Like Sbarro, Will You Be the Next Domino to Fall?
Yet, mostÂ business planning focuses on internal operations and how to improve them, usually neglecting trends and changes in the external environment that threaten not only sales and profits but the businessâ€™ very existence.
TakeÂ Sbarroâ€™s recent bankruptcy. That was easy to predict, especially since itâ€™s theÂ second time down for the restaurant chain. You have to wonder why leadership didnâ€™t do something different to avoid this fate.
Traditional retail has been in decline for a decade. As consumers buy more stuff on-line, from a rash of retailers old and new, there is simply less stuff being bought at stores. Itâ€™s an obvious trend which affects everyone. But we see business leaders surprised by the trend,Â reacting with store closings and cost reductions, and we are surprised by the headlines:
- Staples announces 225 stores will close as sales fall
- Radio Shack will close 1,100 stores as itÂ increasingly loses relevancy
- Sears continues its history of quarterly losses
- Once powerfulÂ Abercrombie & Fitch continues losing customers and sales
- Small retailers likeÂ Dots andÂ Calumet Photographic continue disappearing
Thousands of retail stores will close in 2014. It should surprise no one thatÂ physical retail traffic has been in dramatic decline.Â Large malls are shutting down, and being destroyed, as the old â€œanchor tenantsâ€ like Sears andÂ JC Penney flail. Over 200 large malls (over 250,000 square feet) have vacancy rates exceeding 35%. Retail rental prices keep declining as the overbuilt, or under-demolished, retail square footage supply exceeds demand.
Business planning is about defending and extending the past.
Given this publicly available information, you would think a company with most of its revenue tightly linked to traditional retail would â€”- well â€”- change. Yet, Sbarro stuck with its business of offering low cost food to mall shoppers.Â Its leaders continued focusing on defending & extending its old business, improving operations, while trends are clearly killing the business.
Almost all business planning efforts begin by looking at recent history. Planning processes starts with a host of assumptions about the business as it has been, and then try projecting those assumptions forward. Sbarro began when malls were growing, and its plans were built on the assumption that malls thrive. Now malls are dying, but that is not even part of planning for the future.Â Planning remains fixated on execution of a strategy that is no longer viable .
No one can â€œfixâ€ Sbarro â€“ they have to change it. Radically. And that means planning for a future which looks nothing like the past. Planning needs to start by looking at trends, and developing future scenarios about what customers need. Regardless of what the business did in the past.
Planning should be about understanding trends and developing future scenarios.
For all businesses the important planning information is not sales, sales per store, product line offerings,Â cost of goods sold, labor cost, gross margin, rents, cleanliness scores, safety record, location, etc., etc. The important information is in marketplace trends. For Sbarro, what will be dining trends in the future? What kind of restaurant experience do people want not only in 2014, but in 2020? Or should the company move toward delivery? At-home food preparation?
Success only happens when we understand trends and build our business to deliver what people want in the future. The world moves very fast these days. Technologies, styles, fashions, tastes, regulations, prices, capabilities and behaviors all change very quickly. Tomorrow is far less likely to look like today than to look, in important ways,Â remarkably different.
Plan for the future, not from the past.
To succeed in todayâ€™s fast changing environment requires we plan for the future, not from the past. We have to understand trends, and create keen vision about what customers will want in the future so we can steer our business in the right direction. Before we even discuss execution we have to make sure we are going to give customers what they want â€“ which will be aligned with trends.
Otherwise, you can have the best run operation in the country and still end up like Sbarro.
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Adam Hartung, author of Create Marketplace Disruption, is a Faculty and Board member of the Lake Forest Graduate School of Management, Managing Partner of Spark Partners, and writes for Forbes and the Journal for Innovation Science.
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