Mike Marks, founder and CEO of Indian River Consulting Group in Melbourne, Fla., has been moderating the Associated Equipment Distributors’ Executive Forums annually since they began nearly a decade ago. Marks is a consultant and speaker who has had many distributorships and rental companies as his clients and understands the dynamics of the construction equipment manufacturing, distribution and rental industries very well. RER recently spoke to Marks about the next AED Executive Forum in Chicago, Sept. 13th and 14th. (For more information on Marks, go to www.ircg.com and for more information on the Forum go to www.aednet.org.)
RER: The topic “The Balanced Scorecard” will be discussing metrics that help dealerships and other companies measure performance. What are some of these metrics?
Marks: The fundamental deal that some people don’t get in this industry is what they’re measuring. They tend to have a very good grip of the financial metrics and fleet utilization and all kinds of other numbers. We have our cost-of-doing-business report and everybody looks at these things and the economy and economic trends. But what’s really interesting when you really think about it is that people understand the financials and even have a vision and a strategy for their company about where they want to take it, but they don’t link their strategy to their business plan. The balanced scorecard is really about a way to think about a business because basically at the end of the month when you get your financials you’re either happy or you’re sad, but you’re never any smarter.
The whole idea of The Balanced Scorecard is rather than just putting together a bunch of numbers and everybody gets together at the end of the month and talks about what you’ve got to do better, this, that and the other, what it really does is it helps you identify what are the activities that are going to help you create the results that you want.
A perfect example is a guy says he wants to grow his service business 10 percent and he tells his service guy we’re going to go do that but he doesn’t actually think about do we need more service techs if we’re going to do 10 percent more business? Where are these customers going to come from and what are we going to do to actually make the customers want to do more business with us? They never actually work it through.
So they lack the specific steps required and therefore don’t have a real measurement?
You tell employees they have to re-double their efforts and work harder, but nobody actually sits and talks about the specifics. What do you actually have to do to get the service revenues up 10 percent? People basically say we want the financial results, but if you look at three things underneath it, number one is how do you get customers engaged in your company? Another is how do you get employees engaged in your company? And the third is what are you going to do to improve the processes in your company?
Typically if you look at service departments, they just basically try to get stuff out of the shop and get it back out in the field. The normal sort of financial guy just says “we try to get everything out of the shop as much and as fast as we can.” But some of the indicators, in terms of measuring customer engagement with the service shop, would be what percentage of your customers are repeat customers versus new? Some of these guys should be sitting in numbers like the high 70s and 80s and that means the customers are happy and they keep coming back. When the numbers get lower, it says you’re maybe selling on price or just because there is no availability because everybody is busy. Or maybe people are coming to you but you’re not their first choice.
So even doing things like customer engagement surveys: “What do you think? What are the appreciated practices that we do or the competition does?” We’ve got David Sirota, who wrote a book called “The Enthusiastic Employee” to speak about how do you get employees enthusiastic about your business. He’ll really shake them up!
What are some of the principles he'll talk about?
Let’s assume 5 percent of our employees are slackers and don’t care. So we put together employee handbooks and all these systems together to keep them from screwing up and what we end up doing effectively is treating the other 95 percent like criminals that have to punch their time cards and everything else so we know they’re doing their jobs. Some really interesting research shows that when people start jobs, invariably they start enthusiastic, full of hope and excited about their future and what happens is managers of a lot of these practices sort of beat the enthusiasm out of them. So they’re all talking about “how do you motivate employees?” and one of the key ideas is that they start off motivated when they come into a new job and they are excited about the impact and then people inadvertently, without intending to, beat the enthusiasm out of them. And he’s got really neat examples.
What’s really interesting about the way this all ties together is that if you want good financial results one of the things you have to do is start to measure how well do your employees like to work there. And we’ve got this sort of 1960s mentality that has management on one side and the workers on the other, this blue-collar conflict that still exists in the industry. There’s all kinds of really good evidence that shows companies that have engaged workforces make a lot more money and grow a lot faster, especially in down markets, than companies that don’t.
So company executives have all these financial goals, but what we’re basically going to do is make a case to start thinking about what are the activities that will help create them and how do you get customers involved, how do you get employees involved, how do you start improving your processes. I thought the forum on “lean” last year had a lot of practical stuff in it that guys could use, but this one’s going to have even more.
What about smaller rental companies that can’t afford the expensive software packages the bigger firms use?
Some of the small companies know they are doing well if they look at the yard and it’s empty! There are two things that are really important if I look at this from the point of view of a mom-and-pop rental yard, which, as you know, are still the backbone of the industry. The Balanced Scorecard is a way of thinking about a business so that if I was a small guy and I didn’t want to spend a gazillion dollars on software, if I start thinking about how do I put a balanced scorecard together for my 15-man shop, I can actually come up with the things that are really important to me.
So if I get the right measures during the month, rather than waiting for the end of the month, I can actually start changing what people are doing and get different results. If they get the thinking, they can get a big step up on that. The Balanced Scorecard talks about getting customers engaged and it talks about getting employees engaged and thinking about how do you create a good place to work. So there is a real opportunity for a small rental house in my view to do a much better job because they can be more responsive in the area of customer intimacy.
And the second thing a small guy can do is the part about making a neat place to work and that doesn’t mean it has to be all politically correct and touchy-feely, but it looks at: “are incentives aligned with what you’re trying to do?” That’s what the balanced scorecard does. A small company can actually get some payoff from a balanced scorecard. And some of the coolest balanced scorecards I’ve seen have been white boards sitting out in a shop somewhere.
So the Balanced Scorecard is actually more a thought process and what it does is it takes what a senior executive thinks about — “I want to grow my business” — and the rest of it and it shows you not the academic theory stuff, but it shows you how to link this back into how you pay people, how you measure things, how you know that you’re actually getting there rather than just waiting for the financial results.
Part of employee engagement must have to do with empowerment.
Absolutely, because if you think about an employee who comes to work in a company, they want to have impact. So let’s say I’m going to work for a small rental house and I’m the new guy in the shop, I’m at the bottom of the food chain and I’m basically the “go-for” for donuts and I wash down the equipment and that kind of stuff, examples of empowerment would be that this guy gets to do a safety inspection. He’s doing the safety inspections and it’s kind of like, “whoever sees the problem owns it.” Some of the stuff he can fix himself. Employees want to be recognized for taking some initiative and exercising some judgment. You might have to keep a leash on him in the beginning so he doesn’t hurt himself, but when you talk about empowerment in the rental business, it means every employee isn’t going “it’s not my department.” They want to keep the customer happy and it’s like owning the problems because they can have impact and change what they’re doing.
