February 11, 2004: Distribution Channel Commentary (DCC) # 57


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Every aspiring web publisher needs back-up support, and one of my best is Mr. Tenney Campbell who forwards on a steady stream of the highest quality management reads you can imagine. He also spices this knowledge flow with quotes. Here are a few that I feel are the best of the best. They also happen to tee up the topics that follow:

"Every man, wherever he goes, is encompassed by a cloud of comforting convictions, which move with like flies on a summer day." Bertrand Russell

(I hope that these commentaries are provocative enough to help readers reframe their problems and opportunities in ways that allow them to see through our "clouds" or the belief systems that keep us from achieving much more than we are currently doing.)

"It is the function of creative man to perceive and to connect the seemingly unconnected."

William Plomer

(Below you will find out what half-time antics [that has totally eclipsed a great Super Bowl game] has to do with occupational mastery for all employees. Whether this is a "creative" connecting of seemingly unrelated dots or just a desperate effort on my part to get a point across will be for you to decide. Be generous!)

"What a customer buys and considers value is never a product. It is always utility – that is what a product does for him." Peter Drucker

(How we create and build in – distinctive, important, they will pay for it – value to our total service process with our commodities being the medium for our value proposition is a big challenge. Hampton Inns and some of the background readings below will help us with this on-going challenge.)


How we turn negatives into positives is a big part of why and how we grow and create as individuals, companies and societies. In this spirit, I’m beginning to think that the disgraceful half-time show of the Super Bowl, along with the crass advertising themes, could be good things. The firestorm of criticism about the show has given way to some more reflective thinking about the long pendulum swings of our country’s values that in turn set the boundaries for helping people grow up to be happy, productive, civilized contributors to society.

I would like to think that this Super Bowl, flash point (no pun intended) might be the beginning of a bottoming out process for the grunge trend in the US. Perhaps there will be some constructive debate as a forerunner to positive change in the institutional and parental boundaries that need to be re-set to help our children grow up. We will have to see.

As people criticize the MTV type programming that is so prevalent on TV and its effects, I wonder how many people will think about TV values in a more general sense. You know the average 65 year old person in the US will have spent 9 years of their life watching TV and absorbing the many false messages and values that TV programming puts across. These false messages and values undermine most people’s ability to have enough personal confidence and persistence to get off their duff and pursue patient mastery in any important paths in their lives including their professional achievements on the job.

If you would like to read more on "mastery" or how "TV values" undermine employee learning on the job, here are some additional reads:

Get a copy of the book: Mastery: The Keys to Success and Long Term Fulfillment by George Leonard. Read the reviews at Amazon.com. The book is an affordable paperback. I always have about 5 extra copies on a shelf in my office to give away, and I have given away well over 100 copies to friends since it was published.

If you would like to read three short "culturegrams" that I wrote to all of my new employees while doing a distribution company turnaround in the early ‘80’s that touch on both ‘mastery" and "TV values" here is a link to a PDF file at my web site: ./exhibits/Culturegram_LearningtoLearn.pdf.

The culturegrams were only catalysts for teaching the concepts they covered. Many distribution employees don’t read well enough to learn from reading, especially anything conceptual. You might consider offering audio or videotapes as an initial way to get any teaching ideas across. But, then social, fun, interactive discussion and sharing of personal stories will be the only way that most hourly employees will get enough understanding to not forget what they have learned and to be moved to start to think about changing.

If most hourly employees at most distribution centers in the US could read and learn on their own, they wouldn’t be doing what they are doing and making what they are making. This does not mean that they can’t learn how to learn and grow on the job to the point where both they and you believe that they are promote-able to a more open-ended, salaried job that will require independent thinking and problem solving. They just weren’t ready to learn these learning skills the first time around during their formal school age years.


To be effective as long-term strategists we have to keep a weather eye on the big, often slow-moving, economic trends that will affect our businesses over the next one to ten years. Most business people would agree that the "economic recovery" that is underway is very different from any that we have had since WW2. To help readers understand why our "post-bubble economy" is different and what the eventual costs for it will be, I try to pick the best of reads of many that I see on the web.

This week I would encourage you to check out a most recent posting by Bill Gross, the world’s highest rated bond investor and bond fund manager of the past 25 years. Mr. Gross is obviously whip smart, writes in an engaging way and offers some great big picture graphs that just don’t lie. His article is entitled: "The Last Vigilante". His themes are that we have been in a "financed-based" economy that is fueled by ever dropping interest rates over the past 20 years. We now have record debt that economically shouldn’t continue to be bought by foreign countries (except that they are stealing our manufacturing base by doing so). This charity will end soon; it is now "high noon". Interest rates will rise causing us big, long-lasting problems.

At least check out the graphs in this piece at: http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2004/IO_02_04.htm.

Speaking of record levels of interest bearing debt weighing down the US economy, I believe that we will now hear a constant drumbeat in the media about the different aspects of the debt problem that has sneaked (?) up on us over the past 10 to 20 years. Most citizens are inured to any concerns about growing government debt and entitlement liabilities at the national or the state level. The numbers have been so big and growing for so long, I just don’t think that the average voter can get their head into or around the longer-term implications.

I do think that John Kerry has all but secured the Democratic nomination, the Democrats (the party traditionally for bigger government!) will make a big issue out of our nation’s triple deficits: budget, trade and current account. (The last one is how dollar flows are balanced out by Asian countries buying our debt with their export surplus dollars to keep: our long-term interest rates artificially low, their currency rates artificially low and our manufacturing jobs flowing to them. They are buying a depreciating asset, the US dollar, but they think the trade for a manufacturing capability is worth it.)

As for consumer debt, there really is a generation gap problem. Both younger and less educated citizens have much less emotional and intellectual concerns about taking on debt than older and more intellectually/financially disciplined citizens. The amount of debt that the first group has is incomprehensible to many in the second group. The Wall Street Journal has just started a series of articles on "Americans are Buckling Under the Weight of Debt; A Series About Who’s Crunched, Why and What to Do About It". I’ll spare you the details on how much we have been borrowing to consume and what this means. As it reaches crisis proportions, both the Democrats and the media will educate everyone.


What would you do if:

  • You were working hard to make breakeven "profits"?
  • You had frozen wages for all employees while those with incentives made less?
  • Your core customer groups were not growing but shrinking?

Four of my clients that shared these common problems have started 2004 off with transformational activities and plans that all started by getting out of their traditional belief systems by using customer profitability ranking reports.

One indirect client is a fastener distributor working with activity-based-costing expert Tom Pryor (for more on Tom and ABC stuff go to: http://www.icms.net/index.htm).

They discovered that the top 50 customers provided 400% of pre-tax profit. The other 320 customers took the profit before interest and tax (PBIT) total to almost zero. I recommended that they look at our latest annotated slide show to consider doing some or all of the seven turnaround plays that flow out of a customer profitability ranking report analysis. If you haven’t checked out this 16 slide, lots of explanations, show, here is the link: Identify_Customer_Niches.pdf.

Two clients, both chains that distribute to different types of contractors in different channels, took the following approach:

  • Top management skimmed through our videotape, "High Performance Distribution Ideas for All" (tons of info on it behind the links in the middle of our home page at www.merrifield.com).
  • They did their "KISS" customer profitability ranking reports and decided to have a kick-off meeting at which I addressed the top 20%+ of their payroll, including all outside sales reps, on "Reinventing Distributor Profitability".
  • The follow-up steps will include: ranking reports for each branch and sales territory on a monthly basis with the "5-5-5" one-page reports (see item #7 in our posted article entitled: "A Strategic Time-Management Assignment" at this link: 2_20.asp.
  • The "High Performance…" video tape will be made available to all branches as a backstop educational reference source. One chain bought the digital rights from us to put it on their web based "e-learning network".

A fourth distributor is taking a more thorough and ambitious approach that involves tying everyone’s pay into a dramatic, new, gainsharing incentive scheme. This distributor, to both the residential and commercial construction and maintenance world, went through the following steps:

  • The CEO watched the entire sets of tapes while riding his exercycle at home early every morning taking notes along the way.
  • Then the core management group watched most of the 53-moduels on their own time and then discussed 4 of them per week in two sessions per week before the workday began.
  • The group then detailed out an educational roll out plan along with a new gainsharing incentive system that ties into both an improving pre-tax return on controllable assets (inventory and receivables) and the watching of and testing sufficiently well on the video modules.

Here’s a quote from the CEO:

"None of our associates received a raise for this past year, but in ’04 everyone can earn an increasingly bigger bonus if and when we hit lower, middle and upper quartile productivity levels based on our distribution channel’s financial performance report (an Al Bates, Profit Planning Group service). The bonuses will correspond to 5, 7.5 or 10% of their monthly wage. In addition, 17% of profit above our targeted operating profit will go into an incentive pool for all. But, one of the conditions for them to participate in this potential pay out is that they will have had to watch your entire video tape series and passed 'tests' on your message, as well as be able to read and explain our basic condensed financial statement. We might lose a few along the way, but:

  • we are tired of lousy profits.
  • our competitive game is changing and our markets are softening,
  • and, we anticipate freeing up a lot of operational slack through a successful implementation of the "small order opportunity". So, self-weeding extra slack should be the best way to downsize while upgrading."

What I like about this chap’s quote is:

  • His leadership conviction that comes from really understanding the upside opportunities within his portfolio of customers as well as the path and tactics for getting there.
  • His management group spent a lot of time figuring out how to tie every employee's heart, mind and wallet into where they are going. Every employee will realize that premium pay for their job niche depends on what they do individually and collectively to increase gross margin dollar per employee.
  • If you looked at my annotated slide on the seven steps of the "kinetic chain" you would guess that the management team really made sure that their plan was tested against all 7 steps for inclusion and integrated alignment. (If that makes no sense, check out the slide at this link: ./exhibits/Kinetic_ChainEx_16.pdf. Or, watch video module 5.10 if you have the "High Performance…" product.

If you are working hard, not making enough and have concerns about too much supply and not enough demand in your competitive game, what are you doing differently in 2004 to make a positive difference?


Here are a few excellent, in-depth reads that you might want to check out if you are concerned about getting paid for your service value (assuming that you have a distinctive service value for some target niche of customers).

The McKinsey Perfect Pricing collection. McKinsey has just posted four articles at their site that deal with different aspects of doing perfect pricing within you competitive situation. One is available only to subscribers; the other three are worth skimming. And, this link will take you to the best of the three, IMHO, where in the margin you will see links to the other two:http://www.mckinseyquarterly.com/se.asp?seid=19.

That’s all for this week!