January 26, 2005: Distribution Channel Commentary (DCC) # 74


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"The only long-term source of profit, and the only reason to invest in a company, is your confidence in its ability to innovateÖGood leaders pick the right areas to innovate, and they place big bets."      Jeffrey Immelt, CEO of GE.

"Most of our divisions are selling products that are one step away from commodity hell."        Immelt (again; GEís new tag line is "imagination at work")

"A harmless hilarity and a buoyant cheerfulness are not infrequent concomitants of genius; and we are never more deceived than when we mistake gravity for greatness, solemnity for science, and pomposity for erudition."        Charles Caleb Colton

"The person who says it cannot be done should not interrupt the person doing it."          Chinese Proverb.

"An idea not coupled with action will never get any bigger than the brain cell it occupied."       Arnold Glasow


The title above is the title of a good book, as well as what most US companies and distributors are experiencing in the first month of 2005. How good? In 2004, the companies that comprised the S&P 500 stock index made after-tax corporate profits that nearly equaled a 40-year high. Wall Street stock promoters think that the trend can go one or two points higher in 2005; of course, they always do. Many distributors who were profitless in 2001-2003 joined the party by achieving 5 to 9% operating profit margins before interest and tax.

Did these near record, universal profits come from continual innovation and great management at all companies? Or, were the great results due to the effects of the global reflation effort led by the central banks of the US, Japan and China coupled with massive US government borrow-from-the-future to spend and stimulate spending from mid-2003 on? I suspect the latter.

Borrowing at low interest rates due to a huge expansion in money supply to then spend our way to prosperity has had other side effects too. The new money supply has flowed into: housing appreciation bubbles in many countries, a huge infrastructure bubble in China and the stock and bond markets. How and when will these different bubbles end? Who knows? Bubbles always go much further than any rational person can believe. But, when rain follows todayís sunshine, the best performing companies will be the ones that are currently and continually innovating away at their customer value propositions and their supplier cost reduction inputs on a win-win basis.

Because invention is at the heart of innovation activity, most companies need to get out of their groupthink box more often and start thinking more like inventors and venture capitalists. Most of us could also benefit from reinventing our management capabilities for executing the basics within the box where average companies bat less than 50% on annual operational goals. Consider these implementation effectiveness questions:

  • Do we already know how to do a lot better than we are doing?
  • Why is their such a knowing-doing gap?
  • What percent of last yearís operational improvement resolutions really got achieved with sustainable, locked-in, no-back-sliding results?

The rest of this commentary is dedicated to shedding some light on how we might execute better in the box (groupthink) as well as inventing outside the box (newthink) to go where no one else has ever gone. After all, being valuably and innovatively different is the essence of strategy, selling commodity products that all competitors offer (for less) isnít.

For a good read, I recommend that you go to Amazon.com and read the reviews on the book, "The Art of the Start" by Guy Kawasaki. Itís well written and a pithy, practical, motivating read. If we are going to get big new results, we will have to attempt big, new, scary stuff. If it isnít scary, then it isnít big; itís fine-tuning of the past, which is necessary, but not sufficient for continued future profit growth. If, on the other hand, it is scary, then we will have to know how to test it cheaply and pitch it to all stakeholders effectively to get the buy-in necessary to move forward in bold new ways. This book will help do all of those things better.


This is another book (title) that I got turned on to by Tenney Campbell, a sage friend in the fluid power distribution channel. The book, authored by Laurence Haughton, is similar to, but much better and more how-to helpful than the best-selling book "Execution" by Larry Bossidy. I donít think that it will get the mass publicity that Bossidyís book got, so you will just have to trust my review of it for now. If you have a young, talented, ambitious manager who you might like to assign to a turnaround or revival opportunity, this would be a great book to read and discuss together. It could help any companyís management team improve their batting average for operational objectives accomplished in 2005.


A lot of companies have January and February management meetings to start their new fiscal year on "a good start". I was delighted to have been invited by a distribution chain to be a kick-off facilitator for the first two-thirds of day one of a two-day meeting. My assignment was to help the management team reduce their groupthink discussions while increasing their newthink ones.

This particular distribution chain had one of their most profitable years ever in 2004, but realized that it was due to:

  • Environmental reasons, because all of their competitors were celebrating too. And,
  • Not due to operational excellence, because many of the opportunities that they had targeted a year earlier were still unrealized.

Hereís what we decided to do. Two versions of my "genie memo" where distributed to all participants to fill in and fax back to my office anonymously. One form asked each participant to write down three questions, topics, issues, or biggest company opportunities for which they would like more insight and group discussion. I claimed no genie powers for offering perfect enlightenment, but promised to promote collective discussion on all topics. The second survey asked each participant to "think outside of the box" and write down one or more big, new, somewhat scary opportunities that the company might consider investigating, if not pursuing.

Our office then sorted and summarized all of the responses in a Ďvalue-added" way to serve as a bottom-up, self-organizing agenda for the meeting. Top management did a bit of editing for the summaries and distributed copies to meeting participants in advance.

On site, I kicked off the day with a continually improving version of what readers can find at www.merrifield.com under "slide shows" numbered #11 entitled "Renewing Our Businessí Mental Model." The objectives for this short presentation were to loosen up everyoneís mental models and give the group some new tools for thinking about how they were thinking and have better, deeper, more effective group discussions after I left. It went well!

Does this case story make you question what you are doing in your company to more effectively discuss:

  • In the box, groupthink, operational-excellence shortfalls, and
  • More and better quality newthink ideas?

If any company is going to close the knowing-but-not-doing gap and innovate forward in a significant way, then management team mental models will have to be overhauled. How are you addressing this challenge? Contact us if we can help!


Letís face it, corporate medical insurance, especially for small businesses, isnít working. The costs are going up ridiculously and citizens of the US are getting less healthy. Rent the documentary "Super Size Me" to find out how fast all age groups of our population are getting obese which is causing earlier on set of all degenerative diseases that come with aging. In fact, make your kids and all of your employees watch the documentary if you want to promote wellness.

But, what can we do to slow down medical insurance expenses and promote wellness instead of "sickcare"? I think there is a big opportunity for small businesses in deploying "wellness insurance" which centers around high-deductible, low-premium insurance policies. What the company saves on premiums can then be deposited into "health savings accounts" (HSA) for each employee tax-free where it can be invested for tax-free gains (just like another IRA). Then, each employee can get a credit/debit card for their HSA that allows them to pay for their medical expenses as they incur AND (if youíre clever) wellness investment expenses like gyms, nutriceuticals, etc.

The net results could be that:

  • The employees would now have an incentive to be well and shop carefully for medical care solutions because they will be paying for the first $1000 to $2500 cumulative expenses, depending on the policy deductible.
  • The company could then offer simple-to-elaborate wellness - education, programs, consumables and contests - for the employees who will now have a big incentive to learn and participate.
  • Companies could then more easily recruit healthy, younger, fit people who can save tax-free money with such programs as well as expense wellness costs in pre-tax, above salary money instead of their own after-tax money (try recruiting fit friends at the gym!).
  • Those current and future prospective employees that are chronic, high users of medical benefits would probably not like such a medical benefit program. They may tend to leave for employment opportunities were someone elseís pool of employees can cross-subsidize them. But, if any one of this group of employees is truly valuable to the company, then the company can always up their pay enough to make up any differences.
  • If every employee, on average, improved their health, physical and mental energy and their self-esteem, then couldnít the company collectively achieve more positive change? If we arenít healthy with a can do attitude at the employee level, how can the team make things happen at the company level?

Because of new and on-going legislation to make "health savings accounts" really work for both un-insured individuals and small businesses, I think there are a lot of new angles to be looked at for applying high-deductible, low-premium insurance at small businesses. If any readers out there share my curiosity and would like to brainstorm on how we could create a total solution for their company around these ideas, please contact me. Otherwise, I hope that some of you will tune your selective perception to watch the trend for "health savings accounts" and "wellness insurance" Ė start by googling them.


Thatís it for this commentary, I literally have to fly!

Bruce Merrifield