www.randymaclean.com Randy MacLean

Five Ways Managers Kill Performance (and Sometimes, Companies)

Randy MacLean

Many managers are still using outdated and ineffective ideas and methods that can limit, or even eliminate their ability to deliver great results. Be sure you're not doing the same.

Using One-Size-Fits-All Metrics

Many companies are still operating with systems that provide little insight into the profit nature of particular deals or orders. In these environments, managers most often resort to single-point or "rule of thumb" measures to gauge and drive performance. Because the underlying business may have elements with wide volume variances, and because the cost structures of various elements is largely unknown, none of the traditional sales metrics are useful for anything but a fraction of the activity being managed. For instance, most wholesale organizations use gross margin as the primary sales metric where, say, 22% is the desired point. In reality, 9% margin may provide excellent returns on certain high-volume low-cost business, while 30% is nowhere near enough to cover the costs at the other end of the spectrum. These organizations are much better served by tailoring margin targets according to the cost structures that accompany the underlying business.

The single-point target has the organization missing opportunities where lower margins are viable, while attracting business where high transactional costs overwhelm the target margins. Both situations cause losses for the company, and act to preserve poor profit performance.

Takeaway: Obtain or develop a system that tracks the cost structures associated with every account and product line, and set margins on a granular basis to ensure profitability at all levels of transactional cost.

Not Prioritizing Profit Performance

Too often, managers are mired in complex tactics associated with activities not directly related to profit performance. Organizations frequently lose sight of the fact that bottom-line profit pays for everything, and pursue objectives that are, at best, only loosely connected with profitability.

Winners are relentlessly focused on the bottom line and work back to the inputs, being sure of the actual profit impact of each step.

Top companies are now using NBC (Net before Compensation) as their primary metric. (NBC can be calculated by subtracting cost of goods and all operating expenses, except for customer-facing sales compensation, from revenue. Or, take bottom-line profit and add back in the sales compensation. NBC indicates how much profit is made in the territories — after paying for the product and the costs of delivering it to the customer. NBC is the territory profit that will be split between the sales force and the company.)

Takeaway: Switch to NBC as your company's main sales management metric. This will ensure that both gross profit and operating costs are included when evaluating the profitability of any piece of business. Companies adopting this practice tend to be the leaders in their markets.

Over Emphasizing Top-Line Growth

At the end of every period of market expansion, companies become accustomed to the benefits of a growth environment. Continual revenue and volume increases mask low attainment of internal efficiencies, and even poor management decisions. When the music stops, oversized and inefficient infrastructure turn profits around in a hurry, and can impose very painful decisions on the company's management.

The first reaction is to restore the glory days by finding new top-line growth. This frequently results in the accumulation of dysfunctional money-losing accounts, which tend to accelerate costs faster than they accelerate revenue.

Smart companies focus, instead, on dividing their high-volume accounts into profitable and unprofitable categories. Then they work to consolidate, protect and penetrate the profitable group, while working to change the cost structures associated with the money-losing accounts so they can be moved into the other category. Paradoxically, this commonly results in increased volumes, as the companies put more focus on, and provide better service to, their volume accounts. Takeaway: Stop beating the bushes — let the growth come organically through better service and deeper penetration of your critical accounts. Flogging the sales force to collect increasing numbers of profitless small accounts will undermine profitability.

Failing to Engage the Entire Organization

Frequently, the strategic plan is developed and driven from the top of the business, without sufficient input and participation of the broader company. The zeal to execute in a hurry can lead managers to overlook the existing processes and incentives that will work against any potential for success.

More specifically, new strategies are most commonly undermined by an existing compensation plan that effectively pays the sales force to drive business in a way that directly conflicts with the strategy. Companies cannot successfully mandate one type of business, while paying the sales force to deliver another.

Takeaway: Be sure to adapt sales incentives to precisely match the company's goals, so the sales force will be properly rewarded for delivering what the company management needs to achieve. Profit-based sales compensation programs are now feasible — in an era where granular profit information can be had through add-ons to virtually any system.

Unwilling or Unable to Drive Change

The most common failure mode in new profit programs is where the senior management cannot or will not drive the necessary change. It takes real leadership to coach a team to victory with brand-new goals, brand-new strategies, and brand-new tactics. People are most comfortable with what they know, and particularly with what has worked before. A critical role of the leadership team is to recognize change in the environment, and to guide everyone into a new and exciting future.

During this decade, wholesale distribution is becoming more and more knowledge-based. New systems provide incredibly detailed profit information, giving smart companies a real edge in focusing on the best parts of their business. As Peter Drucker says, "In a knowledge society, managers must prepare to abandon everything they know." This is never been truer than it is today, where leaders must be able to switch their organizations to new metrics and new priorities, or forfeit the business to those that do.

Takeaway: Be prepared to reevaluate traditional practices, and be ready to substitute new and better information-driven practices in their place. Education will fill a crucial role in helping the team understand and master the new knowledge, metrics and practices. As always, early adopters will see huge benefits in growth and in profitability, as less nimble competitors do their best to propagate inefficient past practices.

Webinar: Increase Profit Through Margin Analysis


This webinar unveils the exceptional power of our Margin Analysis report. During this session, you will gain valuable strategies to immediately capitalize on lucrative opportunities and drive your company's success. The WayPoint Margin Analysis report provides a dynamic customer list segmented by profit value and efficiency. It presents their current margin, target break-even margin, margin required for contribution, and coverage of sales compensation. "Contributing" customers exceed the company average profit rates. Additionally, customers falling below the target margin display the precise price adjustment needed to reach the target. Unlock valuable insights for optimizing profitability and strategic decision-making.

Measuring & Managing Fleet Costs


Any organization that runs a fleet can benefit substantially from knowing transport costs at the customer/delivery level. This component of the customer cost envelope plays a big part in understanding customer value and drives decisions on pricing delivery, setting margins and routing decisions. To do this at the top level, companies are moving away from using mileage, and toward a much more accurate and effective time-based measurement. WayPoint can utilize the better inputs, calculating very precise costs at the customer level. A time-based system is also dynamic, reflecting cost changes driven by daily route changes, opening numerous new ways to optimize delivery costs. In this session, we'll show your team how this is done, and how you can find significant reductions in delivery expenditures while improving customer service. This is a session for operations people, CFOs and chief executives, so assemble your team and be ready to continue the conversation at the end of this 30-minute session.

The 7 Areas That Need Your Focus (brief)


The 3rd of 3 lists defining the markers of Distribution companies outpacing their peers. These are the specific areas that many companies commonly miss and places where your focus on new strategies and tactics will make a huge difference on your productivity and profitability.

The 6 Attributes of Super-Profit Companies


The 2nd of 3 lists defining the markers of Distribution companies outpacing their peers.

The 5 Things Customers Want (brief)


The 1st of 3 lists defining the markers of Distribution companies outpacing their peers.

Customer Segmentation


With the right segmentation you can define customer service levels, delivering high service levels to the accounts that need and can afford it. You can set price levels appropriate customers needing every level of support from "no frills" to "gold-plated". You can focus your sales efforts precisely — working to acquire new customers that perfectly fit your strategy and deliver increased profitability through optimally-efficient logistical relationships.

New Money – How to Analyze & Boost Profit from Delivery


Fleet and delivery operations are a frequently overlooked opportunity to add much more profit to your bottom line. In fact, every dollar you save or charge is just as beneficial as $25 in new sales. No wonder today's top companies are using surprising new methods to measure and optimize fleet costs, and implementing advanced analytics to set pricing and policies for deliveries.

New ideas and new tools are shaping customer choices, and increasing competitiveness. This video shares what we've learned from hundreds of the best companies across more than 15 years of strategic planning and on-the-ground tactics that have generated millions in new profits.

How Distributors Can Double Their Rebate Income


Rebates have grown tremendously as a percentage of the bottom line of distributors over the course of the last 3 years. In fact, in most instances, they now account for more than half of year-end profit.

In this session you'll gain insights on: How rebates are impacting your true line-item profitability / How to leverage your existing agreements / How real-world product mix add-up.

Novelties and New Core


We've added exciting new capabilities to the waypoint user interface. In this video we show you all the newly added features that will increase ease of use in the WayPoint program for a more convenient experience.

WayPoint Presentation


In this session, Randy MacLean walks you through the newest and most effective analytics for profit management. Using these metrics, companies produce record-breaking profit rates and growth. In just 17 minutes, he covers the hidden dynamics that are adversely influencing profit rates, suggests the not-so-obvious solutions executives are using to address them, and shows how WayPoint measures and reports on them. You'll see the only reports available that give company executives the ability measure, monitor and manage the real drivers of company profit.

How Money is Made in Wholesale Distribution


Randy MacLean shares his analysis of over $65B of distribution business to help others shed incorrect assumptions about how to make money. Businesses that have stellar results have been able to understand profit dynamics and move the profit needle not just by five or ten percent, but by doubling or tripling the bottom line over their competitors.

You've Lost Your Biggest Account – Now What?


Everyone eventually faces the loss of a significant account. Sometimes it's one that represents such a large share of business, that "normal" operations are no longer possible. How you handle the situation will determine whether it's an unpleasant blip, or a near death emergency. This video shows what to do to keep your ship from afloat when the inevitable happens.