Distributors say, “We put customers first.” In truth, they usually put financial assets first.

It’s a lot like a race car driver ignoring car maintenance and concentrating on moving the finish line.

With all of the emphasis on activity-based costing, re-engineering, and cutting excess channel costs — all of which are good ideas — distributors essentially ignore the one thing that can provide the differentiation that will build market share, reduce price pressure and (in the long run) keep them in business: their employees.

It’s understandable. Distributors come from a long tradition of asset management. Notch up the inventory a fraction of a turn. Cut warehouse expenses a fraction of a point. Decrease selling expenses. The benefits of all those changes flow straight to the bottom line. That’s fine. Prudent asset management is a good thing, unless the cost in long-term customer satisfaction is greater than the benefit in short-term savings.

However, asset management causes incremental increases in profitability. Today, distributors need to deal with what it will take to (first) survive and (then) prosper. That means capturing and growing profitable customers.

The literature is full of studies that link satisfied employees with satisfied customers. It makes sense; you cannot expect any employee to treat a customer any better than he or she perceives he or she is being treated. One study established a dramatic link not only between satisfied employees, but also greater profits.

According to a study reported in the Harvard Business Review and written by three executives involved in engineering the Sears turnaround, a 5 percent improvement in employee attitude creates a 1.3 percent improvement in customer satisfaction. That, in turn, creates a .5 percent improvement in revenue growth. The point is, employee satisfaction is the driver.

Which brings us to the point: the greatest opportunity for success is not in focusing on asset management (although good asset management is necessary) or in putting customers first (even though we would like for them to think they are). Your greatest opportunity for success is in focusing on your employees, who will then do wonderful things for the customers and help you grow the business.

If you are not spending a considerable part of your time working on how to make your employees happier, you should be. You should practice what Purdue University’s Dr. Kathryne Newton calls “employee-centric” management.

Getting to employee-centric management and making it work requires three things:

The question to ask yourself is, “If Joe were applying for the same job he has now — knowing everything I know — would I hire him?” If the answer is no, Joe is in the wrong spot (or has not been properly trained and/or motivated for this one). In any event, something needs to be done, and if Joe does not respond to additional training, coaching, feedback, etc., he should be assigned to a higher value-added position in somebody else’s company.

This also means that you should always be looking for exceptional candidates, for the sales staff, for the warehouse, for management positions. Employee-centric management only works when you have the right people in the jobs.

1) Put them in charge of their own success.
2) Reward them lavishly.
3) Keep it interesting and satisfying.

The first point has to do with how you pay your employees. Pay them so their behaviors contribute to the company’s growth and to their own success. (That’s true for everybody in the company, not just salespeople.) The compensation system should have broad bounds and — within those bounds — employees dictate their own success.

The second point is simple: You can make a lot more money worrying about how your employees can make a lot more money than worrying about how you can make a lot more money. If your compensation system is properly designed, you should pray that every employee is as rich as a young Internet tycoon. Your company will be very prosperous. And if your compensation system is not properly designed, change the compensation system; don’t punish the employees.

We’ve all heard about managers who cut sales territories because the salesperson makes too much money (and most of us realize how dumb that is). However, other management behavior can be much more subtle while being equally demotivating. For instance (true story), one client routinely searched the accounts receivable files to make sure “new business” commissions were not paid on any account that had made any purchase, no matter how small or how accidental, in the last 12 months. The client may have saved $200 to $300 in commissions, but he also lost two good salesmen.

The third step in making the job worth their while is to work to make the job interesting and satisfying. Human resources studies indicate that people want to grow in their jobs, learn new skills, work independently, and get recognition from both management and their peers. It’s up to you to make sure your employees not only get all of those things from you, but they know you’re committed to providing them.

If making the job worth their while seems too expensive or too much trouble, keep this in mind: when you lose an employee, it will probably be a good employee. He or she is the one who can find another job. And running a business with what’s left is not any fun at all.

That’s what happens when management doesn’t communicate with the employees. Rumors start, and rumors are never positive.

Open-book management — sharing financial information with the employees — is a step in the right direction, but it only deals with one aspect of the company. Communicate your goals and objectives, your vision of the company’s future, and the part your employees play in it.

One more point: never tell people what to do without telling them why it’s important.

Employee-centric management is, in a way, a wrenching change from what most managers are used to. It’s more comfortable to tweak inventory levels or whittle on selling expenses. However, there’s one truth that distributors continue to face: your business depends on your customers and your customers depend on your employees. That means your first priority has to be your employees. 

Chuck Holmes is president of Corporate Strategies Inc., an Atlanta company specializing in training, consulting and market development tools for distributors. He can be reached at 770-491-1239, or cholmes@corstrat.org.

This article originally appeared in the July/August '00 issue of Progressive Distributor. Copyright 2000.