Exhibit 42
TO: ABC
Distribution Chain Branch Managers
FROM:
Bruce Merrifield
RE: Your
2007 Forecast and Strategic Plans
(ABC is a
disguised, privately-held, regional distribution chain that benefits modestly
from residential construction and significantly from commercial construction.
Its profits have grown to record proportions over the past few years due to big
inflation in the durable metals content of its products. I have an on-going
advisor role with the company, and this year the CEO (“Pete”) asked me to write
this memo to the branch managers before they do their traditional, forecasted
financial numbers and budgets for 2007. This is a process with which,
heretofore, I have not been involved. I have only seen most of the branch
managers at the past three annual management meetings.)
Greetings:
Pete (the
CEO) asked me to pen a note to all of you about 2007 forecasting and planning.
So, here it is. I would like to touch on a few ideas:
1.
Pete asked me about forecasting what the average growth rate(s) might
be for products sold through your industry channel and its sub-segments. It’s not my
area, and I don’t think there are any forecasting experts worth much anymore. Although
many economists are paid to make forecasts, it seems that their crystal ball
activities have continued to miss the mark by greater amounts.
The futures markets have been forecasting, for example,
interest rates 50% more accurately than the economists, so we might look at
both copper and housing futures for 2007.
The housing futures now traded in Chicago
are forecasting that housing values will drop 5% by 12/07 on a national average
and more in hot spots. Copper for Dec. ’07 delivery was quoted today at $3.27
and continues to drop to $3.11 by April ’08. This may reflect the time value of
money as well as forecasting global softening from the current price of $3.68.
But, remember that although the futures markets are more accurate than
economists, both sources could be way off. The futures markets for copper three
years ago did not forecast the huge increases that did occur. So, in an
increasingly complicated global economy with too many inter-dependent variables
and “X-factors” that no one foresees, who really
knows?
What’s your personal view on the “housing bubble”? Most
economist and press people are paid to be optimistic, so everyone seems
“surprised” at how rapidly housing inventory is building up. The build up does
raise questions: will housing have a soft landing or a hard one? If because of
deflating housing values, high gas prices, no growth in income and too much
debt pegged to a rising prime rate, the bottom 80% of Americans stop spending,
what will that do for Supply Chain Asian economies shipping stuff to Wal-Mart,
Best Buy, etc.? What if China’s
infrastructure bubble temporarily stalls? What will happen to the speculative
premium built into copper prices? How fast will copper supply continue to grow
while demand cools?
Bottom line, 2007 could be a rough year. Let’s assume
that the best case for growth in channels influenced by housing and/or durable
metal prices like copper in 2007 is 3%, the likely case is flat and the worst
case is -5% or maybe worse depending upon your view and/or specific market.
But,
let’s not get to caught up in what the US economy or the industry tides are
going to do, because – rain or shine –
don’t we want to execute, innovate and luck our way right by the rest of the
competitive herd? Who amongst you really wants to be in the middle of
the industry (buffalo) herd? Can you imagine the noise, the smell, the view up
ahead and the frustration of being able to run in only one direction at one
speed? Don’t we want to be out in the lead with clean air, a beautiful view and
total maneuverability room? How are we
going to do that?
2.
Let’s
talk about better execution in 2007
than 2006. How many of you accomplished all that you said you were going to
last year? How many of you already know how to run your branch better than you
are doing? Why do strategies fall short? In a survey on this question,
here were how many respondents fell short in execution plans, because they fell
short in one or more of the following execution support factors:
a)
Didn’t
allocate enough executive time – 85%
b)
Didn’t
allocate enough of the right, skilled people – 67%
c)
Didn’t
get enough extra strategic cash, outside of operational budget expenses to make
it happen – 60%
d)
Had
historic incentive plans (and measurements) in place that were in conflict with
achieving the goals – 70%
e)
Not
all of the employees understood what exactly “the strategy” was, why and how we
were suppose to do it and what was in it for them – 95%
A modest proposal: why don’t we look over our plans for
the past two or three years and write down all of the still cool stuff we had
planned to do, but for whatever reasons fell short on. Then, use factors a-e
above as a starting list for analyzing why we fell short. And, finally, in
this year’s plan write down what we are going to do differently in our execution processes (e.g. how we are
going to continually educate all employees about progress on strategic goals)
so that the past doesn’t happen again or at least the odds are going up
significantly that we will achieve new objectives. If we keep doing what we have
been doing, we will continue to get what we have been getting, and we will be
“victims” of the general tides.
If any of you are looking for a supplemental tool for
doing better, holistic implementations of plans, I can refer you to my web site
and a tool I invented that I call the “kinetic chain for profit power”.
If anyone wants to know more about or how to use, just call me. Here’s the
link: http://www.merrifield.com/exhibits/Kinetic_Chain_Ex_16.pdf
(It also is covered in module 5.10 of my training kit that
is described below.)
3. Assuming we will be able to execute
our 2007 plan better than our 2006 one, we now should ask, what will we execute
besides “trying harder” at the same old stuff? What are we going to do
significantly differently to breakout from the industry herd and certainly
local competitors? We are talking about “INNOVATION MANAGEMENT”. If we do
tried-and-true stuff that we have great confidence in, because it really is the
same old stuff in “try harder” clothes, then aren’t we likely to get the same
industry-average results? Only if we do stuff that is untried and scary will we
have a chance at achieving breakthrough results over our competitors. No fear and doubt, no results!
Of course, there is a bit of a way around this. If we had
gotten the first copies of Chris Columbus’ maps to the new world - including
currents, wind patterns and other how to tips - before the rest of the herd of
potential competitors, then we could cut down our risk of doing some
out-of-the-box stratagem with still big upside potential. If any of you
would like to shop for breakthrough ideas within my training program, “High
Performance Distribution Ideas for All”, you are welcome to. There are pages of
stuff on this kit behind the links in the middle of my home page at www.merrifield.com. The list price is
$995, but you essentially get it for zero, because it and any help that you
might want from me is covered by Uncle Pete’s advisor
plan.
There aren’t any one-size-fits-all strategic solutions for
every location, because each location is going to have its unique:
·
Best core accounts that could buy 20-50% more from us if we super, team-focused on them
and gave them custom value.
·
Target accounts, in which we aren’t #1 yet, but they are one of the 5% of all
accounts that will provide 80% of the future profit growth for suppliers over
the next 5 years. These guys should also get the team, custom value treatment.
·
Our
strengths and weaknesses that must be matched up against our local
competitors’ strengths and weaknesses in order to pick the right fights. Some
good competitors have, for example, been bought up by consolidators, what will
that do to their behavior in the marketplace?
·
X-factors
that will be unforeseen, important and exploited by the most vigilant, flexible
and dynamically opportunistic ball club in your market space. Is that your club, with 100% of the employees ready to do whatever it takes to
seize opportunities like the proverbial birds nest on the ground for the hungry
cat?
4.
And,
don’t forget to wake up your
corporate luck. We miss 100% of the shots that we don’t take. Here’s an
exercise to consider. Go to this link to download my quotes and thoughts on
“corporate luck”. http://www.merrifield.com/exhibits/Ex41Luck.pdf.
Have everyone skim through it and flag the quotes that
speak to them because there is a business luck story attached to it. Then,
share the personal favorite quotes and stories. Finally, think about what you
can systematically do to plant a lot of opportunity seeds strategically and
cheaply to create a pipeline of possibilities from which you will jump on the
best ones.
5.
Finally,
try new stuff in the spirit of “pushing the wheel of learning”, trying “cheap,
fast, prototype experiments” that allow us to “fail forward” with the most
learning and expanding new possibilities for the resources spent. The law of
the harvest is that “we will reap what we sow”. So, if we plant a lot of seeds
cheaply and funnel them down to those that evolve to be the most promising
before we more aggressively invest in them, we will do well. The best way to
have one great, new idea is to start with a lot of OK ideas and give them time
to allow some to evolve into “good” ones. For more reading on “pushing the
wheel of learning” and “good mistakes”, see the exhibit at my site with this
link: http://www.merrifield.com/exhibits/Make_Lots_of_Good_Cheap_Mistakes.pdf.
I’ve
written too much, for those of you who are still with me, thank you for
your kind attention. Here’s hoping that this note has been helpful and that if
you have any other questions or thoughts for which I can at least be a sounding
board, you will feel free to call (919-933-7474) or email me (bruce.merrifield@gmail.com). Don’t
worry about my cost to your branch or your company, its
all been covered. Otherwise, I will look forward to seeing you at the November
managers’ meeting if we are not in touch before.
© Merrifield Consulting Group, Inc.
Exhibit 42
