Management Apathy

I recently received a most interesting phone call.

When I answered the phone, I immediately recognized the name of the company as one of the most visible distributors in our construction supply industry. The owner described how this seemingly invincible 75-year-old firm had very little to show for all those years except their good name. In fact, over the past five years, their sales had deteriorated by over one third.

The owner cited two major factors that he believed to be the cause: 1. A strong national distributor had opened in his market. 2. A near depression was looming over the community due to the closure of a large military base.

I asked the owner to allow me to interview and test each of his key employees and also interview several customers. The owner also agreed to send me the company's financial statements from the past five years.

The results should be a warning to every business -- management apathy will kill a business.

From the psychological tests we administered, we learned that the organization was not balanced. Inertia had set in. There was no spark, no innovation. No one was initiating change.

The employees were good folks with excellent product knowledge and years of experience. The problem was that they were merely going through the same motions year after year, expecting different results.

The financial statements revealed that over the past five years operating expenses had steadily increased while sales and gross margin had slowly declined, producing a lot of red ink.

Employee interviews revealed that not one of them had a clue that the company was in trouble. Management kept profitability a secret unto themselves. Everyone was working hard, but no one was doing any long term thinking or planning or keeping score.

The core problem was that for years management had given raises averaging 4%-5% regardless of performance. Gross profit didn't keep pace, so the bottom line slowly eroded.

The salespeople had noticed that they had lost a few accounts here and there, but they had spent no time on a game plan to replace them.

The operations manager realized that overtime was a problem, but limits were never set.

The buyer was achieving around five inventory turns and thought that this was a pretty good job for a business doing almost $20 million in sales.

The customer interviews revealed that our client did have a great reputation for quality and service, but most of the customers who weren't regular customers hadn't seen one of this company's sales reps in years. To make a long story short, the sales force was in a rut, calling on the same customers year after year.

Could a similar scenario occur in your company? By putting basic management principles in place now, any company can avoid this kind of catastrophe. Just don't wait until you are in serious trouble to begin.

The most profitable companies I work with have a leader at the helm. All companies have managers in place, but only the most progressive have placed an emphasis on leadership. While leaders are also managers, they do more than merely tell their people what to do  what I call directing traffic. True leaders have developed the critical thinking skills necessary to determine why their organization is not performing to high standards.

For example, if your sales force has not produced sufficient sales for your company to keep up with the growth in your market; that is, your company is losing market share to the competition, critical thinking skills are necessary to determine why this is the case.

It is often the case that owners and managers are so close to the business that they can't observe it objectively. They are so much a part of the "day to day" that they can't step back and see the business analytically. If this is the case with you as an owner or manager, it would be wise to either retain an industry consultant or invite a fellow owner or manager whom you respect to take a critical look at your business and make proactive recommendations.

Executive success is measured by a leader's ability to achieve an optimal level of profitability in good times and in times of slower business activity. Don't allow management apathy to rob you and your business of the success it deserves.

(Bill Lee is a consultant who works with owners who want to put more money on the bottom line and author of Gross Margin: 26 Factors Affecting Your Bottom Line. $29.95 + $5 S&H. To order, go to http://www.mygrossmargin.com; E-mail: blee@mygrossmargin.com)