Dixons Group plc is an international group specialising in the retail sale of consumer electronics, photographic products, domestic appliances and related services (profiled in Figure 12.6). It trades through Dixons, Currys and Supasnaps in the UK and Silo in the USA. The Group is also engaged in property development and trading in the UK, Belgium, Germany, France, Luxembourg and Portugal through Dixons Commercial Properties International.
Dixons Group’s value focus involves long-term investment to develop a mature base of operations, centred on customer satisfaction. It believes that striving for customer satisfaction will drive value across the entire business. The Group believes that the success of VSM and its benefits will depend in part on
developing sales staff rewards based on customer satisfaction rather than short- term sales targets. Its considerable progress with its focus on value led in part to a 75 per cent increase in its share price through 1991, a difficult time for retailers as many endured horrific recessionary setbacks.
The consumer electronics and domestic appliance sectors, although generally regarded as long-term growth markets, are cyclical. As a result, business is subject to considerable fluctuations in demand, which tend to be exacerbated by new product introductions and shifts in economic climate.
This had led to a number of problems:
(i) In the mid-1980s, when demand was strong and sales of new products such as VCRs, microwaves and computers were growing rapidly, Dixons made a number of investment decisions based on what turned out in the short term to be unsustainable levels of sales. Because the ‘brown goods’ (TV, audio, video, camcorders) sector is very prone to such investment ‘traps’, making investment decisions on the basis of high short-term profitability can lead to problems in later years as demand declines, particularly when costs are also rising rapidly.
(ii) The integration of Dixons’ and Currys’ logistical support and the realisation of the synergy between the two businesses were delayed because the short- term buoyancy of the market obscured the underlying problems.
(iii) Currys’ competitive position was eroded because of its structure of small stores, and at the same time its cost base was high due to the location of its shops on the high street. The strategic response to the problem, the move to edge-of-town superstores, was slow to implement.
These problems were tackled in 1988 and 1989, but the solutions were poorly communicated to shareholders and analysts, and the results were not imme- diately apparent due to the weakness of the market and the timescale for implementation. Dixons’ market share growth rate began to slow down with a simultaneous cost escalation. As a result, the share price fell sharply, and in December 1989 Kingfisher made a hostile bid for Dixons Group. Although this offer was unsuccessful, it focused Dixons’ management’s attention on its failure to communicate with the investment community and led to a considerably better perception of the nature of the group’s business, its problems and the solutions being implemented.
Figure 12.6 Profile of Dixons Group companies
The group’s 1990s plan for creating shareholder value is a many-faceted strategy for building long-term customer satisfaction. Dixons Group firmly believes that value in its businesses is created when long-term customer loyalty is created. This involves not only an upmarket push for Dixons and the expansion of Currys Superstores, but also the emphasis of new concepts in systems, service, merchandising, product improvement and innovation, and staff development and compensation.
Expansion of Currys superstores
Currys, in shifting away from the high street to edge-of-town superstores, hopes to give customers a far better shopping experience: a large range of ‘white goods’
(washers and dryers, refrigerators, freezers, cookers, small appliances), larger more comfortable stores with a relaxed atmosphere, longer opening hours and convenient parking. This move has led to improved sales, up by 11 per cent like- for-like against a 4 per cent reduction in its high street store sales. The group expects that Currys Superstores will account for 35 per cent of retail space by April 1992, at least equal to Currys’ High Street stores.
Upmarket push for Dixons
Dixons’ attack on margins focuses on upgrading the mix of its merchandise to achieve higher average prices. Between 1988 and 1990 Dixons saw a 24 per cent price increase in real terms as average prices were decreasing. This meant that the volume of goods handled dropped sharply while turnover remained constant. This had a significant effect on its cost base. Retailers of white and brown goods traditionally sustain high overheads to deal with large volumes of sales (warehousing, delivery, administration, after sales service). Smaller investment in inventories has not only reduced investment in working capital, but Dixons finds itself discounting less because of obsolete and warehouse- worn merchandise.
Modernised information systems
The group is currently making considerable investment (£10m) in a sophisticated branch PC network designed to provide branches with up-to-date stock availability information as well as store profitability. It provides instant information about previously evasive issues such as discount origin, customer service history, and inventory and service parts availability. The system will eventually allow instant access to credit and repair organisations, and detailed product specification data which will give sales personnel more authority in dealing with customer enquiries.
Improved merchandising
In addition to improved merchandising of white goods in Currys’ Superstores and upgraded Dixons merchandising of brown goods the group has opened new specialist departments on a trial basis, particularly at Dixons stores. More space and a wider range of computer game hardware and software is catering to the growth of the computer game market. Other specialist departments group together low-price merchandise like films and video tapes as well as general brown goods accessories on a self-service basis.
To improve its already impressive 33 per cent of the UK camcorder market 300 Currys High Street stores installed camcorder centres through the summer of 1991, with very encouraging results. In addition, Currys High Street stores have begun a trial (10 stores by end 1991) to reduce the space given to big white goods.
Instead it sells them through an in-store catalogue centre, and focuses much more in store on small appliances. It is hoped that this move will improve its presence and market share in small appliances, while the large Currys Superstores in cheaper, cost efficient locations handle a larger than ever market share of the larger white goods.
Product improvement and innovation
Historically electronic goods have been made with two points in mind: ease of manufacture and number of features. ‘User friendliness’ has until recently not been a priority. Consumer complaints range from complex and contradictory instruction booklets to £2000 systems that are packaged without plugs. Figure 12.7 outlines some significant Dixons initiatives guaranteed to pleasure any
Figure 12.7 Dixons initiatives to simplify consumer installation and engineer repair of electrical goods
customer who has to install his or her own TV, stereo or VCR. In addition, with the average cost of servicing a VCR at approximately £30, eliminating an estimated 30 per cent of unnecessary service callouts will mean significant financial benefits for Dixons as well as improving customer satisfaction.
The product innovation cycle has been quiet since 1983, the peak of the VCR boom. The expected launch in 1992 of CDI (interactive compact disk) as well as the DCC (digital compact cassette), a 16 ⫻9 picture format colour TV and high definition TV are all expected to boost the innovation cycle. And although the innovation in products is not expected to be really buoyant until 1994–1995, Dixons is projecting that its market share will continue to move upwards.
Staff development and compensation programmes to build shareholder value
In 1990–1991 average branch staff numbers fell by 5 per cent in Dixons and 14 per cent in Currys (which translated through to 12–14 per cent increases in sales per employee). Distribution employees were also significantly reduced (16 per cent), and branch pay increases were modest. How then does Dixons Group account for the results of a 1991 employee survey that showed a sharp drop in staff turnover and that employee perceptions of the company (and motivation to create value through retaining customer loyalty) have never been higher?
Clear career structure, trust of managers and a sharp drop in the level of customer complaints (40 per cent drop in the 18 months to September 1991) are credited for this remarkable improvement in perception. The group’s plans for developing and keeping ‘value’ orientated staff, as outlined in Figure 12.8, are all based on its belief that staff give better care to customers when they have been with the company for some time, when they are better trained and when they are compensated for long-term sales, not just immediate sales which may not create customer loyalty.
Figure 12.8 Dixons Group’s plan for developing and keeping ‘value’- orientated staff
Substantial improvements to customer service
Dixons/Currys central service organisation, Mastercare, has improved out of all recognition. Its ‘same day service’ really works, and engineers even call the customer directly before a visit to check on the time of appointment. With its desire to consistently deliver the best service possible, Dixons/Currys is installing in-store repair centres for quicker turn-round times for customers. The concept, which is being introduced into 30 Currys Superstores around the country, is also expected to substantially reduce the group’s costs of repair while reinforcing its fundamental philosophy of building trustworthiness.
Summary
Dixons Group’s concentration on building shareholder value through customer satisfaction and loyalty has captured investors’ attention, as evidenced by its significantly improved share price. The message from many analysts: It is not too late to buy!
References
1 Handler, S. Value-based Strategic Management: A Survey of UK Companies, Harbridge Consulting Group Ltd, London, 1991.
2 Goold, M. and Campbell, A. Strategies and Styles, Blackwell, Oxford, 1987.
3 Porter, M. E. ‘From Competitive Advantage to Corporate Strategy’, Harvard Business Review, May/June 1987.
4 Buzzell, R. D. and Gale, B. T. The PIMS Principles, Free Press, New York, 1987.
5 Prahalad, C. K. and Doz, Y. The Multinational Mission, Free Press, New York, 1987.
6 Rappaport, A. ‘Stock Market Signals to Managers’Harvard Business Review, November- December 1987.
7 Reimann, B. C. ‘Decision Support Software for Value-based Planning’,Planning Review, March/April 1988.
8 Reimann, B. C. ‘Managing for the Shareholders: an Overview of Value-based Strategic Management’,The Planning Forum, Blackwell, 1987.
Further reading
Stewart, G. B. The Quest for Value, Harper Business, New York, 1991.
C H A P T E R 1 3
Vision and objectives
There are many related concepts around vision: strategic intent, mission, objectives, goals and performance standards. The chapter explores them in some detail, and presents them in an integrated context.
No self-respecting organisation these days is complete without its vision statement, although writing a statement and having a sense of vision for the whole enterprise are not always the same thing. An organisation can have a clear sense of purpose, communicated to all, without a written vision statement: it is also possible to have a vision statement that is full of good words but does not derive from any clarity of purpose or direction. In fact it is very difficult to judge a vision statement from what is put on paper: whether noble words are motivating truths or empty platitudes depends more on what the organisation does than what it says.
There are semantic problems. What one person calls a vision, another may decide is a mission statement. Hamel and Prahalad1 as we saw in Chapter 1, argued that what was needed was strategic intent, a term which has caught the imagination of some. They define this as an obsession with winning over a long period. The quote clarifies this:
On the one hand strategic intent envisions a desired leadership position and establishes the criterion the organisation will use to chart its progress.
Komatsu set out to ‘encircle Caterpillar’. Canon sought to ‘Beat Xerox’, Honda strove to become a second Ford – an automotive pioneer. All are expressions of strategic intent.
At the same time, strategic intent is more than simply unfettered ambition.
(Many companies possess an ambitious strategic intent yet fall short of their goals). The concept also encompasses an active management process that includes: focusing the organisation’s attention on the essence of winning;
motivating people by communicating the value of the target; leaving room for individual and team contributions; sustaining enthusiasm by providing new operational definitions as circumstances change; and using intent consistently to guide resource allocation.
Although useful in emphasising what the organisation is about, I do not see any significant difference between strategic intent and the way vision should be used at the level of the organisation. Vision is a term that began to become popular in the late 1970s, and was well established by the mid-1980s. What it means for me is an expression of the longer-term objectives and values of the organisation, in a way that shows what the firm is trying to achieve. The definition provided by Karl ¨of2is helpful:
Vision, in the sense of something seen in a dream, is the term used to describe a picture of a relatively remote future in which business has developed under the best possible conditions and in accordance with the hopes and dreams of the owner or chief executive. A vision provides a benchmark for what one hopes to achieve in business, and can be a guide to the level of ambition of strategic planning . . .
. . . A vision can be said to link business with corporate culture, creating a common standard of values for the individual performance of employees.
Vision is important in transformational leadership (see Chapter 3), but in that context it is a concept that may refer to any change situation, not necessarily that of the total organisation. It even applies to situations in a personal context, such as that of a married couple who want to create a garden in a new property. They are likely to achieve better results if there is an underlying vision, which they share, of how they want the garden to look after all the work is done. Vision makes sense in all change situations. However, what we are grappling with in this chapter is the application of the concept at corporate and business unit level.
The first requirement is that top management needs to have thought out what are the long-term aims of the organisation. Without this clarity of purpose and direction, any vision statement is bound to lack meaning, however fashionable it may be to have one. Normally a vision statement will also include mention of the values of the organisation. Chapter 8 looked at the two concepts for arriving at
How important is having a clear vision?
In his paper ‘Strategic Vision or Strategic Con? Rhetoric or Reality’ (in Hussey, D. E. (ed.), International Review of Strategic Management, Vol. 4, Wiley, Chichester, 1993), Colin Coulson-Thomas refers to three surveys in which he played a major part:
䊉 In the Managing the Flat Organisationsurvey: ‘Every respondent assessing it believes clear vision and mission to be important, and about three quarters of them consider it “very important”.’
䊉 TheQuality: The Next Steps survey concludes that: ‘A clear and shared quality vision and top management commitment are essential.’
䊉 In the Communicating for Changesurvey, ‘Clear vision and strategy’ and top management commitment are jointly ranked as the most important requirements for the successful management of change.
these, stakeholder theory and constraints, and this debate will not be repeated here. However the chapter is written using the constraints concept.
The reason for a written vision statement is to aid communication of the vision across the whole organisation, and often to customers and suppliers as well. It is a first step to achieving a shared vision throughout the organisation and in shaping the culture to support the strategies. However, because it is a statement which is widely distributed, there may be elements about the strategic direction which have to be stated in a more general way than is needed for the formulation of strategy.
There is also more to getting an organisation to move in unison than a vision statement, and what is really needed is a concept of objectives which links the components of vision with ways of measuring corporate progress, and linking these with personal standards of performance.
In the descriptions that follow, the vision statement would be drawn from what are described as the primary and secondary objectives, and goals and standards of performance have a definition and control purpose. But first let us turn the clock back, and see what some of the early writers had to say about objectives.
What are Objectives?
What is meant by ‘objectives’, why are they required and how might they be used in management and strategic planning? As is the case with so many aspects of management, there is a problem of semantics. ‘Objectives’ is a word that is used with many different meanings, and, of course, has a place of its own in usage outside of the management textbooks.
The vision guides the way forward
Hans Hinterhuber and Walter Popp of the University of Innsbruck, Austria, see vision as a guiding force:
Like the North Star, therefore, a vision is not a goal, but rather an orientation point that triggers movement in a specific direction: if the vision is borne by a sense of reality and appeals to both the emotions and intelligence of a company’s employees, it can be a directing force with a powerful integration effect. So every entrepreneur and every manager claiming to possess strategic management competence should be able to state his or her entrepreneurial vision, clearly and inspiringly, in just a few sentences’.
(Hinterhuber H. H.and Popp, W. ‘Strategic Leadership Competence’, in Hussey, D. E. (ed.), International Review of Strategic Management, Vol. 2, 1 Wiley, Chichester, 1991)
Exhibit 13.1 A bottom up process to decide the mission
The debate on whether vision and mission should be determined at the top of the organisation or by a bottom-up process probably has no end.
Either may be appropriate in certain circumstances. The illustration here is of the process used by the College of Business and Public Administration, the University of Louisville in the USA.
In this situation a bottom-up process was not an option. It was part of a mandatory process required by the US accrediting body for business schools. Although the majority of US universities are in the private sector, this type of external requirement which removes choice from the
organisation will be very familiar to public sector organisations.
The process followed was:
Task force: volunteers from all areas of the college, but not the executive, were sought to form the task force to write the new mission
statement.
Input from internal and external stakeholders: groups of people were interviewed. To stimulate strategic thinking they were asked to think about what an article in Business Week would say about the college if written in five years’ time. Several groups were interviewed, each session taking up to 90 minutes.
Achieving buy-in by employees: Key issues were identified, such as the directions of the educational industry, the values shared by the faculty, and the type of competitive strategy that best suited the college’s strengths and weaknesses. These were debated at a series of meetings with faculty, both to resolve the dilemmas and to create ownership of the mission statement.
Drafting the mission statement: drafts were prepared, and again subjected to a process discussion between stakeholders and the task force. There were several iterations of this process. Summaries of the various views went out to all members of the college, and a series of forums were held at which those who wished to express views could do so. A final version of the mission was prepared.
Vote to accept the mission: the mission statement was put to a vote across the college, and unanimously accepted.
The whole process took 6 months.
(Source: Magill, S. L., Johnson, S. D., Barker, R. M. and Bracker, J. S., ‘The Bottom-up Mission Process in Professional Service Organisations: a Case Study’, Strategic Change, 5, No. 2, 1996.)