Chief financial officer, J Sainsbury plc
Sainsbury’s operates more than 1,000 stores, an online shopping service, a bank, and a new mobile phone business. As CFO what role do you and your team play in managing such a diverse business?
I truly believe the role of CFO at a big multinational is to not only support the commercial decision-making business, but to lead it. I was in China recently looking at the market opportunities there. Other days, I might be dealing with pension schemes or with the operations at our new bank. I’m very involved in our long-term supplier relationships and how we invest our capital in new business areas. The days of the bean counter CFO, or the bean-counter finance team, are long over. For example, the decision to select strategic suppliers is made and managed by the trader or the buyer, a finance manager, and occasionally someone from legal. We call it critical business partnering. Finance, I would say, plays the most important role in our business. We don’t just supply the data. We also critique the process.
How has your approach to critical business partnering changed your job?
The biggest change is with recruitment. We look for recruits who are real problem solvers rather than the traditional, old-school accounting types. It’s no longer about crunching numbers. The finance role requires more commercial awareness. If you are going to be embedded into key business divisions, supporting, retail, trading, marketing, IT, property, you have to be intellectually curious. Not surprisingly, I’m encouraging my finance team to spend more time outside of finance.
And what has been the result?
If you look across our business, you will find that many key commercial roles are filled with someone from a finance background. For example, our head of logistics used to be my director of group finance. Our director of supply chain used to run our internal audit function. One of our key business unit directors on the trading side was our commercial finance director. I was property director for three years prior to being named CFO. I am not saying the right construct is to build an organization entirely resourced with finance veterans. But it certainly helps if you’ve assembled a team that understands the language of finance.
A greater understanding of finance usually translates to better managed P&Ls. What effect do teams steeped in finance have on managing change and nurturing innovation?
In retail, survival is about staying on top of technological change. Our commercial team thinks through how we can reengineer our business processes. This means scanning the technological horizon to see what other companies are doing and whether the technology that is being used in industries outside of retail could apply to us. And then we look to the customer. The investment decision is catalyzed on their level. Here’s how I view it: If it’s valued by the customer, then it’s the right thing to do for the business. Take our self-scan technology, which allows customers to scan and pay for their groceries as they exit the store through a fully automated process. It accounts for 50 percent of our transactions by volume. It is successful because it saves them time. We recognized early on that some customers would love it, and some customers would be reluctant to scan their products themselves. The lesson is there will always be customers who will embrace new technology, and then there will be others who will shy away from it. But it’s clear to me that you have to give customers that choice.
Where do your innovative ideas like self-scan come from?
Sometimes customers suggest new ideas. Other times, the ideas originate elsewhere. Regardless of the source, we always bring the idea back to the customer, usually during focus groups, or through written or online questionnaires. We ask our customers, ‘What do you care about?’ ‘What would you like to see?’ These sessions cover new technology, new product innovations – even how we engage with our customers in our stores. As part of that process, we’re thinking, ‘How can technology make our customers’ lives easier?’
Retailers use an impressive number of methods to gather data on customers. Do you have a preferred method?
I find that the richest data comes from face-to-face question-and-answer sessions. What became clear to me during those initial self-scan focus groups was that we weren’t dealing with a pro versus con debate. And so I concluded if some of our customers love the idea then we should do this for them. Clearly, you would prefer to get the vast majority of your customers on board for such big decisions. But even if we only have a relatively small group of customers in favor of a particular idea at the outset, we will consider implementing it if they really care about it. This how we roll out most new things. We asked our customers, for example, ‘Do you care about local, British sourcing?’ ‘Do you care about sustainable sourcing?’ Not all customers care about such things. But a sufficient number do. Therefore, that’s something that we decided to focus on. We’re constantly asking our customers, ‘What is it you want us to do differently?’
How do you sell these customer-generated ideas internally, particularly the radical ones?
With data. Few UK retailers have the same quality of data as we do. In retail, there truly are the data-haves and the data-have-nots. We acquire data in the main through Nectar, our loyalty card scheme. The Nectar data has been critically valuable in new product launches, such as a range of ready meals we recently introduced. The data tell us which customers bought our ready meals before the re-launch, and who buys them afterwards. If we see customer segments stop buying then we then take that data back to our customer focus group sessions. We want to know why, and then we’ll adapt our product line based upon their response. Understanding these patterns is critical.
Sainsbury’s Nectar card loyalty program launched in 2002, and now you have 11.5 million active users. Eleven years on, what have you learned?
With any loyalty data collection scheme, it takes awhile to build up a sufficient amount of data on customer behavior. Eventually, that data cache helps build a reliable history and allows you to look forward too, to perform trend analysis. But it takes time to get there. You might not get anything meaningful in the first year or two. But afterwards, the historical data become a critical tactical advantage.
Our Nectar data is centrally recorded. That gives us tremendous flexibility in how we can interrogate it, and it’s also changing how reports are generated and information is shared internally. For a company like ours, with several business lines, we generate a huge number of reports. We’re trying to streamline this data flow. And we’re doing that by asking managers: what is the precise question you’d like answered? Focusing on that question, rather than on the task of generating yet another new report, creates an operational discipline. So my advice is: don’t just crunch data to see what it throws out.
It almost sounds like advice from a CIO. Do you work closely together?
My relationship with the IT director and the rest of the board is very close. Big commercial decisions, whether it be real-time supply chain matters, or warehousing or revamping our Web site, often require significant technological investment. It also requires a senior team with a shared vision. That said, our IT resourcing and the entire technological thinking at Sainsbury’s has really moved on in the last five or six years. We have adopted an IT investment model that prioritizes user requirements first and foremost over the prescribed technological solution. That makes sense. The customer-first approach is critical in retail where macroeconomic conditions really impact the sector, and it’s true of how we approach our IT investments. The economy has been incredibly tough over the last couple of years in the U.K. But we weathered it better than most. Why? Because doing right by the customer, putting them first and foremost in our decision-making process, enabled us to ride those waves better than the competition.