MOST CONCERNS ARE PARTIALLY CORRECT; PUT THEM IN A BIGGER PICTURE
Most concerns about LIPA ranking results contain elements of truth that can still be honored within the context of a bigger framework and updated guiding assumptions. Think of the story about the five blind experts arguing over the essence of an elephant by only touching one part of the animal: tusk – weapon, ear – fan, side – wall, tail – snake and leg – tree. If we look at all of the math-facts in channel buy-sell processes, our partially-informed, financial-statement judgments get an IQ boost.
Once we see the entire elephant (or buy-sell math and stats) how can it move and live best? How are we and our customers adapting constantly to the changing environmental conditions? Who is continuously improving and adapting the buy-sell process flow of goods between us and our customers? Right now we mostly have Silo Reps, measured on GM$s and GM%, selling to Silo Buyers over-focused on PRICE SAVINGS.
What is happening to our buy-sell processes over the dimension of time? You may do, for example, year-over-year financial comparisons, but the ups and downs in the numbers are symptoms of what underlying, key customer decisions about you versus competitors? Why not rank customers’ year-over-year, net-profit variances?
When you do, be prepared for big shocking variances within both the top and bottom 10 to 20 accounts. Even more amazing, no one from Reps to the CEO has specific explanations for why most of the big ups and downs have happened. LIPA Management will get the entire team proactively focused on key accounts pitching big new supply-chain savings for all of next year. Then, a year from now, there will be specific reasons for the big, positive, customer variances that will make the financial symptom numbers leap in year-over-year comparisons.
How do we take the 39+ concerns and reframe them into good elephant customer stories? We don’t want to be like the blind men squabbling over their one Silo metric or notion. Enriching all stakeholders is not about debating who is right or wrong or picking one narrow view over another. We want to find big-picture, new solutions that can make a big difference for all four stakeholder groups: employees, customers, suppliers and shareholders.
Many of the 39+ concerns are derived from conventional, industry-beliefs (or “mental models” for reality) that did work better in the rising-tide, growth-stage of the industry’s life-cycle (and the US’ consumer economy from ’48 to ’66 when GDP tripled in real terms). If your channel is now in a mature, consolidating, life-cycle stage, then the buying needs of customers with a future have changed. Change to meet the best customers’ needs or die with the customers who aren’t changing and want to buy the Old Way.
To thoroughly and consciously update everyone’s success assumptions (not just yours), watch the following YouTube clips:
- Our Life Cycle Thinking YT 2: 1
- Length of different Life-Cycles YT 2:2
- Make the right, big, timely Change for Big ROI YT 2: 3
- Key Dates for “Supply-Chain” Buying YT 2: 4
- Different Types of Innovation for Different Life-Cycle Stages YT 2: 5
If your company has lost customers to “integrated supply” distributors or bigger, more progressive customers are making noises about wanting “supply chain solutions” to get the products to and through their business at the lowest “total procurement cost” (TPC) with maximum ”uptime-productivity” see:
- Levels of “VP of Supply Chain” Objectives YT 1: 11
- Supply Chain Case Studies v. Sophistication + Win-Win YT 9: 15
- How Service Metrics lower different elements of TPC YT 1: 12
- (Continuation of) Service Metrics lowering TPC YT 1: 13
- TPC Blind Spots YT 1: 14
- TPC Price-Traps Tradeoff Names YT 1:15
- How Distributor Hub Economics Lower TPC at a higher Price YT 1: 16
- Up-Time ratio for Contractors YT 1: 29; YT 9: 45
- How to help/teach Contractors to Improve Up-Time YT 9: 46-55
Bottom Line: are your beliefs and sales force skills in tune with today’s life-cycle needs of your key customers? Are your executives and key-account reps sufficiently equipped and fluent for supply-chain-math and service-value-chain solution conversations and co-created improvements?
DEFUSE FEARS FIRST, TEACH NEW-LOGIC SECOND
Many of the 39+ concerns are only semi-rational, because they also spring from underlying personal fears. Different people will worry, more or less, that LIPA information and ideas are crazy out of fear for their:
- Job security;
- Income; and/or…
- Expertise/Leadership credibility.
Defuse fears first to calm and open minds for new-learning to get through the conceive-believe-achieve hurdles.
COGNITIVE BIASES; RECRUITING NEW TALENT; AND GARDENING PRINCIPLES
Mixed in with fears are human, “cognitive biases” (ref: Wikipedia). These are thinking biases that had evolutionary benefits for hunter-gathers, but make us predictably irrational when trying to cope with modern-day, complex-system choices.
A big bias that affects all “change” options, for example, is “Loss Aversion”. Comfortably-fixed humans are wired to be twice as fearful about losing a dollar as they are ambitious to get another one. Most veteran distributor executives and reps are, therefore, playing not to lose (freeze/flight response from our amygdala) as opposed to focusing on the upside of winning more (fight response). (The aphorism – “A bird in the hand is worth two in the bush” – has now been scientifically proven. But, the upside of LIPA Management is many more birds than two in the bush that won’t fly away.)
Who will “play to win” with your LIPA Management information? Recent Supply-Chain graduates? Students are majoring in “supply chain studies” at many colleges today, and newly minted graduates don’t have anything to lose. With student loan debt, they need to play to win. They want to find some real-world applications for what they been taught: how the biggest, most-successful, global companies have been steam-rolling competitors with supply-chain innovation advantages. They can easily embrace LIPA, supply-chain-math without any Old Beliefs to hinder them.
But, most distributors don’t have what it takes to hire and keep a Supply-Chain Kid. Do you have: a compelling upside-growth vision; supply-chain-math tools and plays to pursue; and collaborative access to your biggest, most ambitious accounts that want to co-create next-level buying processes? If your sales force averages 50+ in years; sits on all of the big accounts; and wants total control to sell as they did in 1990, then you’ve got a recruiting problem. And, your company’s future is darkening.
Another test for your company’s bias towards loss-aversion is to see if you can sell the troops on applying gardening beliefs/methods to your customer-garden. We all understand (and believe?) that weeding a garden will allow more local, soil nutrients to be available to the roots of what we are trying to grow. We also readily understand and believe that: if we prune a bush, then the fixed, flow of root nutrients will immediately flow to the remaining, better parts of the bush which will then grow better. Do all of your employees believe that – “weed to feed” and “prune to grow” – will work for your bush of customers? Who on your team honestly believes (or disbelieves) that:
- Your company can grow sales and profits faster by selling fewer, best customers more effectively than what you are presently doing!
- By doing so, EVERY company stakeholder will do better! This is what happened in three out of three distributor case studies cited in Chapter One.
- With faith in LIPA Management upside wins, can you boldly guarantee all key, best employees upfront that they will have: job security; no downside income risk; and much better odds of growing incentive income based on growth in net profit?
Is your own loss-aversion still holding you back from offering income guarantees for best players who are still spooked about LIPA Management ideas? If so, keep reading for more courage!
EXPECT – UNIVERSAL, GENERAL, MATH-FREE, AWFULIZED – STATEMENTS
Many of the 39+ stated concerns are math-free beliefs…. “Our costs are all fixed right now. We have slack to take a few more orders without any or much over time, etc.” Really?! Where’s the math to support these beliefs?
With detailed CTS information for each customer and groups of customers, powerful new insights are possible. The Old Beliefs are not going to like mathematical, factual contradictions. Patient, persistent and kind educational repetition will reshape those Old Beliefs. (Rules of “5-7 and “1-10”: YT 3: 32)
Assumptions are also stated in the universal/general “ALL” mode. All of… our reps (suppliers) won’t like this… (all) little customers (acorns) grow into big ones (oak trees). Everyone will think I/We are crazy. The key for getting by UNIVERSAL/ALL concerns is to sort the universal group into “great-OK-weak” piles and cross-check them with LIPA information. Then, solve each sub-set of “all” in an appropriate way (examples later).
And, finally assumptions are awfulized. “Everyone in and out of the company will: think we are crazy; hate this; retaliate; etc.” If we poke entrenched beliefs with new facts that provoke anxieties, universal, awful statements will emerge. Again, it is helpful to point out that there will be a range of reactions (1 to 10) from any (universal) group of humans. How many of us would, for example, be offended by and switch business from a long-time supplier-friend who invited us to look at some new channel math to see if we can find some win-win opportunities to experiment with?
In sum, our challenge is to deal with: (1) dated beliefs supported by (2) no real CTS math; infused with (3) personal fears and (4) cognitive biases; and then applied (5) universally with (6) anxious awfulization. How will we teach our way to group buy-in?
SOME TEACHING GUIDELINES
Defuse fears with guarantees, baby-steps and robust, repetitive education. Giving a one-time, rational answer to one of the 39 concerns will not cure a person’s anxieties. If you buy into the huge upside possibilities of LIPA Management, then there will be big productivity and profits to share with everyone. You can underwrite their perceived risks with financial guarantees. Give the best players (especially reps) guaranteed W-2 salaries going forward with only upside incentives (on “net-profit growth”) to come. AND, you can assure everyone that any new actions will start with learn-by-doing, no-risk, baby steps. LIPA tools allow you to experiment one, best – customer, Rep, branch, supplier, etc. – at a time.
Help incumbent managers to “save face”. They will be defensive about having to lead – what now appear to be – net-profit, losing initiatives. And, they will feel insecure about not having “New” answers, expertise, and skills for employee needs. What are face-saving steps? (1) Name the fears. (2) Accept them as normal human reactions. (3) Take personal shared-responsibility for past decisions. (4) Point out that you and all managers don’t have to regret doing the best you could with the limited past information that you had. (5) Forgive everyone (yourself first), so we can focus all energies and can-do spirit on the opportunities at hand to move forward.
A Sample, Save-Face, All-Forgiven Speech:
“From me (the CEO?) on down, there are no bad guys here. We have all worked hard in the past to do the best that we could with the information we had. With breakthrough LIPA insights, we get a one-time opportunity to turn hidden, channel, activity-waste into win-win benefits for our customers and ourselves. But, we have to seize this one-time windfall before our competitors see it and get there first.
Since no one in our marketplace has done these things and few in any distribution channel have, there is no detailed road-map or how-to cook-book for how to specifically proceed. And, if there were, we would be too late to the opportunity to gain anything.
But, we do have lots of educational support from the APIC community. And, with LIPA information we can design – small, low-risk, high-gain, high-learn-by-doing – experiments. We will all learn together from these experiments and pick up speed and courage as fast as we choose.
And, our old financial efficiency and sales volume beliefs are not wrong. We will still strive for efficiency and sales growth, but in more strategically-effective, focused ways. We will grow volume by growing our share of the big, best-customers’, total spend. They will want to maximize their new, supply-chain productivity that we co-create with them.
Growing-nowhere Minnow accounts that are currently losers is a different challenge. Right now we have a people-intensive, service-model that totals more service costs than the GM$s coming in from the typical Minnow. We will have to unilaterally reduce service costs and/or raise prices/terms.
Some of these Minnow are good friends who we see and visit with a lot (too much it now economically appears). And, no one likes to have their services reduced and prices raised. Our best Minnow friends will not be happy with us which will be stressful.
But, here is what is at stake for all of you. How many of you would like to donate pay-deductions to help finance the losses we would continue to incur if we don’t change our service model for (best-pal) Minnows? No need to volunteer, you already have! The losses we incur from over-servicing and under-pricing Minnows reduces company profits that don’t get reinvested into: company growth; your job future; and a gain-sharing bonus we would like everyone to earn going forward. If we can grow profits above a minimal survival target level, a big portion of extra profits will go into a gain-sharing bonus for all. Solving our Minnow loss problem is key to more pay for all.
Other distributors in many channels have figured out how to solve the Minnow problem, and their stories are on video clips that we can watch and discuss. We will get through this problem and many of our Minnow customers will adjust and stay with us on a profitable basis going forward. Our gain-sharing bonus pool will grow as a result.
And, in general, we will not abandon any of our old core values. We will blend both our old beliefs and values with the new LIPA insights. We won’t have false choices and fights between: old ways and new ways, who’s right and who’s wrong. Both old and new can be blended together to achieve more creative and profitable accomplishments that will reward all company stakeholder groups. FINITO!
Next, be prepared to explain things “5 to 7 times”. I’m a big believer in the “rules of 5-7 and 1-10”. Most people need to hear variations on a new idea 5 to 7 times to truly get it and retain it. And, more practice is necessary to be able to teach or sell the idea forward to others.
(See: YT 3: 32; and YT 5: 62).
ON TO THE DISCUSSION NOTE FOR THE 39+ CONCERNS.