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Why Wal-Mart won't go the way of Focus DIY.

Why Wal-Mart won't go the way of Focus DIY

Do you remember Focus DIY? Opened in the early 1980s, it grew to become Britain's second-largest do-it-yourself chain by 2002, with 430 stores and sales of more than £1.66 billion.

Five years later, though, the company ran into financial difficulties, partly because of debts built up during its period of expansion and partly because the DIY market as a whole had experienced a two-year drop in sales. In 2011, after four years of losses, the Focus Group went into administration. Fifty-five stores were sold to competitors B&Q, Wickes and B&M Bargains. The remaining 123 were closed.

Or what about Babcock & Brown? Founded in 1977, the global investment and advisory firm had 28 offices and more than 1,500 employees worldwide at its peak. In 2007 its market capitalization reached more than $9.1 billion. But fears about debt levels caused its share price to collapse. By December 2008 its market capitalization was less than $50 million. The company was insolvent by March 2009 and placed into administration five months later.

These examples highlight a continuing problem - that only a third of excellent companies remain excellent over the long term. Even fewer manage to implement successful transformation programmes. And most of today's companies will falter within 20 years.

Two senior partners of management consultant McKinsey, Scott Keller and Colin Price aim to help firms to beat these odds as seen in this years issue 2 of The McKinsey Quarterly. Drawing on the results of decade-long research involving more than 600,000 executives and employees from over 500 organizations worldwide, the authors developed insights about what matters for success.

First and foremost, they argue that organizations must constantly renew themselves in order to stay healthy. But what works for one company may not work for another. For this reason, it is seldom sufficient to mimic best practice from other organizations.

Moreover, common sense can often lead a company astray. Say the authors: 'Rational, logic-driven approaches to creating organization-wide change neglect the irrational biases we all share. The most effective leaders take into account the predictable irrationality of employees and leverage it fully to create lasting change.'

Keller and Price offer practical tools and clear processes that leaders can use to change their organizations for the better.

US retail giant Wal-Mart is an example of a company that needs to adapt in order to stay at the top of the tree in retailing. Jopson points out in June 2011 of the Financial Times that, while the company's international business is expanding rapidly and now makes up a quarter of revenues, the firm is stalling in its domestic market.

There are several reasons. With oil prices high, customers are staying closer to home and buying in smaller quantities. They are increasingly using the internet to get the best deals. And more than a third of Wal-Mart's customers are from the poorest segment of the US population, hardest hit by unemployment and falling house prices.

Jopson reflects: 'The retail sector is a sobering narrative of shifting formats in which no company retains its gravitational pull for more than a few decades.'

But no one expects that Wal-Mart will fail any time soon. The company transformed itself in the 1980s by introducing food, and will do so again. Its recent experiments with new formats, technology and marketing bear testimony to that.

True, revenues at the company's established US stores have fallen in each of the last eight quarters. But as Jopson points out, one in 10 retail dollars in the USA are still spent in Wal-Mart and group revenues last year were greater than those of any company in any sector anywhere.

It's not a bad position from which to start with organizational transformation.