Archive for March 14, 2012

The Consequences of Unintended Consequences

When you can measure what you are speaking about, and express it in numbers, you know something about it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.….Lord Kelvin.

And so it goes with contemporary business. With new tools and technology, we can measure most anything that moves in retail.  Customer data, warehouse movement, refrigeration case temperatures are all trackable and manageable.

But what about those things that we still cannot easily measure?   It is a simple scientific process that enables the retailer to measure pre and post effects of making changes to the operation.  But what we don’t do a very good job with is measuring “unintended” results that often occur when our intended directives become reality.  Some quick examples of unintended consequences spoiling the “wins” we hope to get from our actions are familiar to all of us.  Reductions in labors are a great example.  These reductions often  that produce more efficiency and short term cost reductions, but the resulting impact on customer service erodes customer count and sales. But do we every attribute this erosion to the measured efficiency?  Likely not.

How about another initiative that is very much in vogue currently, “sku rationalization”?   Reducing inventory or selection within categories can have the predictable positive financial impact on that particular category, but in the longer run, negatively impact the stores’ ability to attract shoppers who like the extended variety that store formerly showcased.

You get the drift.  While we live and operate in an age where financial formulas have taken the lead in driving business initiatives, I think it is important to “think through” and identify the list of potential negative consequences that often mitigate any of the predicted financial benefits of  these so-called innovative efficiencies.

Avoiding such calamities begins with the decision making process.  I am not suggesting the financial or operational teams not have a role to play in the decision making process.  I am advocating that it is important to have a customer-centric, research based advocate voicing their opinions and evidence about potential “watch outs”  when considering making such changes.

It is important to remember the customer is in charge….a theme that continues to dominate  food industry research findings.  If reductions in labor or inventory do more damage to consumer satisfaction than create financial benefit for the company, it might be wise to re-think how decisions are reached and how the  potential impact of those decisions are measured.  If retailers and brands continue to make decisions without forethought to customer impact, they will likely be managing increasingly smaller sales and customer numbers going forward.