Efficiency Versus Effectiveness
If efficiency is doing things right, and effectiveness is doing the right things (Drucker), then what are your existing most “right things”? Find out with a customer profitability ranking. Your most net-profitable accounts qualify as your best “right things”. So, why not assign a crack team to research how to take the most profitable customers and the best customer niches to the next level?
Are you and your colleagues currently too busy to spearhead new solutions for either super-winners or losers? You can google “Cult of Busyness” to address personal psychological issues.
Analytics helps you investigate how your company can get less busy overall in order to reinvest slack into your best accounts. What are your measurable wheel-spinners?
Typical Distributor Busyness Stats
When first subscribing to WayPoint Analytics, the typical distributor finds the following:
- 70% of all line-item events are unprofitable
- 60-70% of all orders are unprofitable
- 70% of all customers are unprofitable
- 50% of unprofitable customers are small accounts yielding 5% of gross profit dollars on 20% of invoices
- The bottom tenth of the smalls yield 0% of gross profit on 8% of all transactions
- Direct business is typically high-profit, low work (a bright spot!)
- Counter sales, typically small accounts, are cumulatively high-loss, high-work traps
You may be busy growing sales, but if you grow sales by 10%,are you just growing losing activity by 10%? Growing sales with declining profits is common and not effective.
Try Bright-Spot Management
Because humans don’t want to acknowledge unprofitable dumb stuff, we rationalize, making even losing activity and customers good. But, we also love to share the credit and pride for best stuff. An “Affirmative Inquiry” suggests:
- Freeze headcount
- Start measuring both gross profit and net profit per head
- Investigate with a team and deliver for best accounts (Bright Spots)
- Boost fulfillment activity by winning more share of the best accounts
- Don’t hire more people. Instead, gather the courage to fix losing accounts
- Start by experimenting with the worst 10 minnows
- Watch gross profit per head climb and profits per head soar
This seven-step recipe is discomforting to first timers. Many will revert to busyness. Pursuing efficiency is easier, because it’s fine-tuning what we already do and know.
Effectiveness requires innovation and failing-forward towards the vision. Honchos like being experienced experts. Who wants to be a lead learner who must experiment and fail forward to discover new effectiveness?
For more know-how and courage, check out these two resources: