Managing Change, Balancing Your BusinessWritten By Mary Sedor
Article Date: 10-01-2007
Copyright (C) 2007 Associated Equipment Distributors. All Rights Reserved.
Balanced Scorecard, economic forecasts give attendees at the 2007 AED/QUALCOMM Executive Forum a jumpstart for the coming year. If you missed it, you can still order a CD of the entire program: visit www.aednet.org/execforum
The more than 250 equipment industry executives in attendance at the 2007 AED/QUALCOMM Executive Forum Sept. 13-14, gained insight into economic conditions for the coming year, as well as learned key management strategies to implement in a changing economic climate. The Executive Forum covered the Balanced Scorecard approach and provided participants with real-world insight and a set of management principles that will allow participants to think critically about their businesses and try a unique approach to differentiate themselves in an ever-increasing competitive landscape.
“You’ve been in the industry long enough to know it’s cyclical,” said Mike Marks, moderator and principal of Indian River Consulting Group. “The reason Balanced Scorecard is here now is because it’s an opportunity.”
Dr. David Norton, co-author of The Balanced Scorecard, says the goal he and Dr. Robert Kaplan had when creating the Balanced Scorecard was to create a new way to measure. The only way to make money in a competitive marketplace is to have a strategy, he said. Unfortunately, most companies have difficulty executing strategy.
Nine out of 10 companies fail when executing strategy, but the one company that succeeds has created a position of dominance in the industry, he said.
“You can’t manage what you can’t describe. If you could measure one thing in your organization, measure the strategy. It’s your approach to winning in the marketplace. Strategy is how an organization intends to create value for its stakeholders,” said Norton.
While financial measurement is important, Norton noted that financials are a lag indicator. He introduced the strategy map, which describes how the enterprise creates value. There are four key measures: the learning and growth perspective, the internal processes perspective, the customer perspective and the financial perspective.
“When you hear the term ‘balanced scorecard’ this is the balance we’re trying to focus on: balancing lag indicators with lead indicators, short term with long term,” Norton said.
The strategy map helps users define a strategy, translate it into objectives, and from there they can build a scorecard. The key, says Norton, is to assign one person to be responsible for the process.
Key principles of a strategy-focused organization:
A panel of equipment dealer executives discussed the various levels at which they have implemented Balanced Scorecard in their organizations. The panelists were: Monty Boyd, president and CEO of Whayne Supply Co. in Louisville, Ky.; Chris Hurley, controller, Faris Machinery, Commerce City, Colo.; Chris Pera, president, Modern Equipment Sales & Rental, King of Prussia, Pa.; and Dale Leppo, chairman, Leppo Rents/Bobcat of Akron, Tallmadge, Ohio.
- Mobilize change through executive leadership.
- Translate strategy into operational terms.
- Align the organization to the strategy.
- Make strategy everyone’s job.
- Make strategy a continual process.
Advice from the panelists for dealers implementing Balanced Scorecard:
Richard G. Fanter, founder of Cyclcast-Intercast, says that it’s difficult to forecast with the national numbers because of great regional variance, even within the same metropolitan areas. Housing and nonresidential construction – two factors Fanter uses to forecast – are expected to continue to weaken in and through 2008. The third factor, highway, is expected to be a good market the rest of 2007 and into 2008.
- Plan your work and work your plan.
- Each of your people has to have a plan, and they need to work their plans. With management help, get into their individual processes, and improve and align those activities with your overall strategy.
- Keep the complexity out of it. What is it as an organization that you are all about? What are you trying to accomplish? What do you do best? Create a simple message and communicate it through the entire organization.
- Balanced Scorecard is just a tool. If you don’t use it, it doesn’t accomplish anything.
Fanter predicts a 20 percent decline this year, followed by an additional 18 percent decline next year for the total industry.
Fanter says dealers should be cautious of trade-in values on used equipment, as prices will continue to soften, and dealers should be careful on the sizing of their rental fleets. He also noted dealers can take advantage of a softening market to strengthen their product support opportunities and take the time to train technicians so when the upturn comes everything will run smoothly.
“As long as you recognize what’s happening, and your plan reflects reality, you can keep your business profitable. Think short term blip. This market is going to continue to be soft in 2008 and it will take good, prudent management to move through 2008 and maintain profitability,” he said.
Business valuation and private equity are two hot topics today in the equipment industry. A panel discussed what private equity looks for in a company and what sellers can expect for their businesses. The panelists were: Kristina Jakstys, assistant vice president, US Bank; Ted Nark, managing director, KRG Capital Partners; James Miller, managing director and principal, Vetus Partners; Bob Fines, Kirtland Capital Partners; Garry Bartecki, AED staff vice president, finance and administration.
The panel noted that the more “hands off” a company is, the more interesting it becomes to private equity. However, Miller says private equity won’t pay top dollar for a company that needs to have best practices implemented.
Joan Waltman, division president QUALCOMM Enterprise Services, described how QUALCOMM recently implemented Balanced Scorecard. As difficult as implementing strategy is, Waltman says working through the process and becoming successful at it is the opportunity. One of the barriers to implementing strategy could be your company’s culture. Waltman says you can give employees a bird’s eye view of what the strategy means to the company, constantly communicate with your employees and reward them for working across silos.
“Once you [implement your strategy], no one will be able to replicate it. It’s hard work, but it’s transformational for your business,” she said.
A third panel, comprising John Caskey, executive director, SmartEquip; Kenneth Silber, associate professor, Northern Illinois University; Leigh Condon, chairman, Strategic Feedback; and AED’s Garry Bartecki, discussed how technology can lower the cost of measuring the perspectives of the Balanced Scorecard.
“High profit dealers in the CODB study are segregated from everyone else. Their results are double and triple a typical dealer. Not much changed in the gross profit line, but when you get down to the personnel area, they are doing more with fewer people,” said Bartecki.
Panelists gave their advice for dealers:
Rep. Peter Roskam (R-IL) told dealers not to overreact to the housing issue. He says the housing market will correct itself over time.
- Walk through your dealership as if you were a new buyer. I think we fool ourselves into accepting multiple layers of a workaround but there are inherent inefficiencies.
- If you put a good performer in a bad system, the bad system wins every time.
- All of you know how expensive it is and difficult it is to find new customer; if you don’t have process in place to collect feedback what kind of experience is the customer receiving?
- Document your processes. Cross train to minimize the effect of turnover.
Roskam mentioned the Minneapolis W35 bridge collapse as he transitioned into a highway funding discussion.
“While it was a tragedy, it was a galvanizing point. It is a focal point for increased congressional observation and attention as it relates to the infrastructure of our country. The challenge always is where those resources come from…it’s an ongoing debate,” he said.
Roskam commended the AED Washington staff for their work on Capitol Hill.
“The folks you have representing you enjoy an outstanding reputation and do an outstanding job and are very present for you,” he said.
AED President Toby Mack launched an initiative to position the construction equipment distribution industry for a leadership role in the looming national debate over transportation infrastructure investment. Mack told the audience that the nation’s infrastructure needs were dire, that Congress would soon be forced to make difficult decisions about how to pay for much needed additional highway construction, and that AED would be playing a major role in that national dialogue. The vehicle for AED’s involvement will be the association’s new Highway Infrastructure Taskforce (HIT).
Multiple government estimates predict that by the time SAFETEA-LU, the current highway law, expires in September 2009, gas tax revenues would fall short of authorization levels by close to $5 billion. If Congress does not address the problem, highway funding in 2009 could be cut by more than 30 percent.
“AED has seen this coming, and we have no intention of sitting on our hands and letting other organizations carry our water and hoping they can fix this for us,” Mack said. “We are gearing up to play a major leadership role beyond anything we’ve done before. With our excellent Washington office team backed up by strong support from the Oak Brook operation, and with the mobilization of our membership to provide both the resources and the local political activism (which is critical), we can not only turn this around, but we can lay the groundwork for major new investment in highway capacity going forward.”
Don Shilling, president General Equipment & Supply and president of The AED Foundation, provided an overview of the many programs available through The AED Foundation.
And Eli S. Lustgarten, senior vice president, Longbow Research, says “the world isn’t going to end,” and indeed the worst is probably over. While the market is quite volatile, Lustgarten advised dealers to pay attention to what’s happening but not to act on all the data they may see.
“It’s a volatile market but the world is not going to end. There are a few good years left for this industrial cycle,” he said.
Lustgarten also said recession is not in the cards.
“If anybody thinks pricing is consistent with recession take another look. Those markets remain relatively strong. Those are not conditions that tell you the world is going to end. You’re not going to see these massive declines in construction equipment activity for at least the next year. There is solid evidence that business conditions do not dictate that kind of market,” he said.
The outlook for construction equipment demand is becoming more cloudy. Retail sales are likely to fall between 2 and 5 percent, Lustgarten predicts.
“The bottom line is that business conditions are falling off from what we saw in ’05 and ’06, but are still at a level of far better profitability and activity than we’ve seen in many years. As long as the government and people in power act rationally, it will stabilize in the next six months,” he said.
Dr. David Sirota, author of The Enthusiastic Employee, concluded the Forum, telling executives that the real issue isn’t how you motivate employees, but instead how you prevent management from destroying motivation. Enthusiastic employees produce more than the job requires, volunteer for difficult assignments and have a bottom line impact on your business.
“It’s a myth that people are like objects and you have to cajole them in order to get them to work. If you assume people have to be pushed and threatened to work, sure enough what you’ll be doing is destroying their motivation.”
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