FOR (EMOTIONAL) RESISTANCE TO ALL THINGS LIPA
goes through three stages. First, it is ridiculed. Second it is violently
opposed. Third it is accepted as self-evident.” Arthur
My short answer for how to - see, create and capture - hidden,
supply-chain value for all stakeholders is to just take these LIPA-Management,
Read “Islands of Profit in a Sea of Red
Ink” (and discuss one chapter before each weekly management meeting to see
how it starts to update and reshape unspoken operating success assumptions.
Discussion tone and content will change! (YouTube
Video Module 3, Slide 2)
Do one to three of these measures in any
Read this book.
Schedule a Waypoint Analytics demo
And/or, attend an APIC conference http://www.apicconference.com/APIC_conference.htm?page=APIC_registration.asp.
The Journey”: one safe step at a time. And,
you will get the same great results of the LIPA-Management, Power-Users
mentioned in Chapter One!
BUT: “TRUE-NEW” SOLUTIONS FACE A PATH OF GREAT RESISTANCE
Selling new ways of looking at the world (“paradigms”)
has never been easy. In history, new “mental-models” for the world, which seem obvious
today, weren’t instantly popular. Some famous examples:
Sail west to get east, because the earth is
round. (A better, supply-chain proposal by Chris Columbus to his venture
capitalist, King Ferdinand.)
The earth is the third rock from the sun,
not the center of the heavens. (Boyhood pal of Galileo’s gets it, but has a
conflict. He is now Pope Urban VIII with good job benefits linked to
geocentrism. Solution: Galileo can burn or recant and live under house arrest
Evolution v. creationism. (Still some
static in spite of 4.54 billion-year-old dirt as evidence.)
US slaves should be free according to our
constitution. (Civil war losers did not all instantly buy into the new, “everyone-is-equal”
(100 years later) “Separate but equal”
wasn’t. “Civil rights” re-start.
(’23) Women should have the right to vote
in the US. (Even though: “they will just vote for who their husbands tell them
(’69) Elite universities that benefit from public
funds should admit women too. (Even though: “...we don’t have enough women’s
bathrooms on this all male campus!”)
Business innovations usually face similar tough roads
to acceptance. Here are a few historical quotes:
“This ‘telephone’ has too many
shortcomings… (it) is of no value to us.” Western Union 1883
“Radio has no future”. Lord
“The horse is here to stay…the automobile has reached the limit of its
Scientific American: January, 1909
“There is no reason for any individual to have a computer in their
Ken Olsen, founder of Digital Equipment: 1977
“The sales force won’t stand for it” (i.e., the small-customer/order case
solution in Ch. 3)
Anonymous paper-distributor executive at my 1979
Workshop in Ch. 3.
Even venture capitalists - who are paid well to see the
future first and invest in the startups to get there - have low batting
averages. Bessemer Ventures Partners’ record:
Invested successfully in:
Staples, Skype, etc.
Passed on - Intel, Apple, FedEx,
PayPal, eBay and Google: all more or less crazy ideas at the time.
And, they had plenty of other
losing investments in startups that flamed out ignominiously.
The entrepreneurs running these new ventures often don’t even
know what they don’t know. Consider these Google valuation facts.
In ’98, Google’s two founders
tried to sell out for $1 million to Yahoo, the search king at the time. But,
Yahoo wouldn’t go past $800,000. With hindsight: what were both parties
Four years later (in ’02), Yahoo
offered $3 billion, but the Google boys were wiser then (?) and declined.
Google went public at an initial
market cap valuation in ’04 of $150 billion.
GOOG’s market cap on 8/6/13 was
Management isn’t as big of a True-New as the history lessons above. Customer
profitability cases and tool development have been evolving with success
stories for 41+ years (Ch. 3). Still:
The revelation that 80% of the active customers are not profitable
starring some big, “best accounts” as biggest losers will spark anxieties and
You should have a company-wide “adoption curve” strategy for getting
everyone behind the insights and opportunities that LIPA enables.
Most employees will need some mix of – educational, face-saving and
economic assurance – to help them get past their own Conceive – Believe
- Achieve (CBA) hurdle.
ARE YOUR CURRENT BIG PLANS: FAKE-NEW DISTRACTIONS or TRUE-NEW?
If most of
the management team likes a “new” idea, then it isn’t new. It’s a fine-tuning of
the past which taps into everyone’s existing mental models (beliefs, pattern-recognitions,
methods, skills, habits and comfort zone). It’s: old wine in new bottles; the same
play disguised in new clothes with an extra, new wrinkle. People can instantly get
it (“conceive”) and “believe” that it could work as it did in the
past with hope for: “even better”! “Achieve” is no great concern, because past
experience instructs us on how to take it to the “next level”.
Fine-tuning is good as long as
there is true, worthwhile, incremental-efficiency ROIs instead of diminishing
we re-double our efforts to go from six-sigma to seven? How much will customers
notice the infinitesimal difference and then reward it? Is obsessing on tired, “best practices” a distraction from True-New
opportunities with much bigger upside gains? If we aren’t the first to see
and exploit changes, then someone else will at our expense. If we are too busy
optimizing furniture arrangements on the deck of our ship, how can we see the
on-coming iceberg and do something about it?
heard the - “definition of insanity” - quote: “Doing the same thing with the expectation of getting different
(better) results”. But, a corollary is my belief that: doing the same thing – in a changing environment – will guarantee worse
results as competitors see and adapt to the change first or our boat sinks.
Management Journey-Ware is sufficiently True-New to elicit the normal chronological
sequence of reactions: puzzlement, ridicule, angry opposition and acceptance.
want to introduce LIPA Management to your company, you will need “New” answers
for all of the “New” objections and questions that are influenced by underlying,
negative emotions. To systematically review all possible objections, I have included
two exercises for helping people over their CBA hurdle:
Below: A composite case study with a summary of why a CEO concluded: NO,
we will STALL on doing any further exploration of “customer profitability”
Ch. 5: An exhaustive INDEX of “New” concerns followed by an equally
exhaustive Review of New Answers which LIPA-Management Champs must know.
CASE: CEO REJECTS “TURNING BIG,
LOSING CUSTOMERS INTO WINNERS”
Here is what I roughly said to the top three executives of a distributor after
working with the CFO (a closet LIPA-Believer) on preparatory analysis:
“The big, initial shocks
of this customer profitability report are at the extremes: the very top and
bottom. Here is a “twin study” we
(the CFO and I) did in advance for two accounts from the same niche. Besides
having similar financial factors – sales,
GM$s, GM% – they buy the same mix of products.
But, their buying patterns and cost for us to serve them vary widely, so one is
an extreme winner while the other is a big loser.
The profitable twin is yielding a 10% net profit
margin (as a percent of sales) with an $800 average order size.
The losing twin has a minus (8%) net LOSS
(percent of sales) with an $80 average order size. The losing twin is
generating 10 times the order-activity costs for both us and them for the same annual sales volume as the profitable
raises several questions to investigate:
How do these twins differ internally in
their buying –
assumptions, replenishment systems and disciplines – to yield such different average
order sizes and CTS levels?
Why not invite ourselves to do a top-management,
walk-through audit of both accounts to see how our – product, paperwork and
service points of contact – are working. Our honest goal will be to look for
“incremental ways” we can fine-tune what we are doing together in order to save
them some potential hidden costs and improve their uptime productivity.
Which twin will turn out to be achieving
the best overall buying economics? For example, we discovered – by doing a
deeper analysis – that the unprofitable twin has repetitive, rush orders for
the same $1 widget almost every week. What is behind that buying pattern? What
do you and associates know about the SKU and the customer that allows you to
make a good guess about what might be going on?
know we are both getting killed on all paperwork costs for each $1 invoice.
costs for both of us had been unmeasured until now. I think we can assume that
their paperwork costs are roughly equal to ours. What we both thought was a
negligible cost is unnecessarily big. We could give them 52 widgets for free
now and save $5100 in annual fulfillment costs.
what might be the customer’s downtime costs
while waiting for the widget?
if they can’t do work on-time for lack of the widget, then will their customers
be unhappy with delayed service/delivery? What are the downstream, unhappy customer costs for these
If we dig into the details of what and how
these two are buying, will we (no doubt) discover some new insights about these
two customers’ best and worst buying practices? Couldn’t best and unintentional
worst buying practices, then re-inform how we sell the rest of the big
customers: at least in the niche the Twins are in?
Our bigger, learning objective
will be to find ways that either or both of us might tweak our buy-sell
activities to get BIG reductions in hidden buy AND sell activity costs. If we could
transform 10 big losing customers (per branch) with a combined estimated losses
of ($100K) to a positive, profit of say $30K (and grow those customers’ total productivity
and profits AND sales) that would be a BIG $130K-plus swing at the bottom line.
What do you think about
this line of thinking and proposed experimentation?”
STALL RESPONSE: The CEO and the VP of Sales were
initially stunned and silent. The VP of Sales then admitted that he was so
shocked and distracted by seeing that a few, large, “most prestigious” accounts were the biggest losers, he didn’t hear all
of what I was proposing.
(Remember: people have to hear new – ideas, terms and
math – multiple times to start to “get it”. We must be like algebra teachers
and provide five or more customer case studies (variations on one concept)
along with the CTS math implications to be more successful. )
Having seen this reaction before, I didn’t try to
rationally convince them any further on my True-New ideas. (The CFO and I were
hoping to get an agreement to explore further down the Customer-Profitability
Path). We, instead, just started listing all of the emotional feelings and
questions that would come up from other members of the team: notably reps! If
the CEO could have been honest with his feelings and ego needs, he might have –
after some reflection – written the following summary note to me, WHICH
INCLUDES BOTH CONSCIOUS STATEMENTS AND UNCONSCIOUS EMOTIONS:
Composite, Artificially Honest-and-Self-Reflecting Response:
After thinking through our
meeting, my biggest gut reaction to the initial customer profitability report
(CTS model) and therefore your proposal is that they are hugely flawed. The CTS allocations are subject to
lots of cost assumptions that cannot perfectly fit all customers. All of our
big customers buy items, for example, for which they are the only customer.
(LATENT THOUGHTS: I can’t “conceive” of how best accounts
are big losers. My composite, Old-Belief-System instantly, emotionally rejects
the math that I am seeing. I’m not yet believing. If I can find imperfections in the new
model, then can’t we throw it out and go back to the old one – financial numbers – for and in which we can pretend that CTS isn’t a factor at all?)
My feelings so overwhelm
my logic that I cannot begin to think about how
we can tell big customers that they have to buy differently than how they
currently want to. No good salesman wants to contradict a customer: (no achieving confidence yet).
If we tell a customer that
they really aren’t buying smart, they could be insulted and switch volume to eager competitors.
Since our competitors are all pursuing
these big losers, everyone in the channel – customers, competitors, suppliers
and my employees – will think I’m
crazy to try to confront and change big losers. And, I can’t begin to
think what I might tell our reps
who are working hard for these accounts to earn big commissions that would be
This brings in my
financial management beliefs. If we inadvertently drive away business, then
the lost margin dollars will hit my bottom line right away. All of our operational costs are in the
short-term, fixed. We would then have to allocate more of the same fixed
overhead to the remaining customers making them all less profitable and tipping
some into the “losers” column. Couldn’t this be the beginning of a downward
Conversely, if we get one
more order with any GM$s in it, we can take care of it without any more
overtime. Won’t a good chunk of any new, incremental GM$, therefore, drop to
the profit line? I’ve always thought every
dollar of GM is a good one, so every active customer is good for the
profit line. A past slogan of this company was: “there is no customer who is too small”. We recently did a
formal program to sell one-stop-shop supplies to a category of small customers
who all appear now to be sales and GM$ winners, but net-profit losers.
I guess this is “economies of scale” thinking. Get more
sales to buy better and keep our people busier processing more GM$ per person
and get more GM$ per truck run. I guess I’m not fully understanding your
80% of our operational costs are purely
variable and dynamically re-deployable or downsize-able.
Our “standard service model” cost structure
exceeds the average GM$/order for the 50%+ of our customers that are
small-customer/small order companies run by “self-employed owners who are
NOTE TO SELF: The CFO and I had gotten
so fluent in our CTS math, we assumed the other two would get these
“assertions” with one pass: at least intuitively. Wrong assumption: we needed
to do 5 or more case study repetitions. Then again, CEOs can have short
attention spans and don’t want to be taught to. How do we teach them
diplomatically? It depends: each executive is different.)
(MORE LATENT CEO THOUGHTS:
Then, there are my ego issues
about what I’m seeing and feeling. I don’t like the idea of confessing that
I’ve been misleading my employees (for years) to pursue and serve some margin
dollars that have even higher, activity-costs to serve. It doesn’t help that no
matter how we tweak the allocations in the CTS model, the super winners and
losers always remain in the same group).
(MORE LATENT THOUGHTS: Everyone
is going to expect me to have answers
to all of the NEW questions that these NEW ranking reports raise, and I don’t have them. I’m a beginner in
this new LIPA World. I’m used to being
the instant, decisive expert for most questions that comes from applying my
years of experience in this channel. It’s hard for me to say: “Gee, I don’t
know, but let’s try something new that goes against our tried-and-true
beliefs/practices anyway.” My overall defensive reflex is to come up
with some sort of short, dismissing rationalization – a stall statement – that will allow us to put this idea on the back
burner while I comfort zone it: perhaps for a long time).
Because your proposal is
based on imprecise CTS models and
we already have too many projects underway (FAKE NEW?), we have decided to
pass on doing anything in the customer profitability area for now.
CASE DISCUSSION QUESTIONS
Before we talk about Joe’s response and the CFO’s possible
on-going persuasion plans with Joe, how sold are the reader and potential LIPA
team members on either THE PITCH by the CFO and me? Or, are YOU and other
involved team members more towards Joe’s we-don’t-buy-it, end of the spectrum?
To be honest with upfront gut feelings and trying to explain why is important.
Is Joe Stall-It making the right decision
to keep fine-tuning the past? Is doing more investigation into LIPA and “either/or”
choice with whatever other proactive initiatives Joe believes are underway? How
fast or slow should the executives go on “and/both” more LIPA learning?
If you were the CFO, what type of education
strategy would you pursue with both the CEO and the VP of sales? How can you
get fluent with all of the “New” answers you must have for ‘New” concerns? (See
Chapter 5: THE COMPLETE INDEX OF LIPA CONCERNS + ANSWERS.)
Knowing that most concerns are also infused
with fear of the unknown, how can you defuse the fears first, so people can
then be open and free to see the logic of LIPA opportunities?
What alternative “STALLS” might a LIPA
Champion run into within their organization? How best to respond to them?
POST-SCRIPT: Here are three categories of CEO Stall Statements I
have gotten from executives in response to the question: “Are
you doing anything presently with Customer Profitability Analysis?”
I’ve followed each one with some counter-points. The
more exhaustive brick-by-brick index of concerns and answers is in Chapter 5.
already have some sort of customer profitability analytics capability on the shelf. Our software vendor sold
us the deluxe, analytics package in which I think we can do CPA. So, we don’t
need another solution/name (“LIPA”) for the same thing. We just have to use
whatever it is we were told we have. We aren’t investing in any more
shelf-ware!” We need to just
keep working on what we already are doing and our current TO DO lists.
response: (1) “Analytics”
is not (2) “Customer Profitability Analytics: CPA”. CPA is not (3) “Line Item
Profit Analytics: LIPA”. And, LIPA by itself is not (4) “LIPA Management
Journey-Ware” accompanied with educational support (this book; APIC community;
and my 450+ YouTube clips).
The upside potential of the LIPA journey is huge and
not comprehended by this response. The shelf-ware group needs to spend a few
hours to find out what their shelf-ware can do. Then, if the upside potential
of LIPA Management is understood to be huge, they can request a team demo of LIPA-ware
and/or attend an APIC Conference.
BUT, when every department already has their ambitious
TO DO LISTS filled with Fake-New efficiency programs, how does something with
10X or more upside get put at the top of the list? If folks can’t get over
their Conceive-Believe-Achieve hurdle, then they can’t Conceive/Belief the
10X+. This is good news for the few distributors with ambition and the ability
to reassess their old belief systems. Longer
Module 3, Slide 18; YouTube
Module 3, Slide 19.
#2: “We already
are doing (or have done) that CPA stuff. (As in, we’ve checked that off the
list without any assessment on the quality of any follow through. What’s your
next idea? Is that all you’ve got?) Our finance department is the best. They crank
out those rankings periodically in case any reps or branch managers want to do
anything with them. Since some of our biggest, best customers show up as big
losers, no one (including me) really knows what to believe. And, we don’t
want to upset any reps, so we haven’t done much that I know of.
Response: If you have
confused “we’ve done that already” with being a Black-Belt-Nth-degree “supply-chain-math,
custom-solution provider”, then keep reading! If we play golf one or two times
a week during the summer, we could say: “we are already doing that game (just
like the pros?)”. In comparison to the golf pros, the seasonal player is only
similar by having: the same tools; the same 18 targets; and the same goal of minimizing
strokes. Beginners often don’t know what
they don’t know about the gaps between hacker and Jedi Master. How much
upside is there with LIPA Management? Why it is desirable in more ways than we can
imagine? And, how should we aspire to close the gap(s) between present and potential performance?
#3: “We did a customer-profitability
report and acted on some of our small customers! We assigned some of them away from
some reps to the house. Then, we sent the “minnow accounts” a letter informing
them about new, minimum-sized orders. (So, we have already done CPA: see #2)
Response: This action sounds short on vision and
implementation. Some questions:
Where was the cut-off for: still sales-rep
worthy and small-account service division?
Was there a “champion” for the new,
small-account, profit-center with suitable KPIs?
Were some of the targeted accounts quietly
reassigned back to reps for comp benefit?
Did inside reps enforce the new rules on
their small-account friends who asked for a break?
How will you prevent new, small customers
from creeping into rep territories in the future?
If you treated the losing, small accounts
as a new profit center, how big a loss was turned into how big a profit?
g. And, what about all of the other LIPA
Management plays that can be run too?
Most businesses can find infinite
ways to continue to improve what they have always been doing. These initiatives
will have diminishing returns and can be distractions from True-New
opportunities. Every company has to strike a balance between fine-tuning and
But, True-New is not easily
conceived, believed and then achieved by a critical mass of key team players. Any
would-be LIPA Champion(s) are going to have to both defuse fears and re-educate
old beliefs. The next chapter is designed to help you slay fears and promote
true upside opportunities for all.