Making the best out of a difficult business climate

 

BY RICH SCHMITT

Management specialist

 

Before I get into the column, I want to discuss the attitudes that I am encountering within our industry as I talk with people at many levels. There are people who are viewing the glass as 3/4 empty and others who are viewing it as 1/4 full. Some are bemoaning the business they no longer have and others have set about adjusting to the new reality of the world. If I were betting, I would bet on the ones who are determined to survive and make money in the 1/4-full market. Many people are moping around like Eeyore from Winnie the Pooh. They have lost their personal energy and will probably infect the rest of their team. Make no mistake, doom and gloom is highly contagious to the rest of the team.

 

Part of the formula for making the best of the situation is a clear understanding of your situation. Last month I discussed the importance of first-hand customer/market contact as one part in gaining a clear vision of your situation. When your vision is blurry, based on second and third-hand reports, it can lead to all sorts of inaccurate perceptions and bad decisions. In a flourishing market, you can recover from a lot of mistakes based on the volume. In a tough market, you don’t have as much business to cushion you from a hard fall.

 

The next area of clarity should be operating with clear management reports. In our industry, there are a remarkable number of wholesalers who manage their companies with very little data and even less information. (In my book the difference between data and information relates to the actions it supports.) Data is often the raw material used to create information but it requires additional work and energy to convert that data into useable decision-producing information. Just like steel, many tons of iron ore and other raw materials go into the production of a single ton of steel. You can create very little with the basic raw ore but you can make many things with the resultant steel.

 

Most of the information systems of the last decade capture and store massive amounts of data but very few actually help transform that data into actionable information. Many of the systems created long ago, and still in use today, were designed when hard disk space was very expensive and sold at a very high premium. These systems often captured only the absolute minimum data required for accounting and basic business management. More current systems capture the accounting and operating data as well as other data that can be analyzed further.  In many cases, there is a lot of raw data but it is not being “mined” and converted into anything useful.  In my view, this is due to:

 

• Programmers have mastered the process of capturing data but do not know what information is needed to run a business. This is understandable since their training and skills are probably technical in nature and might not be strong in business management and analysis. Frankly, it’s management’s job to determine the company’s information needs and get the programmers to provide the needed information.
• Managers and other system users don’t know what to request from their programmers or system provider. Often the creation of new reports and data views requires a detailed understanding of the request and the system’s complex data structure. Sometimes the managers must describe their needs in such excruciating detail that they surrender long before there is useable output from the process. They might also fear their request will involve a huge programming bill, so they don’t ask for what they really need.
• Lack of focus by the system pro­viders. System providers invest their pro­gramming efforts broadly so they can attract the broadest group of customers.  Investing in specific industries or segments of industries is riskier and has a smaller potential return so the software remains somewhat generalized. It is far easier to sell a pile of lumber and nails than build a complete house. Many systems provide a great “kit,” plenty of lumber/nails and some even provide the tools to process the data, but the actual information produced is often left up to the user. Though many users will have similar needs, they expect each of their users to reinvent the reports and extracts needed to run the users’ businesses.
• The sheer quantity of data makes ana­lysis difficult. While the latest version of Excel can handle much larger quantities of data than ever before, it is still not particularly good at the process without substantial effort. The skills required often approach those of a programmer. In other words, this is not within the skill-set of the average ad­min­istrative person or manager in the company. (You don’t learn this kind of stuff in the three-hour Excel class the company offers.) Very small companies can probably still use general purpose tools but medium and large companies need tools that were designed for the purpose so they can effectively handle the quantity of data and do it quickly.
• The it department cannot move beyond fire-fighting.  Data mining might be important but there are more pressing things to do with their time. Sometimes the work to keep all the terminals and printers working at the same time is a massive effort. And when branch 2’s communications line is down, data analysis is certainly the “wrong-work” for the it team.
• The it department has more interesting things to do with their time. Most it people’s background is rooted in network administration, system administration, hardware maintenance as opposed to actual programming. Even fewer it people understand business analysis. So their work often concentrates on their areas of expertise and interest regardless of where the high-value tasks are.
• There is no internal champion for the effort. One of our client’s success in revamping their pricing happened because one guy saw the potential and stubbornly harangued senior management and the it department to make it happen. When he got frustrated, he used to tell me, “I could understand the resistance if I was doing something weird but I’m just trying to make the company more money. I can understand that it thinks I’m a pain but you’d think senior management would be happy that I am doing this.”
• Delays in getting reports or extracts sap the energy and enthusiasm of the managers. If every question requiring data consumes hours, days or weeks to get an answer, most managers can’t remember what the question was by the time they finally get an answer. The pace of life in wholesaling is fast and furious so by tomorrow the answer may be irrelevant or the question may have changed.  I think most non-decisions are due to the time and effort required to get actionable information. 

 

Much of our analysis experience is in price management and inventory management. Each decision to change stocking levels or pricing requires information. Of course the president can always make sweeping gut-based changes but normal employees will feel uncomfortable rolling the dice on their career without some pretty good data.

 

Most coaching fails due to lack of data. When the pricing manager tells a branch manager or sales guy that he needs to change his pricing, he better have data to back his recommendation. Without data, the branch manager or sales guy pulls out his tried and true, “I know the customer” trump card and the changes are effectively stopped dead in their tracks. Frankly, when there is no data, I side with the guy closest to the customer too since he is at least involved in the process.

When the pricing manager can say, “I know you sold this product to seven customers at 20 different prices in the same week. And by the way you sold the same customer at three different prices on the same day,”  there is some basis for getting the pricing and inventory under control even when he plays his trump card or throws a “lay-on-his-back, kicking” tantrum.

 

For too many companies so much time is spent digging for information, they never get around to the actual business decisions and changes that will make them more successful. As part of our consulting we have developed software tools that help quickly extract and organize data into “decisionable” information. They are designed to work with millions of transactions so they can help small to large wholesalers effectively use the data in their computer systems. The magic is that 80% of the users’ time can be focused on making meaningful decisions while only spending 20% of their time spent accessing the information needed for those decisions. 

 

With a clear market vision and distilled, accurate information, your decisions will improve and be more timely.  For more information on data analysis and pricing tools, e-mail me at Rich@go-spi.com.