Article from Charter Magazine- April 2014 edition

AUSTRALIAN RETAIL BUSINESSES HAVE BEEN FORCED TO ADAPT UNDER THE PRESSURE OF GLOBAL RETAILING, AND ONLY THE MOST DYNAMIC AND FORWARD-THINKING WILL SURVIVE. NOT ONLY HAS JB HI-FI MANAGED TO CONTINUE TO GROW, IT HAS DONE SO IN A SECTOR THAT MANY PREDICTED WOULD BE MOST DISRUPTED BY OVERSEAS RETAIL – CONSUMER ELECTRONICS. CFO RICHARD MURRAY EXPLAINS THE COMPANY ETHOS TO LACHLAN COLQUHOUN

At 37, Richard Murray CA might be one of the youngest chief financial officers of a public company in Australia. But given that he joined JB Hi-Fi as CFO in 2003, he has already been in the role a decade and has had a major influence on shaping the course of one of the country’s most prominent retailers; a rare success story in a sector of the economy which has – more than most – been under pressure in recent years.

“Yes, I was 26 when I was appointed and there was lots of opportunity for me but also a lot of risk if I didn’t perform,” explains Murray. “So I was very passionate about it and worked pretty hard in those first years to make sure I got on top of the things I wasn’t experienced in.”

At the time of his appointment, Murray already had a good knowledge of JB Hi-Fi. As an associate director in corporate finance at Deloitte – where he completed his accounting cadetship – he had helped JB prepare for its 2003 initial public offering, a role that acquainted him not only with the operations of the company, but also with current CEO Terry Smart, who has been a director of the company since the management buy in of 2000.

“I guess the board and management team at JB knew me and thought I might have a good understanding of their business,” says Murray. “I’d been to London with Deloitte and had seen how they were doing more presentations than huge tombstone reports, and the due diligence committee found that innovative and engaging because you cannot hide in a 25-page presentation the way you can in a long form report – you’ve got five dot points and there’s nowhere to hide. So I knew the business and the management team – and the rest, as they say, is history.”

That recent history is that JB Hi-Fi has been one of the more remarkable success stories in Australian business, as the retailer has continually bucked the trend among high-street retailers and continued to post strong results, regularly outperforming not just the retail sector, but the wider market with a succession of impressive financial results.

AN EVOLVING MODEL

Today, JB Hi-Fi is a A$3.5 billion company with a network of standalone stores throughout Australia and New Zealand, in addition to an online business, plus a commercial division with operations such as loyalty scheme fulfilment, corporate telecommunications, and education. And, according to Murray, it is also a great place to work.

“Everything people probably love about the stores is probably why most of us love working here,” he says.

“There is massive empowerment of staff here; we just get on with it and we’ll tell you if something is going wrong, and then we’ll fix it, and if the staff in the stores tells it to the CEO like it is, then that’s great because that’s what we need to hear.

“We won’t die wondering. We are measured in what we do but we are happy to execute, rather than kill ourselves planning and never try anything.” According to Murray, culture has been one of the major reasons for JB Hi-Fi’s continued success. That and a commitment to “calling a spade a spade, with low costs and low overheads.”

The JB Hi-Fi model has also evolved from the early CD and hi-fi focus to one that encompasses the world of home entertainment. Evolution has been forced on the company by changes in technology and challenges to retailing, but has also come from a culture that has always aimed to be ahead of the curve.

“We always keep an eye on the broader retail environment and economy,” says Murray.

“And we thought there were many things in the business we could control, so that if the world around us was falling apart, there were other things we could do that were lower risk and easy to achieve, so we’ve been quite tactical about things.

“We are not a mining company and we don’t make investments out to 10 years. We are looking at trends and how we capitalise on those trends, so we say we want to be in this product category and we want to be in this space or this trend.

“An example is fitness. We can make a fast decision on a category that we can see is the coming thing and we did that with fitness, which is really exciting at the moment and we wanted to get behind it, so we had fitness products in all of our stores just before Christmas.” Suppliers, says Murray, come to JB Hi-Fi when they launch products because the customer base is known as ‘early adopters’ of new technology and new trends.

“The way we look at it, we are in the home entertainment business,” he says. “And that means everything that enables you to enjoy entertainment in your home. So much of the success of JB is built around that. Do I need an iPad for work? No, I need one because it is part of my life, my personal eco system if you like. And once we take that starting point, a lot of our decisions flow from there.”

Existing alongside this commitment to flexibility and agility is a focus on being lean, right across the organisation. The finance team, for example, is smaller than that at most public companies, with staff members “covering a lot more than they would in other organisations.” “I’m sure that the equivalent guy at JB does more than the equivalent guy at another company,” says Murray. “Because I know a lot of guys at other companies and there will be two or three guys doing what our guy does.

“The JB guy gets more exposure to the business, and he enjoys his job more because he is doing X, Y and Z and it isn’t lost in bureaucracy, where someone at another company will only be doing X and Y. I prefer to get a couple of good people below me and give them terrific support. I don’t want to have 15 direct reports; I want five, but I want five excellent direct reports.”

A HANDPICKED TEAM

Murray has handpicked the finance team, all of whom are Chartered Accountants recruited from the big firms. The focus is on doing more than finance, so that with the “number management under control” the team can focus on other areas of the business.

Murray, for example, was responsible for the growing commercial part of the business, which, although it contributes only a small amount of revenue currently, “we want it to be a $500 million business over time”. He says: “We try to get the monthly accounts out of the way as fast as we can so that everyone can get involved with other aspects of the business.

Finance these days is about so much more than the numbers, and our guys live and breathe that in their jobs every day.” This ‘lean’ approach extends to other areas of JB Hi-Fi as well.

The executive team of six shares one personal assistant, and there is “no investor relations or corporate affairs” because all of this is taken care of by the executive team. It sends a message, says Murray, to the whole organisation about the core values of the JB Hi-Fi culture.

“Our head office is only a couple of hundred people, and most of our competitors would have several times that,” says Murray. “We had a guy join from one of the big retailers and he went to the catalogue meeting and there were two people there – he said at his old job there would have been 30 or 40. “If a store calls head office, and we actually call it a support office, there is no issue getting through to the CEO, and that’s good because that is how you get your best intel – if it’s going on in a store, you want to know about it ASAP.

“We don’t get lost in meetings, there is no looking backwards, and we just get on with things, and we find that for us it works better than hours in meetings and committees and spending time on keeping people in the loop.” All this, says Murray, translates into a unique culture whose results are the proof of its success.

“There is a sense of urgency and purpose about what we do, and our culture is the DNA of the business and is the starting point of everything we do,” he says.

“We don’t leave suppliers sitting at reception, we expect our staff to be humble, and we strive to be humble ourselves. “Of course we negotiate robustly with our suppliers but at the same time we work with them and it’s not just a one way street.

We know they have to make money for us to make money, and we need to keep our prices low to customers, because if people think a customer is going to pay more for a great retail experience they are kidding themselves – if you don’t have the lowest prices it really makes it hard.” Senior staff, he says, have had a stake in the success of the company and have been rewarded by the share price performance, which has “been terrific for retention.” “It also means a lot of us have worked with each other for a very long time and we trust each other and know how each works and we work collectively,” Murray says.

HELPING HANDS

Another key part of the JB Hi-Fi culture, and one that Murray has been closely involved with, is Helping Hands, the JB Hi-Fi employee-giving program. “It has been a great part of empowering our employees and getting our workforce really energised and motivated,” says Murray.

The board, executive and many members of the management team give 1 per cent of their salary to the program and employees are invited to give as little as $1 per week. Together they have contributed more than $5.5m to a select group of charity partners since the scheme’s inception.

“Staff were part of Helping Hands from the outset. They were surveyed about the causes that matter to them and that would encourage them to give. We now partner with nine charities in Australia and five in New Zealand that are making a real difference in these areas – whether that’s helping families deal with cancer, bringing music and arts into disadvantaged schools or using technology to reach young people dealing with mental illness.”

“Almost 50 per cent of our staff give – and in some of our stores, we have 100 per cent participation in the program, and that is phenomenal.”

JB Hi-Fi has extended the program to offer customers a chance to give. “You’ll see Change for Good boxes in all the stores, so the customers can participate as well and that has also been great for positive reinforcement for the program for the staff.”

Murray has recently taken on the chair of the Employee Leadership Initiative (ELI) – which is a group of leading Australian organisations who want to encourage more employers to start workplace giving programs (the Institute of Chartered Accountants Australia is also a member).

The ELI group is supported by the Australian Charities Fund. Murray says: “Imagine if all 11.5 million Australian workers gave a just $1 a week. That would be $600 million a year. If employers matched their employees’ contributions, together we would raise over a billion dollars annually. For the charitable sector and those less fortunate, that would be game changing!”

“So for me, this is the right thing to do in supporting the wider community, and it has had a really positive impact on the JB culture and helped make it what it is, and that is our starting point for everything.”