Consultant Merrifield: Open Book Management Increases Productivity

Jason Sandefur

Business consultant Bruce Merrifield predicted tough economic times ahead, saying the U.S. is in the third year of a six-year process known as a �post-bubble� economy, something the country hasn�t seen since 1929.
Speaking at the Western Association of Fastener Distributors fall conference, Merrifield said that interest rates have plummeted, deficit spending continues to increase, and the money supply has swelled. Despite that, the economy hasn�t responded, and the fastener industry has been hit harder than most markets, he stated.
Merrifield knows a little bit about business. After earning an M.B.A. from Harvard in 1974, he bought a national distributor of security hardware and transformed it from a $7 million company to one with annual sales of $130 million. Merrifield also founded the Merrifield Consulting Group Inc. in Chapel Hill, NC, where he writes, lectures and produces training products. Merrifield authored the book Electronic Commerce for Distribution Channels.
With dour economic conditions, Merrifield advised that now is a good time for distributors to tighten their belts and streamline their operations for enhanced profitability.
�Sometimes we need a crisis to do what we know we should have done before,� he stated.
Merrifield suggested that each distributor should figure out what his customer niche is. If you don�t know what that is, your business could be in trouble, he pointed out. Distributors should also determine who their five most profitable accounts are so they can focus on those clients.
�Three percent of your customers will be 80% of profitable growth in the next 10 years � figure out who they are,� he admonished.
Merrifield divides accounts into four categories based on how they purchase your product. �A� account sales come from outside sales. �B� accounts are produced through telemarketing, etc. �C� accounts rely on in-house and direct-mail solicitations. And �D� accounts are retail and �cash and carry� customers.
A common mistake Merrifield said many distributors make is carrying too many outside salespeople to service �C� & �D� accounts, which are the least productive clients they have. In some cases he recommended distributors sever relationships with customers that aren�t making the business money and have little potential for growth.
�Better to be everything to some than something to all,� he remarked.
He also advised distributors to give what he called �volume vanity� a rest. High-volume, low-margin accounts are not your most fertile money makers. If you want to grow, you have to pay attention to your strongest accounts, he said.
Think of your business as a bush with a fixed root system, he suggested. Resources (water, sunlight, etc.) flow to all the individual roots to nourish
them. If you prune the bush, the same amount of resources now flow to fewer roots, reinvigorating the entire bush.
Apply that concept to business, and you have an idea of how trimming certain clients from your account list can actually make you money. By severing unprofitable clients, you can focus on your best clients and do a better job, Merrifield explained.
It�s not about friendship, but economic reality, he observed. Many customers want something for nothing, leaving suppliers to subsidize discounts. Merrifield suggested an honest dialogue between distributor and client. Remind customers to �don�t forget: you get what you pay for.�
But managing customers isn�t the only way to increase profitability, he emphasized. Merrifield promoted a conversion to �open book management� as a method to increase productivity and employee accountability. It�s a process he calls �turning lead into gold.�
Merrifield cited a study published in Jim Collins� 2001 book Good to Great in which Collins identified common attributes of great companies. First, good CEOs give credit to others and accept responsibility when things go wrong. Secondly, those companies encourage a great measure of employee responsibility for a simple reason: good business plans don�t work with bad people, Merrifield said. Many companies are extinction in motion, what he called �the walking dead.� Their employees compare their own performance with that of other employees.
�It�s easy to find someone who is crummier than we are.�
Instead, distributors should develop a high-performance, high-commitment environment where good people equal good service, which equals good profit.
�Get the right people on the bus,� Merrifield admonished.
Rule one is to share the company numbers with employees, a practice of all high-performance companies, he recounted. If the company does well, then all share in the rewards. If it does poorly, then everyone needs to examine what went wrong, not just management. Merrifield recommended giving employees premium pay with the knowledge that if they don�t perform, you�ll use that premium pay to find someone who can. This alone can eliminate many poorly performing employees.
�You won�t have to worry about firing them. They�ll leave on their own.�
Time and time again it�s been proven that the more space and responsibility you give employees, the more active they become, Merrifield stressed. Employees have to understand that their duties and rewards can�t expand if the company isn�t growing. He emphasized that most employees have an entrepreneurial spirit at home but are more dependent at work because they�re treated like children. A boss/employee relationship stunts growth, while a partnership can be productive for everyone. As partners, employees begin to take pride in their work and seek ways to do a better job.
�Doing it right the first time is the low-cost, high-morale way to do it.�\ �2002 FastenerNews.com