Lessons in Strategic Change

Incremental change and renewal through innovation should be an ongoing imperative in all organizations. Then there are times when market disruption forces major strategic change. Understanding how organizations react when challenged to undergo big strategic change – what works and what doesn’t – can be very instructive.

In two recent studies, Professor Yasemin Kor, of Judge Business School, Cambridge University, investigated approaches taken and lessons learned by two industries faced with the need for decisive strategic change. She looked first at the US railroad industry where major deregulation has opened up a previously closed market and redefined the rules of competition. Secondly her research considers the food retail industry and how it can respond to pressure for change driven by the global food waste crisis.

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Professor Yasemin Kor will be sharing her insights on the Strategic Change & Renewal program on 3-4 May 2018

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On the Railroad

The research findings from the deregulated US railroad industry highlight the importance of taking a sequenced approach to strategic responses. It is not the single strategic choice of action, taken at a point in time, but the sequencing of consecutive responses that drives successful change and survival in a disrupted industry. Sequencing allows organizations to find a balance between demand-side pressures and adapting new processes and acquiring new capabilities.

The incumbent railroad companies had four obvious options: 1) seek to grow in the same status-quo market; 2) develop new markets with the same products; 3) diversify into other transport modes or international markets; or 4) diversify into new markets with new products.

Only nine out of 40 companies survived the market disruption. None of the companies opted for (4), and a strategy of market development (i.e. expanding nationally) proved to be better than sticking with the status quo. It was also a mistake for firms to diversify into other transportation modes or international markets from the beginning – better to pursue product diversification first followed by international diversification. The surviving railroads transformed and survived, using the following principles:

• Creating a balance between entrepreneurial market responsiveness and capturing efficiencies.
• Focusing on overcoming weaknesses from the regulation era: eliminating cost inefficiencies, adopting new technology, expanding through acquisitions.
• Having understood their strengths first, developing an intermodal transportation capability. This diversification move was then followed by entry into international markets.
• Entering uncharted territories only after strengthening core competencies and doing this through acquisitions and alliances rather than organic growth.

In Food Retail

The Institution of Mechanical Engineers estimates that annually between a third and a half of all food produced is wasted worldwide – at a time when famines regularly make headline news and when the world population is predicted to grow from 7.6 billion to 9.8 billion people by 2050.

Growing food requires a considerable use of natural resources and letting food go to waste, today more than ever, is unforgiveable – a realisation that is driving growing stakeholder pressure on the food retail industry to do more to help improve global food security.

Large food retailers are in a unique position to address the waste issue. Supermarket chains form a highly concentrated market – the top seven UK food retailers account for 87% of the grocery market – and with their direct links with farmers, processors, and consumers, they have considerable power to make change. However, this is a high-volume/low-margin industry, constrained by consumer price sensitivity and by competition from discount and online retailers entering the sector, so retailers have limited room to manoeuvre.

Professor Kor, with colleagues Jaideep Prabhu, Professor of Marketing at Cambridge, and Mark Esposito, Professor of Business and Economics at Hult International Business School, looked at large food retailers' strategic approaches to the ongoing global food waste crisis, and found that the crisis presented an opportunity if they could embrace significant change.

The key finding was that retailers should not do this alone. Collaboration across the food ecosystem from suppliers to consumers was key to retailers helping reduce food waste. The professors suggest these four strategies to help retailers reduce food waste while managing competitive pressures:

Upgrading inventory systems with the latest technology. New technology can reduce excess inventory and handling so less perishables ultimately go to waste. For example by organizing deliveries in shelving sequence, making it possible to go directly from distribution warehouse to the retail floor.

Partner with farmers in the supply chain. Farmers need to hedge against weather, disease, and a fluctuating order book. By working directly with farmers and their intermediaries, retailers can reduce this need and thus reduce agricultural food waste. Treating farmers and agri-tech ventures as partners rather than contractors and investing in the long-term sustainability of the supply chain can help farmers cut waste and increase productivity.

Modify or eliminate traditional store practices that increase waste. Stop rejecting imperfect-looking food - perhaps selling ‘wonky’ vegetables at discount prices. Offer surplus edible food to charities. Leverage technology (e.g. to convert food waste into fertilizer). Rethink product labelling to avoid consumers misinterpreting ‘best by’ dates as expiration dates. Find new ways to display produce while reducing stock levels, data analytics having debunked the notion that consumers are enticed by well-stocked displays.

Team up with consumers. Food waste by consumers has escalated. Retailers are however in a position to help change consumer habits over the long-term through education. They should for example interact with consumers via instore magazines and campaigns to raise awareness and gather ideas for food waste and hunger prevention.

Access the original research papers here: US Railroad Industry and Food Retail Industry.