DECENTRALIZATION

David Merrefield

Could it be that decentralization will become the new permutation of re-engineering that's destined to become a focus for industry action during the next couple of years? Maybe so.

Decentralization is the antidote to the highly structured, top-down management style that follows the military model. Centralized management presumes that an all-knowing individual or group at the top of an organization can and will figure out details for the cash-generating operating units -- in our instance, individual supermarket locations. The centralized-management model presumes that top management will issue orders governing operations, products, merchandising, advertising and so on, while unit managers do little more than faithfully effectuate directives.

The centralization paradigm works well enough in a world where consumers are more or less all alike and where stores, products and merchandising methods can remain static over fairly wide geographies and for lengthy periods of time. It also works well in a world where little individualized customer attention or service is required. Clearly, if such a world ever existed, it's gone.

Here's what one expert said about the necessity to make management structures reflective of new realities. He's Richard Currie, president and chief executive officer of Loblaw Cos., Toronto: "As supermarket marketing and technology changed and became more complex, top management became less and less able to understand, let alone control, the decisions that had to be made in the field and in the stores. That means that what used to be done at the top must now be done at store level." Dick's comments, quoted in Supermarket News, were made during a trade meeting last summer.

A more proximate example came last week from Grand Union. As the news article on the front page of this week's issue shows, Grand Union, Wayne, N.J., is embarking on a reorganization strategy aimed at making sure customer-service functions are decentralized. And, taking the logic a step further, the new method is also intended to make sure store-level personnel are relieved of non-store duties. And, perhaps as much to the point, Grand Union, which emerged from Chapter 11 last June, has taken many steps lately to increase cash flow, of which decentralization is one. The most recent move is expected to produce annualized overhead-cost reductions totaling $5 million. But there should be more to it than increasing cash flow and, according to Joseph J. McCaig, Grand Union's president and chief executive officer, there is: "[We are] decentralizing the functions essential to ensure that our stores satisfy our customers. By taking these costs out of the system in areas the customer doesn't see, we will be able to reinvest those savings to strengthen areas the customer does see, [such as] pricing, sales programs and store-service levels."

Redeploying assets is an essential component in decentralization since devolving authority to the customer-contact level implies that local management must, more than ever, be far more technologically knowledgeable, have greater interpersonal skills and, above all, become better attuned to what customers want and expect out of a retail supermarket operation.

Look for more asset redirection of this type in upcoming months.

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