February 7, 2007 - Distribution Channel Commentary (DCC) # 97

February 14, 2007 - Distribution Channel Commentary (DCC) # 97

 

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TOPICS:

 

1.      THEMATIC QUOTES.

2.      UNC TARHEELS FIZZLE – QUESTIONS ABOUT TEAM CHEMISTRY.

3.      DORITA ADS; UNIVERSITY OF INDUST. DISTRIBUTION SOLD OUT, BUT…

4.      CORPORATE CULTURE - FAST GROWTH MANAGEMENT MEMES CHECKLISTS.

5.      BUILDING - MATERIAL CHANNEL PLAYERS WATCH IDIE- BUILDER, LOT VALUES.

 

1.      THEMATIC QUOTES.

 

Valentine’s Day is a conspiracy of retailers and media to get – respectively – money out of our pockets and reading attention for spicier than normal articles.     Composite observations

 

“When love is not madness, it is not love.”      Pedro Calderon de la Barca 

 

Our team was focused, together, intense and made the big plays when it had to for the full game, every game throughout.     (What most coaches would say after winning the NCAA basketball tournament.)

 

“She cultured the bacteria from their hands, then photographed the results. The pictures were disgusting. Once the image became a universally present screensaver, medical staff behavior changed rapidly. Compliance neared 100 percent.”     NY Times article (9-24-06)

 

“90% of teens in America are on-line…57% of them are content creators..unlike their parents, who watched 24 hours of television per week, these youngsters are growing up interacting”.

(excerpts from WikiEconomics by Don Tapscott & Anthony Williams)

 

“It’s all about the declining cost of collaboration…as the cost of information and transactions drop, firms need to apply Coase’s law in reverse”  (excerpts from WikiEconomics).

 

“If we don’t write down our management - philosophy, values, practices, systems, etc -, then we will suffer from decentralized confusion, dilution of intent, omission of necessary details, etc. And, our corporate culture can not be: quickly transferred to new employees or new acquisitions; or, openly discussed, improved or modified to stay in tune with a changing business environment. The best performing service companies have the most explicit, complex and inculcated corporate cultures.”          DBM, Jr.

 

2.      UNC TARHEELS – QUESTIONS ABOUT TEAM CHEMISTRY.

 

As a resident of Chapel Hill, I sadly watched OUR hometown UNC men’s basketball team lose (at home) its second game this season to the Virginia Tech Hokies. Last week, I watched the #2 ranked Lady Tar Heels basketball team lose (at home) to a #1 ranked Duke team; both teams entered the game with 24-0 records. In both games, I sensed that the UNC teams had the better quality and quantity of athletes, but they both lost to better performing teams which does raise questions about the coaching philosophies, strategies and tactics.  

 

BTW, how are all of our service teams doing at our different profit centers? Do our teams – reps, inside sales, warehouse/processing and delivery people – know what measurably good service is? Are those metrics visibly tracked everyday? Do all of the teammates know who the top 5 or so most profitable customers and the top 5 most important target customers are so that they can make the big service plays (“heroic acts”) happen on a spontaneous basis whenever possible? Do they all go after these service goals with an emotionally charged intensity and cooperative spirit, because they have both their pride and economic well being on the line? How do they teach all of the players that they are part of service processes by which they all will prosper more or less? How does a coach or a profit center (service) manager make these challenges come to life emotionally everyday?

 

From a daily service quality viewpoint, Cedars Sinai Medical Center in LA had a compliance problem with doctors keeping their hands clean; vigilant hand hygiene is a goal of every hospital. Doctors are, apparently, rushed and busy and sometime egos get in the way. Lots of metrics, sticks and carrots got the daily compliance score during one stretch from 65 to 80%. But, only after a photo blow-up of germs on a doctor’s hands was turned into a screen saver that everyone had to use, did the compliance approach 100%. How can we make service quality metrics, customer retention economics and heroic service acts tangibly real everyday? How do you wake up and maintain positive emotional feelings towards service everyday?

Perhaps a clue to emotional-feeling management is buried in the “thematic quotes” for this DCC. Yesterday’s Wall Street Journal (2-13-07) took Valentine’s-day timing to publish an article entitled: “Is it Love or Mental Illness? They’re closer Than you Think”. (Here’s the link if you are a subscriber:  http://online.wsj.com/article/SB117131067930406235.html )

The gist of the article is that brain scans help to explain bizarre behavior that is often associated with love, and one tip that you already knew: “studies show that trying something new with a spouse can go a long way toward reigniting love”. Why not have the new customer service story everyday?

But, there is much more, of course, to service excellence – how do we: define it; measure it; rethink processes and training to support it; achieve and then maintain it; sell it by making it tangible to the customer; get paid for it; get best customers to marry us for it; and renew our spirited commitment to it all everyday? The simple answer is to give yourself a Valentine’s gift by buying and going through our DVD-based training program entitled: “High Performance Distribution Ideas for All”. It is unconditionally guaranteed to give you a huge return, or return it for your investment which will be peanuts compared to the time that you will be putting into the improvement paths it teaches and the rewards that you will get for following those recommended paths. Contact us this week, and we’ll ship you a kit with a Valentine card too!

 

3.      DORITA AD AND UNIVERSITY OF INDUSTRIAL DISTRIBUTION.

 

The thematic quotes from the book Wikieconomics try to highlight that kids today are quite different than we were. One manifestation of this was the Dorita ad that appeared during the recent Super Bowl. Frito-Lay, the maker of Doritos, set up a web site some time before the Super Bowl at crashthesuperbowl.com and invited anybody to upload their own home made video ad to the site. The prize offer was $10K to the five finalists with nothing more going to the winner which would be run, unedited, during the first quarter of the Super Bowl for an ad-buy cost of $2.6MM for 30 seconds.

 

Firto-lay got over 1000 submissions, and you can go watch the winner and the four finalists at http://promotions.yahoo.com/doritos/. I concur that “live the flavor” was the best for the Super Bowl, but I did get some chuckles out of the others, especially the “Check Out Girl”.

 

What’s interesting is that for $50K in expense Frito-Lay got an ad that ranked fourth in overall popularity according to USA Today’s Admeter poll. On a scale from 1- 10, with 10 being best, the score was 7.95 with the #1 ad (crabs worshipping an ice chest with Budweiser in it) getting a top score of 8.56. And, how about the incredible free publicity that Frito-Lay is getting, including this DCC report?

 

What’s the point? Several:

a.        The age of collaboration economics has arrived, WikiEconomics is right. Do we have that on our radar screen?

b.        If we want to recruit and keep next generation best people, we have two big demographic problems: 1) there are dramatically fewer 32 year olds than any other cohort, they were the spike-down bottom of the baby-boom, birth bust. So, finding and keeping talented people who are currently in their early 30’s is especially tough. 2) The number of kids for each age increases until it peaks with today’s 17-19 year olds, but they are increasingly more challenging for top-down run firms, because of Net-Gen norms.

c.        What is our formal recruiting, training and retention program for our next generation of key employees? (Ad Warning) The best educational value offering for the world of wholesale distribution is about to happen in early March; it is the “University of Industrial Distribution”. It’s so good, it is sold out, but for more info and reserving spaces for next year, go to”:  http://www.univid.org/.  I have been honored to be on the faculty of UID for a number of years. This year I will do an all day seminar on “Branch Manager Productivity”. If you would like to skim through my slides for that session, you can find them at this link:  University of Industrial Distribution March, 2007 presentation.

d.        Back to Net-Gen norms, what are they? How will we accommodate them? Some more excerpts from WikiEconomics:

 

“the new web is the natural habit for a new cohort of collaborators called the "net generation" net-gen….for them the web is not a library….it's the new glue that binds their social networks....now this generation of youthful users is bringing the same interactive ethos into everyday life, including work, education and consumption. As Doctorow put it, "humanity's natural affinity for expression, communication and entrepreneurship is coalescing with the increased penetration of internet connections and the growing accessibility of new user-friendly collaboration tools."

 

Think of them (net-gen) as the demographic engine of collaboration and the reason why the perfect storm (technology +demographics + global economics) is not a flash in the pan but a persistent tempest that will gather force as they mature....internationally the net gen is over two billion people...almost 90% of teenagers in America say they use the net. ...unlike their parents in the US, who watched 24 hours of television per week, these youngsters are growing up interacting....the internet makes life an ongoing, massive collaboration and this generation loves it.... 57% of online teens are what the project (Pew Internet and American Life Project) calls "content creators"...50% of all teens between 12-17 or 12mm youth…they are also a generation of scrutinizers. They are more skeptical of authority as they sift through information at the speed of light…research shows that this generation also tends to: value individual rights, including the right to privacy and the right to have and express their own views...they also want to be treated fairly - there is a strong ethos, for example, that "I should share in the wealth that I create"…they have a very strong sense of the common good and  of collective social and civic responsibility.  Further, this is the first time in history when children are authorities on something really important….the NGs norms - speed, freedom, openness, innovation, mobility, authenticity, and playfulness - can form the basis of a revitalized and innovative work culture, but they also raise tough challenges for employers seeking to adapt to new expectations.

 

the collaboration economy= technology + demographics + global economics…it's all about the declining cost of collaboration…Ronald H. Coase, an English socialist, published a paper in 1937 "The Nature of the Firm"… ..

(DBM comments: the gist of the paper was: vertically integrated giant companies had to exist because of the high costs of information and transactions....as the cost of information and transactions drop, firms need to apply Coase's law backwards: shrink by outsourcing to the #1 best activity specialists until you have only what you are the #1 activity specialist at and what transactions inside the business can't be done more efficiently on a networked basis.)

 

4.      CORPORATE CULTURE - FAST GROWTH MANAGEMENT MEMES (FGMM)

 

Regular readers may have caught my last two articles which both touch on managing the corporate culture. Article # 1.16 (http://www.merrifield.com/articles/1_16.asp) and Article 1.17 (http://www.merrifield.com/articles/1_17.asp).

 

Another way to expose aspects of our largely hidden corporate culture is to score the company on a number of FGMMs to which high-performance service organizations adhere. If our company doesn’t explicitly understand, believe and practice one of these FGGMs, then try asking “why” enough times to reach the final root cause(s) for why we are settling for less.

 

We have posted nine new exhibits listing different sub-categories of FGGMs. These exhibits are working drafts which we plan to continue to modify, and many of them may be featured at a new web site we are contemplating centered around “corporate culture memes”. We’ll let you know if & when the site will launch.

 

Links to Exhibit 45 thru Exhibit 53 for the Fast Growth Management Memes:

Exhibit 45 - Overview

Exhibit 46 - Strategic Guidelines

Exhibit 47 - Management Guidelines

Exhibit 48 - Marketing Guidelines

Exhibit 49 - Personnel Guidelines

Exhibit 50 - Operational Guidelines

Exhibit 51 - Innovation Guidelines

Exhibit 52 - the poem "Desiderata"

Exhibit 53 - Guideline Scorecards

 

5.      BUILDING MATERIAL CHANNEL PLAYERS WATCH IDIE BUILDER LOT VALUES.

 

I don’t know if the wishful thinkers who are trying to call early bottoms to the housing bubble deflation process are watching what’s going on with: empty homes for sale; the 25% of the homes that were bought with nothing down, ARM, sub-prime loans in the past few years; or the lot valuations that independent builders are sitting on.

 

If you plot the amount of homes sold and financed by sub-prime loans during 2004 through 2006 under the loosest credit conditions in history, and then move those loans two years forward to the present when the ARMs get reset, you can see that the sub-prime sector can’t hit bottom until the first quarter of 2008. At the same time, conditions for new sub-prime loans have been tightened back up to historically tough levels, so who can afford to buy the foreclosed homes if they can’t qualify for financing. You can monitor this melt down, and its ripple effects at www.ml-implode.com.

 

I’ve also been noticing that the public builders have continued to announce escalating amounts for both land inventory valuation write downs and for the options to buy land that they aren’t exercising. The public companies can always sell more stock or junk bonds if they have to in order to help absorb the write downs, but what happens to the custom builder sitting on 6 to 12 lots in the next hot golf course community development for which they paid top dollar 6 to 12 months ago? Aren’t these builders the bread-and-butter customers for the one and two step building material distribution channels?

 

Let’s take a closer, case-study-look at the valuations for lots at the periphery of city centers where a bigger stream of foreclosed inventory continues to mount. At the peak of the housing valuation boom, individual speculators where also buying lots, along with both the public and independent builders, to drive prices up. While the median price for a house in the US climbed from $177,000 in 2/01 to $276,000 last June, the property values for new lots in Florida, for example, increased 10-fold from 2001 to 2005 and have now dropped by 50%. St. Joe Co. the biggest private landowner in Florida recently announced that the average price per acre of land sold in the 4th quarter dropped to $1900 from $4100 in the third quarter. Builders are sitting on the sidelines waiting for prices to drop much more, but what about the builders who bought lots within the past year? Will they get a margin call from their banker, do they have the financial wherewithal to get through the next 12 months? Will they be able to pay their bills to the local pro dealer that has given him that great service for the past 10 boom years? We’ll see.

 

In the meantime, regardless of economic conditions, now is the time to aggressively start to overhaul our corporate cultures in order to increase the innovative and adaptive capacities of our businesses. We would be delighted to help!

 

Bruce

 

bruce@merrifield.com

919-933-7474