Distributors’ Toughest Transition …
Good to Great
It’s Not Automatic!
This is astonishing. The bottom 90% of HD distributors is probably making about one-sixth the pre-tax ROI of the top 10 percent.[1] These 90% undoubtedly are working hard, but with flawed, unspoken success assumptions that make them undifferentiated price-takers. Meanwhile, the other 10% are not working 6 times harder. Presumably they just work smarter at achieving and selling the best total service offering, tuned for one customer niche at a time.
The poor profits of the 90% are frustrating to all stakeholders. Shareholders in privately held companies are locked into a lousy investment, especially the minority owners. Meager reinvested profits can’t finance the growth expectations of the other three stakeholder groups. Best employees, fast growing customers and prestigious suppliers will all steadily leave or shift support to the best performing HD specialists.
The cycle repeats itself time after time. The Top 10% have all of the best players in the industry knocking on their door offering their services; have the resources to develop new ideas and the purchasing volume necessary to maximize rebate dollars.
Best employees leaving the underachieving 90% are old news. According to many surveys, finding, keeping and motivating best employees have been the biggest and growing problems for all service firms for the past decade. Demographic and employee expectation trends guarantee that these personnel challenges will only get worse in the next ten years.
What’s the solution for the troubled 90%? How can a mediocre company become great while looking into the teeth of a recession? Some good general guidelines are outlined in a popular book by Jim Collins - From Good to Great: Why Some Companies Make the Leap … And Others Don’t [2].
The author and his research team screened 1,435 long-established, publicly-traded firms to find 11 that had been mediocre for a long time before taking off to outperform the rest of the stock market indexes by 300% or more for at least 15 years running. Two of the 11 are in (retail) distribution: Kroger, which after 80 years of mediocrity out-performed the indexes by 416%, and Walgreen’s, which beat the averages by 1500%!
After thoroughly researching the magnificent 11, Collins concluded that all were using the following principles:
- Get the right people – “A” people who can do A+ work. It should surprise no one that with mediocre people, no strategy works.
- Pick a strategic focus in which you can dominate your marketplace.
- Generate a “stop-doing” list of projects, products and services that don’t fit the plan focus.
- Determine the key economic measurements that will drive the entire plan.
- Pick, promote and pursue values that best people can get passionate about.
The author and team also found out that these companies didn’t have one big transformational moment or formal “change program.” They all got tired of being mediocre and evolved a new framework of success assumptions along with a focused strategy. These changes took an average of four years to get right and to get everyone’s support.
But We Don’t Have Four Years!
In an extended flat spot like that plaguing some truck parts and service markets, most businesses can’t stop to change … it has to be done on the fly. Here are some more distribution-specific thoughts that expand upon Collins’ 5 general guidelines:
- Challenges to “getting the right A people” include:
- Find the hidden ones who are already on the job! Are there some employees who have A+ hobby energy and economic savvy that they are leaving at home? How do we induce them to turn on in the shop?
- Create an environment that forces the people who can’t fit into a high performance culture to weed themselves out?
- WDs are going to have to become much more customer niche focused.
- Tune the total service offering to not just different niches, but different strata of customers within a niche.
- Every employee will have to know and strive for perfect service metrics for each niche, as well as be empowered to make outstanding service encounters routinely.
- On the stop-doing list, every WD will have to shape-up or move out the 50% or more customers on which they lose money. This involves a number of new assumptions, tactics and skills that must be applied first remedially and then preventatively on an on-going basis.
- The economic number that will drive the transformation to high performance is “gross margin dollars generated annually per full-time employee.”
- To attract and keep best people a firm has to pay premium wages for every job niche.
- Premium wages can only be afforded by premium productivity per employee. Premium productivity can only happen if every employee’s heart, mind and wallet are wired into the right success assumptions and productivity transformation plays.
Values that heavy-duty parts and service employees can get passionate about? Try these:
- Achieving, selling and getting paid for best everyday service.
- Growing the value, wages and future career prospects of all employees.
- Being on a winning team where everyone respects and helps one another.
How many of the 90% are tired of being mediocre at best and willing to consider embracing the good-to-great guidelines for success? Tough economies can be the best time to get all stakeholders of a company to consider doing things differently if the plans have the right vision, assumptions, tactics and economics.
Continuously trying to save your way to a fortune will ultimately not work. Cutting back and working harder with flawed strategies and assumptions isn’t an option for longer-term survival.
If these distribution specific comments on Collins’ guidelines are still too vague, then check out the out-of-the-box, video-based training system entitled “HIGH PERFORMANCE DISTRIBUTION IDEAS FOR ALL” by Bruce Merrifield (details can be found at www.wade-partners.com). The 53, 12-minute modules speak directly to your interests and problems, and can be utilized by individuals or groups.
Read the book, try the tape program or call us for other suggestions … but don’t miss the opportunity during a slow period to move up to the Top 10!
About the Authors:
Bill Wade has been in the automotive and heavy truck aftermarket on both the manufacturer and distributor sides for over thirty years. He has written and spoken extensively on the effects of distribution consolidation and buying groups. He recently formed Wade&Partners, a marketing services company specializing in issues such as unexpected growth opportunities, strategic development, startup or turnaround counsel, brand building and restoration.
D. Bruce Merrifield is one of the foremost authorities on independent distribution, high performance service management and the effects of e-commerce on traditional distribution channels. As head of Merrifield Consulting Group, he has authored several books and over a hundred articles for trade publications and various associations on maximizing supplier / distributor effectiveness.
[1] From data specially calculated by consulting group Profit Planning Group of Boulder, Colorado which produces comparative financial reports for over 35 distribution trade associations..
[2] Jim Collins was also the co-author of Built to Last.