Sainsbury’s announced its mega-merger with Asda as “transformational”: that the linking of the two companies will produce a dynamic and innovative new force in retailing. Yet many commentators are suggesting that the deal is much more binary than that: a simple, defensive move to build market share, slice costs and squeeze suppliers.

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Time will tell with Sainsbury’s / Asda, especially as there will be a long CMA consultation before the new outfit actually becomes operational – even Sainsbury’s themselves are saying that it will take 18 months to get through all the regulatory hurdles. Yet there is no questioning that the deal, “transformational” or not, is big and important and will have a major impact on the whole retail channel (Page 20). The Tesco / Booker merger is more obviously radical and that has sparked a chain reaction of mergers, acquisitions, partnerships and closures, with the current churn in symbol groups being a current example (Page 8). A truly transformative deal is what Ocado has pulled off with Kroger (Page 9) as the online grocer continues to morph into a software and consultancy business.

The balance between the transformational and the binary is a major theme of PwC’s new report on the global Entertainment and Media scene (Page 14). This tracks the M&A activity of the last few years as media companies converge, driven by tech disruption and the need to build scale and learn new skills in an increasingly complex consumer marketplace. The first phase, what PwC calls “Convergence 1.0”, was typified by the largest and most misguided merger in media history: AOL and Time Warner. This was meant to be the ultimate in “transformational” deals, but rapidly turned in a disaster, for a variety of reasons. This led on to Convergence 2.0: a much more pragmatic approach based on building market share and bolting on bits from other links in the media value chain – much more binary. We have now moved on to Convergence 3.0, where the modern media company has to have multiple competencies to support multiple revenue streams. That demands M&A and partnering on a scale never seen before – a real mix of the transformational and the binary. It also raises the question as to whether big is always beautiful. And what the underlying business model actually is.

For Alden, the “vulture capitalists” ripping through the US regional newspaper business (Page 5), the business model is truly binary: ruthlessly suck money out of a declining print newspaper business until it dies. The Meredith business model with its Time Inc acquisition is much less negative and destructive, but is still very pragmatic and based on a mix of grinding cost control and measured tech investment (Page 6).

Yet what a number of news items in this issue highlight is that there are still many questions that we do not really know the answers to, especially about our own audiences. One very specific example is home delivery. Do consumers really want the fastest delivery possible (which is also becoming increasingly difficult to provide profitably anyway)? Or do they actually want certainty of delivery (Page 9). And have we got the two things mixed up?

And that in our rush for the latest, shiniest new thing, are we neglecting established platforms and processes? There is a clear swing-back to appreciating the benefits of print next to digital. Yet what about the tablet? Has that become the “forgotten platform” in the drive to respond to the increasing usage of the smartphone (Page 12)? And what about retail, which most retailers believe that publishers regard as the “forgotten channel”? And so on….

Tesco is currently one of the most interesting examples of an organisation asking itself difficult questions. And trying to balance the transformational against the binary as it concentrates with laser-like focus on the basics (closing Tesco Direct, resetting magazine space, reducing the number of suppliers, etc.) while still trying to innovate strategically.

Finding the balance between the transformational and the binary is what the previous Tesco CEO, Phil Clarke, got so wrong. Some of Tesco’s bad decisions in the past actually belonged to Terry Leahy and Clarke simply inherited them; many of the bad decisions were made by Clarke himself. Yet, as the compelling hatchet-job in Retail Week shows (Page 10), Clarke’s biggest issue was his management style. The feature portrays him as an insecure bully, promoted beyond his capabilities: a solo-operator who effectively dismantled one of the best management teams in UK business. In doing so, he undermined Tesco’s ability to respond to the relentless change in the business environment. A lesson for every media company in the middle of Convergence 3.0. And for every CEO.

The Big Picture is the editorial comment page from the wessendenbriefing newsletter.  Click below to sign up for a free sample issue.

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