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Better Branches: A Change Has Got To Come

Sept. 25, 2014
“You’ve got a gift, Roy, but it’s not enough. You have to DEVELOP it.” — Roy Hobbs’ father to young Roy in “The Natural” Read Part One of Better Branches: "Better Branches Make Better Brands"

Synopsis: Qualified people are harder and harder to find. Even if they weren’t, finding good people is not good enough. Like a good sports team, top management needs to make personnel development the engine of sustaining a great competitive team over time. First, however, top management needs to overcome its own fears and short-term reward systems that hold back long-term investment in people.

Since last month’s article, we’ve received a few phone calls telling us that we hit the nail on the head defining an industry-wide issue: how do you get uniform performance for the customer while maximizing sales, share and profit in your branches? 

Callers also recognized their companies viewed branches as “harvesting stations” and that branches were “exploited” rather than fed and invested in by the corporate office. With 55% or more of operating costs in people expense, the core asset in distribution is people. Most organizations try to find qualified people and simply plug them in with little company training. As consultants, one of the most frustrating things we’ve heard from department managers over the years when they don’t want to do the hard work of process definition is, “Just get good people and let them do their job.”

Another attitude we discern is, “Why should I document what I know how to do?” The latter stems from an internally competitive individual that would prefer to maximize their own value to the company at the expense of the company’s future prospects. You can’t afford these kinds of people anymore.

Your attitude toward branches and personnel development has to change.

What if an NFL team took the attitude of just hiring good people and letting them do their job? Wouldn’t that imply you don’t need to apply leadership in developing a team strategy? What if a team never developed a playbook that was competitively positioned to win? What if they never reacted to changes in league rules? What if they just did what everyone else in the league did? What if they never developed and maintained a depth chart by position? Would they be able to execute well? Would they be able to sustain injuries, losses and retirements? We think you know what would happen. For distribution, just like a sports team, it’s a question of commitment to a system of doing things. That’s what sports teams mean when they talk about their “system.”

Qualified personnel are getting harder and harder to find, and besides, if you hired somebody from a competitor or another distributor from out of town, they still do things differently and you don’t get uniform performance for the customer.

Toward the end of the calls, our callers shifted to asking us what we are up to with this effort. To be honest, we’re not exactly sure yet. But it is headed in the following direction: Stimulating change.

Changes That Have To Come

You need to change your view of branches from “harvesting stations” to “orchards” that need feeding and watering in order to yield a bumper crop of fruit.

The shortage of qualified personnel isn’t going to fix itself. You are going to have to grow your own. And they won’t bear fruit right away.

Your Human Resources department will need to greatly expand beyond an administrative function to a true personnel development function. This includes writing development plans for each position type and each employee and tracking progress of each employee. Development plans detail skills to be developed and courses to be completed. HR should also develop succession plans with at least two candidates for each key position.

It’s important to cultivate your branches as orchards rather than exploiting them as “harvesting stations.” [Artisticco LLC/iStock/Thinkstock]

You need a bench of people that you can plug in where needed. So you’re going to have to write a development plan to promote your company to prospective new employees and budget for these people even though they are not earning revenues yet.

The lack of standardized work instructions to which everyone conforms won’t fix itself. You need to put someone in charge of Process Quality and conformance. They will need to work with all departments to develop the material. And they will need to travel. You might have to install regional experts that are disciples of the corporate guru. Just like a good farm system in baseball.

Where’s the ROI?

We can hear the wheels turning in all the distributor executives’ minds as they think about all of this. “How will I get a return on this? “When?” What if I invest in personnel development and people just leave me later?

Those are good questions, so let us offer this as an explanation:

1. None of you will get an ROI the first year. You will just about get started.

2. The ROI will behave more like a hockey stick. Negative returns at first, then sudden and spectacular returns 3 years out and beyond.

3. If you examined the chart from our last article, your returns will come from:

                a.            Better sales and marketing practices focused on
                                penetrating markets and accounts with more
                                intelligent pricing and higher gross margin rates.

                b.            Better customer service that creates customer
                                preference, larger average orders and higher gross
                                profit per order.

                c.             Better management of the operating statement,
                                asset turns and logistical efficiencies. These will
                                reduce the average cost per transaction.

                d.            Growing sales that carry larger gross profit dollars
                                and lower transaction costs per order will grow
                                the rate of profitability and total profits.

4. To achieve the benefits in point 3, you need to create a corporate function that educates people how to create the kind of performance you want. You can’t leave it up to the branches and regions to find their own way.

5. If you think the people you invest in will leave you, you need to do two things.

                a.            Do everything you can within reason to make
                                your company the best company to work for. Make
                                your employees first and they will make the
                                customer first.

                b.            Create, enhance and promote a profit-sharing plan
                                that accents growth and profitability. Competitors
                                are less likely to do this.

                c.             If you have one already, make it better and make
                                sure people understand it. Most personnel cannot
                                figure out how much money they will make on the
                                profit sharing plan. You must continuously
                                remind them of how the math works and what
                                their role is in maximizing company results.

Rallying The Management Team

We’ve seen many organizations stack people that are “senior” in corporate offices. They are later in their careers and want to maximize their income. Their bonuses are tied to company performance in the short run. They don’t want to “invest” for a couple of years if it will hurt their bonuses. So they will resist investing in a true personnel development function. They would prefer to punt to industry organizations to serve up the training required and leave it at that. That is not going to do the job and it is going to get harder and harder to push the rock up the hill with fewer available qualified people. We submit that if you want to be in control of your future, take control of the future of the people in it.

If a family closely holds the organization, the same phenomenon can exist. Owners don’t want to invest in long-term investments.

We recall a management team from a major corporation holding a meeting of its top 50 executives. A couple of market segment teams presented their market development plans and investment needs. The president told them to pass the hat to their peers in the room, meaning other departments would have to give up budget money to fund the projects. This kind of thing ends up watering down the efforts and creates division among the departments. “Marketing is always looking to spend our money foolishly.” “Sales is always looking to add people.” Where is the budget for personnel development, training and process quality? If it doesn’t exist, top management should have created it in the first place. But, alas, everyone evolved into a branch organization, and hardly any envisioned the need for a true personnel development function.

If you are like this, you might be number one in your market. The number one enemy of number one is complacency and greed. Over time, you need to worry about a competitor doing a much better job of personnel development. Defensive strategy is for leaders. Defensive strategy requires looking at yourself like you are the competitor you want to attack. You attack yourself right where you are weak. And that weakness often is something you need to add to extend your lead, but fail to seize. If you know that something is coming in the future that you will have to face, address it NOW. And if you fit the mold we are describing, you are weak because you won’t invest in the number one strength needed to compete: competent personnel who perform things in a uniform way to accomplish a standard, considering that standard may even need to change as customers and competitors change.

So, you need to rally the management team to realize what you need to do to advance into the future TOGETHER. That takes recognizing the problems facing your future and committing to the path forward.