I’ve even talked to a number of experienced retailers whose efforts to
improve their business are lacking a well defined strategy. They lack a
methodology for defining their goals, measuring improvement and then
gathering feedback on what they attempt. That approach introduces waste into
their efforts to grow their business and blurs their successes into their
failures. Consider the toll a lack of strategy places on marketing efforts.
Questions like “Who is the target of a campaign?” “What is the message?” and
“What are the definitive goals?” are frequently never addressed or
understood before spending $1000 on an ad in the Sunday paper. Too often the
importance and  value relative to the cost for social networking and email
contact are significantly underestimated. The result of this lack of
information is, ultimately, lost opportunities and a correspondingly
diminished ability to adapt and improve.

Without a solid understanding of the target customer, the desired image they
should have of the business and ideal merchandising and sales techniques to
solidify that image and close the deal, what could be profit is squandered
shooting at a target that isn’t clearly visible. Effectiveness is diminished
across the business. Nearly all aspects of the business are impacted
negatively; assortment planning lacks a consistent theme, choosing the right
goods is not focused on the target customer and identifying  what skills and
traits are needed as part of the process of hiring a new employee is
neglected, leaving a weak staff. The list of actions that can benefit from
decisions based on  a clear direction and strategy is long.

In Management One there is a strong underlying theme that growing a business
is paramount. Growing a business means getting the most return on the
investment in inventory WR (Winning@Retail), people WB (Winning@Business)
and cash WF (Winnning@Finance).

We start with W@R for retail clients because it is easier and the return is
faster. Owners can identify with it. The reason for starting on merchandise
planning and Winning@Retail before W@B is that it allows us the chance to
pick some low hanging fruit while helping businesses ramp up for the slower
yet critical process of changing culture and practices.

When a retailer has only one eye to watch his business, strategically
focusing that eye on continuously improving the bottom line is critical.

Ed Whitacre had an illustrious career in the telecom industry before taking over the helm of GM. He was brought to GM as part of the bailout of the company. He was joining a company at the low point of its history. When he arrived at GM, he found himself in a position where he was resented and looked at as an outsider of the auto industry. That is saying a lot in a community like Detroit where so many of the businesses are connected to and are there to support the auto industry.

Years earlier, Ford was faced with a need to replace its own CEO. Their company was historically led by family members and auto industry experts. The company leaders recognized their decline and a need to make a different move. Their choice was to open themselves to an outsider who could bring a different perspective and point of view. Alan Mulally left Boeing to manage Ford and when he arrived, he met the same skepticism and resentment that Whitacre is facing today. Today Mulally is looked at as the savior of Ford and a shining hope for the future of the U.S. auto industry. Success seems to ease doubt.

The point of all this is that there is a lot that any industry or business can learn from outsiders. We all tend to think that our knowledge and experience is unique. We all tend to view our own business as so complex and special that an outsider could not possibly contribute anything valuable to our own success. The truth is that there is always something we have overlooked or not optimized.

In this case Ford was open to outside input and leadership from another industry with another point of view. It took outside influence and force to get GM to realize that there can be a lot to gain from a fresh perspective. A know-it-all attitude never leaves room for improvement. There is always some aspect of our business that we can improve by looking at it from another perspective.

This article seeks to highlight some useful, but typically ignored synergies between science, engineering, business and retail. Karl Popper elegantly described the purpose of science as a process which generates predictive theories.  Science, economics and all kinds of business applications rest critically upon a common need; the need to accurately forecast a complex and dynamic future.

While the goals of science, economics and business are worlds apart, the actual process of forecasting is common to each. Similar challenges in forcasting allow lessons learned in one discipline to be applied in another.

Here, we’ll look at what forecasting insights can be gleaned from raindrops and market drops to help make our retail profits a little more stratospheric.

The most basic, even instinctive, method of forecasting involves guessing what will happen. Humans naturally learn to link certain events together. A midwestern corn farmer might say “knee high by the fourth of July.” If the crop isn’t tall enough by the given date, the farmer knows in advance that the crop has gotten a bad start and will therefore yield a weak harvest. Other times, the process is more intuitive, what we call “gut instinct.’ A person might “have a bad feeling” about some situation, even if he’s unable to explain the rationale behind it to another person. Recognizing patterns is something people do without even trying. It’s nearly impossible to look at a word written on a page, for instance, and not “read” it.

Of course, this kind of guessing is one of all kinds of human flaws and limitations. It lacks the dispassionate rigor of an actual scientific experiment. Just knowing that the crop isn’t high enough tells a person nothing about what caused its short stature. Even worse, it offers no clues to fix the problem. Gut instinct is difficult to transfer from one person to another. It creates dependence on a person, rather than a process and it’s horribly subject to the constraints of a single person’s memory and intellect. Using only gut instinct is better than nothing, but even at it’s best it is imprecise and prone to error. Stock outs sometimes and markdowns others is the result.

Of course, some of these problems can be solved by using past trends and performance to predict future results.

This approach is a little more precise and predictive if the system varies the same way it has done in the past. We’re no longer relying on the feelings of one individual and emotions are checked somewhat by stubborn little numbers. But it’s still less than ideal.

The professionals that spoke on climate research at a talk I attended recently amazingly faced the same problems that we faced in trying to predict future sales and performance for retailers. They started, as we did, using statistics.  Statistics and trends are useful in a somewhat stable or controlled environment. In statistical terms its changes can be depicted by a bell shaped curve or some other known distribution.   When climate change was affected by increasing CO2 the statistics based on the past could no longer predict the future.  Retail , also, is a constantly changing environment. When the recession hit, trends based on past performance were completely invalid.

The solution the climatologists brought to bear to help understand our dynamically changing environment was to make mathematical models of how the system worked. Over the years the model for climate change was modified to include surface temperatures, then atmospheric makeup including CO2, methane, and other gasses. Moisture content, then ocean temperatures were added. Then solar radiation coming in and out was added and so on. As each new variable was added to the model, a more accurate prediction was possible.  The true test was to back test to see if the model predicted what happened in the past. The final test is to see how accurately it predicts what happens in our actual, uncertain future.

We went through similar trials and tribulations to develop our Winning@Retail™ software. It contains both analysis of past performance using statistics and mathematical models  that account for the effects of the economy, local buying habits, inventory levels and much more to get an accurate prediction of future sales.  With each new variable added to the model the predictions improved.  Several independent tests have measured our ability to predict sales at 94% or better.

Just as knowing the future of climate change can help us prepare for the coming challenges, knowing future sales allows us to identify the right inventory levels and predict cash flow in the business.  If we don’t like the outcome, we can use the models to chart a new course based on a solid forecast of coming trends. Rather than just seeing a bad crop coming several months ahead of the harvest, we can consider how to nourish a business so that it continues to be fruitful and productive. The use of predictive models is the best approach to inventory planning.  POS systems and many spreadsheet approaches use statistics to project the past into the future.  Their susceptibility to sudden shocks and changes causes waste, errors and inefficiency, often when they are most painful.  The better your data and analysis, the better the predictions and the better the results will be.

Good article forwarded to me by Neal Esserman. Worth the read

<a href=”http://boss.blogs.nytimes.com/2009/10/06/six-ways-to-deal-with-small-business-stress/?emc=eta1″>

He left the man alone to tend the store and went to sit down on a bench in the park. There he watched the ladies as they walked by him. He noticed one lady with a hat who walked with her head held high, her shoulders back and with a tacit invitation for the world to look at her. He studied all the details he could about the hat – the shape of the frame, the color of the trimmings and more.

John Jacob Astor went into the store and told the man: “Now, put in the window just such a bonnet as I describe to you because I have just seen a lady who likes just such a bonnet.” Astor went back to the bench and observed another confident lady who was wearing a different bonnet. He went back to the store and said to the man: “Now put such a bonnet as that in the show window.”

Astor grew a very successful business working ON the business rather than IN it. Every business has customers and a market to serve. Every owner has a special duty to be certain his/her business is functioning properly. Like the field officer in battle, an owner shouldn’t be at the front lines where he’s caught up in the daily actions. An effective owner is studying the business, developing strategy, motivating the staff and making sure they have what they need to be successful.

You soon found that planning was not the only key to success. Business is not always fair so regardless of the fact you worked the hardest and had your money invested, it was you who went without a paycheck when there was no money. You found that as owner, sweeping the floor and emptying wastebaskets was not beneath your status or dignity.  Now that you have some experience, the challenges have turned to battles to be won. Big ones and little ones, easy ones and tough ones, everyone wants something.

In order to get some insight into how to win these battles, there is no better group to model in battle than the U.S. Marine Corps. They are arguably the premier fighting force in the world. They train constantly for the day when they are thrust into battle. What have they learned about winning the battles from which you can benefit in your daily business battles?  Here are a few of the most valuable lessons.

The foremost lesson is to identify your target and develop a plan and strategy. That allows you to get all of your assets in place before you start firing randomly. A plan lets you assess the skills needed through training, reorganization or hiring staff or a consultant or expert. The marines know the objective in clear terms before they hit the ground. Marines know they are there to take a hill, capture a city or squelch an uprising. You should know your target too!

Another lesson is to decentralize. The marines realized that targets must be set and plans established but the field officers need the flexibility to make decisions that achieve those targets.  Officers measure effectiveness and results.  They don’t try to manage from the top.  By the time a tank commander can gather situation data, send it to headquarters for analysis and a decision, receive the orders back and then take action, the opportunity to win the battle is lost. There is too much that happens spontaneously to manage from the top. The same situation exists in most businesses. There is so much happening with customers, inventory, equipment etc that employees need to know the target but be free to make the best decisions on the spot in order to with the battle.  Even a small business needs to decentralize!

Thirdly, you don’t win the battle without acting. Don’t let paralysis by analysis keep you from developing action plans and taking action to implement them.  Often timing is more critical than planning.  Staying focused on what you want to accomplish lets you decide which battles, opportunities and options can move you in the right direction.

Next, use experts and intelligence to gather the best direction and information available. The marines consult with locals and military experts. They use consultants to help them draw from a broad perspective of ideas. You must make the final decision about your business but don’t ignore the wealth of options and intelligence that can help you make the right decision. Two lessons here,

1.      Don’t be too proud to seek outside advice

2.      Get the information and advice to the whole organization

Know the exit strategy before you go into battle. The marines identify exit routes and extraction procedures before they enter a situation.  Search and rescue is as much a part of battle as attack plans. When you evaluate an option, evaluate what happens if the unexpected happens. Know the way out. Know the downside as well as the upside.

Finally, focus on critical not urgent items. An outside consultant, board of directors or knowledgeable mentor can keep your efforts directed toward winning the war, not just firing your weapons! We us a process called Winning@Business™  to help owners win the business battles.   Winning the war and winning in business have many parallels.  In the end, however, you can bounce back from a failed business.  Too often a failed battle does not give one that option.