Can Sainsbury’s and Asda merge to become a larger yet more agile business?

The news that Sainsbury's plans to merge with Asda, which has been confirmed today, has come as quite a shock. It is a striking example of two major retailers taking a very bold move to address the ongoing challenges of an intensely competitive industry.

If the merger goes ahead, the combined group will be led by Sainsbury's chief executive Mike Coupe, who has said that this is a “transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future.”  

This statement addresses the major challenges of competition and customer focus. Coupe has also recognised the need to create a business that is “more dynamic, more adaptable, more resilient” - better able to respond to its ever-changing, fast-moving marketplace.

Combining two well-established retailers will be a challenge.  Coupe and the new leadership team will need to manage the paradox of agile leadership: creating a new, connected organisation while at the same time disrupting that new organisation sufficiently to reinvent it in a way that can compete on a sustainable basis with competitors. What does this require? A major shift towards agile ways of working, with greater emphasis on simplicity, shorter planning cycles, ruthless prioritisation focused on what customers want, and embracing digital opportunities.

Couple has also said that the two supermarkets are "the best possible fit" and there is a widespread view from industry analysts that the two have complementary strengths on which they could collaborate. So, for example Sainsbury’s is stronger in e-commerce and convenience stores, Asda is more competitive on pricing and has a stronger clothing offer in George. 

The supermarket industry is notoriously cut-throat and has undergone great change in recent years as market leader Tesco has lost market share while discounters Aldi and Lidl have increased theirs. Industry disruption has become the norm, but in supermarket retailing that disruption has been coming from discounters or from Amazon’s recent foray into the grocery market. We are less used to disruption from large, long-established corporates.

If the merger goes ahead, can Sainsbury’s and Asda merge and become both bigger and more agile? It will be a monumental challenge, and will require a very strong leadership community in the new business, willing to embrace new ways of thinking, leading and working. The alternative is that the merger ends up being a defensive reaction to new market entrants with a different business model, which may delay but not stop their ongoing disruption of the sector.

Breaking down retail silos

There has been a lot written recently about the need for retailers to create a seamless customer experience. Customers are increasingly demanding, and expect consistently high-quality interactions whether they’re shopping in-store, online, or over the phone.

While some retailers have mastered this multichannel approach, others have struggled.  Often organisations are not ‘connected’ enough on the inside to connect effectively to customers on the outside.  They have an inward-looking ‘silo’ mentality where information and resources are not shared across departments. Although many organisations invest significantly in integrating systems and processes, these simply won’t work effectively unless people across the business are integrated and invested in, too.

A recent survey, CEOViewpoint 2016: The Journey to Profitable Omni-Channel Commerce, found that only 18% of CEOs say they have eliminated operational silos and are delivering seamless multichannel shopping experiences for their customers. The survey concludes that silos have a negative impact on profitability and limit the ability to create a seamless shopping experience for customers.  CEOs of organisations which have eliminated silos expressed greater confidence in revenue growth (59% compared with 48% average for all CEOs) and profit growth (63% against 43% for those still siloed).

Talking about this issue with colleagues, we agreed that breaking down internal silos is one of the single most common issues raised by clients across different sectors and geographies. (Becoming more customer-centred is also a goal for pretty much every business we talk to.) Nobody has ever asked us to help them reinforce the divisions between different departments. There is a widespread belief that silos are most definitely not a good thing whereas flatter structures and increased collaboration most definitely are. So why does this problem persist, and what can we do to tackle it?

Most people have a natural desire to be part of a community. This can, however, translate into tribal loyalties and behaviour, with an ‘us and them’ mentality present in functions or business units that have a stronger identification with their own unit than with the wider organisation.  The leader’s role is to tackle this by drawing these local ‘tribes’ into the wider community of the organisation by creating sufficient momentum behind a shared direction, purpose and values – and a shared focus on customers.

A common complaint I hear from leaders of silos is that they and their teams are always tied up in day-to-day activities. They are too busy to find time to step back and consider how different business units can collaborate more effectively in order to meet customer needs. Involvement in cross-functional working is often considered a ‘luxury’ activity.  Overcoming resistance, however, from organisational silos is one of the main barriers to customer-focused collaboration. Abolishing silos requires determined commitment from senior leaders and a unifying sense of purpose to push through resistance. 

Activities I have seen work well include inter-team events to develop closer alignment of process, improved understanding of each other’s priorities and constraints and increased levels of feedback to improve inter-working.  Regular and ongoing inter-team discussions, sometimes including the whole team and sometimes with representatives, can help to maintain and accelerate progress.  Online forums to share and solve issues can make the dialogue very visible to all the people involved.  

When teams are empowered to operate and cooperate with other teams across processes and break through bureaucratic silos, improved customer focus and pronounced performance improvements are common. Built on the foundations of quality dialogue and mutual influence, with senior role models leading the way, teams can produce new answers to old problems and innovative ways to serve the customer even better by adapting quickly to changing circumstances.

By building better connections between teams in, for example, production, distribution, digital, merchandising and customer service, you can see reduced cycle times, less waste, improved product availability and, of course, more satisfied customers.

You can read more about addressing the issue of organisational silos in my book, Connected Leadership: How to develop more agile, customer-drivenorganisations. I’d also be interested to hear about your experiences. Please email me or tweet @CirrusConnect.