THE BLOG
04/15/2015 05:22 pm ET Updated Jun 15, 2015

Death By Restructuring: Retailers Need to Stop Slicing the Cheese

Restructuring in the corporate world is passé. Corporate transformation has lost its meaning. It's no longer a question of "who moved my cheese?" Today's corporate environment has become an exercise in slowly slicing up the cheese leaving the remaining organization doing the same things with less cheese. In reality, a quick exfoliation that scrubs away the dead cells (processes, functions, structures, etc.) would be better serve companies leaving behind a fresh, clean foundation.

As all-things-digital accelerates, the retail industry takes center stage. The improving economy offers expectations for quick expansion. Yet, increasingly hungry activist investors and unsympathetic lenders are seeing declining margins and unproductive infrastructure (both brick and click). Bankruptcies of age-defining retailers -- RadioShack, Blockbuster, Borders -- are just the start. Analysts predict retail will be among the top three industries in 2015 bankruptcy filings. Others will find themselves in shot-gun marriages as activists force the hand of incumbent management teams on things they have been otherwise unwilling to do. Fundamental changes are coming, and quickly.

Why do retailers struggle to achieve breakthrough improvements? The path to salvation has many business school solutions: omni-channel, eCommerce, international growth, predictive analytics, and customer experience. The fault, however, lies in a latent, real-life concept. Transformation implies an organizational metamorphosis with changes slowly taking place in a cocoon. Many retailer programs mistakenly plod along chasing buzzwords. Unfortunately, when the quarter ends, those words change, and management is stuck in an endless cycle of transformation. Retailers play catch up instead of leapfrogging ahead.

Retailer programs aren't inherently doomed to fail. In fact, our analysis finds three themes associated with lasting success.

1) Be bold. Many industries covet new, shiny objects, retailers included. A surefire recipe for a dazed and confused executive team is to quickly switch objectives without leaving behind a path of breadcrumbs. Rather than wander about looking for elusive prey, find a solution in a clear end state. When trends turn bad, don't simply ride the curve down. Instead, work to identify the inflection point and what is needed to be successful at that stage. Pier 1 Imports saw four years of spiraling decline in profit and sales going into the recession. With stock trading at a dollar and peers declaring bankruptcy, Pier 1 took swift action. Beyond staff reductions and store closings, the catalog and e-commerce businesses were shuttered. Investments were made in merchandising and customer experience with clear objectives that harkened back to the BHAG goals of old. Within 52 months, the stock peaked at $25.20. Without a willingness to be bold, retailers risk becoming the next Radio Shack. The ambition to make the first step a big one separates winners.

2) Simplify and Focus. Retailers live in the extremes, investing heavily in growth periods and restructuring in recessions. Corporate scar tissue accumulates as a result and processes become outdated and cluttered. Cheese slicing may cut costs but it fails to address underlying issues. The best solutions establish clarity then aggressively attack the surrounding complexity. For example, Nordstrom creates advantages with a focus on customer service, in-store and online. As online sales reach ~40 percent of total sales over the next five years, it is imperative Nordstrom translate their customer-first approach into a digital context. Rather than become paralyzed by channel conflict, musing about omni-channel, or creating matrix organizations, Nordstrom is committed to maintaining a simple focus on the service experience. Winners invest in what is needed for success while ruthlessly reducing complexity elsewhere.

3) Be Fast. We all know cases of seemingly endless transformation frequently resulting in more trouble. Effective transformations need to be time boxed towards a specific objective. Success stories tend to have clear earnings per share improvement goals with actions tied to holes in the P&L. Given the speed of business, programs that stretch beyond 18-24 months risk losing relevance. Longer timelines introduce wander objectives, organizational fatigue, industry changes, as well as consumer preferences. Winners balance realistic and stretch goals in set time periods to get ahead of the curve and control their future options.

The obituary on retailers has been written multiple times. Many retailers will continue slicing the cheese and consistent with Darwin's theory of natural evolution, these retailers will eventually perish. Those executive teams willing to make hard choices and move swiftly will become tomorrow's success stories.

Special thanks to Mohit Mohal for his collaboration on this post. This post originally appeared on LinkedIn.