CHAPTER TWO

 

JOURNEY HELP FOR: THINKING BIG, ACTING SMALL

 

 

Chapter One is a dense overview for a LIPA-Management-Journey Rookie. But, if you are one, take heart. This chapter provides assurances that atypical, journey assistance is available. But, you will do best if you can be open to (counter-intuitively) having a big vision that can be pursued one, safe step at a time.

 

JOURNEY HELP:

To overhaul your corporate beliefs to follow a new, journey is tough. Besides a road-map what else can this book provide?

1.    It’s free and on-line so any employee at any location can be on the same (virtual) page. Educating a critical-mass of new believers should be easier. (And, a free, sponsored, printed version is being considered. Any interest? Let us know.)

2.    Many of the links in this book go directly to either 450+ YouTube video clips that average about 4 minutes in length or to detailed how-to footnotes.

a.    The how-to, video clips (annotated indexes on the homepage of www.merrifield.com) will be helpful for people who don’t readily read in English as well as for conducting small discussion groups anywhere, anytime.

b.    These references will also eliminate over 300,000 words of just-in-case-you-want-to-know, how-to advice from this book. Instead of bogging the book down for all, each reader can dive as deeply into specifics as they might like.

3.    This book is also one big invitation to do two things:

a.    Learn from early, power-LIPA distributor adopters. Power-users (as well as a range to the newly curious) are meeting twice a year (March and September) at the “Advance Profit Improvement Conference” (APIC) (www.apicconference.com). Attendees get practical tips, courage and helpful envy from the outrageously successful distributor principals on panel discussions and an array of best expert/speakers. Check it out. 

b.    Check out some of the more than 200+ reports and tools that can exist in your LIPA tool shed with a go-to-meeting demo from Waypoint Analytics (http://waypointanalytics.org/). Waypoint’s LIPA web service was cool 5 years ago, but it has been and will continue to be continuously upgraded. Its total value grows with the improvement requests from a growing group of the most-progressive, ambitious distributors across many channels. Why not benchmark what you are currently doing (or thinking of doing) in the LIPA/IT area against the most sophisticated and dynamically improving tool shed? Whether you choose to:

                                               i.    Be a monthly subscriber.

                                              ii.    Try to duplicate Waypoint’s offering in house.

                                             iii.    Rent the monthly service and copy it in-house in parallel.

                                             iv.    Or, rent for credits to then buy an in-house license

All options are possible. The key is to break out of your LIPA-inertia now with a web demo at your earliest convenience.

4.    LIPA reports –regardless of how you get them – will allow you to start your journey with small, unthreatening steps. Logic suggests that Big Gains require Big Change which causes Big Pain (and political resistance from the fattest, coasting cats in the existing order). With LIPA reports, though, any solution can begin with one: account, item, supplier, rep, branch, etc. No need to jump in the river with both feet. And, fat cats can say that they are on-board while trying to ignore or even undermine LIPA solutions. But, tracking reports expose individual laggards within a month at the specific, account-strategy level.

5.    When all you have to manage with are aggregate financial numbers that average out all of the high-leverage, big cross-subsidizing account stories, then local management/sales rep opinions supported by selective anecdotal stories holds sway. If need be, replacement people will know immediately – with LIPA information - where, why and how to deal with the most extreme profit-improvement opportunities. And, steadily published, case-by-case, supply-chain-math success stories will trump old-school, gut-level generalizations and resistance.

6.    This book will also be continuously improving with your help. Everyone has an open invitation to comment on this book as it is posted and be in direct, immediate touch with me. Be my editors and co-contributors to make it better. I look forward to giving any contributors their public props.

7.    For any readers who want to critique elements of my journey guide, please do! You can reach me directly at bruce@merrifield.com. But, if you nit-pick ideas and methods with no alternative solutions for the question or challenge at hand is to defend the status quo. If we keep doing what we are doing (presumably harder), then aren’t we doomed as we become more out of synch with an ever changing world? So, please try to offer an alternative solution for the question/problem at hand. How might we better move forward towards becoming a high-performing company for all stakeholders that is reducing lose-lose channel activity costs?

8.    As I cover the stages of the LIPA journey, there will be new – vocabulary, concepts and assumptions – that will give traditionalists pause and confusion. Because I’m the first to write about these facets within a new LIPA-World, I must invent terms and acronyms for what we will be seeing. But, no one can be instantly fluent and comfortable with too many new terms and acronyms. To keep the book moving along, many of the definitions and explanations will be repetitively linked to a support glossary. 

 

YOUR – ASSUMPTIONS, TOOLS AND VISION – FOR THIS JOURNEY MATTER

How well a distributor team can walk this journey will depend upon three factors:

1.    How well your team is able to name and update its existing, operational, success assumptions. Conventional channel-think can’t generally get past, for example, the mathematical fact that big, “best” customers are causing big losses.     

2.    What depth and breadth of capabilities are in your LIPA tool shed?

a.    Customer profitability analytics (CPA) will get you going.

b.    But, line-item, profit analytics (LIPA) will reveal the net-profit or loss on every active SKU within the buy-sell history for each customer.

                                               i.    LIPA provides the equivalent of an MRI scan of customer (and supplier) activity to reveal hidden pockets-to-buckets of inefficiencies that are immediately identifiable and measurable.

c.     Then, LIPA is instrumental for co-creating with each customer – using their own, irrefutable, statistical, SKU-buying data – new, win-win, value re-tuning solutions.

d.    You can start with CPA and then add LIPA; these two approaches aren’t an either/or choice! 

e.    And, you must have on-going tracking and net-profit incentive reports to keep from sliding back into old ways.

3.    How big and (counter-intuitively) less risky is your journey vision? Here are three visions from smallest/riskiest to biggest/least-risk. (Some distributors have evolved through each step sequentially.) 

a.    Don’t rock the boat: do some one-time, fine-tuning of the past with LIPA insights to jump profits up 2-4 times. These efficiencies will quickly fade, though, due to the unchanged – thinking, habits and (margin based) incentives – of the old culture. Short-term bonuses and expectations will rise and then fade. (And, competitors are given time to wise up and jump ahead of you IF they embrace Vision C below.)

b.    Do a financial, strategic, core renewal using LIPA tools.

                                               i.    By focusing on customer niches that have given you, historically, the most net profit, you can typically double sales and quadruple profits in best niches.

                                              ii.    Spinning-off dying, self-employed, small customers to a different service model division will generate five different, new net profit streams (Article 4.11).

                                             iii.    These strategies will achieve bigger, faster, structural profits that will last longer. This approach can be initially stressful. Most employees cannot imagine sales growing and profits exploding with some accounts leaving and perhaps some small-customer, net-unprofitable reps being released. The “dynamic-upside”, profit-growth of all of the LIPA-supported solutions can be achieved quickly, however, to reassure everyone.

                                             iv.    But, you will not be simultaneously creating a high-performance service culture that is a pre-requisite for:

1.    Achieving “KPI-tuned, service excellence” metrics for each target niche (YT 4: 14-26) (YouTube video)

2.    Continuous adaption and innovation after that.

                                              v.    Environmental change and competitive responses will gradually erode the structural profits of a core renewal without on-going innovation from within.

c.     Create a can-do, high-performance service culture using the one-time economic gains from LIPA insights to engage everyone with gain-sharing bonuses. A great culture will allow you to continuously:

                                               i.    Attract, keep and keep turned-on best stakeholder partners starting with employees who will work together to assure that...

                                              ii.    …Each target niche of customers will then get the best service-value equation metrics plus “heroic extra efforts” for the key accounts.

                                             iii.    By turning on bottom-up, self-organizing employee energy, management can be freed to work less in the business and more on the business: strategy, culture and systems. (And, make a lot more!)

                                            iv.    And, every stakeholder group will get premium long-term economics. Be a hero to all stakeholders and be like those service companies that we are all tired of hearing about: Southwest Airlines, Costco, Whole Foods, etc.

This Chapter and Chapter One are meant to provide an overview of the LIPA Management Journey which will make better sense to those underway and less so to Rookies. The rest of the book will now be more Rookie friendly. I’ll cover each chronological step of the journey starting with the history of how LIPA evolved from simple customer profitability modeling in 1976 (Chapter Three). And, in Chapter Four, I’ll provide detailed answers for the often fierce disbeliefs that arise when veteran managers and reps first see that some “best” customers and items are super losers. 

 SUMMARY QUESTIONS/THOUGHTS

·        What is the difference between: 1) analytics, 2) customer profitability analytics (CPA), 3) Line-Item Profit Analytics (LIPA) and 4) LIPA Management, Journey-Ware?

·        What is the history of “customer profitability” and how it has evolved to LIPA Management, Journey-Ware? (Chapter Three)

·        Will we be pioneers who get arrows in their backs? Or, can we be first in our markets, but fast followers of other pioneers in other channels and markets?

·        Can we use good tools, education and leading-edge successes to still get big returns with low risk?

·        Or, our biggest competitors going to get the new upside before we get out of the starting blocks?

·        What are all of the new – questions, objections and fears – that will be raised by seeing big, (unprofitable) customers at the bottom of our profit ranking report? What are the most complete New Answers for these New Questions/Concerns? (See Chapter Four)

·        What exactly is “culture” and how do we go from a “we can’t do that” culture to a “we can perpetually innovate and adapt” culture? (later in the book.)