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Business Development Process Adopted By John Lewis Partnership

Introduction

The John Lewis Company is a retail Company based in the United Kingdom. It has around sixty eight thousand employees. The Company boasts of one thousand one hundred bad twenty five thousand supermarkets located all over the world. In addition to this, they also have twenty stores operating under the Company name. The organisation has adopted a unique business development process which has affected the overall business structure, operation and risk management.(Cope, 2002)

Methodology

The method to be used in this report is analysis of secondary data. The reason why this method is appropriate is because there is a lot of information about John and Lewis. Comparisons and examinations can therefore be conducted very easily. Some of the secondary sources that will be utilised include;

• Company annual reports
• Journals on the retail industry
• Newspaper report about financial aspects of the Company

These articles will be found in public libraries. The latter source is quite vast and much knowledge can be acquired from this area.

Main findings

Analysis of the financial challenges facing the management team and the choice of business techniques that assisted building of their flexible strategy

There are plenty of problems that have been facing the retail sector in general. This placed a lot of pressure on the John Lewis Company to adopt a strategy that would get them out of this situation. First of all, food has been commoditised. This implies that the profit margins gained by the Company were minimised. Besides this, most retail stores were moving away from the provision of specific products alone. Most of them were venturing into sectors that were not synonymous with their traditional line of business. For example, a Company that initially sold clothes could be found in the house brokerage industry. Consequently, John Lewis was also under pressure to do the same otherwise it would face the danger of being phased out. Economic problems were not the only things on the company’s management’s agenda. They were well aware of the new shopping trends. Most shoppers were going green and the Company could not be left behind. However, this was a slippery path to take because most of the time, low income households may not be capable of meeting renewed shopping expenses after incorporation of environmental needs into service provision. In relation to the latter, the Company happened to be part of the British Aerosol Manufacturers Association. It restricted the level of filling to a level that was ten percent less than what had been previously. The Association aloes requires that less chemicals should be utilised by manufacturers. The Company has to take proactive role in implementation of this requirement.  Compliance to these regulations would mean added expenditures on the Company’s part.

The Company was also faced with the pressure of incorporating the aspect of convenience into their service delivery. They had to think about delivery of goods to customers doorsteps. In case customers were not available, it was their duty to make sure that they received their orders none the less.(Guerby, 2006)

Technological changes were also an important issue to the Company. There was a move towards online shopping and the use of less cash while shopping. The Company had to put in mind the weight of these changes. Use of less cash meant the Company would have to deal with heavy credit markets which might drain the Company if inadequately administered. Such a situation presents very serious economic and financial challenges to the Company.

The Company is also known for personalisation of services. Some of the ways it has shown this is through its customer service and some of the policies governing its operations. It offers refunds for nay items sold after customers realise that they can purchase it at a lower price. Such a policy seriously affects their profits and financial situation in general.

The Company was faced with the pressure of placing its Company in the stock market. This would mean a serious consideration of the financial implications of such a move. On top of this, they had to consider the fact that most customers were getting increased access to information through the internet. Their preferences and tastes would be greatly affected by this type of exposure. Online shopping could also imply that the Company’s physical stores might not register as many sales as they used to.(Cope, 2002)

There were some political changes that affected the administration and operations of John Lewis. For example, the government had passed a law that mainly protects consumer rights. The organisation would have to invest in more consumer friendly policies and most likely, these would minimise their financial benefits. The UK has introduced more stringent measures in the retail sector. This was done in order to protect the health of the consumers. John Lewis had to come up with strategies that would be able to take it through such stringent monitoring.

The Company is faced with increased competition emerging from the unification of Europe through the European Union. This implies that there will be more competition from other international markets.

The Company also has to consider expansion as a suitable alternative. This could be achieved through opening up new retail stores. However, such a decision is subject to efficient management because the Company would have to outsource some of its business activities. On top of this, the Company would have to employ a lot of knowledge management during its operations.

The people of the world have made a turn around towards more healthy foods. This means that the organic section of the John Lewis Company had to be improved. The Company was also aware that consumers had knowledge about their employment practices. Some consumers were very strict about this issue and insist that they cannot purchase any items from Companies who get their supplies through sweatshop labour or child labour. Intense scrutiny meant that the Company has to be more watchful while conducting business as all realms of its operations were under scrutiny. Furthermore, the government has passed a law that requires greater accountability from retailers. This implies that the Company must be more careful about its operations. It should also make sure that it avoids scandals at all costs as these could be very detrimental to their business processes.

In relation to the above, the Company needs to adopt flexible strategies in its business in order to fit the ever changing consumer purchasing patterns. These days, households are composed of totally different things as they used to have before.

All these challenges posed a serious threat to the type of profits earned by such an organisation whether in the present or in the future. (Guerby, 2006)

Impact of economic and business development on the Company’s culture, systems and risk management

The Company decided to adopt a different model. It is a public limited Company. This implies that it is a worker co-op. All the employees in the Company are considered to be partners in the Company. They are part owners of the business regardless of their status. Operations and decision making processes are governed by an employee trust. The consequence of such a business development process is so enormous.

First of all, the business culture has changed for the better. Employees working for the Company relate very well to clients. Most of them are highly motivated as a consequence of owning the Company. These workers know that their efforts will be directly reflected in the performance of the Company and consequently what they earn from the Company. They work at their highest potential in order to maximise sales and increase the returns that they will obtain from the Company.

The model adopted by John Lewis is not something new to the business world. There are numerous businesses and professions that operate using this method. In the medical profession, many practitioners or private service providers are owners of their clinics and at the same time provide health services to consumers. Law firms are also well known for this type of management system. One might find that a law firm is owned by two partners and these are the same ones who deal with clients on need of legal services. Another profession well known for this type of system is the accounting sector.(Armitage, 2007)

Co-ownership is beneficial to John Lewis because of the following reasons;

• raises standards in retail
• grants retailers autonomy
• facilitates the exchange of ideas
• emphasises importance of human capital

When workers are part owners of the business, they would want to make the business improve in as many ways as possible. Workers are the best people to give suggestions about improvements to be conducted in nay given business because they know first hand, the shortcomings and strengths of the business. Most of them are aware of the rough edges in business organisation. This facilitates exchange of ideas and service provision is improved. Recommendations made by most of these employees have trickled down to the client and most of them are satisfied by the level of customer service at John Lewis partnership.

The level of contribution by most of these employees has raised standards in he retail industry. Other Companies now look up o the John Lewis partnership as an example. Some Companies have even borrowed the JL style of partnership where workers own the Company. Such an example is the Lush Cosmetics Company. It analysed the kind of service provision given by John Lewis and realise that there is much to be gained from such a system f organisation.

The business development process adopted by John Lewis has also changed the way the partnership is run. The retail sector has been granted autonomy. Most retail companies in the past were owned by other parties that were not directly involved in the running of the business. This meant that those who were directly involved in the day to day running of the business had no say on how the business was managed. They had to operate according to decisions made by people who had no idea about the intricacies involved in the process. But the business development process brought about by John lewis has brought a paradigm shift. The Company can now operate with some levels of independence and the basis of their decisions lies in their own hands.

This business development process has also had a serious impact on the way people view human capital. Most organisations have been operating under the assumption that workers are simply a means towards an end. They have never truly considered the value of this very important resource. Consequently, most labourers have been underutilised. But John Lewis Company has tapped the potential of this type of resource to a large extent.(Sparrow and Hilltop, 1994)

He Company has also changed the way it administers salaries, bonuses, profits and shares. The Company normally takes a percentage of the total profit earned and distributes it its employees -who in this cases are also the partners and shareholders of the Company. In the year 2007, the organisation gave approximately fifteen percent of its profits to workers-fifty five million. This represents about eighteen percent of their total salary. The Company is continuously improving this offer as they had increased the amount paid to their workers in the previous year to twenty nine percent in 2007. Similarly in in the year 1998, the Company gave its employees about two thousand pounds more than what the were previously earning. This is a considerable amount compared to what other workers in the retail sector have been earning. Consequently, the government does not have to chip in to support labourers in the partnership. The government had been supplementing the income earned by workers in the retail sector through its income support programmes. But thanks to the business development process adopted by the firm, this is no longer necessary. Shown below is a summary of the salaries and bonuses paid in that year.

Total employees -41,100

Part-time employees -16,300

Full-time employees -24,800

Total employees, weighted for part-timers- 31,000

Pay (prior to bonus) GBP 371.3 mill

Partnership bonus GBP 57.0 mill

Full-time employees 24,800(Armitage, 2007)

From the above indicators, it can be seen that the Company dedicates a huge chunk of benefits earned to the partners (employees of the Company). However, some problems have arisen from this type of organisational culture; some e,employees may have objections to the way profits are distributed. For example, in the year 2006, some employees were complaining that the Company was really concentrating on offering pension schemes rather than offering bonuses. They felt hat bonuses were more universal than pension schemes since the latter applied to people who had reached retirement age while the former allied to workers of all age groups.

Organisational culture has changed greatly. The company’s workers no longer need to die with their problems but can air out their grievances. One of the changes instituted by the Company was the creation of an internal magazine. Through this magazine, workers an write all the complaints they have about a certain leader within the organisation. Managers who are the object of criticism are supposed to respond directly to comments made by workers. Responses are also analysed for honesty.  Leaders within the firm are not allowed to simply brush off what employees suggest. Such an open way of administration has contributed to increased transparency within the organisation. Cases of mismanagement,poor decision making and inadequate resource allocation are a thing of the past within this organisation. Managers have to incorporate all the stakeholders involved in the partnership before they can decide on a particular issue. Consequently, workers within the organisation feel valued and are motivated to work harder. Comments and suggestions are also addressed through letters from the administration. However, this is done discreetly and all the writers identities are protected. Leaders try their best to minimise criticisms through better performance. What this has done is that now standards have been elevated within the organisation’s structures.

Systems within the Company have also changed drastically. Now the Company has a platform that enables workers to determine who are their leaders. This is achieved through the formation of a Partnership Council. This Council is composed of al the members of the organisation. The group is headed by a Chairman. All employees reserve the right to vote and they can determine whether or not a given Chairman is performing adequately. If not, then thy have the right to vote him out. One of the leaders within this organisation was quick to point out that she had to adjust to that kind of management style. She realised that every single step she took was subject to public scrutiny. She happened to be the Personnel director of the Company. However, it should be noted that employees have no been given supreme powers in this case. By having the right to vote, employees do not necessarily eliminate all the managers they do not like. Actually, before a Council chairman is dismissed, a thorough check is done on his or her ways of administration. If the latter has been found guilty of certain faults, only then can they be eliminated. (Faragher, 2007)

Because the company has a lot of respect for its employees, then it trusts decisions made by them. T His is the reason why line managers have been granted the ability to make their own decisions without having to consult the Human resource department every now and then. Actually the running of the firm is such that the latter department is only consulted during a very serious case or when trying to handle a crisis. Consequently, decisions are made more efficiently because the organisation wastes very little time and few parties need to be involved in the process.(Sparrow and Hilltop, 1994)

Since the company is a partnership, then it needs to show appreciation towards its employees. It has done this through;

l        Bonus save scheme

l        charity events

l        awards

l        trips

l        incentives

l        flexible working hours

The Company has given its employees the mandate to re-invest their bonuses into the business. This is done through the ‘Bonus Save Scheme’  because it realises that some employees may not wish to spend their entire bonus or others may feel the need to invest their earnings and what better way to do this than through purchasing shares within the organisation. The Company has allocated a maximum allowable amount for this sort of investment and it varies from year to year. The advantage of such a provision is that members of staff will feel the need to boost their efforts because they have more interests to protect within the organisation. The company has placed  maximum allowable amount in this investment which is four thousand five hundred pounds for every employee.

The Company has also created a system in which workers can participate in charity events and they can still receive payments while away. The Company called this offer the golden jubilee trust. By participating in charity events on behalf of the organisation, employees gain a sense of loyalty towards the organisation and they do it with one heart knowing that their salaries will still be waiting for them after they return. In addition to this, employees who have involved themselves in many charity events are liable to awards offed after every year. This awards are administered by another independent body such that all the workers are treated fairly and given equal chances of winning. Such a scheme has created a sense of brotherhood within the organisation. Most of the employees feel appreciated and have therefore been motivated to work harder. Others are allowed the time to rejuvenate and regain their lost energies. This has all trickled down to the  consumer in terms of better services from the organisation through these consumers.

Not only does the organisation give a chance to some of its members to rejuvenate and take some time out, it allows them a chance to enjoy services from the organisation after retirement. The Company has organised a reunion lunch for some of its old members. In addition, it has also made sure that some of the former employees of the Company can be able to success loans whenever they need to. Besides this, there is an annual reunion for old John Lewis workers where people can interact and remember their olden days. They also give monthly magazines to this same category of workers. Consequently, employees desire to continue with the organisation because they can see the long term benefits that come with working for the organisation. Research has shown that organisations with low employee turnover have increased cohesiveness. On top of this, long term employees reduce expenses within the organisation because very little has to be spent in order to train new staff members. Service provision is also consistent because most of the people within know what is expected of them.(Faragher, 2007)

Flexible hours are also another motivating factor within this organisation. Most other organisations only offer flexible working hours to people with families; singles are never considered in this case. However, because of the business process that occurred at John Lewis through the formation of a worker o-op, there are significant differences in the implementation of this incentive. The firm allows any employee to ask for flexible working hours because they realise that most people within any business must need some time out whether or not they have families.

However, risk management has also changed within the Company. The Company is a partnership and according to the law, there are some restrictions whenever such a company is considering expansion. This could probably be the reason why the retail Company has not been seen in many expansion programs. Some of its rivals like Marks and Spencer retail chain have engaged in a lot of expansion programs. This gives them an advantage over a partnership like the John and Lewis Coop because they can tap some of the world markets like the ones in Asia and the rest of Europe. John Lewis is largely a UK company rather than an international Company. This is the reason why the company chairman Sir Start announced an expansion plan to continue upto the year 2013, however,this plan will only involve the following areas

l        Leicester

l        Portsmouth

l        Cardiff

l        Northern Ireland

l        Leeds

l        Stratford in London

l        Preston

l        Crawley(Dale, 2001)

As it an be seen from the list, none of the regions chosen for exapnsion are outside the UK. Such an approach has hindered the Company from exploiting its full potenbtail.

Payroll costs are also another issue that adversely affect the John Lewis Company. Most other Companies do not necessarily get affected by payment of pension schemes because most of them have transferred their liability from the Company to the employee. But because JL is a worker coop, doing so would be against their corporate principles. Therefore the Company also faces the burden of dealing with all the finaces of the given Company. This was the reason why in the year 2006, it was reported that the Company was facing a serious debt burden. It had a very large deficit in its pension fund and was out of options to deal with the issue. Some other retailers have solved this problem by leaving it upto the given employees but this is an option that cannot be considered by John Lewis. During that year, the following had been reported about the Company’s pension scheme

no of employees-40000

no. of deffered payments-18300

toatal deficit-68 million pounds

total pensioners supported-14,148

assets in pension funds-1 billion pounds

Some of its rival Companies have come up with cretaive ways to solve the issue of pension funds but this is not the case for the John Lewis Company because it has to consider the interests of its partners first before any other issue. Such an approach may not necesarily be the best decision to make especially when considering the economic perspective. The approach used by the fim is to place most of its pension funds into bonds. As of last year, the Company had ten percent of its pension funds in bonds. Its aim this year was to increase it by two point five precent to become twelve point five percent of the assets to bonds. However, the Company’s personnel (especially their top adminstration) have defended this type of approach. Some of them have claimed that the reason why they have chposen to bear the risk of pension schemes rather than taking it to their empoyees is because the Company spends minimal amounts in the process of recruiting and retaining their staff. So the latter offsets expenses in adminstration of pension schemes.

Obstacles to financial and competitive advantage in the future

The Company will be faced with many challenges in the future as some of these have already started showing presently.

First of all, the Company will face obstacles when trying to close certain woker Unions. For example recently, the Company came under fire after it tried closing down Unite which was a Union for some of its employees. Most of them felt that the Company was applying double standards. They felt that this was against their democratric principles and very little could be done to improve the situation.

The Company wil also face hurdles in case it decides to beome a public corportaion. Legaly, the Company is a partnership and it cannot simply switch from one type of Company to another. This will become very restricive to some business ventures because the Company may not be able to conduct them in the current status that it is holding.(Dale, 2001)

In the year 2007, it had been reported that the Company was facing severe shortgaes finanacially and it had considered placing its shares publically. This suggestion was openly resisted by partners of the organisation. They felt  that it would undermine their corporate principles because the moment the company goes public, most decisions will be made in the interest of the business rather than for the sake of the employees. By closing this avenue, the Company will constantly be faced with the challenge of managing its funds profitably yet at the same time protecting the interests of its shareholders.(Sparrow and Hilltop, 1994)

Another hurdle that the company will have to overcome is the issue of personalised service. As the retail industry is now, most customers are purchasing their items online or others have introduced automated services within their outlets. Howeer, John Lewis prides itself in the fact that it provides highly effecient customer sevice. It may be difficult to achieve this with the current technological advances that minimise contact between purchasers and sellers. However, the Company could improve telephone services; where customers can air out their grievances. To cope with this problem, the Company could also introduce some forms of intercation between clients and the Company via the internet. It could do this through cetain blogs on their websites and other forms of technological comunication. This wil help the Company cope with all the inadequecies it is facing currently.

Conclusion

The Buisnes developent process adopted by the John Lewis is the strengthening of its partnership. This partneship was formed intially as the Company was just starting aSome of the cahllenges facing the Company that prompted such an approach included the move towards healthier foods, protection of consumers by the government through laws, technological advancements on service provison within the retail sector, increased competition from other European markets, diversification of retail service providers from traditional products to a variety of products. All these issues prompted the John Lewis Company to adopt a more agressive aproach to their partnership agreemnet. This was done through a business development proces. Some of the effects of this process included provision of better pension schemes to most of its employees, provison of certain incentives like flexible working hours and trips. The company also changed the way its structure was administered. It formed a partnership council composed of employees within the organisation. They had a right to either fire or hire a new chairman if they had adeqaute reasons to do so. The organistaions’s culture also changed in that workers contributed greatly to the business decisions. Most of them felt like they owned the organisation as a result of the shares and did everything within their powers to improve the company’s image. This business development process also affected how much employees received as payments and the risk management of their pension schemes.

However, such a scheme does have its shortcomings, the company will be unable to flaot its shares in the stock market because of its corporate culture and sometimes financial difficulties might impede its progress.(Sparrow and Hilltop, 1994)

References

Cope, N (2002): John Lewis weighs final salary pensions revamp; the Independent (29th April)

Guerby, L. (2006): John Lewis and school reform; Retrieved from http://stumblingandmumbling.typepad.com/stumbling_and_mumbling accessed on 13th march 2008

Armitage, J. (2007): Lush to adopt John Lewis set up; retrieved from http://www.thisismoney.co.uk accessed on 13th march 2008

Faragher, J. (2007):  John Lewis Partnership; working in partnership; Personnel Today Magazine (17th April)

Dale, M. (2001): The Art of HRD: Developing Management Skills        , Vol. 3, Crest Publishing House, New Delhi

Sparrow, P. and Hilltop, J. (1994): European Human Resource Management; Melbourne Press

About the Author

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