These are important questions that any aspiring entrepreneuror business manager will ask themselves many times in their career. TomBoardman, the current chief executive officer of Nedbank and founder ofBoardman’s Retail Stores learnt his most important business lessons throughexperience, by being out there on the frontline, making important decisions andleading employees through good times and bad. He says: “A fundamentalphilosophy I have is that nothing you learn in life is ever wasted. Sooner orlater you will be called upon to use every bit of knowledge and experience andinformation that you have collected along the way. And that’s why when you areyoung you can be very smart and you can be well educated but actually only timeand experience can create wisdom.”
Tom Boardman started his career as financial manager forSouth Africa’s largest corporation, Anglo American. From there he went on tolaunch the country’s first ever chain of retail “home stores”, Boardman’s, andin so doing, paved the way for a whole new retail category in South Africa.After leaving Boardman’s in the hands of the Pick n Pay Group in 1986, he wenton to join BOE when it was still a private company. Boardman helped list BOE onthe Johannesburg Stock Exchange and was later named chief executive of thecompany. In 2002 BOE was acquired by Nedbank and a year later Boardman wasappointed chief executive of Nedbank with the task of turning the financialinstitution around after a few years of disappointing results and a consequent lossof market faith. He set ambitious goals for Nedbank in 2004 and achieved themin 2007, returning the bank to healthy profitability and ensuring that it wasstrong enough to weather the financial storm that lay ahead in 2008.
On the surface, it may seem as if Tom Boardman’s career hasbeen a smooth, successful journey as he has transitioned from one leadershipposition to another but when you delve into the details, you realise that hepaid a high price for some of the lessons learnt along the way. You alsorealise that he took both success and failure in his stride and learnt fromevery opportunity, and it is those lessons that have given him the wisdom,confidence and management insight to lead one of South Africa’s largestfinancial services companies through one of its most challenging times.
The first deal
Boardman obtained a Bachelor of Commerce Degree in Law atWits University and then served articles at Deloitte & Touche to qualify asa chartered accountant. After completing his articles he was offered a job infinance at Anglo American Properties where he concluded his first major deal, amerger: “On the Monday we had very broad range discussions on the merger. Weagreed to meet again on a Thursday with the company with whom we were doing thedeal. We did a little bit of work on the Tuesday and my boss played golf everyWednesday, so he went off to play golf. When we arrived at the office onThursday we had a couple of notes sketched out. At the meeting the managementof the other company had a complete blueprint of the merger. They were so muchbetter prepared at that meeting that we were on the back foot from then on. Itwas a great lesson in preparing for meetings. He who prepares best gets what hewants.”
Boardman described how this lesson has stuck with him since1973 and it is evident that he still lives by this philosophy today. Before mymeeting with him he asked for an outline of our discussion and arrived at themeeting prepared with printouts of slides, documents and a clear idea of the directionof our conversation. Having had to scramble for position in the merger talks backthen, Boardman’s team eventually consummated a deal. It was then that he wasexposed to the realities of a corporate merger. He had learned about thestructure and purpose of mergers in his accounting and law classes but no oneever warned him about this thing called culture. “One can potentially cutcosts, achieve economies of scale, share systems etc…. but when you try tomerge two very different cultures it’s a very difficult and complex thing,” hereflects. Ever since that first deal he has been much more aware of culture inorganisations. He always works on fostering the right kind of culture in hisorganisation and takes time to assess culture when considering a merger or apartner organisation.
A few years into his tenure at Anglo American Properties,Boardman was relocated to Cape Town to be finance director of Sam Newman’s – abuilding supplies company in the HL&H Group, also part of Anglo American.“I went to Cape Town early in 1977. After the riots in 1976 South Africa was indeep trouble. Things were looking really, really bad and the building industrywas in a nosedive. Cape Town had some of the wettest winters ever so theresults of the building materials division were dreadful. Eighteen months afterI arrived there the chief executive left. The other execs looked around andsaid: “Tom, can you just hold the fort while we look for a new CE?” I was 28 atthe time and the company employed around 3 000 people. So I held the fort asacting MD and I learned another of life’s great lessons… that a huge amountin life depends on luck. Now obviously if it comes your way you had betterseize the opportunity. You may be absolutely brilliant and talented and you getno breaks. But when a break comes, you have to seize it.”
“In the first 12 months while they were still looking for anew CE, the economy improved. Massive housing projects were initiated on theCape Flats and we had the driest season in 25 years. Every month the numbersgot better and better. It was not genius; it was the way the things work. Theresult was that a year had gone by and they hadn’t found a new CE and they saidto me: “You are it, GO!” Boardman points out that business people must monitorevents in the external environment and respond with conviction to changes. Thatmay mean seizing opportunities when the environment works in your favour orputting contingency plans in place when it works against you.
Knowing the numbers
Not yet 30 and leading a company employing 3 000 people –many of them older and more experienced than him – Boardman had the advantageof being able to understand the numbers in the Sam Newman business. Numbersbring everything down to a common unit of analysis and enable a person to seethe big picture, he says. “What happens in any business is that you put moneyin. It either goes in as debt or equity. Then it fragments and it goes intoinventory, people, buildings and plant and equipment. Eventually it comes outthe other side as profit, which is reinvested or distributed as dividends.While it is fragmented, it is very difficult to interpret. A person whounderstands the numbers in a business can be like the only interpreter in thecity of Babel where nobody spoke the same language. So if there is one personwho can speak all the languages, imagine the power that person is sittingwith… as a 29 year old with one year in the business, the big picture that Igot from having all the financial pieces was very powerful.” Boardman suggeststhat all people who want to succeed in business should develop the skills tointerpret financial reports, “without that you will always be at the mercy ofthe person who can provide such an interpretation” he says.
One of the major developments that Boardman introduced atSam Newman’s was the transformation of the company’s struggling retail hardwarestores. The company had many wholesale yards and just two retail stores andBoardman realised that retailing hardware goods in a store is different towholesaling building supplies from a yard. He revamped the stores to make themmore appealing and brought in a Swiss store designer. By displaying items in amore logical, accessible way, turnover started to increase: “When things aregoing well you need to understand as much as you can about the reasons why.When business is going well people seldom ask why. But if it’s going badly theywant answers. Things were going well so I set out to find out why,” hereflects. “We did in-store surveys and discovered that more and more women werecoming into the hardware store. So we asked them why they were coming to thishardware store.
They said it was because they liked it. We found out that womenmake the majority of home décor decisions and hardware had traditionally beensold in an environment where women didn’t feel happy. We discovered that bycreating a hardware store with a pleasant environment we had hit on somethingbig.” The business took the next step to leverage this opportunityand a new Sam Newman’s store was built – “a whole new concept” which took off immediately because there was nothing like it in SouthAfrica at the time. It was a home store but it retained items such as paint andwallpaper. “We scaled down the range of technical fittings but we had a toolsection. With this new concept we took what Sam Newman’s was known for, butadapted it for women.”
Taking a leap
Even though the new Sam Newman’s retail stores were doingwell, the HL&H board questioned whether the concept fitted into theirportfolio. HL&H was an industrial group and the directors saw the retailstores as non-core. Boardman was tasked with finding a buyer. He looked aroundfor a few weeks and then started toying with the idea of buying the retail storeshimself. He approached the board and was told that if he could raise the moneyin 30 days, they would consider selling to him. He mortgaged everything, andborrowed as much money as he could to raise the capital for a 51% share in thenew business. The Swiss store designer and one of the other Sam Newman’smanagers put up the capital for the other 49%.
One of the real challenges of the acquisition wasnegotiating the price of the sale: “When you are buying, you want to get theprice as low as you can.…if I had been a total outsider, I would have arguedand haggled to knock down the value of the stock. But having been MD of thebusiness, it is very difficult to argue against what you have on the books. Iprobably paid too much for the business and, with hindsight, I would haveinterposed an independent person to act on my behalf.” After agreeing on aprice, Boardman and his partners developed a plan to turn the retail storesinto a sustainable, growing business.
They decided to call the business “Boardman’s Retail Stores”encapsulating the Boardman family name in the same way that quality departmentstores like Garlicks and Masons had, recalls Boardman.One of the benefits of working for a large successfulcompany early in your career, is that you may learn relevant managementpractices and pick up some useful strategic tools. At HL&L, Boardman wasexposed to a framework for understanding business that resonated with him andhe has applied it in every business he has run since. He found that certainbasic business principles apply equally whether you are running a start-upretail business with only two stores or a large listed financial servicesinstitution. The framework he uses, which came from HL&H, and is still usedin Nedbank today, is depicted on the left.
“It starts with vision” says Boardman. “At Boardman’s, ourvision was: ‘To develop the first national retail chain, mass marketing qualitycontemporary design, household goods at affordable prices’. Twenty five yearslater I can still recite it. So could every person in the business. And eachone of those words had a great deal of importance.” Values were not as high apriority for leaders in the early 1980s as they are today, says Boardman, butin launching Boardman’s, they did try to be explicit about what was importantto them as a company. Boardman relates how they crafted strategy and identifiedcritical success factors: “When you have your vision, you need to establishstrategy; within strategy, you need to decide what your critical successfactors are. Every business has critical success factors, three or four factorsthat determine the success of the business. You may have to go out and do someresearch and scenario planning to understand what is happening in the market. Look at the macro side, do your normal old SWOTanalysis to ascertain exactly what those success factors are.
At Boardman’s, our critical success factors were:
- To have unique and different merchandise. To be different
- To display items in a way that people can visualisethemselves in a room
- To achieve store efficiencies to minimise shrinkage
According to the Boardman adopted framework, you need todetermine the critical success activities attached to the critical successfactors: “This is about ascertaining what different people within the businessmust do to achieve the critical success factors. Linked to that you need toestablish an appropriate structure for the business so that people caneffectively carry out the critical success activities, and then you need tofind the right people for each role,” says Boardman. “Very often managersselect people and then look for a job for them. They should first identifytheir critical activities and then find the best people for those activities.
“With the right people in place you ensure that each personhas specific objectives stipulating exactly what you want them to achieve. Youmeasure people-performance based on those objectives and reward them for goodperformance,” says Boardman. “In thirty five years, the reward performanceblock is the most difficult block I have ever had to wrestle with. It is morecomplex than all the other things in managing a business and if you get itwrong it drives the wrong behaviour. Once you have got the reward system inplace you have to constantly ask whether the reward system is driving youtoward your vision. Is it rewarding the right value systems and driving yourstrategy?”
Making it work
Having mapped out his strategic plan, Boardman set about thehard work of building a business. He thought he had worked hard as a 29 yearold managing director of a building supplies business, but he worked evenharder when it was his own capital on the line and he was running a growingretail business with his family name in the brand. To be really effective as amanager he found that he had to be visible. “There is no substitute for’management by walk-about’; visible leadership is the first step in leadership.Initially it was easy because we had two stores. As the business grew it becamemore challenging but still essential. I also travelled with my buying teams tothe trade fairs in Milan. On my first visit to Milan, I asked: “Where does allthe wood come from?”
I knew from HL&H that moving timber around is veryexpensive and if I could find the source of the wood, the factories producingthe furniture would be nearby and I could buy directly from them. I discoveredthat the wood came from Yugoslavia and most of the manufacturing was in anortheastern corner of Italy. So we hired a car and drove up to visit smallmanufacturers in the area. We negotiated deals with them and in so doing cutout the middleman. None of the other retailers were doing that and it gave us acost advantage. Our willingness to get intimately involved in the operationsand work with the buyers allowed us to establish this advantage.”
Today, Boardman is still renowned for being highly visible.On my way into Nedbank, the ladies at the main reception told me how much theyenjoy it when the CE spends time talking to them and finding out how they are.
In search of growth
After eighteen months in business, the Boardman’s managementteam decided they were expanding too slowly. To help grow the business theyresolved that they needed a partner. After considering a number of retailorganisations in South Africa, they received a call from Pick n Pay. Boardmanliked the family values of Pick n Pay and after some rounds of negotiation theydecided to enter into an equal partnership in which Pick ‘n Pay would buy 50%of the equity from the original partners, allowing them to pay off their debtsand providing some capital for growth in the business. The partnership meantthat they shared the profits but also needed to fund additional capitalrequirements on the same basis. Boardman saw the upside of this relationship,but failed to pay enough attention to the potential downside.
When the deal wasconcluded, the plan was to open two new stores annually for the next threeyears, rolling out two additional stores in the Western Cape in 1985, another twoin the Western Cape in 1986 and then moving up to Gauteng in 1987. After signing the deal, the business began to grow accordingto plan. Two large new stores opened in the Western Cape in 1985, one inTygervalley and the other in Stellenbosch. Then, out of the blue, that sameyear, Boardman was offered a lease for a new store in Midrand. TheVerwoerdburgstad Mall was opening up and had 2 000 m2 of prime retail spaceavailable. Pick n Pay wanted to proceed even though it deviated from the plan.Boardman flew to Gauteng on Raymond Ackerman’s private jet, met with his oldbosses from Anglo American Properties, saw the development in the Midrand areaand decided it was too good an opportunity to pass up. He was confident thecompany would be able to accommodate the additional capital requirement if therand did not weaken any further. If it did weaken, he would be in trouble, buteconomists told him that the currency was undervalued and would probablystrengthen. Boardman relates: “A big lesson here, when you look at scenariosand see bad news don’t ignore it. You have to contemplate theuncontemplatable.”
He signed the lease for a Midrand store and a few weekslater a lease for a new store in Eastgate became available. Once again Pick nPay wanted to build an additional store, at odds with the original plan, andagain Boardman rationalised it and signed the lease. When he signed the two newleases in Gautengthe exchange rate was at about R1,25 to a dollar. Within five months, PW Bothamade the “Crossing the Rubicon” speech and the rand fell to R2,63 to a dollar.There was now no way that Boardman could find the money to fund the workingcapital requirements of the expanded business; he just did not have the cash.The only way out was to sell the company. Boardman realised that he had takensome risks and the environment had turned against him. There was nothing hecould do. He sold Boardman’s to Pick n Pay for R1. Even though Boardman did not remain involved in thebusiness, what he had started continued to be successful. A new category of“home store” retailing had emerged in South Africa as a result of thepioneering spirit of Tom Boardman and the retail stores bearing his name stilloperate successfully in most major shopping malls in South Africa today. Boardman’sis now part of the Edcon group but the Boardman’s retail format that youexperience today is not very different from what Tom Boardman originallycreated in Cape Town in the 1980s.
Although he was sad to have to leave the retail businessthat he had put so much effort into creating, Boardman realised that he hadlearned some valuable lessons in the process of building and then losingBoardman’s. Those lessons laid the foundation for a superb career thatfollowed. After selling Boardman’s, he joined BOE while it was still a private,relatively niche financial service institution and played an integralleadership role in listing the business. He went on to become the BOE chiefexecutive, in the process expanding the base of the business substantially. BOEwas acquired by Nedbank in 2002 and then in 2003, Nedbank was in trouble. Thebank had issued four profit warnings to the market in 12 months and the mediawas reporting that analysts had “given up all trust in its numbers”. In hisfirst four months as Nedbank CE, Boardman reportedly uncovered a myriad ofaccounting problems.
“That so many holes have been found is Boardman’sachievement” reported Finweek. Multiple media reports stated that Boardman hadsteadied the ship and regained Nedbank’s lost credibility. He was open andtransparent and put a plan in place to address the problems one at a time,based on a well thought out priority list. In 2004, he set significant goalsfor the organisation – to achieve a 20% return on equity and bring the efficiencyratio below 55% within three years. The 2007 results reflected that, under theleadership of Boardman, Nedbank had achieved these goals and was, once again, astable, credible, well regarded financial services institution, effectivelyserving customers and generating good returns for shareholders. Boardman’sbusiness acumen and leadership helped re-establish the company and set it on apath to sustained profits when it looked like it was on its way down a painfulspiral. These leadership skills and business insights were developedwhile he was engaged in a tough and challenging process of building anentrepreneurial business. Entrepreneurship has many benefits of which learningis one of the most significant.
What you can learnfrom the Boardman’s story
It has been shown that human beings are naturally morereactive to negative information. If we get feedback on something, we willtypically spend more energy focusing on the negative aspects of that feedbackthan on the positives. A degrading comment from someone we care about will staywith us for a lot longer than a compliment or word of encouragement. Inpsychology this is called negativity bias. The implications of this forbusiness are significant: Managers and business owners tend to over-react to negativesituations – sales dropping, a customer leaving, a late shipment – andunder-react to positive situations. When things are going well, we seldom tryto uncover why they are going well. This means that we often don’t understandour own success and therefore fail to replicate and capitalise on that success.
One of the things that Tom Boardman did when sales werepicking up in the Sam Newman’s stores was to understand the trend. He conductedin-store surveys to find out why people were coming into the shop and makingpurchases. By understanding the success of the business, he discovered a wholenew market – women shopping for hardware items. None of the other retailers hadprovided for this market, and his effort to display the hardware items moreeffectively, attracted them. By understanding who was shopping in his storesand why they were there, he was able to further extend that offering through awhole new concept and in the process create a massive new market.
So how can you understand your success?
1. Survey customers – ask them what they like, why theybought something and what attracted them to your product or service.
2. Keep a track record – try to maintain a clear record ofmarketing material, product designs, packaging and promotional materials. Whenyou have had a successful period, look for relationships between all theseitems and revenue. Try to understand what is giving you increased revenue.
3. Employee focus groups – after a successful year or a goodmonth, hold focus group discussions with employees asking them what wasdifferent? What worked well? Why do theythink you achieved success?
4. Keep a personal business diary – on a more personallevel, keep a notebook in which you record the nuggets of wisdom that youdiscover along the way. These may be things that you hear from others or ideasyou read about. They may also be things that you discover for yourself inmanaging a business, things that work well or fail miserably. Both providevaluable lessons.