Was Michael Luscombe Woolworths' real villain?

Woolworths’ woes didn’t arise overnight. In fact, decisions taken five or even ten years ago are partly to blame.

Do you feel sorry for Woolworths’ former chief executive Grant O’Brien? You probably don’t but the company’s problems aren’t his fault entirely.

O’Brien took the fall for the Masters debacle as well as for Woolworths letting its food and liquor margins expand such that Aldi and Coles could gain a foothold. Shareholders will wear the pain of both decisions in 2016 and beyond.

There’s no doubt that O’Brien made mistakes. We were sceptical about his appointment of an outsider, Tjeerd Jegen, to the key role of director of supermarkets in 2011, for example (see Woolies goes Dutch). By Christmas 2014 it was all starting to unravel. The execution of the Masters rollout was clearly very poor too.

The can-carryer?

It’s tempting to assign him all the blame. After all, he was the man in charge when it all started to go wrong.

But the decision-making process in companies is complex and of much greater duration than you might expect. Those who end up implementing decisions aren’t necessarily those who were wholly responsible for making them. The decision to enter home improvement was apparently planned for three years.

Indeed, many decisions that have since proved problematic were made by O’Brien’s predecessor Michael Luscombe, Woolworths’ chief executive between 2006 and 2011. It was Luscombe who initiated the expansion into the home improvement sector, which was dubbed Project Oxygen because it was intended to suck the oxygen out of Wesfarmers’ turnaround of Coles.

It was also Luscombe who allowed gross margins and operating margins to expand between 2006 and 2011. This strategy helped Woolworths meet profit guidance, with operating earnings almost doubling over the period.

It’s also often forgotten that Luscombe tried to make numerous acquisitions during his tenure, very few of which eventuated. It’s likely that, had Woolworths been successful in its reported $6bn bid for Target and Officeworks in 2007, we’d be sitting here today acknowledging that the company overpaid for both assets.

The very naughty boy?

Blame might be assigned even further back. Roger Corbett, now regarded with almost messianic devotion by Woolworths’ shareholders, was responsible for moving the company’s head office (now called a ‘support centre’) to Bella Vista in Sydney’s north-western suburbs.

Today that move is considered to be the source of some of the company’s cultural problems. It divorced senior management from what really mattered – the stores.

All this goes to show that blaming the current chief executive for all of a company’s problems is short-sighted. There are often much longer-term issues at play. In Woolworths’ case, the company became a victim of its own success.

As good as some chief executives might appear, sometimes they’re simply the right person for the times. Unfortunately, to the company outsider, it’s only obvious years later.

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