September 7, 2005: Distribution Channel Commentary (DCC) # 79

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TOPICS:

  1. THEMATIC QUOTES
  2. INDUSTRIAL DISTRIBUTION MAGAZINE’S 59th ANNUAL SURVEY RESULTS
  3. THINKING OUTSIDE THE BOX ON SOARING HEALTH CARE COSTS
  4. "INNOVATE OR DIE" – THE IMPERATIVE GROWS; WEB HELP LINKS
   1.     THEMATIC QUOTES

"Nothing is more dangerous than an idea, when all you have is one idea."
Emile-Auguste Chartier Alain (French poet and philosopher)

"Would we think a great deal, and would we think well, if we were not thinking – so to speak – with other people?"
Immaneul Kant (German philosopher)

"The best way to get a good idea is to get lot of ideas."
Linus Pauling (Double Nobel Prize winner)

"If at first the idea is not absurd, then there is no hope for it."
Albert Einstein

Comments on the first four quotes above:

If a company wants to be innovative, then ideas are the fuel. But, to get ideas, we need to generate a lot of them with the help of creative, diverse and informed people (especially co-created with living edge customers that have a growth future!). Most ideas are originally interesting, but undeveloped. They need further questioning and refinement to become potentially really goods ones.

If any idea makes great sense, because it is what many other companies and competitors are already doing successfully in order to adapt to a changing world, then do it, but don’t expect any competitive advantage from copying quickly what everyone else is doing. Fast copying is part of good maintenance management. It’s the "absurd" ideas that can potentially have breakthrough results for an individual or a company.

Once you have a list of developed, refined, good and even absurd ideas, then the strategic screening can begin to get to a few, best-for-us ideas that can be tested cheaply before investing more in the best ideas of all. What is your company’s pipeline process for idea management? There is no shortage of potentially good ideas, there is only a shortage of the discipline to only pursue the very best ones effectively.

TWO MORE QUOTES ON EXECUTION:

"Life is trying things to see if they work." Ray Bradbury (prolific American author, incl. Fahrenheit 451)

"There is no growth without loss; there is no change without loss; and there is no loss without pain."
Rick Warren (author of The Purpose Driven Life)

Comments:

These last two quotes remind us that being creative to generate ideas is great, but true innovation requires taking action to get results. The action and the change will require, however, that all employees put in some extra effort, give up some old activities, habits and skills to learn some new ones. This process can be painful, but good leaders can sell the benefits of specific changes in contrast to the downside of the status quo and reduce a lot of the perceived personal risk and pain for at least those employees who will be the ones to make the change happen.

   2.     INDUSTRIAL DISTRIBUTION MAGAZINE’S 59th ANNUAL SURVEY RESULTS

Approximately every August 1st, INDUSTRIAL DISTRIBUTION MAGAZINE (ID) shares the results of their survey of executives across the industrial distribution channel(s); this year’s participants numbered close to 800. The editorial staff headed by Jack Keough puts a lot of work into this project and summarizes the results in a pithy way.

I always find it fascinating to see what a big cross-section of distribution channel executives are currently seeing in the business environment and doing. The challenge for the reader, however, is to think beyond what the majority are doing within their businesses, because if we just do what everyone else does there will be no (service) value innovation that sets us apart. For a good, three-page-plus, summary read, go to this link: http://www.manufacturing.net/ind/article/CA629197.html.

P.S.: Thanks to Jack Keough for his excellent, on-going editorial efforts and Jim Sobeck, the CEO of New South Supply, a friend, client and high-performance distribution executive, who first alerted me to the posting of the ID 59th survey.

   3.     THINKING OUTSIDE THE BOX ABOUT "SOARING HEALTH CARE COSTS"

In the ID survey covered in topic #2 above, executives were quite challenged by "soaring health insurance costs." No kidding! Here are two more related facts:

  • The great majority of employees think health insurance is a vital and differentiating factor within their total compensation package; and,
  • "Service reigns supreme" according to the ID survey. But, it takes great people with longevity, education and motivation to create exceptional, flexible and consistent service.

How can we connect the three dots – soaring costs, employees’ valuing health insurance, and retention of best, motivated employees – in an innovative way in order to turn the negative of soaring health insurance costs into a positive, competitive, human resource advantage? Let’s check to see what the brave 800 executives in the ID survey are doing. They did one or more of the following things:

  • 43% increased employees’ share of contribution
  • 29% increased deductibles
  • 25% found a new (cheaper?) insurance provider
  • 20% reduced coverage
  • 3% eliminated coverage altogether

To be honest, do these measures lack a bit of imagination? Wouldn’t they be de-motivating to most employees regardless of how generous the former plan was? If we couldn’t think of anything more creative to do with escalating high health insurance costs, then following the pack seems logical. If you would like to review some out-of-the-box, go-for-the-strategic-advantage ideas on how to use Health Reimbursement Accounts, Health Savings Accounts (HSAs) and how to (re)invent your company wellness program at a scale that works for even small accounts, you should check out the following articles at www.merrifield.com: #s 5.15, 5.16, 5.17, 5.18, and 5.19. You are welcome also to review a now-dated, annotated slide show on these topics at this link within our site:http://www.merrifield.com/articles/RevolutionaryPotentialof%20HSAs.pdf.

I should add that HSAs will not solve the root problems of our national healthcare mess, but HSAs can be an excellent tactical tool, especially for small service firms in the right states. There is no other health care cost solution on the political horizon, and the legislative trends and insurance coverage option trends are currently HSAs friends.

Because healthcare is such a contentious and ideological topic, there is no shortage of "experts" weighing in on the pros and cons of HSAs. Liberal sources really want a national healthcare solution run by the government and conservative ones like the trend toward "consumer driven health care." Recent articles in the New York Times and the New Yorker magazine, for example, were biased against HSAs with the New Yorker article strongly pushing for a national, government-run solution. A big McKinsey study and on-going positive news reporting by the Galen Institute (www.galen.org) suggest that the consumer drive health care trend – starring HRAs and HSAs- has real potential, especially if they are incorporated into a high-performance, wellness work culture. The McKinsey report entitled: "Consumer-Directed Health Plan Report – Early Evidence is Promising" (June 2005) is at this link: http://www.mckinsey.com/clientservice/payorprovider/Health_Plan_Report.pdf.

If anyone would like further advice on (re)inventing wellness programs or HSAs, I have, of course, some time I’d love to sell you.

   4.     "INNOVATE OR DIE" – THE IMPERATIVE GROWS; WEB HELP LINKS

I’ve been honored and challenged to speak to three different, primarily manufacturing trade groups on the general topic of: "how to become more innovative." As the interest in and necessity for innovation continues to grow, there has been no shortage of books, articles and studies aimed at helping American business turn the art of innovation into a more scientific process. In our last commentary (#78), we reviewed a couple of the best books out there and posted exhibit #39, "Steps to Breakthrough Results", which was adapted from the book Presence. Here’s the link for that exhibit: http://www.merrifield.com/exhibits/Ex39.pdf.

If you are concerned about future profit growth amidst a consolidating industry (and channel) in which all products and services seem to becoming ever more price-sensitive commodities, then here are a few links to check out on the web:

Probably least helpful, but most illustrative of how big a need and challenge the "innovate or die" imperative is, then go to www.compete.org and browse around. A group of monster companies, primo research-oriented universities and federal government agencies have joined together to pursue the "national innovation initiative."

For the quickest, perhaps most helpful exercise, go to http://www.businessweek.com/innovate/index.html to browse around and take the "how innovative is your company test" at this link: http://bwnt.businessweek.com/self_diagnostic/quiz.asp.

This sub-site was set up by Business Week magazine as a follow on to their cover story/special report on "the creativity economy" published in their August 1st issue. If you scroll to the bottom of this sub-site’s home page, you will see 5+ articles under the sub-title "The Creative Corporation." These articles were all in the August 1st issue and are collectively a good read. Since August 1st, BW has done a great job at continually adding to this site.

If anyone out there in reader land has any interest in my posting an annotated slide show on guidelines for becoming a successful innovative company (especially for "service value innovation") let me know, and we will do the work.

One final thought on a very specific source of fast-payback profit improvement ideas: set up leader-to-leader meetings with the most unprofitable accounts at every profit center. All of the details on how to do this is in our article #4.10, "Transform Big Losing Accounts to Winners", at this link: http://www.merrifield.com/exhibits/Ex39.pdf.

I recently made a day’s worth of calls with a branch manager on big losing accounts for a branch within a large distribution chain client. The accounts knew in advance that a "supply chain consultant" was accompanying the branch manager to discuss "win-win re-engineering possibilities" with whomever might have both the interest and responsibility for lowering total procurement costs for supply goods. In every call, we got to see the purchasing agent up to the highest level person necessary. Starting off our visit with the line: " how can we work together to reduce x’00’ed small transactions that are killing both of us on total costs?" We came up with co-created solutions for not only consolidating transaction costs, but in over 50% of the calls we surfaced new areas of both supplies and services-for-fees that we could provide the customer. Some of these ideas could be offered to other, large profitable accounts. Out of negative necessity shared by two motivated parties comes lots of creative ideas!

That’s all for the back-from-Labor-Day edition! Hope this commentary finds you in excellent health with lots of innovative energy due to having a great summer. All the best,

Bruce

bruce@merrifield.com

Commentary # 79, September 7, 2005

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