Debrief for the Asda case (chapter 14, shaping implementation strategies)

The Asda case

A winning formula
Asda was the first company in the UK to invest in large, edge of town
superstores, with ample free car parking, selling food and related products.

Asda was created in 1965 as a subsidiary of Associated Dairies. It started business

by opening a string of very large discount stores in converted mill and warehouse
premises. In the early days shoppers were offered a limited range of very
competitively priced products.

When Asda went public in 1978 it was the 3rd largest food retailer in the UK selling an
ever widening range of food and non-food products. Its success continued to be
based on high volume, low margins and good value for money (Asda price).

A change of strategy: the pursuit of higher margins

In 1981 Asda began to shift towards a new strategy focused on raising margins. A
range of new initiatives involved seeking efficiencies to reduce costs and introducing
more high-margin products such as prepared foods and a wider range of non-food
items.

There was also a drive to expand in the South of England where customers had
greater spending power.
• This expansion policy was slow to get off the ground, partly because planning
permissions for large retail developments were more difficult to secure in the
South, the price of land was significantly higher and many of the best sites were
already being developed by competitors.
• Sales were less than anticipated because Asda’s value for money image and its
relatively austere store layouts tended to be unattractive to relatively wealthy
southern customers who were used to shopping in more up-market stores. Asda
attempted to brighten up some of its stores and further distance itself from its
‘pile-them-high and sell-them-cheap’ image but this did not generate the
anticipated contribution to operating profits.
• Another (related) problem was that long-standing customers in the North
appeared to be confused by what Asda was beginning to offer them and many
switched their allegiance to new cut-price retailers who were more focused on
offering value for money.

Diversification
Towards the end of the 1970s senior management began to consider the possibility
that saturation may limit future growth in food retailing and the decision was taken to
diversify into non-foods.

Some of the most notable acquisitions included:

1977 Wades Department Stores (with over 70 prime high street sites)

1978 Allied Retailers (Allied Carpets, Ukay Furniture and Williams Furnishings)

The Theory and Practice of Change Management, John Hayes, Palgrave, 2006
 Unfortunately this acquisition did not make the anticipated contribution to
profitability because the recession in the early 1980s led to heavy discounting.
Ukay furniture faired worst and was sold in 1982. While the recession hit
Allied Carpets it continued to make modest profits and by 1985 had improved
to the point where it was decided to expand this side of the business.

1985 Asda merged with the MFI furniture group.

This merger, the biggest in British retailing up to that point, was another
disappointment. Asda-MFI attributed the poor performance to one-off
problems, such as a new range of kitchens that failed to sell. It was
anticipated that the problems would be short-lived but performance failed to
pick up as expected.

1986 Asda launched Asdadrive, a car retailing business at sites adjacent to six of
its superstores, with the intention of rolling it out to about 75% of all sites.

Re-focusing on the core business

Following the merger with MFI, Asda-MFI’s shares significantly underperformed. In
1987 the company surprised the market with a major change of strategy. Instead of
continuing with the policy of diversification it decided to refocus on the Asda
superstores.

The Asda-MFI merger ended with a management buy-out of MFI (although Asda
then bought a 25% stake in this new company). Asdadrive and most of the
Associated Fresh Foods business were also disposed of and it was intended to
dispose of the Allied Carpets business. However, following the collapse of the equity
market, it proved impossible to obtain the anticipated profit from the sale of Allied
Carpets, so the business was retained (and later expanded with the acquisition of
Marples in 1989).

In order to develop the core business it was decided to invest up to £1billion over a
period of three years. Most was earmarked for accelerating the opening of new
stores, especially in the South, but there were also other demands. Asda had
lagged behind its competitors in a number of areas.
• Own-label products. They had all invested heavily in own-label products (that
offered higher margins and better value to customers) whereas Asda had only
started to introduce them in the mid 1980s, and on a much smaller scale.
• Computerised point-of sale equipment. Competitors had invested heavily in
technology that improved stock control and provided better customer service
at check-outs.
• Centralised distribution networks. The competition had also developed
centralised distribution networks for fresh foods that pushed down costs,
enabled stores to receive fewer ‘just-in-time’ deliveries from vehicles carrying
full loads, and reduced the requirement for store related warehousing space.
• Store refurbishment. Asda had neglected many of its stores which were
beginning to look very tired and in urgent need of refurbishing.
Asda recognised the need for investment in all these areas.

A leap forward that contributed to a major debt problem

The Theory and Practice of Change Management, John Hayes, Palgrave, 2006
In 1989 a consortium that was planning to buy Gateway agreed that, if their bid was
successful, they would sell 62 superstores to Asda for £705 million. This was seen
as a very attractive proposition. It offered Asda the possibility of making up for lost
ground and regaining its old position as the 3rd largest British food retailer. It also
promised to double the number of Asda stores in the South of England and
contribute an extra £1 billion to sales. Asda bought the stores in October 1989.

Asda’s performance following the purchase of the Gateway stores was poor. Profits
were down and Asda’s stake in MFI contributed a loss. Allied-Marples was also in
trouble. Asda had net debts of over £900 million. From the end of 1989 Asda’s
share price began to slide compared with major competitors and in September 1991
it dropped a further 29%. The announcement of a rights issue at the end of the
month led to another massive fall in the share price.

The appointment of Archie Norman

Archie Norman was offered the role of CEO in October 1991 and took up his
appointment in December. By the time he arrived the company was fast running out
of cash.

He found a company that was bureaucratic, hierarchical and highly centralised.

There was a large headquarters staff located in the new custom-build Asda House.
Directors had little contact with their subordinates. The culture was risk averse.
People at all levels appeared to be intimidated by their bosses and told them what
they thought they wanted to hear. They also seemed reluctant to take any initiatives
that would call attention to themselves. Morale was low.

The trading department was dominant. Buyers, located at Asda House, determined
what the stores would sell but they had little contact with store managers. The new
CEO had concerns about both the quality of management and the apparent
unwillingness, throughout the organization, to make best use of the talent that
existed.

Store managers felt ignored and found it impossible to have any meaningful input to
thinking at Asda House. There were also problems within stores. Vertical
communication was poor and customers were not valued.

If you had been Archie Norman in December 1991, what would have been your
strategy for change?

Notes for debrief

Asda: an example of the simultaneous implementation of a combined

Economic/OB change strategy

The simultaneous implementation of a combined Economic/OB change strategy

requires careful planning together with a willingness to let the details of the change

The Theory and Practice of Change Management, John Hayes, Palgrave, 2006
strategy emerge over time. Archie Norman's turnaround strategy for Asda provides a
good example of this approach.

At the time when Archie Norman was appointed CEO, Asda faced bankruptcy. The
company had been the first food retailer to build superstores. Its success had been
based on low prices and value for money. However, in the 1980's over capacity in
the industry had squeezed margins. Management responded by increasing prices to
restore margins. The strategy also included the acquisition of a number of other
retail businesses and heavy borrowing to build new stores in more affluent locations
in an attempt to broaden market share and attract customers with more money in
their pockets. But this strategy to reshape the business did not work. By the time
Norman arrived the company was fast running out of cash. Asda had become very
hierarchical and bureaucratic. Upward communication was difficult, managers felt
that nobody listened and a centralised purchasing group dominated the stores.

Norman's immediate priority was survival. He drew everybody's attention to the

urgent need for cash and took steps to stop all capital expenditure, quickly sold
unrelated businesses and unprofitable stores, imposed a wage freeze and laid off
10% of all staff.

He then turned his attention to developing the organizational capability required to

secure long term success.

The creation of an effective top-team. He re-organised the management structure.

Starting at the top, he fired the CFO, recruited two new senior colleagues and
reconfigured the shape of the top team by removing a layer of management. He is
reported to have referred to middle management as perma-frost, and his aim was to
reduce this to the bare minimum. His objective was to build a cohesive and effective
top team, establish a clear focus for the stores and shorten lines of communication.

Stakeholder management. He managed key stakeholders in order to buy time to

develop the organization's capability to deliver high performance. Within six months
the newly structured management team presented a back-to-roots recovery plan. It
reversed the previous strategy of restoring profitability by increasing margins. The
new strategy focused on lowering prices in order to attract more customers, spread
overheads and improve buying power. It also involved developing a culture that was
hands on, action oriented and gave priority to working with, responding to, and
leading initiatives in the stores. The plan was optimistic but sent a clear message to
the financial community that they should not expect an immediate turn-round in
financial performance.

A socio-technical approach. The new strategy also attended to both the technical
and the social aspects of change. The push to reshape the business and secure
efficiencies involved more than the top-down imposition of technical solutions.
Attention was given to the people side of the business and local managers were
involved in leading change at unit/store level.

Norman authorised radical experimentation in a small number of stores and declared

that local managers would not be accountable for the results of their stores during
this experimental phase. A cross-functional task force was established to work with

The Theory and Practice of Change Management, John Hayes, Palgrave, 2006
store managers to reinvent the concept of the Asda store - its design, retail
proposition, and approach to organising and managing people. The first store
renewal took six months to complete but the results were very encouraging (sales up
40%). After a further two 'Renewal Stores' were successfully launched it was
decided to rollout Renewal across the company. In three months 20 stores were
renewed, but the results were disappointing.

It was recognised that the poor results were related to the way that the renewal
programme had been rolled out. After the early experimental phase the pressure to
turn the business around led to Renewal being rolled out as a top-down technical
solution. Local store managers were less involved than their colleagues in the
experimental stores, and less attention was given to creating the right store culture.
Compromises were made to the way the stores were organised and managed; for
example, it proved difficult to implement self-managed teams in the required time
scale. Compromises were also made to the physical aspects of Renewal because it
took too long to implement the radical new layouts that were part of the first three
Renewal stores.

This learning led to a separation of physical renewal and cultural change. Renewal
was re-designated as a physical store refurbishment programme. There was
recognition of the importance of down-the-line leadership and store culture. Funding
for Renewal was only made available after a store had demonstrated that it had fully
embraced a codified set of principles that were referred to as the Asda Way of
Working (AWW). Each store had to pass a 'Driving Test' that clearly indicated that it
had developed a culture that was customer-friendly and responsive, and had adopted
a flatter hierarchy and team working.

Leadership style. Norman's leadership style was also important. Colleagues

described him as tough, demanding, relentless, passionate and committed. He
wanted to build a culture that valued listening, open communication, learning and
speed of response, and he behaved in ways that were consistent with these values.
It was not unusual for him to turn up in a store on a Saturday to talk to staff,
managers and customers in order to elicit views about what could be done to improve
the business. By Monday morning a report of his findings would be on the desk of
those managers who could investigate further and act to improve matters. He
encouraged senior colleagues to visit the stores, relocated directors so that they sat
alongside members of their departments, and insisted that senior managers in Asda
House ate lunch in the main dining room at least three times a week. He also
suggested that they did not sit together but made a special effort to sit with different
people each lunchtime. He further increased the visibility of senior management by
holding board meetings in stores located around the country.

One of the methods he used to encourage upward communication was 'Tell Archie',
a suggestion scheme that was taken very seriously by senior colleagues.
Suggestions were channelled to line managers who drafted a response. This was
forwarded to Norman, who always signed the letter that was sent back to the person
who had made the suggestion. His aim was to create a culture of listening with total
commitment. Suggestions were reviewed at a weekly meeting and a tin of treacle

The Theory and Practice of Change Management, John Hayes, Palgrave, 2006
awarded to the department that had provided the slowest response. A gimmick, but
a powerful incentive for managers to respond quickly.

A new auditorium was built at Asda House as a meeting place to facilitated better
communication. It was, for example, the venue for regular (fortnightly) meetings
between department heads, senior managers and the top team. The meetings
opened with some formal reporting and then Norman used a roving mike to involve
managers, challenge them about what they had contributed to the business and
encourage them to debate (with him or anyone else present) any issue they wanted
to air. It was a sort of 'star chamber' designed to loosen managers up to talk about
topics that might otherwise not be discussed openly.

In the early days some managers were apprehensive about this level of openness,
confrontation and pressure to make things happen quickly, but gradually this gave
way to a sense of excitement and shared commitment as the business began to turn
around.

Continuous improvement across the business was encouraged by the introduction

of a number of practices. These included SAUNAS, temporary teams to conduct an
intensive company-wide review of a store department (such as fresh produce) or
system (such as management information), and employee councils to enable junior
staff to inform unit leaders about problems and barriers. Communication was also
encouraged via colleague circles, listening groups and notice boards in each store to
provide information about current performance compared with past performance and
performance achieved by colleagues working in comparable stores. Customer
feedback was also valued and the company established Customer Listening Groups
and Mystery Shopper Programmes. The results of these interventions were also
displayed in stores so that people across the business knew how customers
regarded them.

Some people found it hard to adapt to the new culture. While everybody was
expected to work hard, junior colleagues were involved, encouraged and managed
much more gently than senior staff. Some managers who had been comfortable
working in the old bureaucratic climate found it hard to adjust to the new culture
which required them to be quick on their feet and make things happen. Over 50
percent of store managers were replaced or chose to move before all of the stores
were renewed.

When Asda was acquired in 1999 the price Wal-Mart paid was eight times what it had
been worth in 1991.

The Theory and Practice of Change Management, John Hayes, Palgrave, 2006