October 11, 2006 - Distribution Channel Commentary (DCC) # 92

 

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TOPICS:

 

1.      THEMATIC QUOTES.

2.      WHAT IS, WHAT WILL YOUR COMPANY BE WORTH?

3.      WHAT WILL WE DO DIFFERENTLY IN 2007?

4.      TEN FACES OF INNOVATION X 10 WAYS TO INNOVATE.

5.      MORE ON SYSCO.

6.      MEMO TO BRANCH MANAGERS ON “PEOPLE, SERVICE, PROFITS” METRICS.

 

1.       THEMATIC QUOTES

 

"If you have to forecast, forecast often."   Edgar R. Fiedler

 

"If you're in a bad situation, don't worry it'll change. If you're in a good situation, don't worry it'll change."                  John A. Simone, Sr.

 

"Do not search now for the answers which could not be given you because you could not live them. It is a matter of living everything. Live the questions now. Perhaps you will then gradually, without noticing it, one day live right into the answer."     Rainer Maria Rilke

 

2.       WHAT IS, WHAT WILL YOUR COMPANY BE WORTH?

           

In the past two weeks, two separate distribution chains decided not to sell out. One had a firm offer on the table, but passed. The other is a family business in which the next generation does not want to be actively involved in the business. Their simple answer would have been to sell out, but the management team/family shareholders came to an agreement that they still want to renew the business for the next 20 years.

 

The backdrop for both decisions is a competition between too many private equity funds looking for deals where earnings growth is quite dependent upon on-going acquisitions. Even if the US economy goes into recession in 2007 , and takes the rest of the world’s economy and stock markets down with it, the private equity guys will be banging on the door. They raised too much money last year, and this year they will raise over $300B surpassing last year by 15-20%. How will they invest that over the next few years given that all of the easy roll-up action in mature industries has already been done (starting back in the mid-90’s)?

 

If both clients want to preserve and enhance their “enterprise value”, then they both need to do a better job of renewing their respective businesses rather than optimizing their numbers in a product inflation positive environment. For more on how they might do this, see #6.

 

3.       WHAT WILL WE DO DIFFERENTLY IN 2007?

Regardless of what the economy does in 2007, our general trend performance will stay the same if we keep measuring and doing the same things. Doing lots of reactive, incremental, adaptive things, which everyone else in our trade group is doing or talking about, just keeps us in the middle of the herd. For example, while many distributors in the MRO-to-industry space continue to cut back as their customers move to Asia, W.W. Grainger has opened their first “master branch” in Shanghai. (http://www.sdcexec.com/article_arch.asp?article_id=9082)

Go fish where the fish are is a time honored strategy. Grainger has a long track record of doing innovative things, often with very big resource bets. Maybe we aren’t Grainger, but what innovative, baby-step things might we do? How do we start to create an “innovative culture”? How do we start to use some simple innovative models and tools? How do we start to think in new innovative directions and in new innovative ways? You will find the answers, gentle reader, if you continue to read.

 

4.       TEN FACES OF INNOVATION X 10 WAYS TO INNOVATE.

 

In our last commentary, we offered a copy of an annotated slide show (16 slides) that highlights Doblin, Inc.’s “10 ways to innovate”. Starbucks, for example, changed 8 of the 10 to turn a commodity, coffee, into an experience. If you want this slide show, please request it from Karen at Karen@merrifield.com.

 

This time, I propose that you check out the “10 faces of innovation” (book) web site. (http://www.tenfacesofinnovation.com). If anyone wants to play the “devil’s advocate”, they want to be negative, but not responsible for trying to squelch some novel idea. How do all of the others put on 10 different thinking hats that allow them to turn every negative into a positive and/or more ideas that move you conceptually towards the opportunity vision?

 

BTW, what ratio of positive remarks to negative, critique remarks should a high performance team have? The optimum ratio is in the middle of the “Losada Zone” with a score of 5.6. Below 2.9 is where I infer that innovation stops, and over 11.6 there aren’t enough reality checks to be effective. Google “Losada Zone” for more.

 

After skimming through the web site, think about creating a 10 by 10 grid with Doblin’s 10 ways by IDEO’s 10 faces, then start applying the 100 potential cells towards any ideas that you are working on.

 

5.       MORE ON SYSCO.

 

In our last DCC, we turned some readers on to a new source of in-depth analysis on what Sysco is doing specifically with their Regional Distribution Centers. Well, the same analyst and firm (Jason Whitmer at Cleveland Research) has another update on Sysco. Based on new market data that they have on the softening of the eat-away-from-home business, they have modified their assessment of Sysco, but still think they are a company to watch and invest in. For the 9-29 update, email Jason at jwhitmer@cleveland-research.com.

 

6.       MEMO TO BRANCH MANAGERS ON “PEOPLE, SERVICE, PROFITS” METRICS.

 

If you want to get your management team to start thinking and managing in a more “balanced” and “long-term, sustainable profit growth” way, please feel free to read and knock off a new exhibit at our site at this link: http://www.merrifield.com/exhibits/Ex43People.pdf.

 

This document is a disguised/modified version of a memo that I’m using for a distribution client that seriously wants to not just optimize year to year results, but continue to reinvent itself for the long term.

 

 

Until next time,

 

Bruce

 

bruce@merrifield.com