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Enterprise Agile Planning

Lessons in Agility from ASOS’s Drop in Profits

Published By Team AdaptiveWork

ASOS, one of the world’s leading online fashion retailers, has been a trailblazer for the possibilities of e-commerce in the UK. It took advantage of technological improvements to offer customers a speedy, holistic and trustworthy shopping platform, while also harnessing improvements in stock control and algorithmic planning to build an international business that sells to almost 200 countries and, at its peak in March 2018, had a market cap of nearly $10 billion.

Unfortunately, however, they have recently become a case study for the wrong reasons, with profits dropping nearly 70% on the back of major IT problems. This understandably caused jitters among investors and their share price plummeted to give them a market cap of around $2.8 billion by December 2018.

ASOS’ IT Problems

Unlike the early 00s when ASOS started out, nowadays customers have gotten used to fast-loading high-res images, quick and correct deliveries and an overall seamless online retail experience. In this market, IT problems spell disaster on many fronts, not least that customers can simply switch to a competitor at the click of a button. So, what happened to ASOS and how can e-commerce firms avoid similar issues?

Viewing the switch to digital as a risk-free win

The increased use of AI and automation technology will undoubtedly be beneficial to businesses, but that doesn’t mean it’s not without its risks or that the old ways should be completely jettisoned. London’s Heathrow Airport famously opened its new $8.5 billion Terminal 5 to unmitigated disaster in 2008 with tens of thousands of bags going missing, dozens of flights canceled and staff and customers complaining that bots were in control of everything, so they couldn’t switch to a simpler “see-it do-it” system. Those issues have haunted them to this day.

For ASOS, their attempt at implementing new digital stocking and order fulfillment didn’t lead to quite the same reputational damage as Heathrow Airport, but despite investing more than $900 million over four years, there were still major fulfillment issues affecting delivery times and customer experience. As ASOS CEO Nick Beighton put it: “The major overhaul of our infrastructure has been bumpier and taken a lot longer than originally anticipated. We acknowledge that this is a failure in execution.”

To avoid similar issues, businesses need to assess the risks of widespread digital or automated processes and to use business agile methodologies, such as constant testing and assessment to ensure lessons are learned in time to make the next iteration more successful.

Trying to scale processes too quickly

The ASOS slow-down in their business also came at the same time as they opened two massive new warehouses, one in Atlanta, Georgia, and the other in Berlin, Germany. While moving to establish distribution centers in their major markets was the right move, again it was the execution that let them down.

This expansion posed major risks, as processes that had worked in their UK centers were not necessarily going to translate easily to different work cultures. Plus, by opening two major warehouses at the same time, project managers or experienced team leads that could kick-start the new sites the right way would be split, rather than being able to focus on one new opening project.

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The results were poor, and ASOS are still paying the price, with growth in both the US and continental Europe stagnant. To make the expansion a success, the company needed to look at becoming more business agile while scaling. This would have meant empowering teams to make decisions based on the information they had in front of them and what their market needed, rather than following a centralized plan from thousands of miles away.

Stock control and cash flow still form the foundation of any retail business

Whether online or brick-and-mortar, if you’re offering something tangible to your customers, you need to make sure you have it to sell. For ASOS, the result of their IT problems and glacial roll-out of new warehousing resulted in large-scale stock shortages, which severely hampered their growth and led to a fall in profits.

The lesson to be learned here is that no matter your ambitions or positive current growth trajectory, the ultimate success of your business relies on you recognizing the fundamentals of your business and making sure you do them well. Staying aligned with your firm’s objectives while you pursue new avenues actually requires a lot of flexibility in order to be able to adapt to do the same things in new situations. In the spirit of business agile, here’s to using ASOS’s troubles as an opportunity to learn and improve.

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Written by Team AdaptiveWork