May 1, 2008 - Distribution Channel Commentary (DCC) # 105
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TOPICS:
WARM UP QUOTES
CONNECTING DOTS: MARATHON, MADONNA, MARS,
MATH & BUNKO
“BEST PRACTICES” FOR TOUGH TIMES: PART II
SERVICE PROFIT CHAIN RESEARCH CONTINUES
REINVENT THE CORE TO BE “UNSTOPPABLE”
QUOTES:
“Gentlemen, this is a football.” Vince Lombardi (to start
Green Bay Packer football camp.)
“A marathon is the hardest thing in life. To win four
times (at Boston),
you have to be a disciplined man. You have to know what you want in life.”
Robert Cheruiyot (Kenyan national who won this
year’s Boston Marathon for the fourth time)
“Companies fail to recognize the potential of the core
business and, as a result, prematurely abandon it in pursuit of hot markets or
sexy new ideas, only to realize their error - often, when it is too late.”
Chris Zook, author of: “Profit from the Core” (2001);
“Beyond the Core” (2004); and now,
“Unstoppable: Finding Hidden
Assets to Renew the Core and Fuel Profitable Growth” (2008).
“The paradigm in the music business has shifted and as an
artist and as a businesswoman, I have to move with that shift.” Madonna
(4/08: prior to the
release of her 11th album, “Hard Candy”)
“We must respect the past, but at all times do what is
right for the future.”
William
Wrigley, Jr. (re: selling out to Mars)
What questions are we not asking that we should be? Now is
the time to do something different. We need to listen to people who have
different opinions than ours, especially the 3% of every population –
suppliers, customers, employees and investors – who have a track record for
being perpetual innovators. What questions would these outliers ask us in
return about our plans? (DBM, Jr.)
The truth that makes men free is, for the most part, the truth
which men prefer not to hear.
Herbert Agar
(What can both
messengers and Kings do to communicate more
effectively?)
CONNECTING DOTS: MARATHON, MADONNA, MARS,
MATH, & BUNKO
In the seemingly random news department: the 2008 Boston Marathon, the world’s oldest annual marathon (1897),
ended in my new backyard last week on a beautiful spring day. What a glorious
gathering of motivated people in one place! Many of these winners had been
training together in small bands for weeks before gathering at the biggest race
to get even more collective inspiration to help each other push their limits. The
whole energy experience reminded me that creating and running high performance
service businesses, which in turn feeds all stakeholders with both premium
economics and human satisfaction, is a marathon effort which also takes a lot
of outside help and support. Are we on that path and tapping into the outside support
sources that we need?
The high performance path in business, unlike the route
from Hopkinton to Back Bay, Boston,
is always changing because all great businesses are always innovating to have a
unique competitive advantage over their competitors and a fresh, compelling
value proposition for both old and new customers. Who keeps innovating along a
steady path? Madonnna! This past
week, the 49-year-old mother of three had a new single, “4 Minutes” rise to #1
on the British charts -- 25 years after her first #1 hit, “Holiday”, topped the
charts in the UK. The new hit is from her 11th studio album, “Hard
Candy” which will be released this week. Madonna has so successfully reinvented
herself so many times one of her tours was even named “Reinvention”. For a
fascinating review of how her new album blends her old stuff to appeal to old
fans with new music trends and leading-edge-artist collaborators that will – no
doubt – fill many arenas on her next tour, check out this link:
http://www.nytimes.com/2008/04/27/arts/music/27pare.html?ref=arts.
Then,
ask: how well are we surveying the true
innovators from all parts of our distribution channel ecosystem and figuring
out how to collaborate with them?
As an example of creating collaborative,
distribution-channel math, I think that the just announced Mars acquisition of Wrigley will be a winner for all stakeholders.
When Saddam Hussein was found in a hide-away bunker, he had a Mars bar. If the Iraq invasion
had happened ten years later, he could have also had some Juicy Fruit gum.
There are enormous cost synergies in having one truck with one detail guy
taking care of the total candy category department from one distribution
center, and Mars and Wrigley have very different international distribution and
penetration footprints. Warren Buffet is providing mezzanine financing for the
deal because he sees an even better synergistic fit than what he has benefited
from in the merger of Gillette plus P&G.
In the spirit of this Mars-Wrigley deal, why don’t more independent distribution
channels figure out that there are breakthrough system economics for shipping
all items (especially the big volume commodity ones) through some sort of
master distribution center (MDC) that provides continuous replenishment to the
local market distribution facility? Chains have their dysfunctional “hubs”
that act like MDCs to ship to their own captive “spoke” locations. Some
channels have “pure”, independent, master distributors that only sell to
resellers. But, these MDCs still want to use the legacy practices for pushing
niche products and fill-in commodity volume to customers that want to buy
direct whenever they can for a better GM%. The
MDCs need to sell, high-volume items on a cost-plus, continuous replenishment
basis. The resellers need to learn both turn-earn and fill-rate economics math.
And, the manufacturers have to find a new, way to sell niche items via an
industry marketing database that re-intermediates the
traditional channel players. In a
few channels proven business model solutions exist for all of these challenges.
They just need to be adapted to the rest. I’d be happy to help anyone looking
for new breakthrough advantages adapt these models to their particular channel.
If we can’t figure out how to reinvent our business model math for fun and profit, how
about our presidential candidates coming up with some real solutions for
getting the economy going. Here’s a quote from the one candidate whom the media
steadfastly has ignored (why?), but for which we all have some fresh April-15th-torture
insight into:
“The
burden of complying with the income tax is tremendous. Since its inception in 1913, the tax code has
gone from 400 pages to over 67,000. The
Tax Foundation estimates that around $265 billion dollars and 6 billion hours
are spent just on compliance. That
expense amounts to about 22 cents of every dollar the IRS collects. Imagine the boon to the economy if we spent
that time and money expanding our businesses and creating jobs!” Ron Paul
What are the other candidates promoting? More
borrow-from-future-generation giveaways that average voters, who don’t do net
present value math, want to hear. What
are the facts and long-term math that we and/or our sales forces don’t want to
hear that keep us from having: marathon persistence; continuous reinvention
starring new business-model math; or even a lot of “best practice” ideas to
follow? I’d guesstimate that 90% of distributors are currently not generating
any excess profits above their cost of capital.
If you want to start some provocative discussions on best
practices that most don’t want to hear, run the management team through our DVD
training program entitled: “High Performance Ideas for All”.
The cost is nothing compared to the enlightenment to be gained, and it is guaranteed!
Check out the “frequently asked questions” about this program in the center of
this link/page: http://www.merrifield.com/
In case you think that any of this chatter is “Bunk” or
you have a college-age kid who is: looking for summer work; starting to wonder
what they will do after college; or could be groomed into a family business
with a true, best practices future… Then, you might want to buy a few copies
(for the kid and other young protégés) of “Johnny Bunko: The Last Career Guide
You Will Ever Need”. Check out the
reviews at http://www.amazon.com.
If you don’t, here are a few questions to think about:
1. What
career advice should we give kids when 50% of all of the jobs that will exist
in the US
in ten years have not yet been invented? The new jobs will be good ones as
opposed to the traditional ones that will be increasingly automated or
emigrated away?
2. Would you
advise them to go into a mature consolidating industry like distribution of
mature products that needs to continue to increase sales per employee
dramatically through cost-reduction innovation; or, into an industry that is
just starting to take off with traction, especially with the number one, best
operator in that space? Or, a company that has created an entire new, “Blue Ocean”
strategy in a mature industry (e.g. Swatch, Nucor mini-mills, Starbucks
coffee)? Think of the stock appreciation and promotions from within that Wal-Mart employees got in the ‘80s as opposed to today.
Life cycle strategies and the ability to innovate into new competitive space
are key!
“BEST PRACTICES” FOR TOUGH TIMES: PART II
I was delighted to recently receive a project inquiry from
an outstanding, regional distribution chain in a contractor supply channel.
They wanted help in defining which (level) of best practices analysis they
should be doing to identify what innovative implementation projects they should
be working on through their industry’s downturn to become “even more dominate” than they are. The rich, successful firms just
keep improving!
This discussion is in process, but it does seem that they
would like a blend of two challenges:
1. Some “back
to fundamentals” (“Gentlemen, this is a football”) program with which all employees
could quickly engage as well as…
2. Some breakthrough,
breakout ideas to assign to their top game-breaking, in-house, intrapreneurs
who enjoy make-a-difference challenges.
When I asked how specifically they defined “dominate
distribution chain in their region”, there was a bit of a “we’ll know it when
we see it or get there” fog. Instead of thinking in terms of sales volume in
total and by different key manufacturing lines, I suggested that they might look
through the lens of “percent of profit pool” in the right, best customer niches
for their firm. In generic terms, 10%
of the competitors in a traditional industry may capture about 35% of the total
sales. But, because they are more operationally tuned to deliver value to
target customer niches, they will make about 50 -80% of the profits for the
competitive group and over 75% of the profits in excess of the cost of capital.
This last point is so good because a majority of mature competitors make
profits that don’t cover the opportunity cost of investing their asset value in
some other way (like muni bonds).
For some background thinking that would provide a range
from “fundamentals to innovative business model practices”, I directed them to
my 1-16-08 commentary and the specific sub-topic of: “Downturn Tactics;
Next-Level Tuning; or, Transformation”. (For regular readers, you may recall
that is the bit in which I progressed through: “Downturn Tactics 101; Simplify
and Amplify 202 which includes 5-5-5 marketing; and “New Business Models 401”, etc.)
Here’s the link: http://www.merrifield.com/articles/103commentary.asp.
I also sent them a loaner copy of our “High Performance
Distribution Ideas for All” training program suggesting that they first
skim through section 3’s 15 modules to rethink their profit pool opportunities
starting with the most important diagnostic tool: ranking reports of customer
profitability. Then, they would be able to crystallize a new, improved
definition for “basic service excellence” and might want to use all of the
how-to stuff in section 4’s 14 modules which is highly engaging for all
employees. But, employee engagement won’t last unless the company can take the What’s-In-It-for-Me (WIIM) question and turn it into a
growth path for all employees. To teach, practice and keep repeating WIIM
economics they might use section 2’s 12 modules. And, of course, managing all
of this change can’t be done unless the corporate culture is imbued with new change
capacity concepts like: “published praising statements; database scorecards;
pushing the wheel of learning; making good mistakes; etc.” all of which are
covered in the 13 modules in section 5. With 11 hours and 40 minutes of me, the
talking head with 100’s of slides in 10 minute bite-sized modules all on
tireless DVDs, do you think that they will need me live for the troops? We’ll
see.
Perhaps more primary questions for most (distribution)
service firms are how much “truth that makes men free” do executives want to hear?
1. How many
companies really want to define their strategy in a totally new way that
exposes many sales territories for actually generating net losses and 50% or
more of the customers as net losers, including some big name customers?
2. How many
companies would really want to downsize and upgrade most elements of their
business – sales reps, employees, customers, suppliers
– to be able to leap ahead? Most people don’t want to weed any losers to feed
winners; they want to imagine that new resource power will just come from
everyone working 20% harder and smarter for the same pay.
3. How many
companies want to share all of the general numbers with the employees in order
to let them measurably improve what they are doing so that they can earn
gainsharing bonuses? Management doesn’t want to share chronically weak and
not-improving numbers, and most employees don’t want to be responsible anyway.
They would rather try to put all of the pressure and the responsibility for an
ever improving job situation on the company principals which won’t happen if
they aren’t converted into being part of the motivated solution.
SERVICE PROFIT CHAIN RESEARCH
CONTINUES
Readers who are familiar with all of the content at www.merrifield.com, etc. know that I have
been an innovative adaptor of “service profit chain” theory since I first got
turned on to it via FedEx’s “people, service, profits” story in the early ‘80s.
Then, some professors of mine at Harvard
Business School
in the early ‘70s started publishing some great stuff on the
people-service-profit linkage which I have consumed and redeployed since Jim
Heskett’s first of five books in 1986 (“Managing in the Service Economy”).
Well, Heskett and friends are working on the soon to be
released “The Ownership Quotient”. For more on that, check this link: http://hbswk.hbs.edu/item/5884.html
For more on my thinking on this subject check out the
“service profit chain” commentary at this link:
http://www.merrifield.com/articles/100commentary.asp
And/or, skim through the exhibits and articles at my site
which is peppered with references to “service profit chain” stuff. If you
google: Merrifield.com + “service profit chain” you will get 34 hits.
It is my simple contention that a service business can not
achieve sustainable high performance without weaving the service profit chain
thinking into their business fabric.
REINVENT THE CORE TO BE
“UNSTOPPABLE”
Regular readers also know how much I have conveyed in
different ways on “more to the core”. An excellent researcher and author on
this subject, Chris Zook of Bain Consulting has just published his third book
on the topic. I encourage everyone to read the reviews for all three of his
books at Amazon.com including the latest: Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable
Growth. (www.amazon.com)
That’s
all for this issue; happy trails!
Bruce
