ROI Case File No.214 | 'The South American Retail Chain's Labyrinth'

Chapter 1: Behind the Scenes of Rapid Growth—Chaos Hidden in Numbers

The week following the resolution of Nordic Manufacturing's SWOT transformation case, an unexpectedly serious consultation arrived from South America.

"Detective, we should be achieving rapid growth, but our operations are in complete chaos. Our improvement activities seem to be causing deterioration instead."

SuperMercado Futuro's Operations Director Carlos Rodriguez visited 221B Baker Street, unable to hide his confusion. In his hands were brilliant growth data and, in stark contrast, chaotic field operation reports.

"We are a company operating supermarket chains across South America. Over the past three years, we've tripled our store count and are recognized as a notable growth company in the industry."

SuperMercado Futuro's Rapid Growth Record: - Store count: 85 stores → 260 stores (tripled in 3 years) - Annual revenue: ¥80 billion → ¥240 billion (tripled) - Employee count: 2,500 → 8,200 (3.3x growth) - Market share: Regional 2nd → Regional 1st

The numbers certainly indicated remarkable success. However, Carlos's expression held serious concerns.

"The problem is that with this rapid growth, various issues have emerged, and the 'improvement activities' we introduced to solve them are actually causing more confusion in our operations."

Serious Problems Emerging Behind Growth: - Inventory management breakdown: 15% stockout rate (industry average 3%) - Customer satisfaction decline: 4.2/5 → 3.1/5 (significant deterioration) - Employee turnover rate: 35% annually (industry average 12%) - Store operation standardization failure: 400% sales gap between stores

"What confuses us most is that despite introducing 'PDCA improvement activities' company-wide to solve problems, we're seeing escalated confusion rather than improvement."

Chapter 2: Unstoppable Dead Inventory—The Maze of Improvement

"Mr. Carlos, could you tell us about the specific improvement activities you're implementing?"

Holmes inquired quietly.

Carlos retrieved a thick file while answering.

"We've mandated monthly PDCA cycles across all stores. Each store independently identifies problems, formulates solutions, executes them, and evaluates results."

Currently Implemented PDCA Improvement Activities:

Monthly PDCA for Each Store (260 stores × monthly): - Plan: Problem identification and improvement plan formulation at month start - Do: Implementation of improvement measures mid-month - Check: Result verification at month end - Action: Improvement continuation for next month

However, serious problems were occurring in actual operations.

Typical Store's One-Month Period:

Week 1 (Plan Stage): Store Manager: "Excess inventory is the problem. Let's reduce order quantities by 20%." Assistant Manager: "We also have many customer complaints. We should strengthen customer service training." Supervisor: "Sales floor layout also needs improvement." Conclusion: "Let's execute all three improvements simultaneously."

Week 2 (Do Stage): - Order quantity reduction causes frequent stockouts of popular products - Customer service training creates staff shortages - Layout changes leave customers unable to find products

Week 3 (Continued Execution): - Stockouts cause sharp sales decline - Staff shortages further deteriorate service quality - Customer complaints double

Week 4 (Check Stage): Store Manager: "Sales dropped 15%. The improvements failed." Assistant Manager: "But inventory definitely decreased." Supervisor: "We don't understand what caused this."

Next Month (Action Stage): Store Manager: "Let's try different improvement measures. Restore order quantities and change pricing strategy instead."

This cycle was occurring simultaneously across 260 stores.

I noticed the fundamental problem.

"Each store runs PDCA independently, but without mutual learning or consistency, they're repeating the same failures."

Carlos nodded deeply.

"Exactly. With 260 stores each trying different improvements, neither success nor failure cases are shared, resulting in no organizational learning effect."

PDCA Activity Reality Survey Results: - Successful improvement cases: 23 out of 260 stores (9%) - Unclear effectiveness improvements: 140 stores (54%) - Deteriorated improvements: 97 stores (37%) - Expansion of improvement cases to other stores: Not implemented

"We're repeating experiments called 'improvements,' but lack mechanisms to learn from experimental results."

Chapter 3: PDCA's Distorted Rotation—Confusion Named Improvement

⬜️ ChatGPT | Catalyst of Ideas

"Improvement isn't about rotating for its own sake. Results come from rotating on the right axis."

🟧 Claude | Alchemist of Narratives

"Escaping from labyrinths begins with drawing the path. PDCA is also a blueprint for weaving stories."

🟦 Gemini | Compass of Reason

"Simply going back and forth between planning and execution isn't enough. The quality of checking and action supports sustainable growth."

The three members began their analysis. Gemini developed the "PDCA Improvement Structural Problems" on the whiteboard.

SuperMercado's PDCA Problem Analysis:

Plan Stage Problems: 1. Problem Identification Methods Not Standardized - Each store subjectively sets problems - Subjective, non-data-based problem setting - Focus dispersion through simultaneous multi-problem solving

1. Quality Variation in Improvement Plans
2. Individual differences in planning skills
3. Insufficient feasibility evaluation
4. Ambiguous success indicator setting

Do Stage Problems: 1. Execution Capability Gaps - Store manager capability differences - Insufficient resource allocation optimization - Poor execution process monitoring

1. Insufficient External Environment Consideration
2. Ignoring regional characteristics
3. Insufficient response to competitive situation changes
4. Neglecting environmental variables like seasonal factors

Check Stage Problems: 1. Non-standardized Evaluation Criteria - Different success criteria per store - Evaluation only of short-term results - Mainly qualitative evaluation (insufficient quantification)

1. Insufficient Causal Relationship Analysis
2. Only judging good/bad results
3. Insufficient analysis of "why those results occurred"
4. Cannot separate effects when implementing multiple measures

Action Stage Problems: 1. Individualized Learning - Learning only within each store - No horizontal expansion of success cases - Lost learning opportunities from failure cases

1. Insufficient Improvement Continuity
2. Monthly improvement theme changes
3. No long-term improvement accumulation
4. Surface-level responses rather than fundamental improvements

Claude showed sharp analysis.

"This is a typical case of 'PDCA fatigue.' While formally rotating PDCA, substantial improvement effects aren't being achieved."

Comparison with Successful Retail Chains:

Competitor A (PDCA Success Case): - Unified Problem Setting: Headquarters identifies key issues through data analysis - Standardized Improvement Process: Company-wide deployment of proven improvement methods - Concentrated Execution: 3-month focus on one theme - Scientific Evaluation: Effect verification through A/B testing - Organizational Learning: Standardization and company-wide deployment of success cases

Company A's Results: - Improvement success rate: 85% (contrasts with SuperMercado's 9%) - Improvement effect sustainability: Continues for 12+ months - Overall organizational improvement capability enhancement

Critical Differences from SuperMercado: - Individual optimization vs. overall optimization - Intuitive improvement vs. data-driven improvement - Trial and error vs. scientific approach - Person-dependent execution vs. standardized process

Carlos was stunned.

"We were reassured by the word 'PDCA,' but were actually repeating 'trial and error without planning.'"

Chapter 4: Breaking Growth's Shackles—Integrated Improvement System

Detailed field surveys and improvement process analysis revealed the depth of SuperMercado's problems.

Quantitative Losses from PDCA Dysfunction:

Quantitative Management Impact: - Improvement activity costs: ¥1.2 billion annually (personnel and system costs) - Opportunity loss from improvement failures: ¥4.5 billion annually - Revenue loss from decreased customer satisfaction: ¥3 billion annually - Recruitment and training costs from employee turnover: ¥800 million annually - Total Loss: ¥9.5 billion annually

Improvement Activity Efficiency Analysis: - Time invested: 2,600 hours monthly (260 stores × 10 hours) - Successful improvements: 23 cases - Cost per successful case: approximately ¥420 million - Industry average success cost: approximately ¥80 million - Efficiency: Less than 1/5 of industry average

Root Cause Structural Analysis:

1. System Design Flaws - Each PDCA stage executed independently - Lack of overall optimization perspective - Absence of learning mechanisms

2. Inadequate Data Utilization - Intuitive problem setting - Insufficient effect measurement standardization - Lack of data-based decision making

3. Insufficient Organizational Capability - Person-dependent improvement skills - Absence of standardized processes - Unformed continuous learning culture

Urgently Needed Structural Reform: Transition from individual store PDCA to integrated improvement system

Chapter 5: Detective's PDCA Diagnosis—Path Through the Labyrinth

Holmes compiled the comprehensive analysis.

"Mr. Carlos, the essence of PDCA is 'scientific improvement.' True effectiveness comes from continuous improvement based on data and logic, not intuition or experience."

Integrated PDCA Improvement System Reconstruction Plan:

New PDCA Operating Model: "Integrated Improvement System"

Level 1: Headquarters-Led Strategic PDCA (Quarterly Cycle)

Plan (Strategic Planning): - Key issue identification through company-wide data analysis - Improvement hypothesis setting based on scientific evidence - Selection of standardized improvement methods - Clear quantification of success indicators

Do (Organizational Execution): - Pilot implementation at selected stores - Execution with standardized processes - Real-time monitoring - Ensuring unified execution quality

Check (Scientific Evaluation): - Effect verification through A/B testing - Confirmation of statistical significance - Detailed causal relationship analysis - Secondary effect evaluation

Action (Organizational Learning): - Standardization of success cases - Company-wide deployment planning - Improvement know-how accumulation - Next improvement theme setting

Level 2: Store Execution Standardized PDCA (Monthly Cycle)

Plan (Execution Planning): - Store application of headquarters-developed improvement methods - Execution planning considering regional characteristics - Concrete action plan creation

Do (Standard Execution): - Execution following manualized procedures - Daily progress monitoring - Immediate reporting of problems

Check (Execution Evaluation): - Effect measurement using quantitative indicators - Execution process quality evaluation - Issue and success factor identification

Action (Continuous Improvement): - Success case reporting to headquarters - Execution process fine-tuning - Next month's execution plan refinement

New System Core Principles:

1. Data-Driven Improvement - Base all improvement decisions on data - Eliminate intuitive judgments - Quantitative effect measurement

2. Organizational Learning Maximization - Company-wide sharing of success/failure cases - Improvement know-how standardization - Continuous skill enhancement

3. Scientific Approach - Hypothesis setting → verification → learning cycle - Effect confirmation through A/B testing - Statistically-based judgments

Implementation Schedule (6 months): - Month 1-2: System design and personnel training - Month 3-4: Verification at pilot stores - Month 5-6: Company-wide deployment

Chapter 6: Escape from the Labyrinth—Revival of Scientific Improvement

Eight months later, a report arrived from SuperMercado Futuro.

Results from Integrated PDCA Improvement System:

Improvement Activity Efficiency Enhancement: - Improvement success rate: 9% → 78% (8.7x improvement) - Cost per successful case: ¥420 million → ¥65 million (6.5x efficiency) - Improvement effect duration: 1 month → 12+ months - Employee satisfaction with improvement activities: 2.1/5 → 4.3/5

Dramatic Management Indicator Improvements: - Inventory stockout rate: 15% → 4% (industry average achieved) - Customer satisfaction: 3.1/5 → 4.2/5 (original level recovery) - Employee turnover rate: 35% → 18% (approaching industry average) - Inter-store sales gap: 400% → 120% (standardization effect)

Headquarters-Led PDCA Success Cases: - Theme 1: Inventory optimization (company-wide deployment) → +40% inventory turnover improvement - Theme 2: Customer service standardization (company-wide deployment) → +35% customer satisfaction improvement - Theme 3: Sales floor layout optimization (company-wide deployment) → +18% sales improvement

Organizational Learning Capability Enhancement: - Improvement know-how accumulation: 32 standard methods established - Skill improvement: +180% improvement capability enhancement for store managers - Improvement culture cultivation: +450% increase in employee improvement proposals

Financial Performance: - Improvement activity ROI: ¥4.8 billion recovery against ¥1.2 billion investment (4x) - Operating profit margin: 6.2% → 9.8% (efficiency effect) - Growth sustainability: Continued monthly 5-store new openings while maintaining quality

Carlos's letter contained deep gratitude and learning:

"Through the integrated PDCA system, we escaped from 'confusion disguised as improvement.' Most importantly, we learned that individual stores shouldn't improve randomly, but the entire organization should improve scientifically. Through data-based improvement and organizational learning, we achieved true continuous improvement. Now improvement activities contribute to employee motivation enhancement, creating a virtuous cycle of growth and improvement."

Detective's Perspective—The Science of Improvement and Organizational Learning

That night, reflecting on the case, I pondered.

SuperMercado Futuro's case clearly demonstrated the "improvement trap" that many organizations fall into. Even the excellent PDCA framework can become a factor causing organizational confusion if not properly operated.

The true value of PDCA lies not in formally rotating cycles, but in continuous learning through scientific approaches. Data-based hypothesis setting, controlled experiments, objective effect verification, and organization-wide learning sharing. Only when these elements come together does PDCA demonstrate true improvement effectiveness.

Particularly important was the shift from individual optimization to overall optimization. Rather than each department or store conducting improvement activities independently, building mechanisms for the entire organization to learn and grow together is necessary.

"Improvement is not about trial and error. It's about continuous learning through scientific methods."

As the fourth case in Volume XVI "Quest for Agility," SuperMercado's case provided important insights. Agility is not just action capability, but also continuous capability enhancement through learning.

"True improvement is not born from individual heroic efforts. It emerges from organization-wide scientific learning. PDCA is the most powerful weapon supporting that learning."—From the Detective's Notes