In his famous Serenity Prayer, American theologian Reinhold Niebuhr wrote:

God grant me the serenity to accept the things I cannot change,
Courage to change the things I can,
And wisdom to know the difference.

From a non-religious perspective, this is exceptional advice for business too.

The future may be unknown and unknowable, but you can predict with certainty that it will bring change. Therefore, you cannot avoid it, but you still have some control – you can decide how to respond when it happens. Your response will often dictate your fortunes, so, as illuminated in the Serenity Prayer, it pays to act wisely.

The most important prerequisite when determining how to react must be the recognition that change can be classified into two main types:

  • cyclical, or
  • structural.

Cyclical changes that affect retailers include interest rates movements, consumer confidence levels, labour conditions, currency variations, weather patterns etc. Riding the wave of such fluctuations requires a resilient business, capable of taking advantage of the peaks and, more importantly, strong enough to handle troughs when they occur.

Unlike cyclical challenges, which only cause grief for weak retailers, structural changes can amplify or destroy any business. Structural changes affecting retailers include the emergence of online shopping, proliferation of mobile phones with instant access to information, the power of social media, digital content increasingly replacing traditional media, etc.

Whilst cyclical wobbles will pass, retailers confronted with a structural change cannot just wait it out. They must transform their business model or they may have to get out of the business altogether.

Nowadays, how many shops exclusively sell fax machines? What about solariums after their link to skin cancer was firmly established? What about tobacco shops? Mini-scooters were banned in Victoria virtually overnight, what happened to retailers selling them?

A stark example of the devastating impact of a structural change comes from the history of the Aral Sea. Sandwiched between Kazakhstan and Uzbekistan, in the old Soviet Union the Aral Sea was once the fourth largest lake in the world, after the Caspian Sea, and Lakes Superior and Victoria.

In the 1970s the sea evaporated into thin air because of intensive irrigation of cotton plantations in the deserts of the western Soviet Union, which prevented water from reaching it. Now barely 10 per cent of the sea remains. Hundreds of thousands of people were displaced and hundreds of species vanished. Anyone who earned his living from fishing and expected the tide to come back waited in vain.

In the business world, Kodak’s demise provides a similar example of a major catastrophe caused by structural change. Founded in 1880, Eastman Kodak could be compared to the Google or Apple of its day.

Kodak’s technology and marketing were well ahead of their time. At one stage, Kodak gave away cameras in exchange for getting people hooked on paying to have their photos developed.

The Kodak slogan said it all: “You press the button and we do the rest.” Kodak didn’t ignore the digital revolution either. It built one of the first digital cameras in 1975 and introduced the first camcorder into the American market. But its core business model continued to rely on film. Forays into the digital world stemmed from efforts to defend their core business.

Pursuing this approach, in 1992 Kodak launched the Photo CD, a product that had Kodak scanning negatives into a digital form and returning them on a compact disc. Creative, but the product was still based on film.

Confronted with the same forces, Fuji took a different approach. It changed its business model.

While Kodak was fighting to defend its film core, Fujifilm diversified, e.g. by launching a line of cosmetics, something which actually made a lot of sense given that the company had a library of 200,000 chemical compounds. It also made optical films for LCD screens, an area where it had a 100% market share. Today, Fujifilm has strong presence in medical imaging, diagnostics equipment, digital cameras, etc.

What does this all mean for retailers?

To be able to navigate well the cyclical and structural changes that drive their environment, retailers need to continually nurture their internal strength and agility.

Solid management methodologies such as Total Quality Management must be used to reinforce the organisation, making it well-equipped to benefit from cyclical changes and capitalise on the difficult periods which often eliminate less prepared competition.

When it comes to dealing with structural change, this requires agility. Retailers need senior executives who embrace innovation, have the appetite to experiment and who look at the world with an open mind. You also need a battle chest of spare cash to invest in testing the future.

In his book titled Requisite Organisation, Eliott Jaques stressed the importance of senior executives being of high stratum, meaning having the ability to think in multiple dimensions and many years forward. Without the ability to think, plan, and invest over at least a 5-year horizon any business will sooner or later run unprepared into change that can threaten its very existence.

Do everything you can to keep watch over the horizon so you can spot the coming change early. The next step is to quickly determine if it is a mere wave or a tsunami. Not all change is equal.

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Andrew Gorecki, MD of Retail Directions, has worked with the retail industry since 1985. Industry insiders appreciate his strategic advice and insights, as he lives and breathes for the industry. Andrew received a nomination for the Australian Entrepreneur of the Year Award in 2010.
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