October 15, 2003 - Distribution Channel Commentary (DCC) # 43

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THIS WEEK’S TOPICS

  1. ARE "IGNORANCE AND APATHY" LIQUIDATING: CALIFORNIA, OUR BUSINESS?
  2. HEALTH CARE COST CONFUSION – TWO WAYS OF COPING
  3. STRATEGIC TIME-MANAGEMENT IDEAS (a new posted article)
  4. MORE STRATEGIC RETHINKING TOOLS (a new posted pdf/exhibit file)

1. ARE "IGNORANCE AND APATHY" LIQUIDATING: CALIFORNIA, OUR BUSINESS?

There is an old, tragic joke about a hypothetical survey of the American voters that goes like this:

Survey Taker: "Excuse me Sir, but do you agree or disagree with the statement that ‘Ignorance and apathy are the biggest enemies of a democratic republic’?"

John Q Public: "I don’t know what you are talking about, and I don’t care."

This past week’s election of the Governator in the "total recall" election in California might support the joke above, as well as keep the political analysts busy thinking about stats like the following two from the voter exit polls:

  • 51% of the voters said issues were the most important reason for their vote
  • 67% said Arnold avoided the issues

There obviously is a big overlapping group of the voters who are essentially saying:

"Arnold avoided the issues (whatever they were), and yet I still believe that I voted on the issues (whatever they were)".

The California recall election is just one of many political examples that prove the danger "ignorance and apathy" are to our democratic republic. Our federal government is not a pure democracy, whereas California’s state system with the populist powers of "initiative, referendum and recall" is the most democratic in the union. Its' citizens have the least protection from themselves, so it isn’t coincidental that it is the fastest, biggest liquidating political commonwealth!

We, as voters, get the politicians that we deserve because most of us don’t vote and if we do vote, we do not have much information on most of the issues. Over 50% of the voters in any given major election will vote only on one issue that is most important to them in the immediate, near-term. On top of that, the voters’ understanding of a candidate’s position on the one issue is often based on either hearsay or 15 second negative ads on television.

California’s economy is a basket case, and I won’t be surprised if Gov-elect Schwarzenegger’s audit will reveal yet more hidden economic garbage that has not been reported by ex-Gov. Davis’ administration. But, California’s budget gaps are pistachios and almonds in comparison to our Federal government’s long-term financial gaps. Too many years of voting for candidates who promise "less taxes and more services and entitlements forever" and then use deferred, unfunded-liability budget tricks will eventually liquidate any political commonwealth system.

What type of management style is ideally the most economically effective way for running our governments and our businesses?

  • Anticipating problems (and opportunities) and taking early appropriate measures?
  • Waiting until problems (opportunities) are fully visible to most people and then reacting to them.
  • Or, postponing the expense of reacting until a crisis emerges requiring radical crisis management measures and costs.

Assuming that an ounce of prevention is worth a pound of cure and that a pound of cure is worth a ton of radical surgery with life in the balance, we should choose preventative, anticipatory management.

While we might be overwhelmed by a sense of the "futility of individual action" when it comes to the power of our one vote and one voice to help turnaround the self-liquidating momentum that is going on at different levels of government, what can we do in our own businesses? Do all of our employees (the voters in our business commonwealth system) understand:

  • How healthcare costs are effecting the total cost per employee?
  • That total costs per employee can be higher or lower in proportion to the ratio for value added per employee which can be measured by "gross margin dollars per year per employee"?
  • How each one of them can be part of the solution or part of the problem to grow the value added ratio by working both strategically smarter and more cooperatively?
  • That if the investors don’t make a sufficiently good return on their investment in the business, then they must either liquidate it (and all jobs) or sell it to some unknown, hard-nosed, turnaround artist who will do the crisis management surgery as Gov. Schwarzenegger will attempt to do?
  • That if the company does make superior profits, the investors will most likely be motivated to reinvest a good portion of those profits back in the business to make more good returns AND finance the growth of the business? A growing business, in turn, will support the job security and growth ambitions of each employee. Profits reinvested is both a cost of capital and the cost of their assured economic future.

If all employees don’t educationally and emotionally understand these concepts, what will happen to your business in an industry in which there is too much capacity and a few competitors who have either, or both, strategic effectiveness or pure cost advantages over you? If you don’t know, ask (or read about):

  • CEOs of grocery store chains with hard-headed union employees currently on strike over healthcare expense sharing while Wal-Mart SuperCenters continue to eat up the chains stores and jobs.
  • Companies that are switching factory jobs to China and service jobs to India and will continue to do so until those countries’ total people/operation costs are averaged out with ours. Welcome to globalization and creative destruction. This is our opportunity to once again reinvent our individual skills to fill new emerging needs with new value-added capabilities or race to the low-pay, low-cost, commodity supply bottom.

If you would like an educational solution/curriculum for educating all of your employees on the why’s and how’s of being part of the high performance solution instead of part of the problem, check out the promotional material on our video: "High Performance Distribution Ideas for All". There are over 40 pages of information on the video behind the links in the center of our home page at www.merrifield.com. The cost of the video per person is nothing compared to the educational time commitment you must make. And, the time commitment cost shouldn’t be an out-of-pocket expense, but a sweat equity investment on behalf of all employees to insure that their economic dreams come true in the most effective way. If this can't happen, then we most likely are headed towards a crisis management opportunity if we are in a mature industry with too much capacity with direct or indirect pressures from lower cost countries or better value competitors.

For a one page document read on the dangers of "ignorance and apathy" to our democratic republic check out "Patriotism and the Future of America" by John White at this link: http://www.zohshow.com/News/Newsbytes/tidbits030700.htm

2. HEALTH CARE COST CONFUSION IN GROCERY LAND – TWO WAYS OF COPING

Perhaps you have been reading about, or locally affected by, the grocery store chain union strikes that have sweeping across the nation. In the more woes for California department, 70,000 union workers are on strike in southern CA. The national chains like Kroger are also having unions going out on strike in W. Virginia, Kentucky and southern Ohio.

I got two inside reports on the 10,000, grocery employee strike going on in St. Louis this past weekend while attending my 35th(!) high school reunion. I went to high school in a previous life with a number of brothers who are now running the largest chain in the St. Louis area, "Schnuck’s, the Friendliest Place in Town". They reported that:

  • They put a good offer on the table that the union leadership endorsed.
  • Two stores close for every new Wal-Mart SuperCenter that is opened around the perimeter of the St. Louis market, substantially due to the union members much higher costs than Wal-Mart’s non-union labor.
  • If a union member has to pay as little as $15 per visit to a doctor, instead of the current zero health benefit cost sharing plan, the number of visits and sick days drops significantly. Personal incentives are important in managing runaway healthcare costs.

But, the rank-and-file voted to go out on strike anyway. Management reasons that until the union’s strike fund is quickly depleted and the workers miss a few paychecks, they will not focus on the economic facts of the contract or the marketplace. In the meantime, both the unemployment and union wage rates are so high in the St. Louis area that lots of good quality scab workers are being hired to replace the striking union.

The second big inside report I got was from a Mother of four children. While grocery shopping her 10 year old son he asked what the strike process was all about and why the workers were striking, so she said: "Well, let’s stop and ask them." She paraphrased two of the strikers as saying:

"The company is making ridiculous amounts of money; it wants to cut all of our benefits in half which aren’t even part of the cost of labor."

In other words, message sent was not message received. Some initial healthcare cost sharing incentives had been blown up to taking away "half of all our benefits". And, we might infer that there was total financial illiteracy as far as:

  • The total "cost of labor"
  • What constitutes a great total compensation package for comparable work in the local labor market.
  • The longer run implications of both Wal-Mart and a slack local labor market.

What can a big company with years of hard-nose, union relations do other than downsize, perhaps all the way to bankruptcy like many of the airlines, or go to 100% off-shore manufacturing like Nike and many tech product companies? Probably not much, although curiously American Airlines has a massive union education and involvement program underway to try to cure the educational gaps listed in topic one.

What can distributors and other small business do about the explosion in healthcare costs? Not much fundamentally, The flaws within the US healthcare industry are huge and growing. I can foresee double digit increases in health insurance for some time to come. But, if you would like to read an in-depth survey report on what the most progressive distributors are doing to contain health care costs, you need to read Tom Gale’s (9-25-03) article in the bi-weekly newsletter, "Modern Distribution Management" entitled: "Health Insurance Strategies". The only way that you can get the article, as well as another very valuable one entitled: "More Centralized Purchasing is Likely", is to email chris@mdm.com to request a two-month free trial of the MDM newsletter. All you have to give them is your mailing address: no credit card numbers, etc. Their gamble is that you will find the content so valuable, you will then realize the investment in an annual subscription is worth it, which, in my humble opinion, it is.

The other big way of coping with rising health care costs is to turn all employees into "commonwealth capitalists" and work together to dramatically grow value-added per employee. To provide strategic insights, how-to practices, transition management skills and educational support for all employees we at the Merrifield Consulting Group are building an array of tools:

  • This commentary series. It started on 11-8-02 in issue #1 in topic #1 (DCC 1.1) with an entry entitled: "Different Paths to Increasing Productivity". If you skim through our new index for all DCC topics, you will find many topics that address the opportunity of dramatically improving productivity by working smarter to then pay premium total compensation and have premium profitability. You will find the index under the "all commentaries" link in the upper right-hand corner of our homepage, and then it will be at the very top of the list. Check out DCC topics: 1.1, 2.4, 5.2, 6.3, and more recently 40.3 and 42.3.
  • The first three chapters of our forthcoming book entitled "Reinventing Distributor Profitability". They are posted on our homepage under the red star.
  • Our "High Performance.." video that is available for nearly nothing through a growing list of re-sellers.
  • And, if you don’t have any time for all of this, then check out the next two topics.

3. STRATEGIC TIME-MANAGEMENT IDEAS (a new posted article) 2_20.asp

If you are feeling stressed, time pressed and profit-less, then you need to skim through the 1000 word article that is being posted this week at www.merrifield.com. You will find it under the "articles" button; number 2.20; and it is entitled: "A Strategic, Time-Management Assignment". It boils your biggest profit improving opportunities for your entire management team down to a one page monthly report.

4. MORE STRATEGIC RETHINKING TOOLS (a new posted pdf/exhibit file)

Our web site statistics suggest that many people are downloading a PDF file at our web site (www.merrifield.com) which is under the button entitled "slide shows" with the title of "Crafting a Good Corporate Strategy for Tough Economic Times". The direct link is: Crafting_Corporate_Strategy.pdf

A few clients, in addition, have inquired about further "strategic planning" assistance which we do on a customized basis.

What can we do to help you further in this area through our web site? A few thoughts:

  1. Skim Chapters 1 through 3 of our forthcoming book, "Re-inventing Distributor Profitability", which are posted for free access on our homepage at www.merrifield.com. Chapter One reviews a number of strategic – analysis, re-thinking and execution – tools with a case study at the end to illustrate how to use them in an integrated way. And, Chapters 2 and 3 reveal a number of un-spoken operating rules or assumptions that most mature industry companies have and which mire them in the past making significant change impossible.
  2. Skim through a newly posted PDF file that is posted under "exhibits" at our web site. It is entitled: "Crafting a Good Strategy – Part II" (./exhibits/Crafting_Strategy_PartII.asp). It is a collection of 5 exhibits that are largely self-explanatory. If any readers have any questions about the content of any of the three resources – the original PDF file, the book chapters and the second PDF file – feel free to email them to me at bruce@merrifield.com

That’s all for this week!

Bruce Merrifield

919-933-7474

bruce@merrifield.com