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Will a leadership makeover at Boots mean more cash in the till?

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Boots new leadership and development programme may determine its future on the high street. By Morice Mendoza

In terms of shareholder return and thats how Boots judges itself the high-street retailer could do better. However, even though the company reported disappointing sales growth figures during the last quarter of 2001, it is still predicted to make full-year profits of 615 million this year.


But with supermarket chains like Tesco breaking into the cosmetics and toiletries market and snapping at Boots heels, the news is not good. According to Verdict, the market research company, the share of the health and beauty market held by specialist retailers such as Boots and Superdrug is likely to plunge from 58% in 1990 to just under 33% by 2006.


To deal with this threat, Steve Russell, Boots CEO since 2000, is currently piloting a deal with Sainsburys to house outlets for Boots inside Sainsburys stores. It is too early to say where this relationship might lead, but some observers believe that Sainsburys chief executive, Sir Peter Davis, is keen to merge with Boots.


While such notions remain speculative, Boots executives need to find a way to differentiate the company from the supermarkets. Unfortunately, one of Russells big strategies developing an international business has had to be significantly modified.


Earlier this year Boots reported that it would close 19 outlets in Thailand and Taiwan, in part to stem the international divisions losses which reached 40 million last year. This followed earlier disappointments in Japan and the Netherlands. Instead Boots will develop agreements with existing chains in the Far East, such as Watsons, the Asian toiletries and cosmetics retailer, for in-store outlets.


City analysts were not surprised. One was reported as saying, All they are doing is unscrambling their own mistakes. Nobody but Boots believed that international expansion was the key to top-line growth.


Generally analysts continue to judge the potential growth of the company by the way in which it develops the business in the UK which chalks up around 85% of its profits Boots the Chemist. But one analyst believes it is in danger of over-milking this cash cow to pay for its expensive new initiatives.


The other big new idea from Boots executives is to exploit the growing (largely female) market for health and beauty. The company reportedly aims to restructure its retail business so that it consists of about 1,000 local stores selling the traditional Boots products, 275 complete health and beauty stores and 140 mega-stores, or Wellbeing centres, as Boots calls them, offering such things as dentistry, body treatments and optician services.


City analysts are lukewarm about this strategy. But most accept that Boots with its strong brand is well-placed to exploit this growing market and some argue that the strategy could even transform the business. While Boots is gambling its future on this big new idea, it also has to try to cut costs. This will involve some store closures a recent press report claimed that it plans to close 100 high-street stores out of 1,470.


It will take time to see if the strategy is working. In the old days, Boots high-street dominance enabled it to sustain a traditional, paternalistic culture. Now, like most other companies, it has to fight harder to survive and its executives know that they must develop a sharper, more performance-oriented environment. It is in this context that Andy Smith, the companys 40-year old director of personnel, has introduced a new leadership assessment and development programme called Raising the Bar.


An engineer by background, Smith is still a rarity in HR circles in that he is extremely business-focused. He came to Boots in 1997 after working for Mars and PepsiCo. The latter company has become something of a breeding ground for HR high-flyers in the retail sector Tescos Clare Chapman also worked there.


Smith admits that he is highly influenced by the aggressive, proactive spirit that he found at these companies. Unlike Boots, Pepsi had always been kept sharp by its ongoing battle with Coca-Cola. Smith says, Mars and Pepsi were more aggressive, more pace-setting. Their attitude would be, We know where we want to go, were not quite sure how were going to get there but were going to get there. Boots was more cautious. It would say, Well commit to getting there when we know how to get there.


It is the Mars/Pepsi attitude that Smith wants to see at Boots. He was promoted to the board following Mike Ruddells retirement last year becoming the youngest-ever board director at Boots and has a reputation for being very driven. Debs Gleeson, director of personnel (resourcing), confided that Smith (who himself took part in the Raising the Bar assessment) was found to be driven by personal power which, broadly translated, means leading from the front.


He is not the type of HR director, therefore, to take his eye off the ball which in Boots case is to improve business performance radically. So he and his HR team will view Raising the Bar as a success if the company improves its overall performance. In the end, Smith wants better leadership to mean better customer service and ultimately more cash in the till.


Currently, there appears to be no hard evidence that the programme is working in this way. Now in its second year, it has just finished its first important phase assessment, feedback and helping the 230 senior managers on the scheme to begin their development journey. Now, says Gleeson, the effects are really starting to be felt. In her view, better leaders mean better ideas and more effective management. So in the broader scheme of things, the importance of Raising the Bar is pretty darn high.


This is the first time that Boots has produced a hard measure of the leadership skills it needs to develop, based on external benchmarks of excellence, and the first time that it will expect its managers to be judged against them. It is a revolutionary scheme for the company, even though it might look less radical to those on the outside.


How then did Boots decide who was to be put through Raising the Bar? Smith says that they simply selected the most senior managers in the top four grades. This amounted to around 230 out of a total of 80,000. The old-style hierarchical grade system has now been abolished so all senior managers in future will be rewarded and judged against the new leadership criteria. Smith says there is no plan as yet to increase the number beyond the 230 though he stresses that everyone uses the same measures now. So, anyone interested in moving up the ladder will be looking to develop their leadership skills according to the new template.


The Hay McBer consultancy was brought in to help produce this template and conduct one-to-one focused interviews with each manager as a key part of their assessment. Participants were asked to talk about three work situations to draw out their management styles. It was an important part of the interview that managers talked about their specific experiences.


Smith was impressed with the rigour of the interview when he experienced it himself. It is one of the central planks of the assessment process and enables Boots to claim that the process is fair. This point is especially important when faced with people who may feel that they have been wrongly assessed. The company can claim that they have been judged, like everyone else, according to a combination of factors such as: outside assessment through the Hay interview; a review by the top executives; performance reports; track record; and psychometric profile. In all cases, whoever assesses someones capabilities has to explain why they have come to a particular judgement.


Clearly, there are always things people would rather not hear about themselves. Responses range from those who said it was fantastic to those who thought it was a travesty of justice, says Smith. He adds, There have been some very difficult messages for certain people to hear and weve not shied away from that. But the process has integrity because the assessment is rounded.


For a lot of people [our message] has clashed with their own view of themselves and from the view they had previously gleaned from line managers. So thats been really difficult for them. Some people react badly; others say, Ive got the message and Im going to knuckle down and do something about it.


Clearly, in this context, the process of giving feedback is not easy. After the first round in which some managers found it hard to deliver the messages Smith and David Parton, director of leadership development at Boots, organised some feedback workshops to help them do a better job the next time.


More people were hurt by the assessment than Boots had been expecting, admits Gleeson. But she does not feel that they should soften the approach. On the contrary, she believes that it is far kinder to be straight with staff about their development needs. She believes you should be tough on the issues (the things that they need to develop) but be kind to the individual. Many other employers get it the wrong way round, she says, and wobble all over the place.


Gleeson has no doubts that they are doing the right thing. The minority do make a lot of noise, she says, hinting that there have been some vocal complaints. But, she adds, the majority recognise that it will help them to fly rather than hold them back. She is more circumspect about whether people will lose their jobs as a result of the assessment. She says that a few have left of their own volition but that Boots has no intention of making people redundant as a result of it.


Their intention, says Gleeson, is to work out what kind of development the managers need and help them achieve it. They give managers access to an internal or external coach, for example, to help them work on their personal needs.


One of the critical things about the assessment process is that it is a mixture of EQ and IQ: both an emotional and intellectual assessment. It also includes team leadership skills. Hay drew on the views of Boots executives, as well as their own benchmark data, to produce the final criteria. The result was a template built around three themes: thinking, pace and team.


This fits in with the formula suggested by most experts. The HR people at Boots were not surprised to find that the companys top managers performed better on the IQ side. The assessed managers, Gleeson says, were very good at understanding what is going on internally and externally, and at understanding new developments. They had high achievement drive, absolute passion for delivery, lots of moral courage and were very high on strategic insight. The weaker areas include emotional awareness and understanding others.


Of his own assessment, Smith says, There were things I learnt about my propensity to do everything myself and about the need to involve my team more. He says he has since had discussions with a coach to work on these areas and believes he has seen a change in my behaviour and performance as a result.


Stephen Ford, head of strategy decision support at Boots, and one of the privileged few to go through Raising the Bar, says what he found different and helpful was that having got some really useful feedback which tells you where your strengths and weaknesses lie, the process then raises the question, Do you want to do something about it? Its not just a form-filling exercise anymore.


Ford was particularly impressed when, taking part in a follow-up workshop organised by Parton, he and others were asked questions such as, What is the thing youd most like to do before you die? Are you going to do it? Ford adds, In many ways it feels like a bit of a luxury to be allowed time to think this stuff through.


Individuals are measured against all of the leadership criteria on a scale from no evidence to world-class. Boots would expect all managers to reach the differentiated level which represents the bar in at least six of the 11 skill sets. One level above is world-class and one level below is core.


It is important, says Gleeson, that this becomes a common language. She notes that Boots used to use words like great to describe its high-potential people but no one had a common language for describing what made them great. Also, it provides a structure for people to discuss their own development needs and map out a path for progress. Ford agrees that it has successfully brought in a common language which he has found very helpful. Indeed, he adds, hed be upset if it was taken away and replaced by a new set of criteria.


Unsurprisingly, there is little in the national press on Raising the Bar. Its impact may take years to be felt. Quietly, behind the scenes, HR directors like Gleeson and Parton will work away at raising the quality of leadership at Boots. Gleeson says she will know that the leadership programme is working when she starts to see lots of new products and new ideas going into the stores making Boots a fun place to shop.


Smith knows that it is too early to prove the link between Raising the Bar and business performance but he feels there has been a definite change in the mood of the company. He says, I struggle at the moment to say it has made an immediate difference though it is heading in the right direction. He can see, however, that it is already helping to put the right people in the right places.


One example is Gleeson herself. Starting as a Saturday girl, she worked mainly in the companys marketing department apart from a brief stint in personnel and a one-year attachment to a recent Boots internet venture. After her Raising the Bar profile, Gleeson was encouraged to head up resourcing. The decision, judging from her enthusiasm and passion for the job, was a good one.