How Much Are You Letting Go? By Ron Slee
Article Date: 11-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
If you're cutting personnel, you're losing far more than you may realize.
“Chance favors the prepared mind.” Ever hear that old axiom? There should be few if any surprises to any of you in leadership positions. We should be prepared for most moves in the marketplace. Never forget that until you have market capture rates that are too high you will always have an opportunity to increase your sales. No, it won’t be easy, but face it: If it was easy you would already have done it. That is the dilemma. When it is hard to do that means it is worthy of the talents and skills we have in the most important asset pool in the dealership: the customer-contact personnel.Second, the effort that goes into meeting targets or standards doesn’t necessarily point at the purpose of the target. When we are ill prepared we tend to do knee-jerk reactions, but knee-jerks can hurt you. The normal “knee-jerk” reaction in troubling times is to reduce people – after all, the personnel cost is the largest non-hard asset expense that we have in parts and service, so it’s the standard fall-back. After all, it is a variable expense. Expendable Crewmen?
Reducing the number of people is our tried and true method, right? Well it’s been tried, but let’s see how true it is:
You may console yourself with a “Don’t worry,” approach, telling yourself you can always add people later when things clear up and the market is more predictable. Not so fast. You might have been missing the recent truth. The availability of skills for the work that you need done is not very good. The development and training time required to get new employees up to speed is getting longer. But let’s think a little harder – what about some less visible but more sinister consequences:
- Service – Unapplied time is too high so layoff mechanics. What a thought!
- Product Support Sales – Get rid of your product support salesmen; after all, they represent a high expense and what do they do for you anyway? What a thought!
- Parts – Reduce the counter and telephone coverage; the customer can wait a bit longer. We have a good “on hold” message. What a thought!
Harvard Business School did the definitive study in the 1990s and postulates that with an increase in customer retention of 5 percent in the industrial distribution business, net income will increase 45 percent. Many of my clients have proven this ratio true. What is the message? Don’t be too quick trying to hit the sales-to-employee numbers; customer service is vitally important to your short- and long-term health and success.
- Poor customer service - “Don’t worry;” you say, “that doesn’t matter in the short term. We can improve our customer service later in better times.” You are missing the importance of customer retention. In the recent survey data reported in the Product Support Opportunities Handbook our customers told us they are defecting to a nonOEM supplier at a rate of 48 percent over a five-year term. That is the impact of “poor customer service.” And in our business that is a serious problem.
- Market coverage gaps“No worries,” you may think. “The salesmen don’t make that much of a difference.” What is it that sells, the shingle or the salesman? Well, that becomes an interesting question when I read through survey data on customer opinions. Our customers don’t think we are any different than the nonOEM competition in technical knowledge, in responsiveness, or even in quality. How did they get that idea? Easy: It’s because we have insufficient coverage of our markets. We let our competition define us. And many distributors and dealers lay off product support salesmen to hit a standard or a number without understanding what the number is there for in the first place.
Present conditions may seem like a curse, but I urge you to not miss the opportunities. This is the time for talented people and successful businesses to stand up and be counted and to make a difference for their customers. If you look after your employees they will look after your customers – so simple, yet so astounding. It’s called common sense, but it’s not always very common.
- New and highly motivated competition - Those mechanics who we let go, who we eliminated as a cost cutting measure – remember them? Well they need to continue to work; they will continue to do mechanical repairs and maintenance, only now they will do it directly with our customers, they will do it at a price much lower than ours, and they will be happy to be able to pay their bills. And by the way, they will not exactly be praising you when they are communicating with customers, will they.
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