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A program for dealership management
JAMES
W.
REDFIELD
55
A Program for Dealership Management
III A
manufacturer of building components, with nationwide distribution through independent dealers, consistently failed to reach sales volume and profit goals despite all the help he was giving the dealers in promotion and selling support. Dealer morale was falling off and turnover was increasing, as was the cost of dealer replacement. A heavy machinery mantffacturer was dismayed by the number of dealers who were running into serious financial straits. Mr. Redt~eld is Principal Associate with Cresap, McCormick and Paget, New York City.
FAIL, 1964
The implications were particularly serious because his dealers owed him a substantial amount of money representing liberal extensions of credit and outright loans to them. In both situations, managements of the supplier companies were made to realize a vitally important but frequently overlooked fact of business life: for companies that look to independent dealerships to distribute their products, success is directly dependent upon the management strength and financial soundness of those dealerships. Supplier and dealer are tightly linked in a partnership of interests, and weakness in any link jeopardizes the entire enterprise. By this principle, to improve the management strength of any
JANLES W. RI~DFIELD
part of this enterprise is to strengthen the enterprise as a whole. Acknowledging this fact, the building components manufacturer undertook a thorough analysis of his dealerships; he discovered that many dealers simply did not know how to manage their businesses soundly and profitably and were particularly weak on cost control. He set up a long-range program for dealer development, involving more discriminating dealer selection and a concentrated management training course emphasizing cost control techniques. The dealers welcomed the program; in addition to improving the supplier-dealer relations, it has paid off in reduced turnover, stimulated individual growth and profitability, and has tended to increase sales of the company's products. 58
The heavy machinery manufacturer made a similar study of his dealers and found their root problem was a common inadequacy in managing the financial aspects of the business. A training program in sound financial management principles and techniques was instituted, and the results to date have been highly rewarding. The dealer's gradual adoption of better financial management and control procedures is beginning to reduce the risks associated with this supplier's investment in his dealers, and the level of financial stability of the dealer group as a whole is being raised. The need for education in management techniques among managers of small business enterprises is readily apparent. Dun & Brads~reet analyses attribute over 90 per cent of business failures in 1961 and 1962 to lack of managerial experience and competence. This is not surprising. Many dealermanagers enter the business experienced in only one, or possibly two, areas-such as selling or merchandising methods, or technical and engineering practices. More often than not, the initial capability does not include adequate practical knowledge of general and financial management. This has to be learned the hard way, through trial and
error. Furthermore, small businesses usually cannot afford to employ all of the special skills needed to handle the various kinds of management problems they encounter. The dealer-manager usually must perform a broader range of functions than does any one executive in a larger company-with a greater risk of wrong decisions. The consequences of unsound management are especially serious because the businesses are too small to survive many mistakes. The problem is aggravated by the reluctance of many small business managers to seek outside help, whether because of pride or unfamiliarity with the benefits obtainable. It is not lessened by the natural tendency of supplier companies to overlook their ultimate dependence on the long-term stability and profitable growth of their dealers. As Peter Drucker has said, "Few companies think of their [dealers] when they speak of 'our business.' Their horizons are set by the legal boundaries of their corporations.~x
INSTITUTING THE DEALER DEVELOPMENT PROGRAM
Nevertheless, a growing number of supplier companies are beginning to see that it is in their self-interest to support their dealers with more than promotional and selling help - w i t h advice and assistance in the fundamentals of managing and financing operations. These forward-looking companies offer a series of dealer development programs, specifically designed to overcome the weaknesses and to capitalize on the management strengths of their dealers. An underlying concept, essential to the success of these programs, is that dealers are partners of the supplier in the distribution of its goods to ultimate users, rather than merely customers for those products. Thus, the programs themselves are devel-
1peter Drucker, "The Economy's Dark Continent," Fortune, LXV (April, 19~2), p. 103.
BUSINESS HoRIT~NS :
.PROGI~dVl "FOR DEALERS~IIP MANAGE~dEEN7
oped as cooperative projects aimed at improving the long-term growth and prosperity of both the supplier and the individual dealers. Those instituting and implementing a successful dealer development program have found that the supplier company should meet two controlling conditions. First, those actively involved in the program should have broad knowledge and experience in up-to-date and sound general management principles and in effective management techniques; in particular, they should have the ability to communicate this information to the dealers in practical terms. Second, responsibility for the program should be assigned to a single executive, preferably on a full-time basis, on terms that afford freedom to work toward long-term improvement of the individual dealers' businesses and that avoid the pressure of a requirement to demonstrate short-term sales gains. Within this framework, a successful dealer deve/opment program usually entails three major activities: (1) a thorough survey to identify the principal management problems of the particular dealers involved; (2) preparation of reference material outlining sound
FALL, I964
management principles and procedures as they apply specifically to these dealerships; and (3) direct assistance to individual dealers on management problems given, or sponsored, by the supplier. IDENTIFICATION OF PROBLEMS
The identification of problems typically encountered by the dealers in any one industry requires on-the-spot discussion and study at the dealer level, with a broad enough cross section of dealers-large and small, successful and unsuccessful-to provide a sound basis for recognizing and understanding their principal and common difficulties. These contacts with the dealers afford excellent opportunities to promote the development program and its underlying objectives and benefits-in particular, the partnership approach-and thus prepare the way for acceptance of the forthcoming assistance. Tim DEALERSHIPMANUAL It is often effective to present the applicable management techniques and suggestions on their use in the form of a dealership management manual. Dealers can and do use such a manual as a ready reference to improve their own management methods. In developing the manual, it is important to present the material in terms that the dealers themselves customarily use. Wherever appropriate, reasons for recommending a particular procedure or principle should be given and examples provided to illustrate how it will help the dealer achieve better results. It is particularly effective to develop the illustrative material around a hypothetical dealership, so that the methods can be shown in practical context. Tables, charts, and diagrams are especially helpful. Chapter headings and summaries of a typical dealership management manual follows: General management Explains the primary functions of the dealership manager in
57
IAMF-.S" W. R.EDFII~LV
planning, organizing, and controlling the operations of the business, and the relationship of these functions to the operation, growth, and profitability of the dealership as a whole.
Financial management Outlines what constitutes effective financial planning, management, and control, what principal operating control reports are required and their use, and how to develop and maintain good bank relationships. Short-term planning (or budgeting) Calls attention to the vital importance of planning for sales, gross profits, expenses, and net profits for the year ahead as bench marks for measuring results. Tells how to develop these bench marks, how to measure performance against plan, and how to correct adverse variances. 58
Long-term planning Explains the need for planning for the future growth of the dealership, and for the organizational strengthening and the capital this may require. Shows how to develop and use such plans to achieve growth profitably. Sales management Outlines the sales manager's functions in the dealership. Shows how to plan the selling efforts, how to compensate sales personnel, how to recruit, select, hire, and train salesmen, and how to plan, measure, and control the selling efforts of individual salesmen. Operations management Presents the principles and procedures to be followed in other major functions of the dealerships, such as parts and service, or field construetion. The content here should be carefully tailored to the actual functions of the particular dealerships involved. Ot~ce management Outlines the general principles of managing an internal office staff, with particular emphasis on the role of the accounting function. Experience has shown that effective control reports-the essential llnk between the accounting records and management control-are often missing. Therefore, appropriate attention should be
given to the development and use of those reports needed to provide management with current, accurate information on the progress of the business against planned sales and profit goals.
INDIVIDUAL CONSULTATION
Dealership managers are often reluctant to let their supplier know much about their business or personal problems they encounter that are not directly related to the sale of the supplier's products. Some supplier companies have therefore found it helpful to introduce independent, objective counsel to the scene, usually on the basis of shared cost with the dealership. Because of his thlrd-party status, a qualified outside consultant can overcome dealer reluctance and quickly get to the heart of the basic problems. The following examples will show that the professional consultant can also effectively educate the dealers in sound general and financial management principles and help them solve ditBeult problems in areas outside the normal scope of the supplier-dealer relationship.
Father Knows Best The sales manager of a large dealership was dearly not fitted for the job and did not like his work, yet he stayed on and on. Reason: the general manager was his older brother, and their father, a major stockholder of the company, insisted that his younger son be kept in the organization. The major supplier had observed weakness in the dealership sales activity for some time but had been unable to get at the cause of the trouble. A consultant was called in, whose third-party status and understanding approach cleared the air for frank discussion of the situation with the general manager and his father. Only then did they see the detrimental effect that keeping the younger man in the organization was having on the business and on the man himself. As a result, the younger brother was permitted to leave
BUSINESS : HORIZONS
A PROGl:tAb~" F O R DEALdI~HSI::IIP ~ r
the company-much to his own relieL He was replaced by a fully qualified sales manager.
A~ter You, Al[onse Two equal partners m a dealership had been close friends for years. In building a profitable business, each handled whatever activity needed attention, and no specific division of responsibilities had been made. Both realized that the business had grown too big for this casual management approach and that it was badly in need of centralized direction, yet neither wanted to make the first move for fear of disturbing the friendship. This amiable deadlock persisted until an outside consultant was introduced to the scene by a supplier company. Each partner confided his feelings to the consultant; he then tactfully suggested that, since one partner was clearly the better salesman, he should take over sales management exclusively, while the other partner, who was acknowledged as the more able administrator, should become general manager of the dealership. Both men welcomed this solution, and each is now making his most productive contribution to the business.
IMPLEMENTING THE PROGBAM
The long-term success of a dealer development program and the extent of meaningful dealer participation in it depend on how tactfully it is introduced, how convincingly the educational material is presented, and, of course, on how much enthusiasm for it can be generated among the dealers. It is particularly important that the dealers understand the basic objective of the program: to produce long-term benefits for the dealers as well as for the supplier company. If dealer confidence and participation are to be obtained, no part of the program should imply a desire by the supplier to achieve company goals at the expense of the dealer.
,FALL. I~4
The method used in introducing the program to the dealers usually is governed by the number involved. To permit free discussion, introductory meetings, held at central locations in the field, should be limited to twenty-five dealers. A special approach may be necessary where very large numbers are involved. For one large dealer group, the supplier company produced a sound film to explain the program; it has now been shown to more than 5,000 dealers throughout the country. In another situation involving a nationwide dealership organization, regional representatives of the industry's trade association assisted in explaining the program to local dealer groups. There axe practical advantages in asking the dealers to make some payment for participating in the development program and for the educational materials provided. Participants are more likely to use the program and seek its benefits ff they have paid for it, at least in part. Free programs are less highly esteemed. While many dealers will take the initiative in actually applying the principles and techniques recommended in the development program, some, though they may start with enthusiasm, will quickly lose their drive. Gaining wide acceptance and use of the program is bound to take some plugging by the supplier organization. A dealer's association or Council can be helpful in endorsing the program and maintaining dealer interest
59
JAMES W. RIgDFIELD
60
in self-improvement. This can be compared to breaking into a market with a new product; while the initial gains may be small, acceptance steadily accelerates ff the product fills a genuine market need. A new dealer development program does not call for any change in the customary efforts of the supplier's salesmen to assist dealers in increasing sales. They can, however, perform an important role in helping to implement the program by stimulating and sustaining interest and participation in the program on the part of their dealer accounts. On the other hand, the supplier's salesmen should not be permitted to counsel dealers on their general management problems. Typically, they usually do not have the training or experience that would qualify them to provide sound advice on these types of problems. Furthermore, being motivated to seek short-term sales gains, they are likely to make recommendations that may be unsound for the dealer from the long-term viewpoint.
DEALER PROGRAM IN ACTION
Recent experience has amply demonstrated how soundly conceived and effectively implemented dealer development programs can help to ensure greater stability, growth, and profitability for a supplier company. The following case histories indicate how certain dealerships, faced with serious difiL culties or disaster, have been saved through the timely provision of knowledgeable help on their management problems. ONE-MAN SHOW An industrial products dealer had built a successful business from scratch, but now saw his sales and profit growth slowing, despite the fact that he was working longer and harder than ever. In desperation, he called on his principal suppliers dealer development people for help. They found that
neither local marketing factors nor competitive activity were to blame. The trouble stemmed from the dealer's attempt to run his business as a one-man show, although it had become much too big for one man to handle. A frank talk with the dealer convinced him that, for his own good, he would have to stop trying to wear all the hats himself and start delegating a major portion of the operating responsibilities to others in the organization. Accordingly, these responsibilities were delegated to two capable, younger subordinates. The dealer now has time to attend to the broader aspects of the management of his business, and his sales and profits have resumed their climb. For its part, the supplier has obviated the necessity of replacing this dealership and has converted an imminent loss into a potentiality for greater profit. No BENCH MARKS A dealer-contractor was discouraged because, although his sales volume had increased steadily in the past three years, his net profits had just as steadily declined. He feared eventual bankruptcy, yet did not know what was causing his trouble. A supplier-instigated study identified the major difficulty as a doclining trend in the gross profit re~rn on a type of construction work that accounted for a substantial part of the dealer's business. With the dealer and his accountant, the supplier developed a realistic, simple budget for the next year, providing operating bench marks and gross profit targets against which the dealer could measure actual results. Included were procedures for analyzing each order and each job completed in the field to determine variances from the gross profit targets, The dealer is now periodically checking his actual operating results against budget, and has cracked down on the field costs in the type of work formerly done at a loss; he is well on his way toward a more profitable operation. For the supplier, a good
BUSINESS HORIZONS
A
PR(~GRAI~ FOR DEALERSHIP ~-fANAGE~EI~T
dealership was salvaged. Moreover, as the dealer's control over costs has improved, so has his competitive position, and even greater sales of the supplier's products are in prospect. WORKING CAPITAL SHORTAGE
An equipment dealer had accumulated a substantial amount of retained earnings and decided to build a new office and shop building. The new building was something to be proud of, but it also made quite a hole in the dealership's capital. During the next year, sales and profits dropped off because of adverse economic and competitive conditions in the area, and the dealer suddenly found himself seriously short of working capital. Short-term bank loans helped-until he reached his credit limit. Then the principal supplier became actively concerned, because, having seen the rapid growth and apparent potentialities of this dealer, he had overextended his credit. The supplier helped the dealer to plan and institute a crash recovery program; it involved a drive for an immediate increase in sales volume, a strong effort to collect past due receivables (which had been allowed to slide), a carefully worked-out budget for the ensuing year, and a step-by-step plan for carrying out these actions. The supplier also discussed the situation with the dealer's banker who, on the basis of the painstaking program, agreed to go along a little further with the dealer's loans. The dealer survived the crisis and learned a valuable lesson in financial planning. The supplier safeguarded a substantial investment in this dealership. CONFUSED COIVIPENSATION
Unsound sales compensation arrangements in dealerships can be a major factor in creating salesman turnover, costly replacements, and unsatisfactory sales volume and profit results. In one dealer group, at least ten different types of incentive plans for the
FALL, I ~ 4
salesmen were in use, but none of them was fully satisfactory. As a case in point, many of the plans involved a bonus distribution of dealership net profits, usually made at the discretion of the dealer. This indicated that the dealers did not understand one principle of incentive sales compensation-that it should be based on measurable results in areas that the salesmen themselves control, rather than on the operating results of the business as a whole. The salesmen involved were naturally dissatisfied, having experienced years when, because of losses incurred in other functions of the business, their bonuses were not commensurate with their own selling achievements. The supplier company spotted the trouble and developed a model compensation plan that based incentive earnings on orders taken by the individual salesmen and that paid them at percentage rates pegged to the indicated gross profitability of the orders. Many of the dealers have now modified their own plans along the lines of the model; the morale of the salesmen has improved noticeably, and the supplier is already seeing signs of increasing sales productivity among these dealers. In principle, and often in practice, sound management of a small business such as a dealership is the same as management of a larger company; the problems differ in scope, but not necessarily in complexity or in the intensity of their effect upon the individuals concerned. A growing number of supplier companies are becoming aware of
61
j'A~F_.s W , R~DFrSLD
this fact and are recognizing that, to the extent they can contribute to the management strength of their dealerships, they are helping to ensure their own future growth and stability. That is the long-term view. A nearterm advantage may be found in supplier company sales and profit results, which can be improved by effective implementation of a dealer development program. The management of distribution is a fertile field of exploration in industry's quest for profit improvement. An equally fertile field may be improving the management of
the individual business enterprises on whom suppliers depend for the distribution of their products.
B ut they had never, even in Italy, had sueb a free ~eld for operation as sixteenth-century Antwerp presented, where the market met every day instead of at seasons only, and where the great quantities and standardized quality of the world's wares, pouring into her port, made it possible to hold a goods-market, as well as a money market, of unprecedented size. The traffic of Antwerp surpassed atrl previous notions. Every 1,000 freight-wagons with wares from France and Germany entered the gates; more than 10,000 peasant carts brought provisions from the countryside; and every day came and went 500 pleasure vehicles and 200 passenger wagons. Postal messengers hurried to and fro, in a service paid for and organized by merchants, so that the most distant royal wedding or war might react as soon as possib]e upon the money market. The goods concentrated at Antwerp were of amazing variety and quantity. Perhaps never again will so great a proportion of the universal trade pass through a single harbor, or such an immense part of the world's credit-operations be transacted on a single exchange. -Miriam Beard A H~-rOIIY OF BU~W--~S
BUSINESS F I O B I Z ~ $
W.
REDFIELD
55
A Program for Dealership Management
III A
manufacturer of building components, with nationwide distribution through independent dealers, consistently failed to reach sales volume and profit goals despite all the help he was giving the dealers in promotion and selling support. Dealer morale was falling off and turnover was increasing, as was the cost of dealer replacement. A heavy machinery mantffacturer was dismayed by the number of dealers who were running into serious financial straits. Mr. Redt~eld is Principal Associate with Cresap, McCormick and Paget, New York City.
FAIL, 1964
The implications were particularly serious because his dealers owed him a substantial amount of money representing liberal extensions of credit and outright loans to them. In both situations, managements of the supplier companies were made to realize a vitally important but frequently overlooked fact of business life: for companies that look to independent dealerships to distribute their products, success is directly dependent upon the management strength and financial soundness of those dealerships. Supplier and dealer are tightly linked in a partnership of interests, and weakness in any link jeopardizes the entire enterprise. By this principle, to improve the management strength of any
JANLES W. RI~DFIELD
part of this enterprise is to strengthen the enterprise as a whole. Acknowledging this fact, the building components manufacturer undertook a thorough analysis of his dealerships; he discovered that many dealers simply did not know how to manage their businesses soundly and profitably and were particularly weak on cost control. He set up a long-range program for dealer development, involving more discriminating dealer selection and a concentrated management training course emphasizing cost control techniques. The dealers welcomed the program; in addition to improving the supplier-dealer relations, it has paid off in reduced turnover, stimulated individual growth and profitability, and has tended to increase sales of the company's products. 58
The heavy machinery manufacturer made a similar study of his dealers and found their root problem was a common inadequacy in managing the financial aspects of the business. A training program in sound financial management principles and techniques was instituted, and the results to date have been highly rewarding. The dealer's gradual adoption of better financial management and control procedures is beginning to reduce the risks associated with this supplier's investment in his dealers, and the level of financial stability of the dealer group as a whole is being raised. The need for education in management techniques among managers of small business enterprises is readily apparent. Dun & Brads~reet analyses attribute over 90 per cent of business failures in 1961 and 1962 to lack of managerial experience and competence. This is not surprising. Many dealermanagers enter the business experienced in only one, or possibly two, areas-such as selling or merchandising methods, or technical and engineering practices. More often than not, the initial capability does not include adequate practical knowledge of general and financial management. This has to be learned the hard way, through trial and
error. Furthermore, small businesses usually cannot afford to employ all of the special skills needed to handle the various kinds of management problems they encounter. The dealer-manager usually must perform a broader range of functions than does any one executive in a larger company-with a greater risk of wrong decisions. The consequences of unsound management are especially serious because the businesses are too small to survive many mistakes. The problem is aggravated by the reluctance of many small business managers to seek outside help, whether because of pride or unfamiliarity with the benefits obtainable. It is not lessened by the natural tendency of supplier companies to overlook their ultimate dependence on the long-term stability and profitable growth of their dealers. As Peter Drucker has said, "Few companies think of their [dealers] when they speak of 'our business.' Their horizons are set by the legal boundaries of their corporations.~x
INSTITUTING THE DEALER DEVELOPMENT PROGRAM
Nevertheless, a growing number of supplier companies are beginning to see that it is in their self-interest to support their dealers with more than promotional and selling help - w i t h advice and assistance in the fundamentals of managing and financing operations. These forward-looking companies offer a series of dealer development programs, specifically designed to overcome the weaknesses and to capitalize on the management strengths of their dealers. An underlying concept, essential to the success of these programs, is that dealers are partners of the supplier in the distribution of its goods to ultimate users, rather than merely customers for those products. Thus, the programs themselves are devel-
1peter Drucker, "The Economy's Dark Continent," Fortune, LXV (April, 19~2), p. 103.
BUSINESS HoRIT~NS :
.PROGI~dVl "FOR DEALERS~IIP MANAGE~dEEN7
oped as cooperative projects aimed at improving the long-term growth and prosperity of both the supplier and the individual dealers. Those instituting and implementing a successful dealer development program have found that the supplier company should meet two controlling conditions. First, those actively involved in the program should have broad knowledge and experience in up-to-date and sound general management principles and in effective management techniques; in particular, they should have the ability to communicate this information to the dealers in practical terms. Second, responsibility for the program should be assigned to a single executive, preferably on a full-time basis, on terms that afford freedom to work toward long-term improvement of the individual dealers' businesses and that avoid the pressure of a requirement to demonstrate short-term sales gains. Within this framework, a successful dealer deve/opment program usually entails three major activities: (1) a thorough survey to identify the principal management problems of the particular dealers involved; (2) preparation of reference material outlining sound
FALL, I964
management principles and procedures as they apply specifically to these dealerships; and (3) direct assistance to individual dealers on management problems given, or sponsored, by the supplier. IDENTIFICATION OF PROBLEMS
The identification of problems typically encountered by the dealers in any one industry requires on-the-spot discussion and study at the dealer level, with a broad enough cross section of dealers-large and small, successful and unsuccessful-to provide a sound basis for recognizing and understanding their principal and common difficulties. These contacts with the dealers afford excellent opportunities to promote the development program and its underlying objectives and benefits-in particular, the partnership approach-and thus prepare the way for acceptance of the forthcoming assistance. Tim DEALERSHIPMANUAL It is often effective to present the applicable management techniques and suggestions on their use in the form of a dealership management manual. Dealers can and do use such a manual as a ready reference to improve their own management methods. In developing the manual, it is important to present the material in terms that the dealers themselves customarily use. Wherever appropriate, reasons for recommending a particular procedure or principle should be given and examples provided to illustrate how it will help the dealer achieve better results. It is particularly effective to develop the illustrative material around a hypothetical dealership, so that the methods can be shown in practical context. Tables, charts, and diagrams are especially helpful. Chapter headings and summaries of a typical dealership management manual follows: General management Explains the primary functions of the dealership manager in
57
IAMF-.S" W. R.EDFII~LV
planning, organizing, and controlling the operations of the business, and the relationship of these functions to the operation, growth, and profitability of the dealership as a whole.
Financial management Outlines what constitutes effective financial planning, management, and control, what principal operating control reports are required and their use, and how to develop and maintain good bank relationships. Short-term planning (or budgeting) Calls attention to the vital importance of planning for sales, gross profits, expenses, and net profits for the year ahead as bench marks for measuring results. Tells how to develop these bench marks, how to measure performance against plan, and how to correct adverse variances. 58
Long-term planning Explains the need for planning for the future growth of the dealership, and for the organizational strengthening and the capital this may require. Shows how to develop and use such plans to achieve growth profitably. Sales management Outlines the sales manager's functions in the dealership. Shows how to plan the selling efforts, how to compensate sales personnel, how to recruit, select, hire, and train salesmen, and how to plan, measure, and control the selling efforts of individual salesmen. Operations management Presents the principles and procedures to be followed in other major functions of the dealerships, such as parts and service, or field construetion. The content here should be carefully tailored to the actual functions of the particular dealerships involved. Ot~ce management Outlines the general principles of managing an internal office staff, with particular emphasis on the role of the accounting function. Experience has shown that effective control reports-the essential llnk between the accounting records and management control-are often missing. Therefore, appropriate attention should be
given to the development and use of those reports needed to provide management with current, accurate information on the progress of the business against planned sales and profit goals.
INDIVIDUAL CONSULTATION
Dealership managers are often reluctant to let their supplier know much about their business or personal problems they encounter that are not directly related to the sale of the supplier's products. Some supplier companies have therefore found it helpful to introduce independent, objective counsel to the scene, usually on the basis of shared cost with the dealership. Because of his thlrd-party status, a qualified outside consultant can overcome dealer reluctance and quickly get to the heart of the basic problems. The following examples will show that the professional consultant can also effectively educate the dealers in sound general and financial management principles and help them solve ditBeult problems in areas outside the normal scope of the supplier-dealer relationship.
Father Knows Best The sales manager of a large dealership was dearly not fitted for the job and did not like his work, yet he stayed on and on. Reason: the general manager was his older brother, and their father, a major stockholder of the company, insisted that his younger son be kept in the organization. The major supplier had observed weakness in the dealership sales activity for some time but had been unable to get at the cause of the trouble. A consultant was called in, whose third-party status and understanding approach cleared the air for frank discussion of the situation with the general manager and his father. Only then did they see the detrimental effect that keeping the younger man in the organization was having on the business and on the man himself. As a result, the younger brother was permitted to leave
BUSINESS : HORIZONS
A PROGl:tAb~" F O R DEALdI~HSI::IIP ~ r
the company-much to his own relieL He was replaced by a fully qualified sales manager.
A~ter You, Al[onse Two equal partners m a dealership had been close friends for years. In building a profitable business, each handled whatever activity needed attention, and no specific division of responsibilities had been made. Both realized that the business had grown too big for this casual management approach and that it was badly in need of centralized direction, yet neither wanted to make the first move for fear of disturbing the friendship. This amiable deadlock persisted until an outside consultant was introduced to the scene by a supplier company. Each partner confided his feelings to the consultant; he then tactfully suggested that, since one partner was clearly the better salesman, he should take over sales management exclusively, while the other partner, who was acknowledged as the more able administrator, should become general manager of the dealership. Both men welcomed this solution, and each is now making his most productive contribution to the business.
IMPLEMENTING THE PROGBAM
The long-term success of a dealer development program and the extent of meaningful dealer participation in it depend on how tactfully it is introduced, how convincingly the educational material is presented, and, of course, on how much enthusiasm for it can be generated among the dealers. It is particularly important that the dealers understand the basic objective of the program: to produce long-term benefits for the dealers as well as for the supplier company. If dealer confidence and participation are to be obtained, no part of the program should imply a desire by the supplier to achieve company goals at the expense of the dealer.
,FALL. I~4
The method used in introducing the program to the dealers usually is governed by the number involved. To permit free discussion, introductory meetings, held at central locations in the field, should be limited to twenty-five dealers. A special approach may be necessary where very large numbers are involved. For one large dealer group, the supplier company produced a sound film to explain the program; it has now been shown to more than 5,000 dealers throughout the country. In another situation involving a nationwide dealership organization, regional representatives of the industry's trade association assisted in explaining the program to local dealer groups. There axe practical advantages in asking the dealers to make some payment for participating in the development program and for the educational materials provided. Participants are more likely to use the program and seek its benefits ff they have paid for it, at least in part. Free programs are less highly esteemed. While many dealers will take the initiative in actually applying the principles and techniques recommended in the development program, some, though they may start with enthusiasm, will quickly lose their drive. Gaining wide acceptance and use of the program is bound to take some plugging by the supplier organization. A dealer's association or Council can be helpful in endorsing the program and maintaining dealer interest
59
JAMES W. RIgDFIELD
60
in self-improvement. This can be compared to breaking into a market with a new product; while the initial gains may be small, acceptance steadily accelerates ff the product fills a genuine market need. A new dealer development program does not call for any change in the customary efforts of the supplier's salesmen to assist dealers in increasing sales. They can, however, perform an important role in helping to implement the program by stimulating and sustaining interest and participation in the program on the part of their dealer accounts. On the other hand, the supplier's salesmen should not be permitted to counsel dealers on their general management problems. Typically, they usually do not have the training or experience that would qualify them to provide sound advice on these types of problems. Furthermore, being motivated to seek short-term sales gains, they are likely to make recommendations that may be unsound for the dealer from the long-term viewpoint.
DEALER PROGRAM IN ACTION
Recent experience has amply demonstrated how soundly conceived and effectively implemented dealer development programs can help to ensure greater stability, growth, and profitability for a supplier company. The following case histories indicate how certain dealerships, faced with serious difiL culties or disaster, have been saved through the timely provision of knowledgeable help on their management problems. ONE-MAN SHOW An industrial products dealer had built a successful business from scratch, but now saw his sales and profit growth slowing, despite the fact that he was working longer and harder than ever. In desperation, he called on his principal suppliers dealer development people for help. They found that
neither local marketing factors nor competitive activity were to blame. The trouble stemmed from the dealer's attempt to run his business as a one-man show, although it had become much too big for one man to handle. A frank talk with the dealer convinced him that, for his own good, he would have to stop trying to wear all the hats himself and start delegating a major portion of the operating responsibilities to others in the organization. Accordingly, these responsibilities were delegated to two capable, younger subordinates. The dealer now has time to attend to the broader aspects of the management of his business, and his sales and profits have resumed their climb. For its part, the supplier has obviated the necessity of replacing this dealership and has converted an imminent loss into a potentiality for greater profit. No BENCH MARKS A dealer-contractor was discouraged because, although his sales volume had increased steadily in the past three years, his net profits had just as steadily declined. He feared eventual bankruptcy, yet did not know what was causing his trouble. A supplier-instigated study identified the major difficulty as a doclining trend in the gross profit re~rn on a type of construction work that accounted for a substantial part of the dealer's business. With the dealer and his accountant, the supplier developed a realistic, simple budget for the next year, providing operating bench marks and gross profit targets against which the dealer could measure actual results. Included were procedures for analyzing each order and each job completed in the field to determine variances from the gross profit targets, The dealer is now periodically checking his actual operating results against budget, and has cracked down on the field costs in the type of work formerly done at a loss; he is well on his way toward a more profitable operation. For the supplier, a good
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dealership was salvaged. Moreover, as the dealer's control over costs has improved, so has his competitive position, and even greater sales of the supplier's products are in prospect. WORKING CAPITAL SHORTAGE
An equipment dealer had accumulated a substantial amount of retained earnings and decided to build a new office and shop building. The new building was something to be proud of, but it also made quite a hole in the dealership's capital. During the next year, sales and profits dropped off because of adverse economic and competitive conditions in the area, and the dealer suddenly found himself seriously short of working capital. Short-term bank loans helped-until he reached his credit limit. Then the principal supplier became actively concerned, because, having seen the rapid growth and apparent potentialities of this dealer, he had overextended his credit. The supplier helped the dealer to plan and institute a crash recovery program; it involved a drive for an immediate increase in sales volume, a strong effort to collect past due receivables (which had been allowed to slide), a carefully worked-out budget for the ensuing year, and a step-by-step plan for carrying out these actions. The supplier also discussed the situation with the dealer's banker who, on the basis of the painstaking program, agreed to go along a little further with the dealer's loans. The dealer survived the crisis and learned a valuable lesson in financial planning. The supplier safeguarded a substantial investment in this dealership. CONFUSED COIVIPENSATION
Unsound sales compensation arrangements in dealerships can be a major factor in creating salesman turnover, costly replacements, and unsatisfactory sales volume and profit results. In one dealer group, at least ten different types of incentive plans for the
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salesmen were in use, but none of them was fully satisfactory. As a case in point, many of the plans involved a bonus distribution of dealership net profits, usually made at the discretion of the dealer. This indicated that the dealers did not understand one principle of incentive sales compensation-that it should be based on measurable results in areas that the salesmen themselves control, rather than on the operating results of the business as a whole. The salesmen involved were naturally dissatisfied, having experienced years when, because of losses incurred in other functions of the business, their bonuses were not commensurate with their own selling achievements. The supplier company spotted the trouble and developed a model compensation plan that based incentive earnings on orders taken by the individual salesmen and that paid them at percentage rates pegged to the indicated gross profitability of the orders. Many of the dealers have now modified their own plans along the lines of the model; the morale of the salesmen has improved noticeably, and the supplier is already seeing signs of increasing sales productivity among these dealers. In principle, and often in practice, sound management of a small business such as a dealership is the same as management of a larger company; the problems differ in scope, but not necessarily in complexity or in the intensity of their effect upon the individuals concerned. A growing number of supplier companies are becoming aware of
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this fact and are recognizing that, to the extent they can contribute to the management strength of their dealerships, they are helping to ensure their own future growth and stability. That is the long-term view. A nearterm advantage may be found in supplier company sales and profit results, which can be improved by effective implementation of a dealer development program. The management of distribution is a fertile field of exploration in industry's quest for profit improvement. An equally fertile field may be improving the management of
the individual business enterprises on whom suppliers depend for the distribution of their products.
B ut they had never, even in Italy, had sueb a free ~eld for operation as sixteenth-century Antwerp presented, where the market met every day instead of at seasons only, and where the great quantities and standardized quality of the world's wares, pouring into her port, made it possible to hold a goods-market, as well as a money market, of unprecedented size. The traffic of Antwerp surpassed atrl previous notions. Every 1,000 freight-wagons with wares from France and Germany entered the gates; more than 10,000 peasant carts brought provisions from the countryside; and every day came and went 500 pleasure vehicles and 200 passenger wagons. Postal messengers hurried to and fro, in a service paid for and organized by merchants, so that the most distant royal wedding or war might react as soon as possib]e upon the money market. The goods concentrated at Antwerp were of amazing variety and quantity. Perhaps never again will so great a proportion of the universal trade pass through a single harbor, or such an immense part of the world's credit-operations be transacted on a single exchange. -Miriam Beard A H~-rOIIY OF BU~W--~S
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