June 26, 2017

Article 2.11


The wholesale distribution industry is blessed with great information tools in the form of association financial surveys and many excellent turnkey software vendors. Both sets of tools started to be available in the early '70s and are now mature, over-featured products. A big question is - do they help us to become a "high performer?" If the answer is not an emphatic "YES", then how could they improve significantly instead of incrementally?


Imagine that you are the CEO or an Empowered Branch Manager (EBM!) of a sizable distribution location. In this fantasy, you would sit down at your PC after 10 minutes of training and have access to over 750 3-D color, trend charts going back as far as 10 years. This information would be based on over 500 raw data elements which were automatically fed into your PC every evening. Your system would then crunch numbers while you slept to report whatever vital signs that you might want to monitor each morning.

With another 10 minutes of training you would learn to "drill down" to whatever you wanted to know in this customized database. You would know results before the folks who were primarily responsible for them. You wouldn't have to wait weeks for others to provide numbers for any type of analysis that you might want to do.

To good to be true? It lives! The software package is called ExecuSense™ by TLG Corporation of Akron, Ohio. Every distributor principal who sees the demo wants it. A number of the leading distribution software vendors have signed agreements with TLG Corporation to be able to offer it as an add-on option for their users.

And, ExecuSense is getting transformationally better. TLG Corporation already has listened to distribution customers and incorporated everything that they ever thought that they might want, but most requests were for fine tuning the past. A breakthrough concept for TLG was understanding the difference between - "data, information, knowledge and wisdom."


In the outstanding book, THE MONSTER UNDER THE BED, the authors explain and use a model built on the four terms above. They define "data" as raw transactional numbers; e.g., "the margin percent in a processed invoice line item." "Information" is a higher order of repackaged data such as "the annual turn-earn ratio for a branch graphed over the last 10 years." "Information" can be compelling, but it doesn't tell us what to do differently except to try harder at the same old things.

"Knowledge", however, is information that allows proactive, more successful long-term commitments to be made. But, we can't find, develop and shape this special type of information without first having the right guiding assumptions. Financial statements, for example, are shaped by "generally applied accounting principles" (GAAP) which allow us to pay the right taxes on time and borrow money against clean assets. The assumptions underlying GAAP have nothing to do, however, with creating distinctive service value for a targeted niche of customers or growing sustainable profit power.

"Wisdom" is the art of seeing change in the environment before others and revising the rules for success, because the old rules are starting to fail. Wisdom is practiced by experienced and gifted managers. Most successful new methods can be turned into expert knowledge rules that allow faithful followers to be successful beyond their normal abilities. This programmed knowledge can serve many well except for when "the exceptions to the rule" arise and when the environment changes again to undermine what has become "conventional wisdom."

In light of this model, what have most of the users of financial surveys and turnkey software packages been asking for since the '70s? What were our original and perhaps now forgotten assumptions that still guide tool "improvements?" Are these assumptions still valid for the '90s?


#1. Broad industry participation in financial surveys is desirable. Ask for handy data in the surveys or else the returns will be few and statistically less reliable.

So, every industry association survey is substantially based on handy, federal, corporate tax returns or standard audited statements complying with GAAP. Because financial numbers are symptoms of underlying practices, it is tough to prove what practices most help the "high performers."

#2. Financial Management works. At least we all thought it did in the early '70's when our industry information tools were being created. A few sobering thoughts:

Remember Harold Geneen who was the personification of running a business by the numbers. He was in vogue from about 1972 on running ITT as a conglomerate with over 400 diverse profit centers. When he retired in 1978 , ITT collapsed for 15 years from over-harvesting.

The PIMS database project studied the numbers of 3000 profit centers of 450 huge firms. By doing elaborate regression analyses, they concluded in 1974 that market share was the #1 driver for profitability. Of course, 10 years later there was no correlation at all. But, the myth still lives! Many firms are still volume driven today, and many have weak profits.

Financial education classes built around industry numbers can teach financial fluency and cashflow management, but what about achieving better profit power? We can play the "what if" games with the "Dupont Profit Model", invented in 1915, but what should we do differently to make those wishful improvements happen.

#3. Numbers are a top-down, management tool.

But, isn't the bottom 80% of the payroll going to make great service happen in the most cost effective way? If they don't get daily feedback on both the service processes that serve the customer and the cost goals, then high performance is not possible.

Current industry information tools do not help firms to "informate" for success. Perhaps this is because a majority of users don't share numbers with employees, so they haven't been requesting more customer process information. In the meantime, a few outstanding firms have struggled to create a second, internal reporting system for all employees as a necessary catalyst for high performance.

TLG Corporationís ExecuSense™ can take away the struggle and the cost. Although it was designed originally as a top-down, reactive, information system. It can also be used for bottom-up, information sharing. Its spreadsheet, database capabilities are necessary for tracking the timeliness, accuracy and evaluation ratings for all customer serving processes. And, much of the information that would go into a best-practices, knowledge driven, internal system is already accessible within their system.


#1. Ambitious firms should start to create a balanced measurement system for all employees that blends service measurements with the right financial ones. The system should let employees compare their 4 to 8 key scores with peers in a periodic internal benchmarking report. And, it should allow anyone to link their specific numbers with 4 to 8 macro numbers for the entire firm. There are a number of assumptions implicit in this advice, but the big one is that management can't make "high performance" happen with financial management edicts or incentives.

#2. User Groups that meet to refine their information tools might review the questions and issues mentioned in this article. We need more than traditional financial "data and information." We must use todayís best "knowledge" to measure-service quality elements: total employee, departmental and branch effectiveness; and customer niche penetration. These measurements will then lead us down new innovative paths.

Merrifield Consulting Group, Inc. DO Essay # 7, Article # 2.11