June 27, 2017

Article 2.14


The bottom 90% of wholesale distributors (WDs) are probably making about one-sixth the pre-tax ROI of the top 10 percent. These 90% may be working hard, but with flawed, unspoken success assumptions that make them undifferentiated price-takers in great supply. The 10%, meanwhile, are not working 6 times harder, so presumably they just work smarter at achieving and selling the best total service offering tuned for one niche of customers at a time.

The poor profits of the 90% are frustrating to all stakeholders. Shareholders in privately held companies are locked into a lousy investment, especially the minority owners. And, meager reinvested profits can’t finance the growth expectations of the other three stakeholder groups. Best employees, customers and suppliers will all steadily leave or shift support from the poor WDs to the best performing ones. The 10% have all of the best players in the industry knocking on their door offering their services, new ideas and purchasing volume while the weak get weaker.

Best employees avoiding or leaving the 90% is old news. According to many surveys, finding, keeping and motivating best employees has been the #1 and growing problem for service firms in the US for the past decade. Demographic and employee expectation trends guarantee that these personnel challenges will only get worse in the next ten years. Defection rates for best employees always drop going into recessions like our current one, but it will jump when the US economy starts to revive and best firms start to hire again.

What’s the solution for the bottom 90%? How can a mediocre company become great while looking into the teeth of a recession? Some general guidelines are in a recently released book by Jim Collins entitled, From Good to Great: Why Some Companies Make the Leap…And Others Don’t .

The author and his research team screened 1,435 long-established, publicly-traded firms to find 11 that had been mediocre for a long time before taking off to outperform the rest of the stock market indexes by 300% or more for at least 15 years running. Two of the 11 are in (retail) distribution, Kroger, which after 80 years of mediocrity out-performed the indexes by 416%, and Walgreen’s, which beat the averages by 1500%!

After thoroughly researching the magnificent 11, Collins concluded that all were using the following principles:

    1. Get the right people – "A" people who can do A+ work. With mediocre people, no strategy works.
    2. Pick a strategic focus in which you can be the best in your marketplace.
    3. Generate a stop-doing list that doesn’t fit the focus.
    4. Determine the economic measure that will drive the entire plan.
    5. Pick, promote and pursue values that best people can get passionate about.

The author and team also found out that these companies didn’t have one big transformational moment or formal "change program." They all got tired of being mediocre and evolved a new framework of success assumptions along with a focused strategy that took an average of four years to get right and to get everyone to support.

Because most WDs in the grip of downturn 2001 don’t have 4+ years to evolve a solution for their poor profitability and best stakeholder avoidance/abandonment problems, here are some more distribution-specific thoughts that expand upon Collins’ 5 general guidelines:

    1. Related challenges to "getting the right A people" are: a) Find the hidden ones who are already on the job! Are there some employees who have A+ hobby energy and home economic savvy that they are leaving at home? How do we induce them to turn on? And, b) how do we create an environment that forces the people who can’t fit into a high performance culture to typically weed themselves?
    2. WDs are going to have to become much more customer niche focused in order to tune their total service offering to not just different niches, but different strata of customers within a niche. Every employee will have to know and strive for perfect service metrics for each niche, as well as be empowered to make outstanding service encounters routinely happen for best and target accounts that they know by heart.
    3. On the stop-doing list, every WD will have to shape-up or out the 50% or more customers on which they lose money. This involves a number of new assumptions, tactics and skills that must be applied first remedially and then preventatively on an on-going basis.
    4. The economic number that will drive the transformation to high performance is "gross margin dollars generated annually per full-time employee." To attract and keep best people a firm has to pay premium wages for every job niche. Premium wages can only be afforded by premium productivity per employee. Premium productivity can only happen if every employee’s heart, mind and wallet are wired into the right success assumptions and productivity transformation plays. How will a company get them to understand, believe and act to make better results for all stakeholders happen?
    5. Values that service employees get passionate about? Try these: a) Achieving, selling and getting paid for best everyday service. b) Growing the value, wages and future career prospects of all employees. c) Being on a winning team where everyone respects and helps one another.

If these distribution specific comments on Collins’ guidelines are still too vague, then check out the out-of-the-box, video-based, revolutionary training system entitled "HIGH PERFORMANCE DISTRIBUTION IDEAS FOR ALL" at www.merrifield.com. Skim the "FAQs, the Table of Contents for the 275 page "Implementation Guide", and then the "Summary Notes" for the 53, 12-minute modules. Find the modules that speak most directly to your interests, then read any suggested article(s) that might be recommended for a module. Forty essays are referenced, and all are posted at the site.

How many of the 90% are tired of being mediocre at best and willing to consider embracing the good-to-great guidelines for success? Tough economies can be the best time to get all stakeholders of a company to consider doing things differently if the plans have the right vision, assumptions, tactics and economics. Cutting back and working harder with flawed strategies and assumptions isn’t an option for longer-term survival.

Merrifield Consulting Group, Inc., Article 2.14

D. Bruce Merrifield, Jr.

October, 2001