The LP Organization: Form Follows Function 

Over the last three plus decades of commitment to the retail loss prevention industry, I have seen many forms of loss prevention organization structures. Just like retailers’ approach to retail, one size doesn’t fit all in loss prevention. Specialty stores might require a certain type of organization structure and big box retailers might require a totally different organization design. The structure of the LP organization can be different though equally effective in different specialty store chains. And the same is true in the big box industry. But there are several organization design tenets which are consistent (or should be) throughout the industry.

1. Every retail chain is different. They sell different merchandise and have different types of customers. The employee base is different. Management’s perspective is different from chain to chain and each chain embodies a different culture. Losses are different from one chain to the next and even the causes of loss can vary. Because of all of these differences Loss Prevention organizations will differ in structure, from a little bit to a lot.
    
2. Through my years ofloss prevention practice, I have been involved in the design and development of manyloss prevention departments and organizations. Even though the outcome of the design may appear to be different they all started from the same basis: Form Follows Function. When one has the opportunity to design an organization from a clean slate the first step is to determine what is the need in that particular company. Does the company sell expensive, highly desirable and easily fence-able merchandise? Does the company have a shrink problem and does the company know what is causing the shrinkage? Is there adequate budget available to support the organization? Is there an openness to utilizing technology as a loss prevention resource in addition to human capital? Answers to all of these questions and many more will help drive the organization design process.
    
3. It is very important that the design and development of a loss prevention organization structure not be done entirely by an in-house stakeholder. When that happens, the structure often ends up looking like the sometimes biased viewpoint of the stakeholder. And, frequently, becomes somewhat self-serving to the stakeholder. When the management of the company realizes that they need a loss prevention function they should form a committee of management representatives to study the challenge. I recommend that someone from the outside with no personal interest in the outcome of the process be brought in to assist in the initiative. The outsider will provide the best objective input if they have a global and experienced perspective of the industry.
    
4. The management function to whom the loss prevention organization should report is a critical part of the design. I have seen successful organizations report to finance, store operations, distribution, IT, legal and, in some rare cases, human resources. I have seen the loss prevention function reporting directly to the CEO. Frequently, however, the head of loss prevention (HOLP), will have a direct communications channel to the CEO but will report to another functional C-Level executive. Some retailers are chains that have evolved from a branded manufacturing company and their HOLP may report to the company’s global security director. This structure can be helpful if the brand is subject to illegal diversion or counterfeit activity. It can also be helpful in supplying temporary support resources to the retail side of the business when necessary.

My personal bias, however, for the more traditional reporting relationship is to the CFO. Shrinkage and other negative line items on the P&L statement are financial challenges and the CFO can be a good partner with the HOLP in developing, approving and communicating the loss prevention strategies and tactics. 

5. I use the HOLP term because the actual title will differ depending upon the company. Whatever the actual title selected it should be equal to other company positions with responsibility for similar management scope and financial challenge. The executive selected to fill the HOLP position will be responsible to ensure everyone in the company knows the role of loss prevention and sets the appropriate expectations for the organization. This is an ongoing communications and training responsibility but it is critical for the success of the organization. Other important roles for the HOLP include being the ombudsman for the field members of loss prevention in carrying their needs to management, coaching and mentoring, benchmarking technology and with other companies and networking with their peers elsewhere when time and budget permit. Sometimes the value of networking in loss prevention is overlooked because it is not an activity in which store operations or merchandising are usually engaged.
    
6. One of the benefits of holding the position of HOLP in retail is all of the metrics one has to measure their success or lack thereof. Unlike their counterparts in non-retail companies where the measurements can be difficult to find, retail is loaded with ways to measure loss prevention success. As I stated under point number five above, my personal feeling is that usually the best reporting function for loss prevention is to finance. And, because of all of the metrics available to the HOLP, it quickly becomes evident that the HOLP needs to be very fluent in “finance-ese.” The CFO can support the HOLP’s capital initiatives if the CFO has been coached on the ROI potential of the new tool the HOLP is seeking. 

If readers of this column find the thoughts presented here stimulating they are welcome to engage in further dialog about loss prevention organization design and development with me if they would like. Remember, Form does Follow Function and not one size will fit all.