group and wargaming the
key decision points and uncertainties of the plan
to identify the risks and contingency plans. The
final stage in the process is to communicate the
plan and its purpose to all involved.
Wargaming engages people in a way that
allows them to contribute from the start.
Early engagement means they are five times
more likely to commit to the cause than
when ordered to do a given task. Wargaming
facilitates this in a simple and pragmatic way,
making it a powerful business tool for
effecting change. MF
For further information contact the author at
arnoud.franken@cranfield.ac.uk
Management Focus | Autumn 2011
11
Managing the retail return nightmare
Managing the
Mike Bernon
Senior Lecturer
Supply Chain Management
Retail Return
Nightmare
M
ost retailers consider product
returns to be a costly but natural
consequence of doing business.
Consumers will inevitably return unwanted
or faulty products. However, over the past
few years the levels of retail returns has been
increasing dramatically. Research undertaken
at Cranfield indicates that the value of retail
returns in the UK is currently running at
£6bn annually, while some estimates in the
US put the value at around $100bn. With
costs spiralling, retailers and manufacturers
need to take an integrated and holistic
approach to managing the problem.
The reasons for this dramatic growth
can be explained by a number of factors.
Liberal return policies have often been
associated with high returns and although
some companies have tried to be more
restrictive, for many, it is central to their
value proposition and hard to change.
Marks & Spencer, for example, used to offer
a 90 day return policy, but conceded that
they needed to reduce it.
12
Management Focus | Autumn 2011
They still offer a very generous 35 days.
The most significant factor has been
the increasing number of channels to
market, notably, online sales. Originally,
retailers plied their trade through their
stores. Customers could see the product
before they bought and staff were on
hand to provide product information.
Internet retailing does not allow this and
so customers will often ‘try before they
buy’ by ordering a number of items to be
delivered. Once the right product has been
selected they will return the surplus –
often at no cost to themselves. The result
means that online retailers can expect
return levels as high as 30%.
However, liberal return policies and the
changing channels to market do not tell
the whole story. In fact, much of the
returns problem is the result of poor
planning and decision making in the supply
chain. To understand the problem we need
to look at the revolution that has been
taking place in our supply chains.
Much of what is sold on the high street
today has been outsourced and offshored
to contract manufacturers in low cost
economies. This has extended the lead time
for supply. In addition, product life cycles have
been crashing, while product variety has been
increasing, making markets harder to predict.
Traditional theory will tell you that in order
to provide high service levels in unpredictable
markets, over longer lead-times, you need to
hold a lot of safety stock. The problem with
holding lots of stock with a short shelf life is
the risk of obsolescence. The cost of obsolete
stock not only includes the costs of reverse
logistics, but the loss in asset value.
Therefore the first thing to establish
is the size of the prize and develop a
clear business case for change. It is not
uncommon to find more staff dedicated
to reverse logistics operations than
forward logistics, when you take into
account staff in call centres, customer
service and repair centres.
Once the business case has been
established, the next activity is to audit
your current reverse logistics operations to
identify opportunities for improvement. In
terms of good practice there are three key
areas to manage: returns avoidance; total
operational costs and asset recovery values.
Cranfield, along with Sheffield University,
the Department for Transport, CIMA and
CILT(UK) have developed a diagnostic
tool and process improvement approach
for managing retail returns, which contains
over 200 areas for evaluation. We have also
worked with a variety of manufacturers and
retailers to assist in improving their returns
operations. A good example is Halfords,
a large UK retailer of car maintenance
accessories and leisure products.
Halfords were experiencing a high level of
satellite navigation systems being returned, a
high proportion of which had ‘no fault found’
(a term used to describe items returned by
customers as faulty, but found to have no
problem when tested). Halfords recognised
that the real problem was that customers
were having difficulty installing the product
correctly. As a consequence they instigated
a focussed training programme across their
stores for staff to assist customers with
installing the product in order to reduce
the level of returns. The training costs
were far outweighed by the cost savings in
managing returns and customers were more
satisfied with their shopping experience.
This strategy has now evolved into a value
proposition known as ‘WeFit’ where, for a
small charge, Halfords staff routinely install
parts and equipment for their customers. A
range of measures taken across the Halfords
business has seen their level of returns reduce
significantly, their logistics costs reduce and
their asset recovery levels increase. MF
Reverse Logistics Forum
Cranfield runs a Reverse
Logistics Forum focused on
retail returns and other reverse
logistics operations including
product recalls and end of life
management.
For further information, please contact the
author at m.p.bernon@cranfield.ac.uk
“Product life cycles have
been crashing, while
product variety has been
increasing, making markets
harder to predict.”
Effective management of retail returns calls
for a holistic approach, which extends well
beyond supply chain operations, and normally
requires integration of financial, product
design, marketing, commercial and purchasing
functions. It may also need to look outside the
business at suppliers and customers. In our
experience, very few companies know the full
cost of reverse logistics.
Management Focus | Autumn 2011
13
Customers behaving badly
Dr Tamira King
Lecturer in Marketing
Customers
Behaving
Badly
E
ver been tempted to buy a new
designer outfit for a special
occasion, keep the price tag on
and return it after wearing it? This practice of
buying goods with the intention of returning
them, known as ‘deshopping’ is putting a severe
drain on the profits of retailers and their
supply chain partners. In the 2010 National
Retail Federation Return Fraud Survey, it was
estimated that the retail industry would lose
$14 billion to return fraud, up from $10 billion
in 2009. Two thirds of retailers admitted to
changing their return policy to specifically
address return fraud. Other deshopping
examples include shoppers who return luggage
after their holiday or a dvd after watching it
and expect a full refund.
14
Management Focus | Autumn 2011
This unethical customer behaviour is a
worrying phenomenon and challenges the
age-old notion that ‘the customer is
always right’.
To explore the issue of fraudulent retail
returns in more detail, we conducted
research with two mass market retailers,
150 independent UK retailers and 530
UK shoppers. Retailers confirmed they
were feeling the pinch as a result of
deshopping but still believed that they
needed to maintain generous return and
customer service policies. Our research
showed clear evidence that deshopping is
a massive problem for retailers and that
they felt unprotected against it:
With more people shopping online, the growth
of online returns is set to soar. But, are retailers
ready to manage and detect fraudulent returns
that have been bought online? Clearly some
online returns are to be expected, especially
when retailers use different size charts; and
there is the added difficulty for shoppers
trying to assess for example fit, fabric and
quality online. A strategic and co-ordinated
approach from retailers, manufacturers and
suppliers is needed to manage the threat of
online fraudulent returns. One advantage
that online retailers have over retail shops is
the technology to track and manage
returns closely.
“We’ll get dresses coming back after New Years Eve,
which customers have spent a lot of money on but
are obviously not going to wear again. You have to
tread carefully, because it is their word against yours,
if they say they haven’t worn it.” (Store Manager)
The research also revealed inconsistencies in
how deshopping behaviour is being managed.
Alarmingly when talking to a group of managers
within one of the retail organisations, each
one had a different understanding of how their
company managed fraudulent returns and what
their customer service policy allowed them to
do. One independent retailer owner-manager
said: “There is a misconception in the public’s mind
that they have a right to return anything for any
reason and get a refund.”
Management Focus | Autumn 2011
15
Customers behaving badly
In the battle against deshopping, retailers
are phasing out longstanding ‘easy refund,
no quibble’ return policies. Instead ‘return
within boundaries’ policies are being
adopted which require purchases to be
returned within specified time frames;
with clear evidence of purchase and of no
wear or use. Many have reduced returns
deadlines while others have added tags to
garments which cannot be removed or
items would no longer be deemed suitable
to return.
“There is a misconception
in the public’s mind that
they have a right to return
anything for any reason and
get a refund.”
Retailers have had to consider the
implications of tightening up their return
policies very carefully to remain competitive
and customer focussed. There is a clear
tension here – businesses must still assume
the majority of their customers are genuine.
A recent survey by the Department for
Business, Innovation and Skills revealed that
consumers on average lose £4,950 each
in their lifetime on faulty goods they have
failed to take back to the shops due to fear
of not getting a fair deal. This demonstrates
that genuine shoppers are suffering and that
work needs to be done to support them.
There is a fine balance for companies to
strike to enable honest consumers to return
products without fear whilst reducing
fraudulent behaviour.
One large warehouse-style membershiponly retailer recently announced they are
removing their ‘return anytime’ policy
but elongating warranties; while another
global department store announced that
they are going back to the never ending
refund. In their view, they have a lower
return rate due to the higher quality
of their goods and believe the policy
16
Management Focus | Autumn 2011
will make customers less nervous about
purchasing in the first place. Although
retailers are keen to create lenient policies
in difficult trading times, policy changes must
be carefully considered.
Whilst virtually every country in the world
is experiencing the most challenging retail
market in decades; many UK press are
reporting the ‘death of the high street’
amid concerns that town centres and small
shopping malls could soon be deserted.
In such tough economic times retailers
have no choice but to strengthen their
operations against shrinkage.
The 2010 Global Retail Theft Barometer
reported that 31% of retailers had seen an
increase in shoplifting. Could this rise be as a
result of the recession? The reality is that most
genuine customers will be more frugal with their
spending habits and may be more likely to justify
‘bending return rules’. Retailers are left with little
option but to take a more strategic view about
how to manage fraudulent behaviour in a way
that does not intimidate loyal customers.
Return policies and processes need to be
clear and comprehensive; and reflective of the
company’s customer service policy and culture.
Unethical shoppers are more likely to succeed
undetected if staff are not trained to handle
returns in a consistent way. As well as training staff,
customers need to be educated on the returns
process including any restrictions to ensure they
are treated fairly.
suppliers who are also impacted by
returns. Investing in technology can
help to track and monitor consumer
behaviour and identify serial deshoppers.
It also enables retailers to get closer to
their customers and build relationships,
whilst communicating clearly and
consistently to ensure genuine customers
get good care.
they must commit to tackling the problem.
Shaving just a small amount of shrinkage
could make a substantial improvement to
their bottom line. The long-term outcome
of this Cranfield research is to collaborate
with retailers to help them reduce
deshopping and enhance their consumer
culture, thereby improving the economic
health of retailing. MF
Retailers will also benefit from sharing
intelligence about consumer behaviour
and best practice with manufacturers and
What remains is a dilemma about how to
manage customers who are behaving badly.
As retailers look to an uncertain future,
To find out more about this ongoing
research please contact the author at
tamira.king@cranfield.ac.uk
Management Focus | Autumn 2011
17
Communicating in a crisis
Stephen Carver
Lecturer
Project Management
Communicating
in a
T
he Toyota and BP debacles
have once again shown us the
consequences of organisations failing
to manage a crisis effectively. The tragedy is
that it was all so avoidable. In cash terms these
crises can be counted in billions of dollars but
unfortunately the consequences will ripple on
for many years – a high price to pay for failing
to manage relatively simple crisis scenarios.
It is amazing how much time and money is
spent on developing and discussing strategy
compared to developing the skills needed to
implement it or manage it if things go horribly
wrong. The rules of crisis management are
really quite simple.
Crisis
It is vital to work out how your organisation
would react if the worst were to happen
and plan and train accordingly. Whilst risk
registers and contingency plans are a good
start, they can fool you into thinking that
you have all bases covered. Planning and
training must encourage creative flexible open
behaviours. It is important to remember that
it is usually the crisis that you never thought of
that kills you.
Preselect, train and empower a crisis
team - when crisis strikes, things develop
at a devastating pace and companies need to
react fast regardless of time zones, corporate
procedures or internal politics. Individual
leaders and teams should be preselected,
Prepare for the unexpected - it may
trained and empowered to react instantly and
be an unpleasant thought but if you run an
calmly to the situation. The consensus culture
airline, the chances are that one of your
planes might crash one day. If you make food, at Toyota condemned them to losing the
initiative and being butchered by the media
you might experience a health scare. If you
run a car company, you might have to manage over their recall crisis. Unless you are ahead
or on the curve you will always be playing
a recall. If you run an oil company, you might
catch up and the crisis will spread systemically.
have to manage a spill.
18
Management Focus | Autumn 2011
Put yourself in the customer’s
shoes - Toyota customers were happy
to pay premium prices for two key things
- reliability and safety. When Toyota finally
reacted, their crisis spokesmen tried to
explain everything in engineering terms. What
they should have done is consider what their
customers may have been thinking (which is
likely to have been whether their car was safe
to drive). You have to build trust with your
customers before their goodwill turns to
anger, resentment and even personal hatred
(as with BP).
If you don’t yet know, then say so and do
not hide information that customers need
to know. Lastly, get control of the situation
by stating what you are going to do to
remedy the situation.
Communicate, communicate
communicate - at times of crisis,
organisations often feel that they are
being attacked by a hostile press and the
temptation is to close the doors, call a
meeting and ignore the ringing phones.
While it is important to establish your
message, it is vital that you are seen to be
openly communicating as soon as possible
– speculation fills a vacuum. Communicate
to your customers via the media but
don’t forget the other key stakeholders
including your own employees, suppliers
and partners.
Know your message and stick to
it - most TV soundbites are about 30
seconds which means you need to sum up
your message in this time, which in reality is
only about 90 words. Don’t forget to take
advantage of the other media routes open to
you including radio, internet and social media
sites such as Facebook,YouTube and Twitter.
Take control - crisis can hurt but it can
also be an opportunity to show what a fine
organisation you are. Case studies such as
Johnson & Johnson Tylenol and BMI Kegworth
show that if you are prepared and react well to
a crisis, there can even be long term benefits
in terms of customer loyalty and media
perception. Seize the opportunity!
When one looks at ‘classic’ crisis cases such as
Exxon Valdez, Perrier Water and Shell Brent Spar,
it never ceases to amaze that such globally
powerful organisations can get things so
terribly wrong.
Managing a crisis is never easy but if
Toyota and BP had followed the simple
steps above, they may well have now
been looking at a rosier future instead
of the ridicule that they will now have
to endure.
As one major insurance company was
delighted to say after they had successfully
managed a major disaster “we don’t make a
drama out of a crisis”. In the case of Toyota
and BP it is sadly “we created a catastrophe
out of a crisis”. MF
For further information contact the author at
stephen.carver@cranfield.ac.uk
“Unless you are ahead
or on the curve you will
always be playing catch up
and the crisis will spread
systemically.”
Regret, reason, remedy - first you
have to show that you are human by showing
empathy for those people affected and
express regret for what has happened. Many
people fear legal consequences and are often
told “never say you are sorry”; but showing
that you understand the feelings of your
customers is not the same as admitting liability.
Secondly, try to explain in straightforward
terms what has happened and the reason.
Management Focus | Autumn 2011
19
Go global to grow
Go
Dr Bruce Johnstone
Lecturer
Entrepreneurship
Global to
Grow
A
re you focussing on expanding
internationally? If not, you may
be missing the best opportunity
for growth in the current economic climate.
British firms doing well at the moment tend
to be those that are doing business globally.
There are a number of very good reasons
to focus on expanding abroad. The
domestic market is stagnant, with little
or no economic growth on the horizon.
British consumers, many on frozen public
sector salaries, are increasingly cashstrapped as they pay higher food, transport
and energy bills. The UK economy may be
in for a long period of low growth.
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Management Focus | Autumn 2011
Management Focus | Autumn 2011
21
Go global to grow
Contrast this with the developing world
where economic growth has continued
unhindered and demand for consumer
goods and services has been boosted
further by a fast-emerging middle class.
The BRICs (Brazil, Russia, India and China)
are leading the charge.
In 2007, Goldman Sachs predicted that by
2030 China will have displaced the USA as
the world’s largest economy (see figure 1).
By 2050 India will be in third place, just
behind the USA, followed by Brazil, Mexico,
Russia and Indonesia.
By the middle of this century, these emerging
economies will overtake Japan, the UK
and Germany. Other economies that are
expected to grow rapidly are Nigeria, Egypt,
Turkey, Iran, Pakistan, Bangladesh,Vietnam,
the Philippines and Korea. Economic growth
on this scale will boost sales for firms
successfully doing business in those markets.
SMEs are going global
It is becoming easier for Small and Medium
Sized Enterprises (SMEs) to expand globally.
Many are now being born global - established
as small businesses that sell directly to
people anywhere in the world. Many
existing SMEs around the world are planning
to become more globalised.
According to the HSBC Global Small
Business Confidence Monitor (a survey
of over 6000 small businesses in 21
countries) 29% of the world’s SMEs trade
internationally, and 40% say they intend to be
trading internationally by 2013.
British entrepreneurs have some catching
up to do. In the same survey, only 20% of
Britain’s SMEs were found to be trading
internationally. However, there are signs
that this is changing. HSBC reports healthy
increases in export lending to UK firms,
which are rapidly growing their exports
to emerging economies in Asia, the Middle
East and Africa.
The big growth opportunity for many
UK firms lies in finding an entry into the
emerging economies and providing their
consumers with the more sophisticated
goods and services that they increasingly
demand. International expansion is an
attractive growth strategy because it
allows companies to grow their business
rapidly while continuing to concentrate on
what they do best, instead of trying to do
something they know very little about. It
often makes more sense to expand globally
than to diversify in a local market and risk a
loss of focus.
Business owners face a series of strategic
choices as they consider global expansion.
They must decide which markets to enter,
and what mode of entry to employ in
each of them. Will they deal directly with
end-users of their products and services or
will they involve agents, distributors, partners
or other intermediaries in foreign markets?
Go online
SMEs can use international distribution
and fulfilment services to directly supply
end-users of their products, almost
anywhere in the world. International
customers can buy their offerings online or
through an intermediary such as eBay or a
television shopping network. A global SME
might source goods from China using online
services such as Alibaba.com, then sell them
through its own website and then have the
fulfilment managed by Amazon. The owners of
successful automated global SMEs are making
money while they sleep.
The key to making this sort of business model
sustainable is to add something special along the
way that customers will value, such as design
flair or technical expertise. An example of this
is a small jewellery designer in Derby that buys
beads from China, and assembles them into
attractive and unique jewellery to sell online.
Make and export
Any business that enjoys a product or service
niche in its home market should investigate
ways to exploit that niche globally. It could
provide the opportunity to boost production
and make much more profit from existing
investment in factories, equipment and
knowledge. For example, thirty moulding
machines at Numatic International in Somerset
work 24/7 to supply British-made vacuum
cleaners to a global market.
While exporting locally manufactured
goods creates employment in Britain and
brings a better return on investments,
the challenges of exporting British made
goods include high transport costs, trade
barriers and dealing with local agents.
Set up a subsidiary
Establishing a wholly-owned subsidiary
in a foreign market enables a business
to get close to its offshore markets, cut
transport costs and engage in global
strategic coordination. By retaining full
control, technology and knowledge can
be protected. The disadvantage of this
approach is that it usually represents
a large and risky investment in a
foreign market.
The possible downside of shifting production
offshore is the loss of ability to exploit
economies of location and experience.
Turn-key projects
Firms with innovative technology are in
demand in developing markets and should
consider exporting their know-how in the
form of a turn-key project. Such projects can
enable opportunities to enter markets where
foreign direct investment is restricted. The
downside of this approach is that there may
be no long-term presence in that market,
and the firm may have created an efficient
international competitor.
Find a partner
Licensing and franchising enables firms to
expand globally without the development
costs. A joint venture provides an
opportunity to share development costs
and risks with a local partner. It can help
overcome political and economic barriers
to market entry and in markets such
as China is often the only option for a
foreign firm.
Go global to grow
Of course, deciding on a sound strategy
for entering international markets is only
the start. Global entrepreneurs still have
to wrestle with international finance,
accounting, HR and marketing. They must
contend with the more complex cultural,
political and economic issues that will affect
their global business. It may not always be
an easy road, but export-led growth could
provide the road to recovery for the UK
economy, and may be the path to future
growth for your business. MF
The disadvantages of partnership
approaches can include a loss of control
over quality and the ability to coordinate
manufacturing globally.
Dr Bruce Johnstone, Lecturer in Entrepreneurship,
works with fast growing businesses on the Business
Growth Programme (BGP). For further information
contact bruce.johnstone@cranfield.ac.uk.
Figure 1 - The ten largest economies in the world in 2050, measured in GDP nominal (millions of USD).
2050
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
China
United
States
India
2040
Brazil
2030
Mexico
2020
Russia
2010
Indonesia
Japan
United Germany
Kingdom
Source: Goldman Sachs Economic Research 2007
22
Management Focus | Autumn 2011
Management Focus | Autumn 2011
23
Why strategies fail to be executed
Dr Pietro Micheli
Why
Senior Lecturer
Business Performance
Strategies Fail
to be
Executed
S
everal studies claim that strategies
‘fail’ at a rate of 70 to 90%, but
why is this? There are two main
reasons. Firstly, they are wrongly formulated
due to a lack of realism and reliance on rosy
predictions and best-case scenarios. Secondly,
strategies can fail due to poor execution,
which is not a fault of the strategy itself, but a
weakness in how it has been put into practice.
Execution in theory…
Management theory and practice often
separates strategy formulation (the plan)
from strategy execution (putting the plan
into action). One reason for this is that we
like to think of strategy as a conceptual task
that can be ‘accomplished’ quite rationally
and put into practice fairly easily. However,
strategy development and execution is far from
straightforward, which is why Performance
Measurement Systems (PMS) such as the
Balanced Scorecard have become fundamental
tools for many businesses as a means to
execute strategy, while also making a substantial
contribution to the achievement of an
organisation’s goals.
A PMS is a set of interrelated objectives, targets
and indicators, with a supporting information
infrastructure that enables data to be collected,
analysed and communicated.
24
Management Focus | Autumn 2011
By developing a corporate PMS, which is
cascaded through the organisation at all
levels, you can efficiently and unambiguously
implement the organisation’s strategy. The
main ingredients for success are a strong
drive from the top, a consistent cascading
process, and a good infrastructure.
However, is it really this simple in practice?
… and in practice
Research carried out by Cranfield’s Centre
for Business Performance shows that a PMS
can help execute strategy, drive positive
behaviours, and support decision-making
processes. At the same time, PMSs have
been found to create perverse behaviours,
and have no impact on strategic decisions.
The reasons for these conflicting findings are
many and, importantly, have little to do with
technical aspects. Three of the most critical
factors for success are summarised below.
1. Get buy-in from top management
The use of performance information may
be scarce because the PMS sits at too
low a level within the organisation. Often
senior managers do not consider the PMS
as something that relates to them and view
the task of handling data and performance
indicators as something appropriate for
someone below them to deal with.
“Separating strategy
formulation with execution
does not work and can
be harmful.”
2. Clarify purpose of PMS
There is always the danger that the
more we use targets and indicators to
control and monitor performance, the
more likely it will be that individuals
manipulate processes to meet them.
Such negative consequences could
be reduced if the PMS is also used to
promote learning and improvement.
3. Link PMS to strategic
objectives
The role of PMS in strategy execution
and reformulation can be greatly
enhanced by linking targets and
indicators to the main strategic
objectives (as opposed to purely
operational ones) and by considering
them during strategic reviews. This
point is particularly relevant when
organisations go through periods
of great change or transformations.
In these situations, if the PMS is not
connected to strategy, the organisation
will progressively experience ‘strategic
dissonance’: top management will
set a new long-term direction, but
employees will keep being measured
and rewarded according to the old
criteria, thus going through the same
established routines.
Formulation and execution...
Strategy execution is a mix
of what is conceived by the
top management team (a
‘deliberate strategy’) and a series of
day-to-day events and decisions made in a
changing and often turbulent environment
(an ‘emergent strategy’). Separating
strategy formulation with execution does
not work and can be harmful. A PMS can
help execute and reformulate strategy
and promote alignment in behaviour,
but only when conditions are right in
an organisation. Ownership and buy-in
need to be ensured, particularly at top
and middle management levels. Without
leadership or management support, any
performance measurement related effort
will be in vain, as it will be perceived as
irrelevant or bureaucratic.
Sufficient competences and skills must be
developed at all levels of an organisation:
good analysts that can provide robust
and relevant data and managers that can
translate it into information and use it.
The roles of performance indicators and
the PMS as a whole need to be defined
from the outset. If employees perceive
the PMS as a control tool, they will either
oppose or play the system (or both).
Both strategic and operational levels
need to be considered along with
financial and non-financial indicators to
provide a comprehensive view of what
and how the organisation will achieve
its key objectives. MF
For further information contact the author at
p.micheli@cranfield.ac.uk
Management Focus | Autumn 2011
25
Alumni interview
Alumni interview:
Carl Clump (MBA 1980)
by Stephen Hoare
Carl Clump, Group Chairman of the payment card fraud prevention
company Retail Decisions (ReD), talks about how they have taken on
the cyber criminals to make online shopping safer for us all.
Leading the
Fight against
Cyber
Crime
26
Management Focus | Autumn 2011
T
he millions of customer account
details stolen each year by
hackers is any company’s worst
nightmare, and highlights the challenges
posed to e-commerce, and the vital
role played by a publicity shy industry –
payment card fraud prevention.
Retail Decisions (ReD), Britain’s biggest
privately owned fraud prevention business
has, like the fraud it combats, global reach
with offices in the UK, USA, Australia,
South Africa and China and a business
spanning six continents.
Carl was appointed Group Chairman
of Retail Decisions in August 2011
after being CEO since 1998. In 2000 he
managed ReD’s de-merger from the ailing
conglomerate Card Clear. Eight years
later, to avoid a hostile takeover he took
the business private, negotiating a £186
million management buy-out supported
by private equity fund Palamon. Since
the company was formed, Carl has seen
the firm’s fortunes rise with turnover
building at 18% year-on-year and
operating profit showing a healthy 39%
growth, year-on-year.
Management Focus | Autumn 2011
27
Alumni interview
“I think the secret of
good management is to
be humble, to genuinely
listen and believe in your
colleagues.”
Carl attributes ReD’s success to a focus
on the core business of fraud prevention
and payment processing and a team
of highly motivated and dedicated
colleagues, who are well respected in the
world of payments. The results speak
for themselves. “Last year we screened
transactions from over 170 countries
around the world, securing over 19
billion transactions – some 10% of all
the card payments in the world,” says
Carl. “We’ve focused on organic growth,
finding new services that are coherent
and we’ve taken those services to new
geographies.” ReD’s expansion into
Australia was regarded as a springboard
into Asia and Carl eyes the China market
where e-commerce and credit cards are
still in their infancy, as a powerful future
driver of the business.
Last year in the United States, credit
card fraud cost banks and retailers
$48 billion. Worldwide, the figure is
many times greater. A highly organised
and sophisticated crime that crosses
international borders, card fraud is on
the rise as advancing technology presents
new opportunities for cyber criminals.
28
Management Focus | Autumn 2011
Theft, card cloning and internet “phishing”
sites means ReD has to be constantly
developing technology to keep pace. “It is
impossible to be ahead of the fraudsters,
but we’re never more than half a step
behind them,” says Carl.
One of the company’s most successful
products is ReD Shield®, a real-time risk
assessment programme which compares
card details with a global database of lost,
stolen or cloned cards and searches for
patterns of card use which stand out
as suspicious.
The resulting decision to accept or reject
a customer’s credit card is flashed to
the online retailer in less than a second.
“Transactions come to us and we give a
response in 400 milliseconds,” says Carl
who explains that ReD’s risk assessment is
all about profiling transactions, not people.
Initially headhunted to sort out the issues
left by a departed management team by
Card Clear’s AIM listed advisor Credit
Lyonnais, Carl found a dysfunctional
business, a diverse and incoherent product
range, and worse.
“Within two months of joining Card Clear,
the only customer for our fraud prevention
business, the payments clearing operation
APACS, came to me and told me that the
development of Chip and PIN technology
would effectively make their operation
fraud proof. We had two years to find an
alternative income stream.”
This was the driver behind Card Clear’s
de-merger in 2000 which saw the business
go from a £60 million turnover operation
employing 350 staff to a much leaner
operation based on e-commerce with 40
staff and a turnover of £7 million. “We
made a conscious decision to switch the
business to card-not-present transactions
which are not protected by Chip and PIN.”
The growth in e-commerce and the need
for constant vigilance on telephone sales
or internet transactions paved the way for
ReD’s spectacular growth as the company
developed the technical solutions that
protect banks and retailers. As a provider
of outsourced technical solutions, ReD
is massively successful by any standard
with a client base that includes Walmart,
John Lewis, Air China, Louis Vuitton, Shell
and T-Mobile to name but a few. “We have
the world’s largest retailer, the UK’s biggest
retailer, the world’s largest airline, the biggest
oil company, the UK’s largest mobile phone
company. The list goes on and on,” says Carl.
The success rate for detecting and preventing
online fraud is surprisingly and consistently
high. “We get it right 99% of the time. That’s
well within the tolerance level of a retailer.”
Carl took the full-time Cranfield MBA in 1980
from an IT background: “I was a classic career
changer wanting to make the move into
general management.” He recalls the work
ethic at Cranfield as laying the foundations
for an energetic management style in which
leaders are encouraged to be entrepreneurs.
He and his fellow executives believe in taking
the temperature of the business by walking
the floor and seeking feedback. “I think
the secret of good management is to be
humble, to genuinely listen and believe in your
colleagues,” says Carl.
ReD enjoys a low staff turnover especially
among the technical experts who develop
the solutions on which his company’s
success depends.
“This is a young company,” says Carl. “Much
younger than me. Our hires tend to be smart,
streetwise and have a passion - individuals who
want to win.” There are no plans to downsize
– in fact, quite the opposite. “The best time
for hiring is in a recession. We do not do
downsizing. We just don’t do it,” adds Carl.
Carl is a firm advocate of MBAs for strategic
roles within the company and has hired many
MBAs to manage the firm’s global offices. He
has eight direct reports across his international
offices. A typical working day might involve
international travel and working across several
time zones.
So does he have any tips for Cranfield MBAs?
Carl points to his favourite management title,
a book called What Colour IsYour Parachute?:
A Practical Manual for Job-Hunters and Career
Changers by Richard M Bolles. “It says the real
opportunities for wealth creation happen in
small companies.”
Asked what he is proud of, Carl says the
success that ReD has achieved in the last
decade, all the great people in ReD, as well as
his family, who give him all the support
he needs.
Management Focus | Autumn 2011
29
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