September 21, 2005: Distribution Channel Commentary (DCC) # 80

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TOPICS:

  1. THEMATIC QUOTES.
  2. DISTRIBUTOR SERVICE VALUE INNOVATION STORY.
  3. ANNOTATED, ABRIDGED SLIDE SHOW ON "INNOVATION" POSTED.
  1. THEMATIC QUOTES.

"Insanity is doing the same thing over and over again while expecting different results."     Rita Mae Brown’s updated version of Albert Einstein’s original quote.

Rather than continuing to invest in doing what we do faster, better, cheaper, maybe we need to look at doing something altogether different. www.serviceinnovation.org

"75% of business leaders list creative thinking and innovation as the most significant factors for growth; however, only 6% effectively capitalize on it." PriceWaterhouseCooper’s CEO Survey

"We have a process for everything else – why not innovation?"     Simon Spencer, Borg Warner Innovation Champion

"Procter & Gamble of 5 years ago (’99) depended upon 8000 scientists and engineers for the vast majority of innovation. The P&G we are trying to unleash today asks all 100,000+ of us to be innovators. We’re trying to get 70% of our new technology from outside the company."     A.C. Lafley, CEO (in ’04 Fortune Magazine interview)

      2.    DISTRIBUTOR SERVICE VALUE INNOVATION STORY.

The CEO/owner of a one-location, 50 employee distribution supply company that competes in one of the contractor supply channels recently emailed me a "status report" which is posted below. When I asked the chap for his permission to publish it in this commentary, he consented, but only in disguised format, because he didn’t want his competitors to find out about our video-based training program. I’ve added a few comments after the letter.

"Bruce:

Thought you would like a status report.

We started in February of 2004 showing your "High Performance Distribution Ideas for All" (HPD) tape series to all our employees, 3 segments at a time.

2 bonus programs were initiated, a productivity bonus paid monthly when we met 1 of three levels of gross margin dollars/employee, targeting middle and upper-tier trade association benchmarked profitability numbers, and a company bonus pool sharing 17% of profits above budget.

In 2004 we had our most profitable year ever, and the typical employee who attended all monthly "Merrifield Meetings" and 1 Company Team Meeting per quarter earned approximately 7% of salary in bonus. (If they did not meet attendance criteria, they were ineligible for the bonus programs). Additionally, we were selected as one of the top 50 small companies (50-250 employees) to work for in our state. Our rank was #33.

We have continued the HPD program in 2005, raising the bar on productivity, although we have been at Level III for gross margin dollars/employee every month since April of this year. And, we finished the last 2 modules in the HPD series.

In addition, after our conference call with you regarding customer profitability, we instituted a company-wide customer profitability initiative and have stuck to our guns. Salesman pay plans were redone to reward or hit them in their pockets for unprofitable accounts on a transaction basis, and all employees were educated to the reality of profit/transaction customer analysis.

In 2004 we had an average profit/transaction of $1.37. So far in 2005 it is $7.04, and we are on our way to doubling our profits from last year. We think we have the ability to double profitability again in the next two years, I'll let you know....

Also, we learned we made Best Places to Work again this year! Your programs coupled with a Performance Management system (a concept covered in HPD) that assures every person in the company gets a 30-minute, one-on-one with their manager each month (including all my reports), is what I believe has earned us this honor again. (Managers forfeit some of their bonus potential if they don't hold their monthly one to ones!)

I can't thank you enough for your insights and help! "

Joe CEO

Comments: This status report focuses on the outcome numbers that have improved including the doubling of the bottom line. It doesn’t share with us that this company:

  • Educated all of its employees on how premium pay for a job niche is tied to premium productivity measured by gross margin dollars/employee, and then gave them a path to get there including. . . .
  • Re-defining and significantly improving basic service excellence metrics with the ideas in the HPD learning system.
  • Refocusing, as a total team, on core, target and most losing accounts to grow all of their sales and profitability numbers dramatically.

Because "service" is created and delivered by all employees on a regular and spontaneous basis, a firm can not achieve "service value innovation" without significant, additional education for all employees. That education must, in turn, teach the connections between:

  • The employees’ changed behavior and attitude and dramatic improvement in service value metrics;
  • Better service leading to better customer retention economics with the right strategically targeted customers;
  • The higher productivity or service value measured by gross margin dollars per employee due to working strategically smarter, not harder. And, most importantly…
  • How every employee will increase their total compensation package as productivity per employee rises.

Joe CEO has found a way to tie the minds, the service pride and hearts and the wallets of his employees together.

Readers! If any of you would like to know more about our video/DVD-based training solution, "High Performance Distribution Ideas for All", check out the links in the center of our home page at www.merrrifield.com. The product is almost for free if your are affiliated with one of our "resellers", and it is unconditionally guaranteed. If you don’t think you can quadruple your profits and become a great place to work as Joe CEO is experiencing, then ship the kit back and throw away the invoice.

      3.    ANNOTATED, ABRIDGED SLIDE SHOW ON "INNOVATION" POSTED.

I’ve taken 16 slides out of a 77-slide, 90-minute presentation for this annotated, abridged posting. The presentation was used for a trade association annual meeting that included both manufacturers and distributors in a given channel that sells both supplies and equipment into primarily industrial and institutional accounts. The more general topic of turning the art of innovation into a systematic science to generate new streams of profit can be tailored to fit any time frame from an hour to an all day seminar. http://www.merrifield.com/articles/Innovate or Die.pdf

If you are a meeting planner for a group of either or both manufacturers and distributors and you would like a complete copy of the slide show – preferably emailed to you, please request it from Karen Green at karen@merrifield.com.

Commentary # 80

Bruce

Bruce@merrifield.com