TR Musings

I recently read an excerpt from the new book Repeatability: Build Enduring Businesses for a World of Constant Change by Chris Zook and James Allen (Harvard Business Review Press, 2012).  Its premise suggests that a business model built on a series of smaller “repeatable” ideas outperforms focusing on finding “that one big idea that will transform the business.”

That got me thinking.  Its not a new concept, but applying a similar idea toward customers and clients can lead you to a very successful business comprised of smaller, repeat customers, rather than holding out for that one client that will “take you to a new level.”

We all know the golden rule of sales: “Keeping a customer happy (and buying) is less expensive (and disruptive) than finding a new one.”  Both these ideas revolve around the same center; that a strong, repeatable business model focused on active, average-sized customers will feed your revenue stream, rather than drown you in the waterfall from a huge new customer.

Not that — as good business managers — we shouldn’t seek good customers of all sizes to grow our businesses.  But variety and range of customer size seems to be a secret that many businesses cannot grasp.  They drive their teams toward capturing the big fish, while too often ignoring the schools of smaller fish that drew us to this part of the ocean to begin with.

A personal story.  When I first joined our organization, we had a single customer who had grown to become our “golden goose,” providing a healthy flow of revenues, while making constant demands on our margins.  I probably don’t need to tell you the rest of the story: Of course we focused on that single customer to the detriment of our smaller clients, and ended up losing many of them along the way.  The big customer continued to grow as a percentage of our revenues, so when that customer was acquired and their management changed, so did their initiatives and projects…including ours.  Suddenly we found ourselves without our enterprise’s primary source of revenue, and due to our singular focus on that customer, we had not nurtured others underneath it.  We survived, but learned a very valuable — and painful — lesson.

The foodservice supply chain has developed into an environment that can easily draw suppliers and sales agencies into focusing on the “big fish”, while paying little attention to the smaller, higher margin customers.  Consolidation at the distribution level, regionalization at the agency level, and massive commercial foodservice chains and LLOs can present a daunting vision for a small manufacturer or independent foodservice manufacturer or agency.  “If only I could get into that account” they dream.

And in most cases, they should position themselves to achieve that dream…someday.  But in the meantime, I would suggest that while your competitors are investing most of their resources on catching that elusive major customer, you can be aggressively offering your best products and service to groups of mid-sized customers, creating an on-going repeatable revenue stream and decent margins.  By the time your competition wakes up, your focused product line, exceptional customer service, and social media community will present a barrier that will be difficult for them to breach.

Take stock of your customer inventory and your current strategies and see if you are on the former track or the latter one.  It could mean the difference between your survival and your demise.

A final note.  The authors outlined a few principles that every business should develop to assure their long term success.  Provided as a strategic post-script (and printed directly from the excerpt) they are:

• A Well-Differentiated Core — The authors found that 93 percent of the of the top 20 performing companies had strong differentiation in their core, which ranged from low cost to differentiated products or services.
• Clear “Non-Negotiables”— Business models need to be able to be repeated easily by all members of the company. The authors found that “non-negotiables form the ‘commander’s intent’ of business, which acts to reduce the distance between the CEO and the front lines.”
• Closed-Loop Learning— Businesses must also be able “to adapt quickly to changes as they arrive.”  The authors said that “business history is littered with great business models — like Kodak, General Motors, Xerox and Sony — that eventually succumbed to their ‘arrested adaptation’ and not being able to change fast enough.”

This is the end of this post…don’t let it be yours.

Guest post submitted by Jim Klass, Marketintelligence:

As a follow up to “Pull the Thumb” from Tom I’d like to focus on the need of support and analytics to make field sales more effective.

I would hazard a guess that in many foodservice manufacturers today strategy hasn’t changed from the Go-Go 80s and 90s. I know for a fact that as far as trade spend it is viewed as “table stakes” or a necessary evil and planning is a percentage plus or minus last year. Usually the customer (distributor or operator) who negotiates best receives more.

Even though 20% of a manufacturers revenue*   is spent on trade, there is a distinct lack of investment in people processes or technology.  So the wheel goes round and round without any substantial progress, margins are compressed and cuts made at the RM level or Brokers’ commissions in an attempt to “solve” the problem.

Industry leaders are following a different path, as their retail counterparts have done for years and are utilizing data they already possess to drive a deeper understanding of what is working and what isn’t for example:

• What programs are driving incremental street growth?
• How can we collaborate with our distributor partners to accomplish mutually agreed upon targets?
• What is the role of distribution in managing our contracted operator programs?
• Can the broker support these efforts through data sharing?
• Can we move away from traditional growth programs that merely cannibalize sales and move to strategic performance targets?

Organizations that understand the power of information can provide the proper insights to help the RM (and broker) make better decisions that will in turn drive greater performance. RMs and brokers are hired to execute don’t ask them to do the analysis as well, that’s the job of the trade organization

Aligning the entire incentive value stream (RM- Broker- Distributor-Operator) toward well-defined strategic plans will insure a product and effective sales organization.

It’s time to rethink trade.  What do YOU think?

*2010 Hale MarketIntelligence Survey

Submitted by Jim Klass,  MarketIntelligence, jimklass@marketiconsulting.com

I published a TRMusings entry in June, 2008 called “Pull the Thumb,” lamenting the lack effective field management in foodservice, and what I felt were the reasons for it.

As evidenced by a series of conversations I’ve had recently with foodservice manufacturer executives, the problem (and the reasons for it) still exist nearly FOUR YEARS LATER.

The need to have effective field representatives who can supervise, direct, manage, and interact with their sales agency and distribution partners has never been more important.  Agency consolidations have changed the landscape and made it even harder for manufacturers to hold the attention (and focus) of their front-line sellers. Yet, frequently I hear foodservice management unfairly maligning their field managers, complaining that their current soft sales numbers are a result of poor execution.  It’s true that there are Regional Managers who are ineffective, improperly trained, and are living examples of the Peter Principle (“A person rises to the level of his own incompetence.”).  But whose fault is that?  Are you, as senior management, ready to continue to “point the finger”?  Or are you ready to take responsibility and “pull the thumb”?

Your Regional Managers should be the “glue” that holds your field sales group together, bridging the gap between your top management team, and your sales agencies and/or sales reps.  They implement strategy and organizational changes, keeping these second-party sellers engaged and informed during both good and bad economic cycles.

But have you properly prepared them for that responsibility?  Have you given them the tools to do a good job?  Do you incentivize them properly so they align with the company strategies and priorities?  Do they thoroughly understand their role within the organization, or do they think that being an RM is merely a rung on the ladder to somewhere else?

Based on both formal statistics — as well as casual feedback from clients — many companies are seeing significant turnover in their Regional Managers, and turnover creates an obstacle to proper field execution of strategy.  Wharton Executive Education Dean Thomas Colligan remarks, “Top management can spend all their time creating strategy, but without someone there to implement it, where are you at the end of the day?”

These observations were never more true than in our current business environment.  The “middle manager level” RM is the one who will continue to bear a significant portion of the pain that the current economic conditions bring.  In addition, as companies go thru economic cycles like the current one, RM’s also get hit with the elimination of rewards and incentives and — in some cases — layoffs.   “In cost-cutting times, knee-jerk reactions happen. There is a paradox where middle managers are essential, but end up sacked when restructuring occurs. It’s a rough situation because the people needed to run the most important projects are in the middle.”

The organizational changes edicted by executive management  may occur “above your pay grade,” but as a manager you need to nevertheless translate it to your team and sales partners while making them feel protected and valued.    This is a challenging situation for the best of managers.  Are yours comfortable that THEIR positions are secure?  Have they been properly informed of all the issues surrounding the shift in strategy?  Have they truly “bought into” the changes, or are they following orders?

Finally, there is the stereotypical situation in which middle managers have no authority but all of the accountability.  Are your field managers “trusted agents” or just viewed as low-level employees?  How much do you involve them in planning, and how much authority do you allow them to make decisions in the field?

Given the high cost of turnover and the importance of Regional Managers in implementing strategy and change:

• Individual incentive and development plans that are tied to (and connected with) your organization’s corporate goals and strategies.
• Access to training tools, educational opportunities, and corporate knowledge archives can play a large role in effectiveness as well as retention rates
• Access to coaching and mentoring
• Company social networking sites, discussion boards, wiki’s and blogs will help the RSM voice his opinion, as well as solicit feedback on issues he may be addressing in his region.
• Participation in the corporate planning process, allowing them to participate in a change decision, design, and implementation will lead to buy-in and ownership.
• Communication to engage midlevel managers in understanding a company’s new strategic initiatives…expressed in tangible terms of what is expected of them.

Are YOU doing the “right things” to assure that your RM’s are everything you want them to be…and everything they CAN be?  Take responsibility and “Pull the Thumb”…its good exercise.

“They can because they think they can.” — Virgil