April 4,
2007 - Distribution Channel Commentary (DCC) # 98
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TOPICS:
1.
THEMATIC
QUOTES.
2.
DON’T BE
LIKE CIRCUIT CITY; GROW REAL PRODUCTIVITY/WAGES.
3.
SPIN-OUT
EXTRA SERVICE DIV. FOR FEES; BE LIKE “GEEK SQUAD”.
4.
WHAT
FUTURE JOB SKILLS SHOULD OUR KIDS AND EMPLOYEES HAVE?
5.
COMPETE
ON ANALYTICS.
6.
CULTURE
MANAGEMENT AS IMPORTANT AS STRATEGY DEVELOPMENT.
1.
THEMATIC
QUOTES
“50% of all of the jobs that will be available ten years
from now haven’t yet been invented.” Anon.
“Strong managers who make tough decisions to cut jobs
provide the only true job security in today’s world. Weak managers destroy jobs.”
Jack Welch
“Job security is gone. The driving force of a career must
come from the individual.” H. Bahrami
“The only true security in life comes from knowing that
every single day you are improving yourself in some way, that you are
increasing the caliber of who you are and that you are valuable to your
company, your friends and your family.”
Anthony Robbins
“If I have quick access to key metrics every day, my
creativity stays within certain bounds–my ideas all center on how to achieve
our goals.” Paul Allen
“What gets measured gets managed.” Anon.
“Cultural leadership begins when managers search their
hearts and souls for the values and beliefs that they are willing to stand
behind. The process continues as others begin to accept and share these beliefs
and to shape their behavior accordingly.” Terrence Deal
2.
DON’T BE
LIKE CIRCUIT CITY; GROW REAL PRODUCTIVITY/WAGES
The class warfare debate got four news items added to the
fire in the past week:
·
Circuit City is firing 3400 hourly sales
workers who average $10--11 per hour, or about $21K per year; they will be replaced
with new workers who will make on average $8 per hour, or $16K per year, which
is below the poverty income level for a family of three. The CEO, Philip
Schoonover, made $8.5MM last year or about 530 times the new hourly wage plan;
maybe he will even get more in 2007 for this clever plan!
·
The IRS released income data for 2005 which
revealed that the top 1% of the nation’s income earners – those with incomes of
more than $348,000 -- received the largest share of national income (21.8%)
since 1928 when a record peak of 23.9% was hit. Taxes were much lower in 1928, but
the 2005 data includes only about 70% of the investment income of tax returns
and none of the late filers who are disproportionately bigger earners. The top
1% and top 10% of total income numbers are lifted higher by averaging in the
top .1% and top .01% of the tax returns. The top .1% (13,000 returns) had
average incomes of $5.6MM which was up $908,000 (+19.3%), and the top .01%
(1300 returns) averaged $25.7MM, up nearly $4.4MM (20.1%). But, the bottom 90%
of income tax filers dropped $172 in income (-0.6%) which does not include the
effects of paying higher health insurance premiums.
·
Dairy economists predict that the retail price of
milk could rise by about 30 cents a gallon or 9% by fall due to rising fuel and
(corn) feed costs for farmers combined with rising global demand for milk
products. When the average price of milk rose 19% in the spring of 2004, milk
purchases fell less than 4%, because many families considered it a necessity.
·
Alan Blinder, the economist, was quoted in the
March 28th issue of the Wall Street Journal as saying: “a new
industrial revolution – communication technology that allows services to be
delivered electronically from afar – will put as many as 40MM jobs at risk of
being shipped out of the country in the next decade or two.” Blinder has
concluded that the most important aspect of job security will not be the amount
of education that a person has, but rather how well a job can be done in Asia
with little degradation in quality received here in the US. Dr.
Blinder’s job-loss estimates are electrifying Democratic candidates searching
for ways to address angst about trade.
What questions do these news bits raise? Here are a few
that I’m thinking about:
·
What’s going on in Circuit City’s
competitive world that makes its wholesale reduction in labor costs and service
quality necessary (or in the consumer’s diminishing need for service
value-added possible)?
·
What can we do in our service businesses to
continue to increase both the value-added and margin dollar total per employee,
so that we can pay best, secure wages for what our employees do? And, how can
we make all employees 100% responsible for making that objective happen?
·
What should we tell both our kids and our employees
to do now and evermore to insure that they are not only employable 10 years
from now, but at an increasingly higher total compensation rate which will
allow them to have increased purchasing power beyond the effects of inflation
for both goods and services? What specific learning-how-to-learn and continuous-innovation-of-value-added
skills do we all need both on and off the job?
·
The politicians (esp. Democrats) will trumpet that
the top 10-20% are getting richer, so the bottom 80% should vote for candidates
supporting tax-the-rich-and-redistribute-to-you schemes. What should the 90th
percentile, college graduate, who has also flat-lined on income growth think?
Because all of the income growth has been going to the top .5% comprised of hedge
fund managers, Wall Street deal makers, and top executives of publicly traded
firms, doesn’t it misrepresents what’s going on for the 90th to 99th
percentile players too? A “plutonomy” is an economy that is run for the benefit
of the super rich; what must the US do to increase the wealth for
all citizens?
·
If Asians want to do many of our professional jobs
for a lot less, what next-generation innovations should we focus on both
personally and corporately to reinvent our value propositions?
·
If only 2-4% of companies in mature industries are
capable of perpetual innovation, what do the other 96%+ need to do with their
corporate thinking and cultures to increase their “Corporate Change
Capacity as a Core Competence” (C5)? Most companies can’t even define what a
“10” sales rep is in the eyes of “big buyers” who – in annual surveys –
continue to state that “90% of the sales reps who call on them aren’t worth
seeing”. Even if a company could define what “10s” do and don’t do, how many
have the capability to transform their sales force into valued bottom line
growers for best customers?
If you share any of these concerns, I’d be delighted to
visit with you to see if I can help.
3.
SPIN-OUT
EXTRA SERVICE DIV. FOR FEES; BE LIKE “GEEK SQUAD”.
Here’s more background information on the Circuit City massacre news recounted in #2
above. In the 4th quarter of ’06 Best Buy continued to trounce Circuit City. BB had sales increase by 21% and
profits by 18%. CC’s latest quarter showed, however, a loss of $12.2MM compared
to a profit in the same quarter a year ago of $141.4MM. Both companies are weathering
a big drop in the price of plasma screens for both TVs and PCs and lower,
aggressive pricing on the biggest selling products by Wal-Mart and the
wholesale clubs.
While CC pioneered the big-box electronic store space in
the ‘70s, BB innovated right by them in the late ‘90s. CC is now playing
desperation catch up. Trading out more expensive employees for cheaper ones
won’t change their inferior business model problems. It’s a bit like Home Depot
trying to make their old store formats and service culture more like Lowe’s
more successful, next-generation, big box stores and service.
In 2004, CC started up “IQ Crew” which is a knock-off of
BB’s fast growing “Geek Squad” division. Quickly put: Geek Squad is a service
business founded in 1995 by Steve Kroft in Minneapolis. The idea is to send out “geeks”
to help consumers and small businesses install, maintain and trouble shoot all
of the technology challenges that they have bought into over the past decade.
Kroft had 60 employees when he sold the business to BB in 2002. By year-end
2004, employees numbered 6,200 and now the count is over 12,000 and going
international. These guys will take care of any problem you have on any type
of electronics equipment problems, not just what has been sold through BB. Obviously,
the Geek Squad has exploding sales growth, and the profit margins on the
service fees charged are reputedly running in the high teens. Why try to only sell
commodities for less when Wal-Mart and the wholesale clubs will always beat
you?
For example, how does this story relate to a wholesale
distributor of commodity products? Imagine that a distributor has a
traditionally trained and compensated outside sales force that keeps hearing
from big customers: “We want to consolidate our distribution suppliers as much
as possible to buy all of our commodities at the lowest total procurement cost.
We want an integrated, semi-automated, demand replenishment system for the 90%
of our spend that is for pure commodities.”
Between the lines, isn’t the customer saying I don’t need
sales reps to call incessantly trying to stimulate demand for new, niche
products, I need, instead, a team of people to come in here and co-create with
us an inter-business process re-engineering solution that provides
breakthrough, total savings on 90% of our spend. Then, because we are a big,
powerful buyer, we will try to strip you of any extra services that you might
want to offer us without paying any more for the 90% of the spend that is
contracted.
How is
the traditional - sales force, product marketing and compensation - model going
to take care of the customer’s changing needs? It can’t. And, if
our customers need one-time services for co-creating a demand replenishment
system and then sporadic extra service help thereafter, would it be possible
that lots of other companies that buy other types of supplies from other types
of distributors might have the same generic, life cycle needs? Should we create
and spin out a “demand-replenishment-process-services division” to charge both
existing customers and any other companies fees for services that take their
pain away?
Sound impossible? If we think we can or can’t, we are
probably right. CC is moribund while the true innovator, BB, is proving new
stuff can be done profitably and thriving even though Wal-Mart and the
wholesale clubs are selling the 20% of the electronic items that are 80% of the
volume for lower prices.
How innovative is our corporate culture? On a scale from 1
to 10 how should we score our corporate change capacity? Whatever the score is,
how do we start to move it up a few notches?
4.
WHAT
FUTURE JOB SKILLS SHOULD OUR KIDS AND EMPLOYEES HAVE?
All schools, even career-tech oriented ones, lag in
educating students for what new skill needs the free markets might need. As the
pace for both outsourcing service jobs to Asia and innovation in the US pick up, the
schools will probably lag even further. So, both our younger employees and our
student-aged children are going to need more than traditional educational experiences
to thrive.
How are we taught to learn by schools and what else do we
know about learning how to learn? Doesn’t a lot of school learning involve:
·
showing up regularly on time;
·
shutting up;
·
memorizing what ever curriculum is spoon-fed to us;
·
then, regurgitating the “right” answers on tests to
get good grades whether we really know how to apply what we are doing or not;
·
and moving on to the next step? .
Don’t’ get me wrong; not all of my schooling was a waste.
I still remember a lot of information that I draw on. I, for example, am glad
that I have a broad and deep vocabulary and can communicate well through
speaking and writing in the English language, which fortunately turned out to
be the global language of business (at least for now). But, as the recipient of
one of the finest educations possible, none of my teachers, save a few,
sporadically at Harvard
Business School,
ever thought it was their job to teach me:
·
Social, collaborative learning skills that
included: effective listening; dialogue and reframing skills; appreciative inquiry;
and other “human psychology of learning and change” concepts and tools”.
·
All of the skills needed to move along a “path of
mastery” that is most easily applied to athletic activity excellence, but also
to any human skill capability. And,
·
Innovation management pipeline skills starring the
three most important guidelines of:
1) Finding a
need with best, right customers that lines up with my core competencies;
2) Filling
that need with a (total) solution that has a cost that is less than what the
customer will value and pay for it to insure a profit.
3) And,
creating new value through rapid prototyping involving failing fast forward and
flexibly toward the value vision.
4) (and
there are lots more in the “innovation management” space.)
If everyone from 16 and older in the US, as well as all US
firms, could turn the art of learning how to learn into more of a science, then
we would have no problem out-innovating the rest of the world, because we still
have so many huge core advantages here in the US that will continue to help us
whether we get better at all types of learning skills are not.
So, for the sake of our kids, our employees and our
company’s long term viability and shareholder value, we need to think about how
we are going to start to – crawl, walk, run and then institutionalize – the
capacity for learning how to learn and innovate.
5.
COMPETE
ON ANALYTICS
Major League baseball started its latest season (131st
since the 1876 NL constitution) this past Sunday. It will be interesting to see
if Billy Beane, the manager of the Oakland Athletics, can continue to win more
games for the lowest total payroll cost in the majors. He is the one who pioneered
using different baseball statistics routed in systems theory to buy the best
available talent in the free agent market for the lowest cost. Up until last
year, one of his protégés performed some of the same magic for the Boston Red
Sox.
Do you wonder if there might be some new metrics that your
company might obsess over that would give you a longer-term competitive edge?
If so, there is a new book out that might have some appeal: Competing on
Analytics; The New Science of Winning by Davenport and Harris. But, I’m not going to
buy it or recommend it to service firms, especially wholesale distributors,
because I already have a number of articles in print on the subject of
“analytics; metrics; and/or KPIs (key performance indicators).
For a quick review of some of my more metric-centric
articles, check out:
·
E=MC2 Measurements for Distributors (http://www.merrifield.com/articles/2_16.asp)
·
Data Into Dollars? Not Yet! (http://www.merrifield.com/articles/2_18.asp)
·
Information Rich, But Knowledge Poor? (http://www.merrifield.com/articles/2_11.asp)
·
…Why is a Branch Profitable? (http://www.merrifield.com/articles/2_12.asp)
·
Re-thinking Distributor Profitability – A Case
Study (http://www.merrifield.com/articles/2_19.asp)
For a fresh perspective today, let’s apply systems theory
for service economics for distributors by building on FedEx’s mantra of:
“People, Service, Profits”. The general theory is that:
1- If we get
the right, best aptitude people for
each service job and keep them (because we keep them happy), then we can
educate them to do service functions right and on-time as well as go the extra
mile for key accounts that really matter. They can then also be part of the
on-going solution for continuously improving and innovating on our service
value propositions.
2- If we
have distinctively excellent, consistent (guaranteed) service, then customers will be attracted to us, stay, buy more and
even partner us using some degree of integration and automation. We will grow
faster than our competitors that inadvertently upset and drive more customers
to us (defections) than we do to them. We “win on positive turnovers”.
3- If we win
the right, best customers that are growing faster than their industry, then
they will grow us. Right customers are not only bigger and faster growing
customers, they are ones with whom we can service and make a profit. Not all customers are
inherently capable of being profitable to their suppliers. So, if we want to
grow the net present value (NPV) of the profit before interest and tax (PBIT)
from our customer base, we have to: pick one niche of customers at a time;
define perfectly what “service metrics” the niche needs; and then win all of
the best customers from a NPV- PBIT point of view.
If you believe this line of systems thinking, then what
are the important analytics to measure to insure that we are managing the path
to sustainable profit power? It all seems to rest on the quality and longevity
of your service employees, but don’t those metrics in turn rest on the quality,
longevity and coaching effectiveness of profit center managers which includes
how well you hire employees to begin with? If a huge percent of great
service performance rests on how well we choose which employees to hire,
then how do we measure and improve that?
If we can make great hires, but don’t grow them right,
they are the first and most able to leave. So, how do we measure employees’
morale, especially the A players? Companies that poll all employees to
anonymously report both their morale scores and their scores for their
manager’s effectiveness find that there is a perfect correlation between
average morale and manager coaching effectiveness.
Because “A” employees can make a big impact in service
businesses, if managers rate their employees on an A (top 10%), B (next
70-80%) and C (bottom 10-20%) and then follow up with plans to keep and
leverage the A’s while helping the C’s to become B’s or find another employer.
Good things can happen over time.
Finally, having great personnel effectiveness doesn’t tell
us what a best strategy is for every profit center. So, top down we have to
start measuring and forecasting the NPV-PBIT potential of the customers in
our portfolios. And, instead of trying to sell something to every customer that
might buy one or more of our products, we should first try to sell the bulk of
our products wrapped in perfectly tuned services to the very best customers
that have a future and dominate the profit pool potential of one niche at a
time.
If this all seems a bit much, don’t worry. All of this and
lots more is covered in our DVD-based training system program entitled” “High Performance Distribution Ideas for
All”. There is lots of information on this product behind the links in the
middle of our home page at www.merrifield.com.
It’s an incredible economic value and unconditionally guaranteed. But, its
breakthrough stuff. If you still want to run your business by financial numbers
and sales activity metrics, then you will probably want to pass.
6.
CULTURE
MANAGEMENT AS IMPORTANT AS STRATEGY DEVELOPMENT
In a recent survey done by Bain Consulting of 1200
international executives, Bain discovered that 90% of the managers rated the
management of the “corporate culture” as important as strategy in achieving
business success. Ten years ago, no one cared about such “soft” concepts.
So, what is our “corporate culture”? What are the
smallest, indivisible, culturally transmittable ideas within our culture? Have we
surfaced them? Written them down? Checked them for internal consistency and
obsolescence? How do we inculcate them thoroughly, quickly and effectively for
all new employees?
The few sustainably successful service organizations in
the US
have at least three internally consistent pillars supporting their performance:
1. They have
an articulated, focused and disciplined strategic scope; they do not try
to be too many things to too many types of customers, but rather a dominant #1
for one niche of customers at a time.
2. They have
very rigorous, scientific personnel systems for how they recruit, hire,
orient, cross-train, continually improve or weed their employees. And,
3. They have
a highly sophisticated corporate culture which is comprised of many “memes”
that they can define as well as illustrate with stories and heroes and celebrate
with definite rituals.
We have to have all three. Missing one or more? Have
solutions, will talk, and even travel.
That’s all for this issue!
Bruce Merrifield
bruce@merrifield.com
919-933-7474
