Leadership Story: the Strengths of Gaucho and Divest the Cau Business

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“Everybody wants to be a gaucho,” said Zeev Godik who in 1990 established an Argentinian premium restaurant called Gaucho. From his early youth, Argentina was in Zeev’s heart and he fell in love with its food, wine, culture, and the passion of the people which became the building blocks of the Gaucho’s strategy. (Pagano, 2018) Today, Gaucho is Britain’s biggest premium steakhouse that operates some of the largest restaurants in London. (Lutrario, 2018)

In 2011, a new brand CAU was established targeting primarily younger generations. (Pagano, 2018) Despite the efforts to boost profitability, the company now faces existential pressures due to the mismanagement of CAU’s operations that led to low performing and demotivated workforce. (Interview at Gaucho, 2018) External factors contributing to the challenges range from the changing market conditions, a rapid growth of delivery services that cannibalise the traditional business model, and an increased competition for new talent and new skillsets that could transform the industry. (Bronte, 2018; PwC, 2018)

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To evaluate the scale of a change and key macroeconomic factors impacting the industry, a Pestle model is used. Pestle Model Political factors Brexit is the biggest political risk which may affect employment and immigration laws and negatively impact sector due to a shortage of workforce restricting the access to the EU labour force which the industry relies on. (Rumney, 2018) Economic factors Low unemployment rates and a steadily increasing minimum wage are contributing factors to the recent market slowdown making it more difficult to recruit staff. (Humphreys, 2017) Social factors Shifting trends from casual dining to experiences of new cuisine and changing consumers’ tastes with a preference for a healthier dining. (Humphreys, 2017)

Technology Contributing to the slowdown in the dining market is a disruptive technology driven by home delivery companies such as Just Eat and Deliveroo. Legal factors Legal changes could impact employment laws, import/export tariffs, food safety and hygiene laws, and leasing arrangements. Environmental factors Sustainable energy used in the production and preparation of the products and the climate and weather changes that impact food prices are some of the environmental factors. The founder became a CEO and ran the company for 25 years. From the early years, the business model has been rapidly expanding, building the brand in the UK and internationally. Such an expansion from just one restaurant to 41 branches required quite a shift in a leadership style. However, due to a recently stagnating revenue, declining profits, and worsening culture, the foundation was eventually forced the founder to resign.

As the company is currently in a decline stage and requires a prompt turnaround, an external leader has been hired to drive the company’s transformation. (Gerrard, 2018) Shortly after appointing new management, there has been a news leak that the group is looking to restructure and potentially divest its CAU operations putting 750 jobs at risk. (Kleinman, 2018) Such an unintentional public disclosure places the new leader under a greater scrutiny with an increased pressure of the mounting losses that put the business on the brink of administration. Zeev Godik, the founder of Gaucho, has been known among his employees as an inspirational leader sharing his passion for Argentinian food, wine and culture. Setting a strategic direction of the company, he excelled at building and leading the teams to achieve the company’s goals. Recognising his personal limits with the visionary leading approach, Zeev managed to complement his skills by placing strong people in key positions addressing the gaps in his leadership style. HR and operations directors were his supporting forces for the interpersonal and operational domains, respectively, as portrayed by a Primary Colours Model. (Change Associates, 2018)

Zeev had a reputation of encouraging employees, striving for excellence and creating alignment by clearly communicating the values and the vision of the company. Many viewed the establishment of Gaucho’s accredited academy that provides training for employees as an evidence of a strong people’s culture. (Gaucho, 2018) However, from the CAU’s inception, the management was preoccupied with establishing the brand replicating the Gaucho’s business model without fully considering the emerging forces of rapidly changing market conditions. As a strategic leader eager to replicate his previous success, Zeev moved further down to the operational domain helping with struggling CAU brand abandoning his key strength during a critical time. Driven by ego, pride and personal attachment to the brand, Zeev changed his leadership style to coercive mode focusing mainly on the struggling CAU and led the future of the company without a clear direction during one of the most important milestones in the industry with an arrival of disruptive technology transforming the traditional business model. (PwC, 2018)

The approach to the leadership challenge was inefficient due to a poor market timing and a lack of critical decision of the company’s future direction. The management made a mistake of focusing too long and too narrowly on replicating the past success without a willingness to look for new ideas and the ability to change perspective. Since 2011, the management has been focused on the traits of transactional leadership. This explains why there was such an attention to CAU operations that failed to adapt to the emerging technology. As a result, the leader became responsive to internal and external changes. Even though this style allowed the business to grow and expand in the early years, as a consequence of recognised commitment of its employees, an imminent need for a transformational leadership is currently required of the new management. The key aspects of the new approach will be proactivity, a speed of change, and the ability to empower the team by changing the mind-sets of employees’ working habits of the past. Consequently, the new leader cannot afford to prevaricate and a turnaround is urgently needed as the company faces administration due to losses of its CAU business.

A prompt decision has to be made whether the CAU will be sold off. The leader would then be expected to clearly communicate a future direction of the business and strengthen the company’s values, potentially establishing new ones. The timing is critical as the impact the news leak had on the team’s culture hampered the confidence and created uncertainties and fear among employees. The uncertainty is aggravated by a recent wave of restructures and branch closures including CAU’s competitors such as Byron Burgers, Cote Brasserie, and Carluccio’s due to the intense rivalry for the market share that alters the people, value-centric model. (Catchpole, 2018)

Despite having a training academy, that may motivate and engage employees, the new leadership must consider other factors to avoid negative impacts on the employees’ performance. The leaders would need to reconsider planning activities, new skills required for marketing teams to adapt to the changing market trends and focus on cost efficiencies by closing unprofitable branches. In order to gain further insight into the strategic management issues, a McKinsey 7s model has been used to describe an interrelation of soft and hard elements of the company. (McKinsey & Company, 2018)

Currently, the new leader needs to evaluate the next strategic move considering whether the relevance of the business model, mission and objectives are suitable for today’s market. The outcomes could be used to address a new structure and system requirements, particularly around the objectives of each department. To achieve these objectives, new skill sets need to be developed and responsibilities of each individual clearly set in order to strengthen the collaborative environment. The previous management established a strong brand reputation and business culture based on a shared vision, service excellence, and employee cooperation. During the recent pressures on the group’s survival, these pillars will play a pivotal role and the new leader needs to be transparent about the changes to avoid shattering the culture that the business has been built on. The stake of the business depends on the skills and ability of the new leader as well as the implementation speed of his transformational plans. It is important to realise that there have been two cultures represented by each brand. In the last few years, most of the attention was paid to failing CAU with a little focus on profitable Gaucho brand.

Maybe it is time for the new leader to concentrate on the strengths of the company and empower the teams of Gaucho in order to sustain and further increase the performance in the future. The leadership style used by the founder was mainly visionary and empowering, making him an effective leader at the business inception but also during the growth phase at which building the collaborative teams is paramount for the business success. Today, however, the company is struggling and needs an urgent turnaround and transformation in order to survive. That is why a coercive leadership approach is expected from a new CEO. Although, this leadership style is the most effective during crises it also breaks the bonds employees have with the firm and inappropriate use of such a leadership could lead to a toxic culture damaging the company’s reputation. (Goleman, 2000)

“A leader is one who knows the way, goes the way, and shows the way.” – John C. Maxwell – As per John C. Maxwell quote, my approach to the leadership challenge would start with a strategic planning. Using the eight-stage process of creating a major change introduced by J.P. Kotter, the following observations could be made. (Kotter, 2012) Due to changing market dynamics, a recent flow of competitors’ branch closures and the struggling CAU business, a sense of urgency is apparent. Such conditions allow the leader to “unfreeze” the current practices and make employees ready for a change as advised by the Lewin’s process model. (Iszatt-White and Saunders, 2014) CAU has been a loss-making business from inception and despite this fact, the past management kept investing into the brand by opening new branches in random locations with unfavourable fixed-term leases that are hard to renegotiate. (Interview at Gaucho, 2018)

As a change leader, I would focus on the strengths of Gaucho and divest the CAU business. By selling CAU, the impact on Gaucho would be minimal. Despite similarities, both brands have very distinct cultures with a limited overlap. The second stage, change management, would require to adjust the business model and adapt to the current trends. A strong coalition needs to be created which I would achieve by building a new management team and hiring external people that complement my leadership style by recognising personal limits. Similar to the founder’s approach, I would hire strong people that could build sustainable relationships and deliver immediate results. The difference would be that as a leader driven by a change with no personal attachment to the business, I would encourage new ideas and concentrate on the future path by transforming the business.

Operationally, I would turn my attention to the acquisition of a new talent and skillsets. For example, a marketing department needs a strategy that aligns with current consumers’ needs using unconventional channels by levering the latest technology. In my opinion, strengthening the brand’s mission by investing in new skill sets would help the company differentiate from its competitors. Equally, a resistance to change from employees would need to be managed which I could achieve by clear communication of the new company’s mission. An open-door policy could help to support employees allowing them to share new ideas that might have been suppressed by the past management’s practices and discuss concerns and potential solutions for current challenges. Such a cooperative culture could smooth a bumpy transition to a change. It is a common practice, when communicating the change to employees, to focus on a future path of the business, structures to be set and systems to be used.

However, I would strongly emphasise empowerment and employees’ engagement especially during a change in a human capital-intensive industry. People tend to overreact and respond negatively to a change in a fear of an uncertainty resulting in job loss, loss of an income or responsibilities. To successfully lead employees through the change, communication regarding a development of new skills to successfully meet newly set objectives and clearly conveying a message of the benefits and opportunities brought by the change would be my top priority. “Without involvement, there is no commitment” – Steven Covey By providing such guidance and encouragement would increase employees’ commitment and eventually drive performance. At that stage, an affiliative leadership style could be interchanged with coaching and democratic styles to further drive employee engagement and grow the business operations. Until now, the organisation was following a participative evolution mode of leadership, as described by a matrix of distinct leadership approaches. (Dunphy and Stace, 1988)

Should a decision be made to divest CAU, a charismatic transformative style in a collaborative mode would be advised. This is due to a discontinuous change shaped by a technological advancement and other external factors and the fact that the Gaucho’s internal culture is in a stronger position to CAU. A dictatorial transformation is not recommended due to firmly embedded values in Gaucho’s culture and a need for motivation and empowerment that this leadership style could put at an unnecessary risk. Such a mode of leadership would be only advised to CAU should a decision to restructure the brand be decided on. Critical factors Some of the critical factors that require a consideration in every organization are the following. A vision, without which a leader finds it hard to justify the existence of the company. This could represent a firm belief of a single person or a shared passion. A clear direction is essential to translate a state of vision into a practical course along which others need to be led. A strategy, that is another key factor that builds on the direction with a more concrete and specific plan serving as a roadmap highlighting the potential pitfalls and upsides of the journey.

The best strategy considers both environments, a short-term operational and a long-term strategy. Probably the most important factor critical in every aspect of leadership is communication. The ability to convey a message in a clear and practical manner is one of the most significant elements contributing to successful leadership. Leaders need to communicate effectively with their teams, customers, and internal and external parties whether it is about a compelling story that underlines the company’s mission or about means of conveying clear instructions and direction during critical times. A democratic or coaching leadership style is needed to effectively implement a culture based on a collaborative environment and teamwork that constitute to an actual combined action fulfilling a given vision and strategic plan. Understanding employees’ motivation, passions, and drives could provide leaders with an insight into how these could be aligned with the company’s mission. The last two factors, guidance and solution, then involve a significant input and support from leaders using various styles in order to establish and strengthen a teamwork culture. Other critical factors and dilemmas leaders face could be described by using the change kaleidoscope model. (Balogun and Hope Hailey, 2015)

The outer fields of the model consist of elements necessary for designing and evaluating the change process. Time available, for example, is a dilemma many leaders face due to a limited time for a thorough evaluation of all of key internal and external factors. This is the case in Gaucho where an imminent change is required as the company faces bankruptcy. A caution should be taken not to make hasty decisions but also not to get caught up in over-evaluation. As the time for an assessment is limited only existential issues should be addressed initially. As new management has been hired from outside capability issues could arise due to a limited knowledge of the business and the industry. A mix of current employees, who have the experience of internal dealings, knowing major pitfalls and the best practices, can provide a valuable advice. On the other hand, the lack of knowledge of internal politics could make the leader deviate from the original agenda. Therefore, external hires that could address such dilemmas and bring new ideas and skills to the business which is often a preferred approach to the change. Other dilemmas cover topics from diversity, power and autonomy of employees to evaluation of preservation and current capacity areas that could broaden new horizons and positively contribute to the change. At the centre of the model, the design choices need to be adopted in a specific organisational context.

Looking at Gaucho, a change in a path would represent a new strategic direction for a business which is the divestiture of CAU and start shifting the focus on the strengths of Gaucho. Approaching the leadership challenge from a top-down perspective, from a current market environment to a company-specific level, would be a preferred start-point change. Throughout the change, a collaborative and affiliative leadership style would be preferred to keep the workforce engaged and motivated. Change levers and roles would play a pivotal part in the execution of all of the above changes and having the right people with right skillsets at key roles would be paramount to the successful change. The module’s content had a profound impact on my own understanding of managing a change. The most critical aspect was a realisation of the importance of identifying the right people that complement my leadership styles. This is especially true during the time of change when the synchronisation of many leadership styles is paramount for the success of the organisation. A sign of a strong leader is having a self-awareness of personal limitations and the ability and willingness to hire people with different leadership styles that address the weaknesses of their own.

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