Privileges and Responsibilities of Leadership

If you ever want to be reminded of the significance, responsibility, and opportunity possessed by those of you in leadership roles—consider for a moment the lives lead by our Founding Fathers—in their formerly “normal” positions and then being thrust toward the path of creating true greatness—for those around them, their towns and cities, and later for the country. My wife and I recently took an East Coast vacation including four days in Washington D.C. and a trip to Jamestown, VA--the birthplace of America. I have to tell you--the monuments, examples, and "living history" exhibits we observed were an awesome reminder to me of the responsibility each of us has to uphold, protect, build upon, and carry forward the beliefs and principles of our Founding Fathers. Specifically, how starting with the leadership of a few good men (and women)—amazing events can occur.

When standing in front of the likenesses of Abraham Lincoln, Thomas Jefferson, and Benjamin Franklin and reviewing some of their founding beliefs expressed through their many writings captured forever in granite--one feels humbled by the enormity of their thinking and foresight. It's at a time like this when one’s appreciation and understanding of the great risks and sacrifice these men made for the rest of us is brought clearly into focus.

It also shines a bright light on the responsibility that we now have.

All Americans have the opportunity, and yes--the responsibility, to continue to live and perpetuate these phenomenal beliefs. But perhaps it rests more squarely on the shoulders of those of us who are community and business leaders to help reaffirm these incredible ideas and principles and ensure they find their way into the daily aspects of living for all around us.

This is the greatest country on Earth. Our Founding Fathers envisioned and created a constitution and government that outlived them and will outlive us all. We can help ensure that the freedoms, rights, and privileges outlined by our predecessors are enjoyed and put to benefit in our communities for many years to come. And as leaders, it begins with acknowledging and sharing with others the greatness of America, leading by example, and using our voices to be the inspiration for those in our community.

How will you lead today?

Take A Chance...What Do You Have To Lose?

I recently shared some thoughts with Shelter Magazine that were published in a March article about the tactics I believe a wholesale building products' distributor could take to solidify the value they provide to their customers, to their suppliers, and to the market in general. Editor Samantha Carpenter focuses in on the variations from "the norm" that can become a focused set of initiatives within a distributor's operating plan.

Response to the ideas I shared has been positive, for the most part--with only one former retailer expressing that the ideas are too far stretched and that they may collide with current retailer initiatives.

However, the majority of the feedback has been very supportive--from distributors and retailers alike. The supply chain CAN be improved, redundancies eliminated, and a new tier of service can be created to benefit the end-user.

If you're a wholesaler, I invite you to read and decide for yourself whether adopting a greater interest in services and programs can and will be the initiative that drives you forward--onto new and better results.

The article can be found at:

http://www.usglassmag.com/Shelter/Backissues/2008/March08/survivaltips.html

Forget Commodities. I’m a “Specialty Supplier” Right?

When it comes to margins and serving customers who remain loyal to us due to the high-end products we provide—everyone knows the value of being a specialty products’ provider, right? And in addition, its our least loyal, price-shopping customers that make us often consider cutting out commodity products altogether.

So what would be wrong with increasing our focus on specialty products—and backing away from commodities? Well, not so fast. There is that issue of having a “full shopping cart” from which to sell—and if you compare this to a grocer—you’ve got to have both milk, eggs, and butter on the shelf—and your own bakery, fresh fish, and maybe even organic produce.

But perhaps a more convincing reason to think carefully before giving up the “everyday stuff” and focusing on the high-end only is the threat the competitive low cost commodity provider poses of moving up the chain and competing with us nose-to-nose for the most profitable business too.

Consider the examples from the steel industry described in Clayton Christiansen and Michael Raynor’s book The Innovator’s Solution. They describe a steel industry in the 1960’s that was dominated by the big “integrated” mills who watched as smaller “minimills” started up and, due to their low manufacturing capabilities, could only produce rebar—a low grade form of steel.

When the minimills entered with rebar—which accounts for only 4% of total steel use—and offered it at drastically lower prices—the large mills were almost happy to stop offering it as it only produced margins of 7%. They then began to focus their resources on higher margin products and customers.

When the minimills improved manufacturing and began to offer angle iron and other components—once again, the large mills were almost relieved to walk away from this low profit business—as the margins had always been low in this category as well. Once again they aligned resources and product offerings on more discrete customers segments—allowing the minimills to capture the low margin commodity business.

This happened again with structural beams, which the minimills perfected after great effort. Once more, they exerted heavy competitive pressure on the large mills and, once more—they took away more share.

Finally, the minimills perfected the ability to produce sheet steel—and the end of the story is, that today the minimills have grown larger than the former traditional mills—such as Bethlehem Steel—and the industry now is forever changed.

There is a point at which a company needs to assess, “Do I walk away from low margin commodity business and just focus on the profitable high-end? Or, do I invest in a broad spectrum of product and services offerings, compete on the lowest margin business, and keep my share of market?”

This will be a different decision for every company, in every market, and against every different form of competitor.

However, before you retreat “upstream” to Specialty-Land too quickly—you may wish to consider what door you leave open—for your competitor to enter.

Death by (Slow) Improvement

Beware "incrementalism.” Wikipedia describes the concept as “a method of working by adding to a project using many small (often unplanned) changes instead of a few (extensively planned) large jumps.” A similar example would be making subtle improvements to a service, program, or company—while the world goes on changing around us—or by us.

In Good To Great, the first chapter of Jim Collins’ unequaled business book is titled “Good Is The Enemy of Great.” Why fiddle with it if it’s not broke—right?

Wrong! “Incrementalism” can be the death of innovation, and at the very least—slow down innovation to the point of insignificance. And when businesses take a string of very small, for the most part insignificant steps unto themselves—and slowly marches along—the business itself can be left vulnerable to a competitor, supplier, or and entire industry “leap-frogging” over the top of them and leaving them behind.

For instance, in the building products wholesale distribution industry, I often suggest that "rule changing" behavior is needed that leaps ahead in huge bounds. Instead of an exclusive focus on slight improvements—such as order fill rates, accuracy, and customer services—distributors should be evaluating “reinventing” what they offer and what it is they do.

They might instead consider offering private labeling, job site delivery, job site installation and repair, and special warranty considerations that guarantee replacement value no matter what.

Now THOSE are the type of offerings that just might be considered leap-frogging.

And keep a company out of the pot of boiling water.

Breaching The Threshold of Change

Key Ideas:

1. Building products distribution can continue to evolve and prosper--if it will find its new role in the channel.
2. Distribution must be ready to extend itself either up or down the supply chain (offer more services to dealers and end-users, or source/manufacture products themselves).
3. Distribution need not sell around their customers, but rather provide a tier of "fee" services as a helpful function to satisfy end-user needs together with distribution's customers.
4. Distribution cannot stand still.

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Everyone seems to talk or write about the need for change in the wholesale building products distribution industry. Including me. However, too few of us ARE the change we need to see.

As a nearly 20-year veteran of this industry and former member of the board of directors for the Association of Millwork Distributors (AMD), I’ve been reminded many times of the famous Hans Christian Anderson fable The Emperor’s New Suit. You recall the one, in which the little boy, upon seeing the Emperor with nothing on at all—cried out “Why—the Emperor has on no clothes!”

Well, the problems facing the distribution industry (see Adam Fein's article at "Distribution Trends) are as clear as an elephant sitting in the middle of the room--or an Emperor wearing no clothes. But not enough people stand up to do anything about it.

As manufacturers develop their capabilities to perform the functions of distribution and dealers consolidate and become larger—and command closer relationships with the manufacturers—it leaves the “middleman” in a precarious position.

How does distribution go about expanding their role in the supply chain, without alienating customers by going around them, and at the same time strengthen the value and necessity for their services to exist?

The answer’s going to vary for different products, geographies, participants, and customer needs. But as a start, company strategic plans must include an examination of and implementation plan for:

1) Services down line (see "The Future of Distribution")—such as assembly, jobsite delivery, installation, and field service (not in place of the retailer or pro-supplier, but as a service for the retailer or pro-supplier).

2) Unique sourcing relationships or programs, such as directly importing products or entering into the manufacturing businesses themselves.

3) A high emphasis on taking costs out of the channel while improving accuracy, dependability, fill rates, inventory management programs, and overall benefit for customers and end-users.

4) An intense discussion with the distributor’s manufactures to create a mutual plan that achieves the goals for both.

5) Laser-focus on securing product purchase choices from the decision-maker (no—not the buyer behind the lumberyard desk, but the architect, contractor, or builder in the field). And then execute a plan to help the lumberyard secure the sale.

6) An unwavering focus on continuously improving the customer experience. Starbucks doesn’t sell coffee—they sell a unique personal experience (Starbucks' mission statement).

I am encouraged at the recent wisdom, strength, and conviction displayed by the AMD and several companies in our industry. Perhaps we are “getting it” and willing to tackle the next wave of opportunity before us.

It’s often unpopular to be first to do something new. However, everything of significance that ever happens does so when a few people—or even a single person—charts out the new direction and takes the first steps.

If anyone ever doubts the importance that one decision can make, look no further than the decision made in 1863 during the Battle of Gettysburg. Major General Joshua L. Chamberlain—who was leading his Union Army troops at Little Round Top—had repeatedly defended attack after attack by the Confederates during one critical battle. Exhausted and nearly out of ammunition, many other men would have given up. But Chamberlain made the determined decision to CHARGE—with a fraction of his men and with only bayonets—and to persevere. The result was that the Union Army drove back the Confederates and won the battle.

Historians recount that this is the one decisive battle victory that allowed the Union to win the war, bring the conflict to an end, and change the course of history.

One decision that any of us makes can have a tremendous outcome.

I encourage the leadership in this industry to build on the ideas and momentum that have recently sprung forth, and change the heading we were on—and forever increase the benefits and vitality to our customers, our suppliers, and ourselves. And to do so this year.

My greatest disappointment would be if these outstanding initial steps and beliefs failed to find enough voices and actions to help propel the industry in a bold new direction.

And prove the critics wrong.

The Future of Distribution

I want to relate some thoughts around two-step distribution and market performance within the wholesale building products and millwork industry. In my 10 years with Andersen Windows and 6 years at Hampton Distribution Companies (a window and door distributor in California)—I have always known that distribution had to add value to remain viable.

Whether a distributor, a dealer, a one-stepper, or a supplier—ALL have to individually make a difference. And with manufacturers continuing to evolve the sales, service, order fulfillment, and logistics they offer--the redundancies in the channel continue to grow.

Manufacturers choose to use distribution for 4 primary reasons:

1) The distributor's knowledge of the market

2) The execution of market and channel plans to get product to market thoroughly and efficiently

3) Access to customers known by the distributor--where relationships flourish and penetration is deep

4) The volume of business a distributor can deliver to a manufacturer

There must be an overwhelming and compelling reason why each entity should have a place in the channel of distribution. Where value is not added, where market share gains are not realized, and where customer satisfaction does not increase—a successful and prosperous relationship between distributor and manufacturer will not endure.

At Hampton, we knew we had to add value to move forward. We saw the day where we could provide specialized functions as a service for our independently-owned customers—in order to provide more well-rounded solutions for them to offer to their customers.

Our written long-term vision statement, created in late 2005, was:

Home installation and service for windows and doors in every major metro market in the West--defined as:

1) Value-added services that help our customers, and
2) HDC's foothold on continued market strength.

Strategies like this would have given Andersen and our door suppliers more ammunition in which to combat the competition—making our products easier to handle, sell, and provide to homeowners everywhere. We never ended up testing our theory due to running out of time. In 2007, external events caused us to close the company.

But the vision bore great promise in an escalating world that demands more “do it for me” service all the time.

A Case For Focus

For six years from 2001 and 2007—I was privileged to have been a part of the management team at Hampton Distribution Companies (HDC) in Sacramento, CA—a wholesale building products distributor. I was hired by Chris Walton, one of the brightest talents I’ve met in my career—and under his leadership—we succeeded in re-designing the sales organization, restructuring or eliminating non-performing business segments, winning an exclusive distributorship that doubled our business overnight, and reaching all-time highs in ROI. As I took over as general manager in 2004—we continued finding new ways to “reinvent” our company and the distribution function.

We took the company from 4 divisions and multiple product lines down to just 2 divisions and 2 products lines (Andersen Windows, comprising nearly 80% of our volume, and a complete line of residential door products—comprising the other 20%).

During that time, some people asked “Jeff—how could you allow Andersen Windows to become 80% of your business and put all your eggs in one basket?” To them I answered “In 2002, Chris Walton and I decided that if we were going to be an Andersen distributor—then that’s what we should do—with focus, execution, and commitment. We took the opposite approach of many of our competitors—who seemed to be adding more and more products each day.”

We followed Jim Collins’ advice in Good to Great and made Andersen our hedgehog. A hedgehog is:

1. What you are passionate about.
2. What you are best at.
3. What you can make money at.

So, continuing along our determined path, we narrowed our product portfolio and increased our focus—to the point where we sold and supported just two product categories: windows and doors. Of course, we knew this put us at some risk--but the financial performance HDC achieved seemed to suggest we'd made the right decisions.

Yes, we were successful in many ways. HDC was an outstanding company made up of exceptional people. Externally, we excelled in the areas of business development through end-users, customer training and development, sales programs and promotion, value-added services, and attention to detail and execution to be the best we could be. Internally, we practiced continuous improvement, developed and empowered our people, measured constantly, promoted and rewarded desired behaviors and results, and shared information with employees to help everyone feel a part of the challenges, efforts, and success.

With this focus—we continued to hit all-time highs in profitability, improved customer satisfaction, and along the way—earned became a working model of continuous improvement.

Our sales force did a better job—not having to wear multiple hats, but rather—specializing in just one segment. Door sales people sold doors, and window sales people sold windows. We also learned from some minor mistakes along the way. Individual sales rep territory ownership and accountability is paramount in field sales. We dissolved the teams we’d established years earlier—and gave distinct and separate territories to our sales people—who then became accountable—and satisfied—managing all the functions in their market. They could now focus on a smaller geography and group of customers—providing greater involvement and impact.

This focus also allowed us rationalize our customer base—and aim at doing more business through fewer, yet more committed customers. As we reduced the number of low-volume customers we serviced, our overall volume actually increased, our costs of business decreased, and our customers received better service because we weren’t stretched so thin.

Is This Approach For Everyone?

Obviously not. Many, many organizations have proven that you can branch out, expand products and services, and grow successfully. I’m just providing one case for an organization who achieved quantifiable financial success by going the opposite direction—and focusing on those very few things we could do best. It’s up to you to decide which is right for you.