The war for talent | KPMG | SG

The war for talent: cultural competence

The war for talent

If traditional retailers are to stop younger rivals stealing all the growth, they need to recruit, acquire or hire the right blend of skills.

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Team in meeting room

Traditionally, retail was a simple business,” says Sir Ian Cheshire, Chairman of UK department store group Debenhams. “You sell stuff that doesn’t come back to people who do.”

Even though the retail sector is already being radically redesigned by digital technology, some elements of that traditional approach have survived. For example, Sir Ian knows that Debenhams’ typical customer is a 41-year-old woman who visits their stores 50 times a year and likes to break up her shops with a coffee or a glass of fizz. The challenge for Debenhams – and other bricks and mortar retailers – is to manage the present (pleasing those customers, in part, by ensuring there is always something new for them to consider), while investing in a future which looks more complex, uncertain, and technologically driven.

Change on this scale is rarely comfortable or easy, yet for Sir Ian the issue of most concern is skills. The idea that employers in all sectors are combatants in a war for talent – a phrase coined in the late 1990s – is so familiar it has become a cliché. Yet like many clichés, it contains more than a grain of truth.

“The high-street retail model hadn’t changed for 30 or 40 years,” says Sir Ian. “To run the risk of generalizing, the traditional retailer was an intuitive street trader made good, merchant princes who knew how to buy and sell product and ran a centralized, top down, hierarchical company. The business is much more complex than that now.”

As an example, he says there is a completely different paradigm for attracting customers in the 21st century. In the 1970s, you could reach 20-30% of the population with one TV advertising campaign, make sure the product was in your shop window and wait for the customers to show up.

“Today there is infinitely more data, the customer’s metabolic rate has shot up and you have to manage social media. How do you know which blogger has the most influence?”, says Sir Ian. In a world where the customer can come to you in so many different ways, how do you make sure you’re not missing out?

Reinventing the retailer

Diversity is not just defined by gender, race and age, but by different skills, experiences and opinions – at all levels of the business

One of the solutions, Sir Ian suggests, is to create a new culture. “You can’t have a superhero merchant prince who tells people what to do. We need to be quicker to adapt, to keep reinventing ourselves and figure out what we’re going to sell next. To do that you need much more team building and much less hierarchy. And you need to invest in diversity.”

For Sir Ian, diversity is not defined entirely by gender, race, age and orientation – though these all are important – but it is also about different skills, experiences and opinions.

“You don’t want to lose your culture, but you do need an external refresh. People within the business need to know they can become leaders but you need fresh thinking too. I’ve always thought that a ratio where you promote two-thirds from within and recruit one-third externally is about right.

“If you don’t bring in new people, you run the risk that you keep improving your answer to a specific question by increments of 2% only to find that, when you think you’ve got it absolutely right, the customer has moved on and is asking a completely different question.”

Sir Ian has already turned words into deeds. Debenhams’ new CEO Sergio Bucher, who took over last October, was previously head of Amazon Fashion.

Two new non-executive directors diversify the board’s expertise. Nicky Kinnaird is an experienced leader in the beauty industry, a part of the business Debenhams expects to grow. Lisa Mayers had a senior role in the asset management industry where she researched retail, apparel and luxury goods.

Such appointments have helped to build diversity at the very top of Debenhams’ business. This is a more considered approach than just buying in a team of digital hotshots, pointing them at your e-commerce business and saying “Fix it”. The danger there is that you end up with a narrow, specialized technological solution that doesn’t help with the wider, necessary cultural and organizational changes you need to make it succeed.

In other words, this isn’t an issue that can be resolved by heading to California’s Silicon Valley, London’s Silicon Roundabout or Beijing’s Silicon Zhongguancun and hiring the best software developers, web designers and data scientists that money can buy.

It’s the blend of skills, not just digital and traditional retail, that worries Sir Ian, but is his concern shared across the industry? The 2016 Global Consumer Executive Top of Mind Survey, published by KPMG and the Consumer Goods Forum, suggested skills were hardly top of the agenda. Although 27% of executives at 400 of the world’s largest retailers and brands said talent would be a top priority in 2018, and 26% feared they didn’t have the right data analytics expertise in their supply chain, only 22% said talent was key to success in a channel-agnostic consumer market.

Heads in the sand?

“Retailers need to create the right blend of traditional and digital skills”

Those results may suggest that Sir Ian is an outlier but Paul Martin, KPMG’s UK Head of Retail, says that isn’t necessarily the case. “Sir Ian is more radical than some on this issue.

He has been outspoken because he fears the industry is sticking its head in the sand. He has a point: the physical and digital worlds are colliding and becoming one in retail. Traditional stores have to be online and pure play etailers are no longer satisfied with just having an online presence and want bricks and mortar.”

Like Sir Ian, Martin says the blend is key. You still need leaders who know how to do the traditional stuff because to lose them would, as he puts it, “be like conducting open heart surgery on an aircraft flying at 35,000ft and changing the pilot, the cabin crew and the engineers.” Equally, if retailers are going to reinvent themselves, change their business models and, not least, turn the growing, almost bewildering, amount of customer data at their disposal into actionable insights, they need to find the right digital skills.

The question is: how do they do that? Sir Ian’s primary focus is on recruitment and developing the right skill sets internally at Debenhams, yet Martin wonders if retailers need to think more laterally. “The challenge I see is that the caliber of people retailers might want to recruit are likely to prefer to work for funkier businesses – whether they be in tech, games or the movie industry. You might need a team of data scientists but they are probably already in short supply globally. You can retrain some staff to become data scientists but you can’t solve the problem just by promoting from within.”

Different retailers have already tried different remedies. Those who can afford it, and have faith in their judgment in a sector where picking winners is notoriously difficult, have acquired promising digital start-ups. “For some, the answer has been to set up a tech incubator, but it needs to be in the right place so you get the right vibe and attract the right talent,” says Martin. So why don’t more retailers share in – and access – the right skills rather than trying to own them outright?

You can see his logic. With customer preferences constantly changing, retailers need to be swifter to respond. The right external partner, given a brief but unencumbered by bureaucratic obduracy, organizational inertia and legacy mindsets, can help retailers execute quicker and more effectively. As Martin says: “You can build the world’s largest machine to translate all the data you have into answers but this could be an expensive and time-consuming process, or you could partner with a business that helps you develop the right questions to get you started.”

E-commerce and ecosystems

“Creating the right ecosystem of innovative digital partners could free retailers to focus on their core business”

For example, a few years ago, one grocery chain was looking to develop customer data but concluded that it would take two years and millions of dollars to define customer preferences for the project. Yet a start-up offered to develop those preferences in six weeks at a fraction of the price. Similar alliances – for example between a US DIY chain and a digital service that provides electricians, painters and other contractors – are showing promise elsewhere. If these flourish, the retailer may acquire some, or all, of their partner’s equity.

Equally, given the risk that, in such a turbulent sector as tech, where so many of today’s successes become tomorrow’s failures, they may prefer to retain the flexibility to change partners. There is an argument, Martin suggests, that creating the right ecosystem of innovative digital partners will free retailers to focus on – and invest in – their core business.

“The value of winning is going up. Firms at number one and two will thrive. Those in third and fourth place will find life awkward”

This may help retailers develop the agility they need to reinvent themselves. Technology isn’t just increasing the consumer’s metabolic rate, it’s putting a premium on performance. “There is a superscale effect with technology. The value of winning is going up,” says Sir Ian. “Companies that are first and second in their market will thrive, those that are third of fourth will find life increasingly awkward.”

The skill is to get the pace of change right. Debenhams is a US$3.7bn revenue business (10% of which comes online; the aim is to double that) with 250 stores worldwide.

“Our strength is that we are a house of brands – where customers can discover a variety of things they will enjoy. We’ve been part of people’s lives since 1782,” says Sir Ian.

“But you don’t have a franchise forever. We have to be agile. Change too slowly and we bore the customers. Change too fast, it’s uneconomic. The question we have to keep asking ourselves is: what is the value added we provide?”

Key learnings

  1. Traditional retailers do not have the skill sets they need to compete in a channel-agnostic market: Department stores are accomplished at doing what they have always done: selling product – and delivering services – to consumers in-store. Yet as retail moves from a business model centered on product and location to one centered on both of these and the consumer (and being community centric will also become increasingly important), they need a different range of skills, especially if they are to transform their business digitally. The question is: how do they develop them?
  2. There is no one-size-fits-all solution to this skills gap: Retailers will need to upskill internally as well as hire externally. The issue is that retail is not going to be top of the leaderboard for young tech graduates, who are likely to prefer more glamorous sectors such as technology, the movie business and computer games. Therefore, it will become increasingly important for businesses to develop a partnership ecosystem. Having access to data scientists as a service could be a winning formula. All of these options come with risks and rewards. The solution will also depend on the size of the company, its organizational structure, its culture, products and location.
  3. The challenge transcends skills: Even if you could hire the right quantity and quality of data scientists, app developers and web designers, that would not, by itself, resolve the issue. With consumer preferences rapidly evolving, and digital taking a larger share of the business, traditional retailers need to become more agile so they can anticipate – and react to – market trends. As technology transforms the consumer industry, the rate of change will accelerate, possibly becoming akin to that in the IT industry, and retailers need to change their cultures, business models and organizational structure. For instance, in a market where many companies are appointing a chief customer officer, where do they sit in relation to sales, marketing and IT?
  4. The challenge transcends technology too: Technology is essential but don’t get locked into a narrow solution. The broader issue leaders must keep top of mind is listening to the market. Are their organizations culturally competent enough to understand shifting customer preferences and turn their knowledge into actionable insights?
  5. The reward is growth: In developed economies, retailers can no longer rely on the kind of economic rising tide that lifts all boats. In many western markets, there is likely to be only limited organic growth over the next couple of years. Delivering growth is, therefore, becoming more difficult, and can only be achieved by winning market share. In order to do this, businesses must be better than their competitors and maintain the right blend of skills so they can stay better.

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