Another Business Transition. This is the critical one…and we are missing it.
Today our Founder and Managing Member Ron Slee writes about adapting to our current realities in “Another Business Transition. This is the critical one…and we are missing it.”
I have had an interesting and extremely rewarding career in the equipment world. I never dreamt about working in this industry. It just happened.
I was 22 years old, and it was a tough time to get a job in the data processing world. I wanted to work for IBM. I had a mathematics -physics education with minors in statistics and computer science. I made a choice on education that didn’t make a lot of sense, looking back. I was a generalist by nature and a teacher by aptitude.
I was skiing north of Montreal after leaving a job working in a custodial role at a place called “Boys Farm and Training School.” It was started by my maternal great grandfather, and I wanted to see what it was all about. I had a group interview, kind of like a casting call, and got hired as a “control figure.” I had been a serious swimmer and had a physique then. I learned a lot at that work particularly in personality profiling as that is what they trained me to do. It was too much for me, working 7:00 AM to 11:00 PM daily and being on call overnight. I had one day off every two weeks. I needed a rest.
The VP Finance for the Caterpillar dealer in Quebec, John Swift, called my home looking for me. I had taught two of his children at university, so he knew me a bit. He asked me to come for an interview and see if there was mutual interest in an opening they were trying to fill. I got the job and was hired on a one-year contract to find and fix a problem in the business system that they had installed. Before the year was up, I was hired full time.
I spent ten years there and it was one of the most impactful ten years of my life. I was given the opportunity to get involved wherever they wanted to make changes and improve things. In other works, look at a system, determine how it could be performed in a different and better manner, create the change plan, and implement it. It was absolutely a perfect fit for what would keep me challenged. My work even today continues to be a perfect fit.
Currently we are developing a lifelong learning platform for people between the ages of 16 and 76. What I call Workforce Development. I still teach in the conventional manner, what I call the “Sage on the Stage,” but it is rare these days.
I started in March of 1969. That was 55 years ago. Suffice it to say I have seen a lot of change in my career. Some of it has been good, making performance better and improving customer satisfaction. Some of them not so good, economic changes, which caused pain.
Throughout that time, however, the business has been transaction driven. Process things. Orders, complaints, physical counts, monthly reporting etc.
During that time, we have experienced serious changes in prices. Inflation was causing some of it. Some of it is caused by dealers wanting to increase their revenue lines. The thing that was missing was data. Working in Canada, and Quebec, in the parts business we had to contend with foreign exchange, custom duties and taxes. That meant that a part number could have up to six different prices depending on its end use. Our customers were having fits with it as they had purchased parts that could have been six different prices. I was asked to look at it and see if I could produce a solution that was good for the dealer and also the customer. That was my first dive into data.
I went through everything and created what I called “Matrix Pricing.” It was based on the price of the part. It aggregated all demand and put it into one “Bucket.” That way we “normalized” the distribution of partes sales across multiple duty and tax applications. I was able to use my mathematical statistics education for the first time. I have been data driven ever since.
The industry, however, has not become data driven, they are still transaction driven.
Over the years we have experienced many economic cycles. Each cycle has resulted in actions at the dealer level. Most of the action has been a combination of increasing prices and decreasing expenses. When I talk about decreasing expenses, we should never forget that personnel are the largest single expenses in a distribution channel. That to many of you will explain why I have been telling anyone who would listen that we have chosen profit over people in how we operate our business. We have reduced the number of people doing the work to maintain a reasonable net income.
We were still a transaction driven world.
The results are quite clear. Price increases caused customers to look for other suppliers. Personnel reduction meant that customer service declined. That led to more and more of the same to survive. As we have seen many did not survive. As an example, today we have two Caterpillar dealers in Canada. When I started there were ten. You can look around and see the same thing in every geographical area and every product line in the capital goods industry.
Meanwhile we have had some serious changes in technology. We have also had some “Revolutionary Reformers.” That is what I have named the “disruptors.”
Jeff Bezos is an easy example. He saw a transaction business that had not changed in any meaningful way for a century. We brought the purchasing of books online. Then, however, he had data. He was wise enough to look at the data and change his business to be the supplier of anything and everything that a consumer wanted. He became the largest retailer in the world. I don’t want to forget Sam Walton. He changed distribution in very meaningful ways as well. He told his suppliers that they would be his only source for their products, but he had two conditions. They were never to let his shelf be empty and he would pay for their products when he got paid by the customer at check out.
The internet arrived in the late 1960’s and became rather ubiquitous with America Online in the 1970’s. Most of us have and continue to use the internet. That change and disruption was HUGE. Social media has caused all manner of turbulence in society. Companies like Google and Meta and Twitter and TikTok have caused much debate. No matter because it is here.
How have we in the equipment world adapted to this reality? Not very well. Let me ask a few questions if you think I am being too critical.
What percentage of your parts business comes in over the internet?
What percentage of your service work, field, or shop, has appointments created on the internet?
What percentage of your equipment sales are done over the internet like TrueCar?
What percentage of your rentals are transacted over the internet?
What percentage of your receivables are paid directly to your bank?
How did you do?
Let’s turn the corner and look at the parts business.
How many of you measure your parts availability as a percentage of fill? A pretty common metric. Why not supply 100% of the customer parts needs next day? That is a data driven question. NOT a transaction question.
Here are two other quite easy data questions.
- What are the potential parts and service revenue for each of your customers? How can you answer that when you don’t even have accurate machine ownership? You can’t.
- What percentage of your customers who bought something from you in 2023 have not bought anything from you in 2024? Most of you don’t know.
Market coverage is typically done by geography. Most of you use an 80:20 rule in market coverage. Very few of your equipment sales associates will call on a customer who does not own any equipment for your brand. Why is that? I can go on and on.
The point I want to make to you is remarkably simple. Hire some people who have a statistics background and let them look around your data and see what they find. The first thing they will find is that your data is not exactly accurate. You typically don’t have any database management protocols of discipline.
As Donald Rumsfeld is famous for saying “We don’t know what we don’t know.” Neither do you.
The time is now.