X5 Retail Group

X5 Retail Group N.V.was founded in 2006 as a result of the merger of two Russian retail chains: Pyaterochka and Perekrestok. X5 Retail Group N.V. is Russia’s largest retailer in terms of sales volumes.

As at 30 June 2009, the Company managed 1,164 stores located in Moscow, Saint Petersburg and another 40 cities in the European part of Russia, in the Urals and Ukraine. The multi-format retailer includes 900 Pyaterochka soft discounter stores, 211 Perekrestok supermarkets and 53 Karusel hypermarkets.

OBJECTIVES AND SOLUTIONS

We started modeling competencies for the directors of X5 Retail Group in spring 2007, which was the first year of its active life. The new company incorporated two organizations from one area of business, but with very different management cultures. Effectively, the management company X5 became the superstructure over the existing Pyaterochka and Perekrestok chains. It planned to embody the best practices of these organizations, and also proceed along a new development path, after setting itself the ambitious goal of retaining unchallenged leadership on the Russian retail market, while becoming a multi-format retailer.

At the time when we started to analyze the work, the company had drafted a strategy, which existed as a presentation, and had selected a senior management team, some of whom came from Pyaterochka, some from Perekrestok, while some of them had been invited, as the saying goes, from the market. The latter included both Russian specialists from major domestic and multinational companies, and also foreign managers, who had experience of working for Western retailers. The company structure was evolving and each service was determining and spelling out its tactics within the framework of the company’s unified strategy. Against this background staff were actively being selected for the management company at all levels, while the process of hiring employees for stores and regional office centers continued unabated. In addition, the company continued to expand, assimilating new retail chains and opening new stores.

We were confronted with the difficult task of identifying the key qualities and forms of behavior of directors at all levels: from X5 senior management to the directors of stores of all formats, which would facilitate the company’s attainment of its lofty goals. On the one hand, the company was extremely big and too disparate, which required the identification of the positions of each structure and due consideration of each culture. On the other hand, seeing how the company’s development was progressing at breakneck speed, we could not lose much time on communicating with a large number of directors. On top of all that, we had to draft competencies for the new culture, which was not derived from either Perekrestok or Pyaterochka, but was expected to organically overlap from their established cultures and serve as the framework for the establishment of new formats.

As the strategy was the only document to describe the work of the management company, we started by analyzing it. The first interview was performed in according with the classics of the genre with X5 RETAIL GROUP CEO Lev Khasis. This was a typical forecasting interview, which set the direction for subsequent conversations with the directors of the company. Subsequently we were to meet all the directors – members of the new management company. This was an instance where the number of meetings was dictated by political considerations. It was essential for us that senior management be ready to accept as soon as possible the competency model once it had been developed. We could minimize the resistance that is typical when competencies are introduced by creating conditions where each individual could make a personal contribution to this development. In order to optimize available interview time, we applied different methods for collecting information, taking account of the previous experience of each director, which enabled us to cover several management levels.

We held interviews with people who had worked with their own team of subordinates for six months and more by the time of the start of the project using the repertory grid method, collecting information on positions one level lower at the management company. We conducted interviews with people who had been working there for several months, but did not have a large number of subordinates based on the critical incident method regarding the individual’s current position.

We conducted interviews with people, who had recently been promoted to director from Pyaterochka or from Perekrestok based on the critical incident method regarding their previous positions, which enabled us to collect information on senior management positions in each of the two formats. Furthermore, we only talked with one individual about himself or herself and with someone else about his or her subordinates as well, and also managed to interview certain directors using the repertory grid method. In those instances where we collected information for one conversation on the position of the respondent and his or her subordinates, the interview lasted two and a half or even three hours.

The next step consisted of meetings with the best managers of the central offices of Pyaterochka and Perekrestok – we interviewed them based on the critical incident method regarding their current position and the repertory grid or critical incident method (depending on the time available) regarding their subordinates – regional directors. During the conversations they named their best regional directors – we requested a meeting with them. The interviews with the best regional directors proceeded according to the same scheme as the managers of the central offices. We also asked for the names of the best store directors and organized meetings with them. We interviewed the directors of the stores regarding their current positions based on the critical incident method.

In total we conducted approximately 20 interviews, which were then processed rigorously. In this way we analyzed the following positions: director, heads of directorate and head of departments of the central offices, regional director and store director.

Overall the project took approximately three months, including the interview, the time spent analyzing the collected material and accordingly the modeling of competencies and also approval of the model with the managers.

DIFFICULTIES

The main difficulty of this project was that we had to analyze work that nobody had performed. This concerned the positions of central offices of the new merged company. When we moved further down to the level of regional directors and store directors, the situation there turned out to be far clearer and more transparent than at higher levels. As mentioned above, the senior management team of the company included people with very different experience and from different cultures, each of whom had his own view as to how the company’s strategy should be implemented. At the same time, some of the views coincided, while others differed materially. When we had completed the collection of information and started the analysis, it became clear that we had collected too much contradictory information on the directors of the central office. Some of the key competencies were obvious, while others differed materially. Furthermore, both were approximately equal – as a result we could not build the corporate model.

So we met up again with Lev Khasis, this time to talk about his direct subordinates – the directors of the management company – and not strategy. This second interview with the head of the company proceeded differently to the standard structure, as we had to clarify the blurred aspects identified during the previous analysis of director positions. In particular, we showed him the first results of this analysis and the list of competencies, including the descriptions that we had drawn up, and asked him questions regarding the ambiguous competencies. We proposed that he express his thoughts about the various qualities and their applicability to the business, and asked him to cite several examples of working situations where such qualities would be required. In other words, the first part of our interview proceeded according to the critical incident method, but in a slightly freer format, as the competencies constituted the starting point. In the second part of the interview we conducted an interview using the repertory grid method in abbreviated form, as only five or six attributes had been identified, something that we consider to be a major achievement for such a discussion.

As a general rule the repertory grid method is not performed during an interview with the CEO of a company for the following reasons. Firstly, a CEO tends to focus primarily on the external aspects of the organization by virtue of the specifics of the strategic objectives that the CEO is resolving (business development). Secondly, CEOs rarely deal with the management of specific individuals by virtue of the first point: they are more focused on managing objectives, and frequently find it quite boring to talk about the human qualities of specific managers. And finally, thirdly, the repertory grid method takes too much time, which is not available as a rule, as an interview with the CEO rarely lasts longer than one and a half hours.

The situation that we describe was an exception to the rule as Lev Khasis was confronted with the challenge of not simply assessing the strengths and weaknesses of his subordinates, but also of drawing up the ideal portrait of a director at a company that he had only just started to build in a culture that he wanted to form for the business objectives that had been approved. However, as analysis of the work has nothing to do with imagination, we had to base it on the real state of the affairs in order to talk about what was missing, or what should facilitate the attainment of the specific goals of the company.

After this meeting we were able to separate the wheat from the chaff and retain only the useful data from the collected information. This served as the basis for the development of the corporate competencies.

RESULT

During the difficult and protracted analysis of the collected data, we discovered that the declared cultural differences of Pyaterochka and Perekrestok could not be found in the actual work of the directors. In other words, the differences were based more on form and not on the content of the business processes. If senior management cited cultural differences and difficulties in finding a common language with the representatives of a different format, these weren’t even mentioned at the level of regional directors and store directors. Moreover, if we had not known in advance that we would have to conduct interviews with a representative of Pyaterochka or Perekrestok, it is highly unlikely that we would have been able to identify their provenance during a conversation without asking a direct question.

In addition, we could not identify any material differences in the working methods of the directors of the management company and the central offices, while the work of regional directors and store directors also turned out to be similar in nature.

As a result, the corporate competency model turned out to have only two levels. Furthermore, of the eight competencies five turned out to be uniform for both levels and only three had certain differences. The first five competencies in this instance serve to form the culture, while the latter three competencies are functional, in other words they change depending on the operating objectives. The fact that more than half the competencies turned out to be culture-forming competencies, reflected the aspirations of company management and the perception that middle management needed to build a new uniform strong culture, which would unify the forces of different formats and make it possible to win over and retain leading positions on the market.

We would like to point out that four out of five of the culture-forming competencies are communication-based, in other words, they describe forms of behavior in communications with different groups of people, colleagues, partners, subordinates, etc. It is clear that the objective of merging different cultures can only be resolved through communication. A new strong culture crystallized around corporate values should be actively discussed and explained. A new culture cannot be created without a strong ideology, while the ideology only lives when transmitted by word of mouth.

If you read attentively the description of the competencies of X5 Retail Group, you will notice a certain dissonance in their names. For example, the model includes such high-pairing names as “Promotion of Ideas” and “Commitment to Excellence”, and also such mundane names as “Organization and Control”. This is an idiosyncratic manifestation of how the strong ideological direction of the HR system and rigid and regulated nature of a fairly mundane production business are combined at this company. In addition, certain competencies (purportedly comprehensible) have a content that is slightly untraditional. For example, Single-Mindedness – this does not only imply persistence in the attainment of goals, it is also the ability to rapidly readjust, change working methods, approach a task from another angle, in order to attain the lofty goal. At the same time, one has to maintain an emotional balance and productivity in work. For example, the goal can be attained with the assistance of persistence, flexibility and stress tolerance.

Commitment to excellence is based on compliance with quality standards, but in a fairly unusual combination with initiative and self-development.

The unusual wording of the competency Promotion of Ideas stood out. To all intents and purposes, this implies persuasive communication. However, that is not all. You also have motivation. And the X5 director should also persuade other people, relying on the company’s ideology and appealing to the company’s values that he or she should communicate to the people that he or she talks to.

WHAT HAPPENED NEXT

After the presentation of the competency model to the company’s directors, we held individual development centers for members of the senior management team of the company. The goal of these events was to determine the development areas of senior management in the system of coordinates of the new list of key competencies. Individual development plans were compiled for everybody, and although motivation to perform these plans differed for everybody, in general the process proceeded quite rigorously. Within a short time senior management started ordering competency assessments for their subordinates, and group development centers were conducted for a number of the divisions.

In parallel the company implemented a performance management system, one element of which involved regular competency-based assessments by managers of their subordinates.

Corporate competency model of X5 Retail Group