December 6, 2002 Commentary # 3
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COPIES OF PAST COMMENTARIES
This is
our third edition. If you would like copies of the first two request them from
karen@merrifield.com. If you do request them, you might also want to request
our E-Booklet entitled “New Solutions for a Different Kind of Downturn.” More
detail on this 45 page document is at the end of this note.
RE-PURPOSING COMMENTARY CONTENT ON
OTHER SITES: The
answer is “yes.” What is the possibility?
YEAR-END THEME: CHANGE “CHANGE MANAGEMENT”
For better
or worse, many companies plan their big initiatives and incentive compensation
around calendar numbers making December a month for reviewing THE 2002 PLAN
results and re-casting NEW PLANS FOR 2003. Because success rates for 2002 plans
may have fallen short and our 2003 economy may well be challenging, maybe now
is a good time to think about how to change how we pursue change. I hope the
chosen topics in this note will help some readers do that.
TOPICS:
1. NEW YEAR’S HEALTH (RESOLUTION) SUCCESS RATES
2. ROONE ARLEDGE: AN INSPIRATIONAL RULE CHANGER MOVES ON
3. ECONOMIC HEADWINDS OR TAILWINDS IN 2003
4. RETHINKING CHANGE/TRANSITION MANAGEMENT
5. CASE STUDY: AN MRO DISTRIBUTOR SURVIVAL STORY IN PROGRESS
1. NEW YEAR’S RESOLUTION SUCCESS RATES
Both people and their corporate communities are
statistically weak at achieving big improvements or change. At the personal
level, I have heard two interesting stats that seem believable: 1) The average
New Year’s resolution for improving our health (“our first wealth”) lasts only
15 days. And, 2) only 5% of alcoholics go into “spontaneous remission”
annually. The rest presumably maintain their stories of denial and their
sub-optimal state of existence.
Surveys on the success rates for formal corporate change
programs uncover equally dismal success rates. What will we do differently for
how we pursue sustainable, breakthrough results for our corporate goals in
2003?
2. ROONE ARLEDGE: AN INSPIRATIONAL RULE CHANGER MOVES ON
Roone Arledge, the most successful
TV executive ever, died on December 5, 2002 at the age of 71. I grew up
appreciating his sports programming innovations, and as a business executive I
marveled at how he took two last-place, money-losing dogs – ABC sports and news
– and transformed them into dominant #1 profit machines.
How did he do
it? He perpetually innovated to give the viewer (the final customer) more
value. He didn’t fine-tune the past with the in-the-box, incremental
improvements. He didn’t cut costs to sustainable profits which never works
anyway; instead, he forward invested in programming innovations that generated
big wealth for all parties in the game – the viewers, the advertisers, the
reporters, ABC and the athletes – that he converted from afternoon gladiators
into prime time entertainers.
I recommend
that readers read and re-read the best obituaries on Roone (the NYTimes.com has
an excellent one) and try to draw inspiration from what he did. In 2003, why
not rethink your business around your most profitable customers? Why not put
all of your players into the game with “open book management”, new plays to
grow their productivity and the responsibility for doing so? Make sure that every
employee knows by heart the top 5-10 most profitable accounts and the most
important target accounts to whom they will say “YES! What’s your special need
right now that I can take care of?”
3. ECONOMIC HEADWINDS OR TAILWINDS IN 2003
Is our stock market in the midst of a new bull market or
is it another bear trap rally? Are the Fed cheerleaders and the consumers who
set Thanksgiving shopping records right about the hope that the “soft spot” in
the US’s economic growth rate is behind
us and a solid recovery lies ahead? If I knew for sure, I wouldn’t be doing
this commentary; I would be tending to my vast stock market holdings, working
on my tennis game and really getting into spirit and activities of the Holiday season ahead. Instead I’m
polishing this note at a Washington D.C. airport at which I have been
grounded for two days waiting for my home airport of Raleigh-Durham, N.C airport to de-ice.
But, I can share my guidelines with you. Be skeptical of
government officials singing “happy days are hear again” and encouraging you to
borrow more to consume, because it is patriotic. Question Wall Street spin
meisters using “pro forma” earnings and valuations based on future expected
earnings which then get adjusted way down. This latter group will do anything to
get their kids into private Manhattan nursery schools and generate commissions.
Look instead at stock valuations based on trailing, GAAP-scrubbed, bottom line
earnings (the current S and P 500 P/E ratio on this basis is 37+!). And,
remember that the blue-chip economist forecasts have been laughably wrong for
the past two and half years using rear-view mirror data and tools that don’t
work in post-bubble economies.
Instead,
keep your eye on the bigger, longer-term, structural headwind problems. The
biggest in priority order might be:
Unsustainable
growth in and total levels of debt for all borrowers in the US.
China’s
manufacturing export growth rates at the expense of all high-cost manufacturing
countries. Under-funded pension liabilities which will eat into corporate
profits and capital expenditure cash-flow. CEO hunker-down-itis.
And, the
resultant on-going, too-slow growth rate of the US economy which guarantees
creeping rises in unemployment and declines in consumer total wages, net worths
and confidence. I have elaborated on all of these conditions in my past
commentaries and in my article entitled “Post Bubble Economy Management.”
(Request them both if you would like from karen@merrifield.com).
In spite of occasional weeks of
positive data points, the big trends and headwinds have not changed. Our
average GDP growth has been 1.5% for the past two years, I think it will
oscillate around that average at best through at least 2003. So, whatever you
have been experiencing in your channel for the past two years, expect more of
the same for 2003. If you want more background on some of these headwinds, here
are some URL’s to check out:
1) For the
total debt report just skim through the graphics at the following URL:
a)
http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm.
2)
Under-funded corporate pension problems have been huge. Here is a good recent
article URL on that problem http://www.insightmag.com/news/331611.html.
3) As for
CEO hunker-down-it is, I was amused to see that the same week that Sir Greenspan
coined the term “soft spot” for our current economic growth, the Conference
Board released highlights from a survey of 700 CEOs of the US’s largest
corporations. The average response was to spend the same or less on capital
expenditure for 2003 and to have the same to fewer employees. I think I would
believe what the big companies already have baked into their rolling 12-month
plans and what they are reporting as far as backlogs that aren’t there.
4. RETHINKING CHANGE/TRANSITION MANAGEMENT
How many companies get positive, breakthrough, sustainable
results from major change programs? I’m sure no one knows, and we could argue
about what qualifies as “major change, breakthrough, etc.” I do remember that
two surveys in the early ‘90s checked on results from “formal service
management improvement” programs and both concluded that about 70% of these
efforts were killed within 6 to 9 months and only 4 to 5% of all of the
programs got sustainable results.
As an exercise, review the honest results for your biggest
program efforts over the last few years. Then, to learn more from those
efforts, check out two references on the net:
1.
At
www.merrifield.com, read the “objectives” and some of the back-up articles for
modules 5.1 to 5.13 for our video, “High Performance Distribution Ideas for
All.” The URL is at the end of this paragraph. Once there, hit “control/end” to
get to the end of a very lengthy document and then scroll up to module 5.1 to
then skim to the end. I have always found that I have to make all of the
employees knowledgeable about and responsible for change management at the –
personal, departmental, company (and for some) the inter-company – levels. I
have also found that unless I put in measurable, objective systems with which
to constantly prod the transition process, human foibles will arise at all
levels of the organization to undermine change. Here’s the URL:
http://www.merrifield.com/video/summary_notes.doc
2.
If
organizations are so bad at “transition management”, you would think that there
would be one best, published source for how to do transitions from “good to
great.” Well, there are some better business books about great companies and
their best practices, but there is only one that I have found that really
delves deep enough into the human transition problem. The book is entitled:
“Managing Transitions: Making the Most of Change” by
William Bridges. It was published in 1991; it’s $14 in paperback at Amazon.com.
I suggest you read the 11 reviews that rate it at 4.5+ stars out of 5. The pictures
and the checklists are worth the investment if you plan to do anything
proactive in 2003 or would like to learn more from your past fizzles.
5. AN IN-PROGRESS, MRO DISTRIBUTION SURVIVAL STORY
If you think business is tough, read on about a
distributor that sells durable, MRO goods to manufacturing America, a sector
that has been in a recession or a depression for the past 29 months and
counting.
1)
The
company peaked with 120 employees at several regional locations, they are
currently at 82, a 32% headcount reduction.
2)
16
months ago, wages were cut 10% for the bottom 80% of the payroll and 15 to 20%
for the top of the payroll. All health insurance cost increases have been
passed on for the past 2 years and all incentive comp has been close to nothing
for the duration.
3)
A
break-even sales number is re-computed every month. If the company exceeds it,
then they take 50% of the operating profit and pay it out to all on a
gainsharing basis. Most months they have not been hitting the breakeven.
4)
The
one successful thing they have tried on an experimental basis was a play out of
our E-booklet entitled “New Solutions for a Different Kind of Downturn” (IT’S A
FREE 45 PAGE WORD DOCUMENT VIA EMAIL; JUST ASK karen@merrifield.com for it).
More specifically, the articles therein numbered 11 through 14 convinced them
to “tackle the small order now..measure customer profitability and act.” They
went to their largest account by both volume and transactions and illustrated
how both of them were losing big bucks on transaction costs due to too small of
an average order size. The distributor did an audit of the what was going on
and got all of their recommendations accepted which included boosting average
order size dramatically, picking up new business and identifying a whole new fee-for-service
opportunity.
Based on this great success, the distributor CEO bought
our “High Performance..” video through one of our many re-sellers. Watched all
11.6 hours of it over a week-end. Pitched it to his top management team who
despite initial pushbacks is now digesting the entire contents. Their intent is
to pursue all 7 sub-applications that come out of an initial simple customer
profitability ranking report after first “signing up all of the employees’
hearts, minds and wallets” into the effort.
Sometimes when all of the traditional cures don’t work and
the pain is great enough, we try not only new big change initiatives, but we
change how we try to change. Most distribution companies have enormous profit
and personnel productivity power locked up within their organizations, they
just need the right combination to unlock it.
MORE ABOUT OUR E-BOOKLET
·
It includes the last 11 articles
that Bruce has written since the Summer of ’01 which have not been posted on
our web site.
·
It is a 45 page word document which
is best downloaded over a fast internet connection. Hard copies are available
by mail if you will send in a $12 check.
·
It also includes a list of our 24
and growing list of resellers for our “High Performance..” video who generally
sell it for 50 to 65% off of our list price posted on our web site.
Best wishes,
Bruce Merrifield