More from Dr. Michael Workman

Texas A&M's industrial distribution program is celebrating its 50th anniversary this year. "We've been preparing folks to enter your industry on purpose," Workman cracked. The majority, "except those who ruin their lives by going on to law school," wind up working in distribution channels in industrial products. " One of my favorite philosophers," Workman said, "is Yogi Berra." "It's tough to make predictions, especially about the future," he quoted Yogi as saying. "The structure of the industry determines the profitability of the average competitor." There are two channels in every industry we study: a distribution channel and an information  channel. These channels are becoming separate. It is harder and harder to maintain a hierarchy where the product drives the process. The process drives the product. The cost of buying has gotten totally out of sight in the past ten or fifteen years. A hierarchicallly based channel is in a lot of trouble in most markets. A hyperarchy-based channel is probably the better answer for most markets. "Don't expect me to have any answers," Workman said. "I only do questions. I just stirr this [bleep] up and then leave." There's lots of "channel gossip." People are now looking to buy distribution in various forms. These numbers are going up again. "I saw two companies sell last month for 22 times EBITA and they didn't have anything to sell but a customer list and the ability to hold onto its employees..." Problems include succession plans, strategic positioning, pricing optimization, mass tort litigation. There will be more consolidation in customers and suppliers than in the distribution channel. Private label products produce serious litigation issues. Attorneys want you to pay them $100,000 to NOT sue you. Pull Marketing (demand driven channels) is coming on strong. New profit models are appearing, like "pay for performance." Customers are becoming connected, more than ever. The connectivity is often used to price shop more effectively. The concept of international accounts, "pretty much sucks canal water," because I can't get consistency across any industrial distribution chain. It's okay for buyers to lock the door and decide what they are going to pay, but as sellers, we can't do that, "and the Feds don't take a joke, either." Traditional distribution isn't. We are completely in flux in the way we go to market. Successful companies focus on demand creation or demand fulfillment. Customers want to separate those as fast as they can, so they can focus on what they want, and then drive the commoditization process. The illusive currency is information management. In the 1990s, Davis and Botkin wrote, "The Monster Under the Bed." This talks about the utilization of type 2 technology. We have not been able to maximize and optimize the kind of technology that works, the smart technology that is the "why-driven" technology. Three things always determine what technologies drive your life: sex drugs and rock-n-roll. Loyalty based relationships are pretty much dead. Performance drives relationships. All profit dollars are not created equal. "I saw the 1929 program for the 'rope soap and dope' general line distributors: they were worried about declining margins, finding good people and having good relations with their suppliers. We sure have come a long way," Workman cracked. The concept of win-win in negotiation is dead and starting to smell bad. Partnering is dead. Keep your left hand on your wallet, and keep your mind concentrated on how do I get out of this. <b>Collaborative Environments</b>  What do we find in industries that have moved to collaborative environments? Never lose sight of the fact that this is an economic relationship. "Common Sense Economics" is the best book of the year. I strongly recommend that you read it. We don't teach people to think anymore...we have evolved into a training society not a teaching society. IT is not about training, it is about education. When you get off the what and how, and get to the why part, it becomes easier to figure out what we're doing here. We are moving toward voluntary self organizing communities. If you can align two of the three cultures you can align in a company, you win. We are moving hierarchies (structure) to hyperarchies (what you can do, not who you are). Authority and accountability have moved to currencies and availability. There is also a new work ethic-- employability. The two things that bother me the most about your industry, Workman opined, is the lack of succession planning, and lack of control over the sales channel. "If I go to work for you, what are you going to do to make me more employable?" The old school answer is say, what? Intrinsic motivation is more valuable than extrinsic motivation. Shared knowledge--> shared tools. The value isn't in stored knowledge. Knowledge has no value unless it is being transferred. The only substitute for inventory is information. <b>Hyperarchies</b> They are individual pieces, loosely joined, and structurally invisible. There is a community of trust (where trust is a currency--reputation is a source of power.) Modular Thinking-- not linear thinking...it is about the answer, well no, it is about the question...but nobody cares about the question. Solutions are not the same...it is about ad hoc solutions. Rethink: distribution, custoemrs, suppliers, providers, goals, metrics, rewards. Internal goals are OPERATIONAL. External goals are STRATEGIC. If people don't have the mindset that sharing information is good, then it doesn't matter what technology does. If the organization that has the culture of sharing information then technology enhances the process. If that culture does not exist, technology will only contribute to frustration. Highest predictors of Business Failure: declining margins, increasing people costs, and increasing sales volume, all in concert. It is an out of control business and it cannot live very long. Drivers of declining margins:
  • inconsistent pricing
  • buyers for customers, versus selling
  • chasing market share or margin
  • internal vs external focus
  • rebate mania
  • high service costs
  • re-distribution
  • bottom line management
I can only run a business if I am chasing net contribution. Pre-bate is replacing rebates. "I will pay you to grow this market." The cost of re-distribution is huge. Chasing the bottom line is as bad as chasing market share. <b>Why companies and alliances fail:</b>
  • failure to see OR respond to change
  • adverse conditions, markets, customers
  • rising cost structurepoor internal control
  • lack of follow through
  • chasing big opportunities
  • lack of focus on common goals
  • irrelevant goals for the players
You have to figure out the dots on the horizon... "Every time I look inside an organization, I find that the people inside the system know who and what the problem is, and they don't do anything to fix it." "What is the most important thing you get from the channel?" "Access to somebody who knows, and will share the information!" Price is a numerical way of expressing value!!!! The value you create has to be greater than the price you are charging for it. Think about the value of time. Time is not linear. Time travels a lot faster if you are standing waiting for your turn in the bathroom. Time AB is selling time. Time BC is process time. Time BC is critical to what you do in the future. No plan of war ever survives its first encounter with the enemy. Channel Conflict is working at cross purposes, for goals, roles, and poor communications. If I can align suppliers' wants, distributors' wants, and customers' wants, or any two of them, I can control the channel. Longevity in business is the result of leveraging differences. NEVER align yourself with someone who's good at what you are.