October 8, 2003 - Distribution Channel Commentary (DCC) # 42


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  2. For new and occasional readers, I have started to post drafts of chapters from my forthcoming book, Reinventing Distributor Profitability, on our home page at www.merrifield.com. About half of Chapter Three is now posted. This new Chapter Three includes a much more buffed case study on why Wal-Martís competitors have been slow to respond to supply chain changes since 1983, and 12 new pages of a sub-section entitled: "Controlling Producer Promotion Pressure".

    This section uses four case studies on distributors to surface both company and channel "cultural rules" (or unspoken sacred cow practices) that freeze us into past practices and keep many of us from changing to what we know we should be doing. If you think you know how you could run your business a lot better than you are doing, but you are either afraid to try or canít get the rest of the team to change, then you might want to skim through these case studies for some ideas.

    This entire chapter is a bit of a risk because it is aimed at the heart of the "knowing-doing gap". I promise that a lot of readers are going to feel very uncomfortable reading about sacred "rules" that they do practice followed by commentary on why these rules need to be overhauled. We hope you will share your critiques.

  4. Iím writing this early in the morning of "Total Recall" election day (Tuesday, 10-7) for California, the 5th largest economy in the world, which I believe is in more trouble than most think. The Governator was an 11 to 8 favorite to win according to London bookies over the weekend, but everyday more gropees seem to be recalling close encounters with Arnold. I guess we wonít know until the votes are in.

    Still, Arnoldís movies and muscles evoke mythical images for me. Could he get out his Conan sword and cut the Gordian knot of Sacramento bureaucracy in half as Alexander the Great mythically did long ago. (Alex actually unhooked the hidden peg between the chariot and the knot to claim victory.) Or, like Hercules will he figure out how to slay the nine-headed, special-interest Hydra and clean out the stalls of 3000 oxen that hadnít been cleaned in 30 years (by that slob King Augeas) plus 10 more impossible tasks?

    My guess is that no candidate can solve Californiaís problems because the citizens of California donít want to hear about or tolerate: government spending, jobs and services being slashed and taxes raised for some transitional period. The hydra and oxen of government by the people, with the unique state populist powers of Ė proposition, referendums and recall Ė will resist until some final, financial meltdown scenario. What impact will that have on the muni bond markets, the US economy, and the businesses in California? Who knows?

    This situation reminds me of the Far Side cartoon (once again) in which two clouds of equations on a chalkboard are separated by a little phrase in the middle that says: "A MIRACLE HAPPENS HERE"

    How about changing our own business for the better; bridging the knowing-doing gap? At least CEOís donít have to be re-elected by the employees, so they do have some strategic re-thinking power. If you have read Chapter One of my book at our web site, you know that I think that 90%+ of distributors are not making enough profits to insure long term survival and certainly not any kind of growth future for any of their stakeholders. I then go on to offer a number of "strategy maps" to help every distribution location to define its historical, best starting point for reinventing a unique service value, profit power growth path. Old, poor and declining financial equations are on the left of the chalkboard and new profit power metrics and methods are on the right, but who will be able to make the transition. Change management, the miracle between here and there, becomes the problem if you have strategy maps and new North Star Metrics that all can understand and desire. So, I will continue to write about how to change.


The 9-25 issue of the Financial Times had an article entitled: "Profit Machines That Put People First" (sorry no easy link). It started out by reporting on an e-mail memo sent out by one Neal Patterson, the CEO of Cerner Corporation (software company; www.cerner.com; based in Kansas City; Symbol CERN).

In an e-mail entitled "Fix it or changes will be made", Neal announced a new "clocking on/clocking off" procedure in addition to: closing the company gym until after 5pm; firing 5% of the people; and suspending all promotions. On the new clocking procedure he said:

"My measurement will be the parking lot, it should be substantially full at 7:30am and at 6:30pm. I will hold you accountable. You have allowed this to get into this state. You have two weeks. Tick tock."

I suspect that this type of kick-in-the-ass (KITA) management may get cars in the parking lot, but it will obviously hurt morale. It has nothing to do with focusing on the nexus of best products to best customers where the company makes 200%+ of its profits to finance all of the losing old and new products in development or the losing customers. And where is the vision, the strategy, and the new metrics that will get people excited to try new things and be pulled forward instead of beaten on the rear? Trying harder when 80% or more of the activity is on break-even or losing elements of the business isnít as smart as shaping up or out the losers to focus on feeding and co-creating new, valued solutions with best customers who have a future.

There is actually a web site at www.internalmemos.com that is loaded with examples of callous, small-minded management. With the poor economy, lots of new entries have been posted. How could managers exhibit such regressive behavior in this day and age of "treating people right"? We obviously know how to be better managers and parents than we actually are in the heat of the moment.

How should we try to do a better job of walking our enlightened talk when the heat is on? Maybe instead of fussing and fuming about working harder metrics (cars in the parking lot with fewer people to do the same work level activity). We should hold the employeesí feet to the fire of numbers that measure how good our service value is for the really profitable customers. Maybe we should make them responsible for growing productivity per employee to afford their economic wishes and give them the pathways and numbers to do it.

How? Imagine if you had:

  • Pictures and names on the wall of your 5 to 10 most profitable customers for all to know by heart?
  • Ditto for the currently selected 5 most important target accounts ("GAZELLES" that are growing faster and more profitably than the rest of the players in your number one niche of customers, because they are focused, disciplined, can do operators. They are steadily eating the rest of their competitorsí lunch; like Wal-Mart, Dell and Southwest Air have been doing)
  • 5 to 8 service metric goals on the wall that had been tuned and confirmed by the 5 most profitable customers in your number one niche along with daily postings for actual service performance.
  • A 12-month-trailing-average chart for "gross margin dollars per full time equivalent employee" as a measure of "value added per employee" with the understanding that if it doesnít go up, then anyoneís total compensation canít go up (including health insurance!).
  • A monthly posting of your 5 to 10 biggest losing accounts that could be destroying 20 to 50% of the total operating profit that the company actually does make off the rest of the customers.

Then, you might tell all of the employees:

"Look guys, if you would like future raises, job security, growth and pride, something to believe in and get excited about, then do these things:

  • Work together as service process teams to figure out how to improve the daily service metrics that take care of our best customers.
  • If we service our best and target customers better than anyone else, then they will stay with us and start to buy more because the competition will mis-service accounts more than we do. We will retain and gain by winning on "positive turnovers" (in case you have football fans).
  • If any of the top 5+ most profitable or top 5 target accounts have an unusual service need, the answer is: "Yes!" Do whatever they would like for you to do to not only be satisfied, but delighted. If it isnít obvious to you what solving their problem is with a little extra icing, ask them "what else can I do to make you happier?" Then do it! These "heroic, in-the-moment actions" will help our sales force and total team selling efforts get a lot more profitable business from them, which will in turn grow GM$/employee.
  • We have to approach our biggest losers and negotiate new deals to make them win-win or they will keep draining us. Will the sales reps on these accounts and our managers solve these profit drainers or hold us all back?
  • One way to get GM$/employee to go up is to let the least productive, least cooperative employees go. No one likes to see anyone fired, but realize that those of us who work the hardest, smartest and most cooperatively are making less so that the least productive amongst us can have a subsidized ride. I could try to choose and weed the least productive, but I could guess wrong. Anyone can fool a manager for a long time, but no one can fool their departmental and service process teammates for longer than about 3 hours. So, if a super-majority (70% or more) of any group of employees can identify someone who could be transferred to some other businessís payroll and not be replaced here, we will take the wages we are currently paying them and divide it evenly among those who pick up the slack. If one out of 10 people go, for example, that would mean a 10% raise for the other nine the next day.
  • If this all sounds tough, welcome to my world of trying to deliver best value to best, right customers in a most efficient and effective way through all employees. Everyone of us is either part of this solution or we are part of the problem. If you would like the increased privileges of having a premium paying job with a newly, successful company, then we will all have to share in the increased personal responsibility for making it happen. And, we can, because 95%+ of our competitors donít have our new focus, metrics or inclusive ways for creating customer value.

If you would like some how-to information for getting all of the metrics referenced above, skim through the three chapters of our book and the articles that are referenced. If you want a total educational solution in a box for all employees at a cost of pennies/employee hour of training, check out the promo stuff on our video, "High Performance Distribution Ideas for All" in the center of our homepage.


Regular readers know that I am very keen on "strategic time management" which involves obsessing on doing breakthrough work with 15 customers (per distribution location) from three sub-groups of customers:

  • The 5 most profitable customers per historic, best, target niche(s) of customers. Keep them, understand them better, re-tune basic and extra services, and sell them more all enabled by team selling.
  • Maybe up to 5 super-target accounts that are GAZELLES (definition in #3) in our target niche. About 3% of any industry population are Gazelles that can perpetually innovate (change) their way to faster profit growth. Team sell them too!
  • The super-loser accounts that are killing us with lots of small orders. Team sell them to change the order pattern and processes to consolidate transaction costs for both parties, so both parties win. Turn "lead accounts into gold"(Great case study in DCC #39, topic #3)

Well, GE has been working on doing team selling to gazelles for 2+ years. You can read about their program called "At the Customer, For the Customer" in both an interview with their CEO Jeff Immelt and a case study article on how GE is working with Southwest Air on jet engine maintenance problems. Southwest has not bought a dimeís worth of jet engine action from GE Ė so far

They are both short, excellent reads at these links:Interview: http://www.businessweek.com/magazine/content/03_41/b3853101_mz017.htm
Southwest Air case:

After reading the articles, the trick will be to "push the wheel of learning" and "make good mistakes" to fail forward to figure out how to simplify and scale what GE is doing to the Gazelles in your business. For more on the wheel of learning and good mistakes, see:

  • Chapter One of our book;
  • Modules #ed: 5.7 and 5.8 in our video, "High Performance Distribution Ideas for All";
  • Or, article #5.4 (good mistakes) at our web site.

For lots of how-to on partnering gazelles in an educational format for all employees to learn, see modules #ed: 3.4 to 3.7 in our video.

Thatís all for this week.

Bruce Merrifield