September 21, 2006, Distribution Channel Commentary (DCC) # 90

September 21, 2006, Distribution Channel Commentary (DCC) # 90

 

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TOPICS:

 

1.      QUOTES RE FORECASTING AND INVENTING THE FUTURE.

2.      FORECASTING HOUSING AND PRODUCT INFLATION? GOOD LUCK!

3.      NORMING, STORMING, FORMING, REFORMING, PERFORMING.

4.      MORE FOOD FOR THOUGHT ON “INNOVATION”.

5.      MY MEMO TO BRANCH MANAGERS RE 2007 PLANS.

 

 

1.   QUOTES RE FORECASTING AND INVENTING THE FUTURE

 

“When memories exceed dreams, the end is near…the present state isn’t good enough…we have 40 days until our board meeting presentation and another 60 days to be up and going on January 1st…the enemy of execution is perfection, we just have to be good enough to succeed”

A paraphrased, medley of quotes used by one of the best distribution chain CEOs whom I’ve ever worked with at the kick off a Fall Management meeting.

 

Be prepared for the worst and hope for the best…Since hope alone isn’t a strategy, consider:

 

“Don’t worry about what anybody else is going to do… the best way to predict the future is to invent it. Really smart people with reasonable funding can do just about anything that doesn’t violate too many of Newton’s Laws”.    Alan Kay (US computer scientist in 1971)

 

“Innovation efforts have a pathetic hit rate….firms can now reliably get a dramatic increase in innovation success - 9 to 17 times the norm.”     Larry Keeley, Managing Director, Doblin, Inc.

 

2.   FORECASTING HOUSING AND PRODUCT INFLATION? GOOD LUCK!

 

Have you ever seen weather map forecasts for the path of turbulent hurricanes? They really could go anywhere at many different speeds, because there are too many, inter-dependent variables that are all moving too fast. Forecasts go into the scientific wild-ass guess (SWAG) zone after about 15 minutes. Well, global economies are equally difficult to forecast when: 1) we are at the end of a 5 year global expansion; 2) bubble excesses exist in both global housing values and the commodities that go into construction, especially China; and 3) commodity prices have been skewed by 10,000 hedge funds investing over 5 trillion dollars with mostly what’s-hot investment strategies.

 

Here are some economic data points and sources to consider:

a)      The US Fed paused on its interest rate increases for a second month in a row. The Fed, historically, has never paused and then resumed increases, but instead has always dropped interest rates, because of economic softening.

 

b)      The housing market has continued to deteriorate far faster than all of the “experts” have been forecasting. Key signals have been: (9-18) home builders “optimism” sank for an eighth consecutive month in September to the lowest level in more than 15 years....” builders continue to report increases in cancellations of sales contracts” which, in turn, is swelling the inventory of unsold homes. 

 

c)       What’s different about this housing downturn? Since 2000 an increasing, record number of homes have been bought by “investors”, “flippers”, and sub-prime credit buyers using zero down, ARM, interest-only types of financing. Much of the risky mortgages were sucked up by Fannie Mae and Freddie Mac and transformed into mortgage-backed bonds. How will this all end? Could over-leveraged owners and investors become upside down on the “investments” and turn more “housing inventory” over to banks and go back to living with mom and dad? In Las Vegas, 40% of the homes that are for sale are empty. For more up to the minute reading on deteriorating “flipper” indexes see this 9-21 article in USA today: http://www.usatoday.com/money/economy/housing/2006-09-20-flipping-usat_x.htm.

 

d)      And, check the housing futures index which, since my last commentary, is now forecasting that the national median value of a home will drop by 7.33% by next August. Two weeks ago the forecast was about 5%. A year-over-year deflation for the national housing average hasn’t happened since the depression. Here’s a link: http://www.futuresource.com/quotes/quotes.jsp?s=SFR.

 

e)      Many distributors of products that go into construction and/or that are sensitive to commodity metal prices have had wonderful numbers for the past few years. What do we do when deflation hits quickly? The commodity index is down 16% since early May. Why? And how much further might it go even if, in the long-run, we are in a “commodity super-cycle” because of the economic growth of Asia? Here are two articles that present first a short-term detailed analysis of the decline and its causes, and then another by Stephen Roach with a more big picture view:

http://www.321gold.com/editorials/saville/saville091906.html and

            http://www.morganstanley.com/GEFdata/digests/20060918-mon.html#anchor0.

 

3. NORMING, STORMING, FORMING, REFORMING, PERFORMING.

Have you ever had two or more similar, but different things happen to you close enough together to make you wonder whether the events were mere coincidences or whether there was some bigger pattern at work? The bigger pattern idea has a term - “synchronicity”- which was coined by Carl Jung to describe the "temporally coincident occurrences of acausal events". In other words, similar events that seem coincidental actually have, at a different level of perception, a common reason for happening. Synchronicity was a principle that Jung felt encompassed his concepts of archetypes and collective unconscious in that it was descriptive of a governing dynamic that underlay the whole of human experience and history — social, emotional, psychological, and spiritual. In a more common way, you may note that when you become preoccupied with a specific topic you start to notice stuff about that topic and/or have “accidental conversations” all around you, because your unconscious selective perception has been tuned into that topic.

Well, in the past few weeks I have attended two different management meetings for two different distribution chains in two different channels in which the CEOs actually named the “next year we are going to have changed what we are doing” process. They used different descriptions for the same process steps. In one case, the CEO named three steps as: (step one) “everyone presents their plans for how they are going to do lots of things which are really only “trying harder in the same old ways” ideas; (step two) I and others ask for different ideas which ushers in the “uncomfortable, confusing, defensive, even-threatening discussion”; and (step three) is a consensus (more or less) view that  “well, I guess we could try some different solutions on an experimental basis”.  In the other case, the CEO referred to a formal process that he and his heirs-to-the-family-business had been through a number of times which he called: 1) forming; 2) storming; 3) norming.  What is not coincidental about these two meetings is that: 1) both companies are 1 in 1000, or fewer, as far as their high-performance, perpetually innovating track records; 2) both have had great financial years for the past few thanks to construction booms and product inflation; 3) both have already had significant product deflation and softening in key customer segments; and 4) rain or shine, these companies have always outperformed their respective channels in downturns.

So, Jung might ask what is the underlying “archetype” for these two case studies? And, if you are good with doing google searches, you might find a pithy, 4-page document on “team development” that involves “5 classic stages that groups go through” in order to become a team going in a renewed, high performance direction. If you are interested in getting your management team to move together in new ways to confront new business conditions or opportunities, then check out this link: www.willitseconomiclocalization.org/Papers/TeamDevelopmentModel.pdf.

 

4.      MORE FOOD FOR THOUGHT ON “INNOVATION”.

 

Regular readers of my commentary and other Merrifield.com postings know that I’ve been on an “innovation management” kick for some time. Here are a few slide show presentations which you can skim through for those few compelling slides that might speak to you.

 

For a good overview on the “state of innovation” go to the following link, scroll to the bottom of the page and click on the powerpoint slide show entitled “State of Innovation 2005”
http://thinksmart.typepad.com/convergence_2005/ .

 

5.      MY MEMO TO BRANCH MANAGERS RE 2007 PLANS

 

To tie all of the themes in this commentary together into one memo that you might send to branch managers in advance of a management meeting about how and why we need to do things differently in 2007, you are welcome to repurpose the disguised memo that I wrote to the managers at one of the companies that I advise. Here it is; I hope it helps!

http://www.merrifield.com/exhibits/Ex42.asp.

 

That’s all for this week! 

Happy trails to you and yours,

 

Bruce