I run a relatively simple business. I am a middle man, in wholesale distribution of heating, ventilation and air conditioning parts and equipment. We sell exclusively to tradesmen and facilities. It is a very competitive business (aren’t they all?) but I do pretty well all things considered. My vendors expect certain things out of me (market share, paying my bills on time) and I expect certain things out of them (good delivery, good pricing, leads, etc.). It really is a two way street. They need distribution, and I need their goods to mark up and make money on.
I have been doing this for eighteen years now, but was raised in the environment my whole life – this is what my father and mother have been doing ever since I can remember.
I tend to roam a lot. I am not a sit in the office guy; I like to watch the sales counter, check the fax, and I walk the warehouse a lot to make sure it is spic and span and to ensure that things are running smoothly. The other day I was greeted with this:
This costs me money. It is a photo of the back end of a semi containing a shipment of air filters from one of the largest filter manufacturers in the United States. This company is not my primary vendor for air filters, but I use them once in a while to fill in holes when my primary vendor can’t keep up, or if I get a request for this brand of filters. I was tempted to refuse the whole shipment, but we really needed the product, so the guys on the dock (and me) had to unload all of these by hand (75% of this semi trailer was for us). I never mind physical labor by the way – the exercise is good and it always helps to connect with the guys in the back – it sets a good example to see the owner unload a truck once in a while I think.
In contrast, when product arrives from my preferred vendor, the boxes are all shrink wrapped nicely, sorted, on skids so a standard pallet jack can slide them off the back of the trailer. An equivalent load from my preferred vendor takes approximately 10 minutes to unload – this load took approximately an hour. It tied up my dock and my men. Then afterward the product had to be sorted before check in, costing more time and money. Which vendor do you think I will be using in the future?
Where I am going with this seemingly minor story is that later this month I have a convention where store owners like me will be congregating in Chicago with the heads of our many vendors. I will bring this photo with me and when the inevitable question comes up from them (why don’t you buy more from us?) I will whip the photo out and say “that’s why”. As always, I will get puzzled looks from these very high up, important people. They will literally not know what to say – because they don’t know what it is. As I have done before a million times, I will have to explain that their warehouse crew and the methods that they ship product with are costing me money – good for them perhaps, but bad for me. The disconnect between president, marketing manager and warehouse will show itself yet again.
This scene gets repeated over and over again in my business – where the high up people in the company have absolutely no clue what is going on “down below” the food chain. I understand that companies are big and it isn’t necessarily the president’s job to monitor the shipping department. But this has happened time and again where I point out things to company heads and they are shocked – shocked – that things like that would happen at their world class company. An interesting trend I think and one that I hope slows down a bit.
Cross posted at LITGM.
A very interesting post. I think there are too many executives who think you can be a “strategist” without really understanding the operational side of the business, and, all too often, this point of view is reinforced by the biz schools.
Wavell has some thoughts which are relevant here. Also, George Westinghouse provides an interesting example of leading from the front.
Interesting links Mr. Foster, thank you for leaving them.
Thanks for the post. I teach a HS econ class and am going to use this as an example of efficiency and the thousand little things neccessary for wealth creation and economic growth
Be my guest Kurt, but please remember to give credit to this blog if you could. Thank you.
One thing that can help avoid the syndrome you describe is a strong sales organization. What should have happened is: you talk to your sales rep, show him the picture, and tell him about his low probablity of ever getting any future orders from your shop. He complains bitterly to his national sales manager, who goes to the VP of logistics and threatens him with malign consequences if this kind of thing keeps happening.
Too often, though, sales organizations are being reduced to unempowered script-readers.
One interesting point for your class, Kurt, might be a discussion of the role of sales organizations, which are often the primary communications channel *in* to the core organization as well as the other way around.
“…too many executives who think you can be a “strategist” without really understanding the operational side of the business…”
Reminds me of the brilliant Dilbert cartoon. The boss is sitting at his desk, looking at a screen, and saying “I can review all of our key metrics from my executive dashboard.” The key metric of “condition of our product when it is loaded on the truck and leaves the warehouse” cannot be reduced to a number, so it does not exist.
Management by walking around. You notice the dispatches from Iraq, that Petraeus is walking around, in the zones, in the districts, among the troops. A plan only survives one echelon in an organization if the boss is stuck behind a desk. Notice the difference in the results.
Get good people who you can trust and will empower to act in your absence. Then get out and walk around. That’s a big problem for too many who can’t or won’t release the literal or figurative reins of power. It feeds their existence. It’s part of their being, identity. Their organization will only survive as long as they do. Greater is he that can make an organization and be able to walk away from it, to see it succeed on its own.
Good point on the sales rep, David Foster. But here is the problem with this particular vendor – they just FIRED all of their outside sales reps, and now have four factory people to serve all of their accounts IN THE ENTIRE UNITED STATES OF AMERICA (including Guam and Puerto Rico). My rep stopped by before this last order went down and his territory was only 17 states. Unbelievably, this is one of the leading manufacturers of air filters in the country…for now.
“”¦for now.”
They will be praised in the business press for “slashing costs.” For a while … .
I think inside sales (telesales) can be very effective, particularly in this era of cheap, high-bandwidth communications…but you have to manage it like a real sales force, not like a bunch of clerical people. Unfortunately, the latter seems to be more common.
It’s not just your business. It’s the eternal struggle of large organizations. As an organization grows larger, the people at the top know less and less about the real world state of their organization. The greatest skill of a large organization manager/leader is their ability to accurately understand the true state of the organization at any given time. It is not a trivial task.
You can always tell someone who possesses little experience in large scale organizations by the degree of their assumption that the people at the top understand how things at the bottom (and everything in between) really work. A lot of the moralism directed at business comes from this fallacious model .
Kurt, Dan is being gracious. He gets all credit for this post, as do the other contributors here for their posts. The blog is merely a vehicle.
Peter Drucker has some thoughts which are relevant to this topic:
“Fifty years or more ago the Uncle Henry’s and the Charlie Kellsadts dominated; then it was necessary for Son Irvin to emphasize systems, principles, and abstractions. There was need to balance the overly perceptual with a little conceptual discipline. .. But now we again need the Uncle Henrys and Chralie Kellstadts. We have gone much too far toward dependence on untested quantification, toward symmetrical and purely formal models, toward argument from postulates rather than from experience, and toward moving from abstraction to abstraction without once touching the solid ground of concreteness.”
Whole excerpt here.
This is a tremendously important topic. You can’t run a large organization without using abstractions, but you also can’t run a large organization successfully unless you realize that the abstractions are only the shadows, not the reality itself.
The central problem is the lack of a reliable short-term feedback mechanism. This also happens in retail transactions as we are all aware. A faulty expensive item usually gets returned, though not always. A faulty inexpensive item often doesn’t get returned, because it’s too much trouble. Instead the buyer goes elsewhere for subsequent purchases. Unconditional guarantees don’t solve this problem, because with the hassle of returning merchandise the transaction quickly becomes negative-sum for the customer. Everyone has experience as a retail customer, yet the people who run retail sales operations don’t always seem to understand these issues.
The central problem is you gotta know the territory. I blame this on “management”. Not the people doing the management. The idea that there is an abstract thing called management completely dissociated from the business they’re in.
I can’t say I have a lot of experience in economics but a similar scenarios play out everywhere. I took a job with a locally owned pizza joint, and the owners only owned two restaurants but the had no clue at what was going on at either one of them. I hate to say it, but more and more people will do just the minimum so the people they have to answer to believe people are doing their job when they’re not. It’s people in the middle management who are dropping the ball and covering it up to their superiors. Until you chase one incident up the chain it will continue to cost everyone time and money
Dave S…I do think there are certain management skills which are fairly transferable across types of business. But the key is for the manager to have a certain amount of humility and not treat the conclusions drawn from his prior background as holy writ.
“The idea that there is an abstract thing called management completely dissociated from the business they’re in.” I think that that dogma is what people mean by “managerialism”.
My wife’s father recently retired as a very upper level manager in the computer industry. He’s an extraordinary guy in many ways, but one of his little habits fits in here.
He always ate lunch in the employee cafeteria, whether at the home office, or when he was out on the road visiting production plants or software producers. Anyone could sit down and talk to him, and he made it known that any employee had his ear if the subject was how to do things better. He sometimes commented on the flustered managers at some plant overseas who expected him to avoid the workers and want to go to a fancy restaurant or a private dining room.
One more anecdote. When he was asked to become the interim CEO of a small computer related firm after he retired—because the previous CEO had sudden health problems—he agreed to visit the city where the main office was, and check out the situation. When he arrived at the airport, he was met by a limo. His first comment when he arrived at the business was to the admin person in charge of that arrangement—he requested a member of the technical service unit meet him in a company car from then on, and that one of those cars be made available when he was at the main office.
We met him for lunch and dinner a few times. The car was a Ford Taurus, obviously a few years old. He complained they had planned to lease him a Cadillac, and he had to quash that idea, too.
Anyway, he had that position for about 18 months, while he conducted interviews for a new, fulltime CEO. The stock price and earnings numbers were up about 50% by the time he left.
I’m sure he would appreciate and approve of the comment in the original post about managers needing to unload a truck once on a while. That’s just his style, and some variation of that attitude is desparately needed in many private and public organizations today.
Management by walking around. You notice the dispatches from Iraq, that Petraeus is walking around, in the zones, in the districts, among the troops. A plan only survives one echelon in an organization if the boss is stuck behind a desk. Notice the difference in the results.
General Al Gray – USMC Commandant 1987-1991 – was famous for this. He’d wake up in the morning in D.C. clear his appointment book and tell his pilot ‘let’s go’. Next thing the lifers at Cherry Point know he’s eating lunch at the enlisted mess hall, walking the flight line, poking his nose into work spaces, asking questions and caring about the answers.
Famously he got results. The enlisted guys ate it up. His command style is a major reason I re-enlisted. MBWA works.
Dan and Jonathan;
Of course I’ll give credit where credit is due. I’ve already alerted my students to chicagoboyz.net as a source for business and economic information. Thanks for the good work and please keep it up.
Kurt, you are a rare and special teacher to refer your students to sources such as Chicago Boyz. Hats off to you.