Wednesday, December 10, 2008

Carefully Moving Into Troubled Water – Part II – Growth By Checking-the-Box

Growing revenue should be easy – the less you know about service-parts the better for this, your sense of confidence, and self esteem. On page 48 of our firm’s Handbook for the Recently Hired, we have the first of five “Laws of Surprises.” “Surprise Law #1: If our client’s organization was capable of making all the blunders that we uncover during a superficial analysis, it would have been bankrupt years ago.” This law is all about thinking and not taking things at face value.

Last week we looked at some of the findings from our recent OEM Aftersales Business Pulse survey – 15 OEMs participated (one OEM’s responses were incomplete.) Our Business Pulse survey asked about 100 questions that should allow us to connect the dots between unit sales metrics and growth processes & initiatives. One survey section unearthed the numbers for sales and unit growth, and several others sections inventoried each OEM’s processes and initiatives. Theory would say that OEMs who checked-the-boxes for having the most initiatives should, also, exhibit the most growth. No such luck. What’s going on?

In 1992, when we pulled together the first gathering of the North American Service Parts Conference (NASPC), most companies felt pretty good about how they’d chin up to their peers. Confidence was in abundance; some attended simply out of arrogant curiosity. A few executives came because their planners fooled them. The first conference was all about the effective use of labor and processes to achieve measurable and comparable labor efficiencies. The conference was held on the West Coast and focused on facility visits the first day and roundtable discussions the second day. Toyota led off with the facility visits and made everybody else (except their folks) feel uncomfortable. Toyota’s numbers were the best of the group, their labor force seemed proud and happy, and their processes made complete sense. We moved on from Toyota. The next facility we went to was surrounded by razor wire and looked like a cave for growing mushrooms. The numbers were horrible. The third facility was not air conditioned and consisted of two floors, with 80% of the work performed on the second floor inferno. Their numbers looked like someone made a mistake and dropped a zero. Before that day, the razor wire and inferno process managers had all mentally checked-the-boxes and were pretty sure they were near best-in-class. Growth Law #1: To achieve growth don’t check-the-boxes on things you do without examining the efficacy of your efforts.

So, why does the growth chart look like a scatter plot? First off, if you are a company with any amount of market maturity, you seek to grow in areas where you have the lowest market share. Auto guys pass over collision sales, and look to M&R and accessories. Powertrain is too painful to wrestle with. CE & Ag don’t have much of any collision business to fret over, but they do have implements and M&R parts. Truck has the most complex set of growth problems to solve, pretty much since they deal with brilliant buyers. Regardless, it makes sense that everybody goes after lost share for the lion’s share of unit growth.

Let’s just focus on accessories (and next week service retention) because we pretty much know why share here is so low. So, why don’t customers buy accessories from dealers? There are lots of reasons, but the second most important one is that the salesperson, in the showroom, does not offer them for sale. Kids would now say, “Duh?” OK, now how would we characterize OEM strategies for selling accessories? Heavy duty programs focused on the supply chain that gets accessories to the parts manager, who typically is not involved in the sale to the end-customer. It’s all about turf and comfortable ground to play on. Coupled with these heavy duty programs are light duty (and very expensive) check-the-box activities to be accomplished by the field organization, trainers, or the dealers on their home turf. Think of razor wire and infernos.

Here’s our favorite. When customers were asked what most influenced them to buy accessories from the dealer, the top influencer was sales literature/brochures (top choices ranked by what they ended up spending). However, we must caution you, few dealers used any of these. Customer ranked the most useful dealer sales tool as being a simple price sheet. Here’s what we found when we connected some dots: for one of the OEMs, the accessory brochure was still not available 10 months after the new model year, and for all but Scion, price sheets were entirely within the dealer’s domain. How often do aftersales executives check-the-boxes for simple stuff like this? Growth Law #2: To achieve growth, don’t be complacent about process efficacy outside traditional aftersales turf.

By the way, beyond this simple stuff (think razor wire and infernos), too often we rely on traditional methods of change that other parts of our organizations have effectively destroyed. Carlisle & Company does a lot of work with dealer trainers for strategic program implementation. Some clients really hate their dealer trainers because the trainers lack skill, listening skills, innovation, and flexibility. Some think that the last creative dealer training program was probably done in the ‘50s for Hudson. So, they complain to us and we get hired for oversight of dealer training program management. What really happened here? In the 1990s, OEM purchasing organizations figured out how to negotiate multi-million dollar training contracts that cut costs to the bone and saved millions of dollars. This had an unintended consequence: what they did was cut out the required investment for thought, learning, and innovation. Many surviving training companies simply re-packaged old stuff (that never really worked all that well) with new fonts for new problems. Training their contract trainer staff in an entirely new curriculum was negotiated away. If this is news to you, you might be checking-the-box. Growth Law #3: To achieve growth, focus on your commonsense business processes - they may have unintended consequences.

Now, back to the scatter plot. We suspect that some OEMs are missing opportunities for growth while others are wasting resources on unproductive initiatives. Waste? To summarize, three things are getting in the way of growth for many OEMs: (1) they check-the-boxes on things they do to achieve growth but do not examine the efficacy of their efforts, (2) they are too complacent about process efficacy outside traditional aftersales turf, and (3) some of their commonsense business processes have unintended consequences. Razor wire and infernos.

There is a final, fourth law of growth. Honda is perhaps the most magnificant example of a company that is run by a simple guiding light. It is called the 3 Joys ( the joy of producing, the joy of selling, and the joy of buying. Growth Law #4: You can only get joy from something you do well. In a recession where efficiency and cash flow are king and queen, it might be productive to pare back to what you can do really well. You might save some money and improve your results.

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