Strategy is from Greek and means “Generalship.”
Strategic Questions? What is this management challenge called Strategy?
Strategy represents where and how “the general” positions scarce and costly resources. Strategy includes the fundamental set of decisions that must be made and made properly for the dealership to survive and prosper.
A Proper Strategy enables the Dealer to achieve business objectives with greatest efficiency at the least amount of cost.
Here are the six pivotal strategic decisions most critical to achieving profitable operations success in your business. And, the answers will either strengthen or weaken your machinery dealership.
Strategy Development
- What products in which market segments?
- What management leadership roles and structure?
- What financial management skills training?
- What sales and marketing investments?
- What product support investment?
- What information technology investment?
Strategic Question 1: What product in which market segments?
In many respects, a machinery dealership can be thought of as a mini-conglomerate with vastly differing business opportunities and probabilities of success. And, “conglomerates” have a tool we can use at the dealer level called “Portfolio Opportunity Analysis.”
Portfolio Opportunity Analysis can serve as an important starting point for discussing resource allocations among strategic business units (Revenue Centers) and alternate business investment opportunities.
At the dealer Corporate Strategy level, we compare several alternate dealer business opportunities by matching “Strength of Dealer Position” to “Market Attractiveness” for each potential dealer revenue source. The Dealer Business Opportunity Portfolio maps opportunities within these two drivers of success.
Obviously, the most desirable investments could be in product and service opportunities in which we enjoy both a very strong Dealer Position in a very Attractive, Growing Market.
Strategy 1 ensures that you have identified the very best, high potential market segments for your primary lines, identify every potential customer in that segment and focus on penetrating those opportunities with every marketing resource you have for each of your five Revenue Centers: Parts, Service, Rentals, Used Machinery and New Machinery Sales.
Strategic Question 2: What management leadership roles and structure?
Strategy 2 helps the dealership examine several dimensions of leadership. Managing Your Leadership Role is very personal. It is the gut decision about what your own job as Dealer Principal should be.
When you first started the business, you were a Jack-of-All-Trades. Remember how you did everything, and did it well. You sold, delivered, billed, collected and possibly even performed field maintenance.
As you moved from entrepreneur to working with hired hands, you were increasingly forced to depend on professional managers under you for results. If you are the Senior Executive brought in to truly manage the business, you still have to make these decisions to move the overall business forward.
Today, you really have three good choices on how to manage your leadership role:
Role A: Focus on Administration
This Leadership Role positions you to work in the administrative areas that you enjoy most. For example, your Leadership Role (of choice) might be financial analysis, tax, insurance, bank relations, office automation, vendor relations and industry trade association activities.
Choice A requires you to hire good people at competitive salaries as lifetime employees. Their role is to achieve Sales and Operations Excellence for you.
Role B: Lead Sales and Marketing
The Sales and Marketing Leadership Role today requires knowledge of digital marketing and how to integrate these lead generating activities with field sales and Key Account Management. Profitable Rentals, Used Machinery and New Machinery Sales that meet market share targets are your primary responsibility. In Role B, you must sustain a very high visibility as the primary interface between your dealership and the customer.
Role C: Become the Aftermarket Operations Guru
Here your Leadership Role is embedded in the detailed day-to-day operations of the Dealership. You are Chief Operations Officer and Service and Parts performance is closely monitored under your careful eye. If managed properly, these are the highest margin producers in the dealership. Aftermarket sales and Profit After Direct Expense targets must be met.
So, you may be thinking, “What’s the problem?” Our experience indicates it is very, very difficult for a Dealer Principal (or CEO/President) to perform all three Roles successfully. You can’t simultaneously Focus on Administration, Lead Sales and Marketing, and Become Aftermarket Operations Guru.
However, this is where many Senior Executives find themselves today. They are attempting to do A, B and C, but with inadequate operations expertise, especially in Parts and Service. In addition, they attempt to run the overall administration of the dealership. The smaller the dealership, the more acute this issue tends to be.
Consequently, moving to the NEXT LEVEL for these dealers will be especially difficult. Unless you attain operational excellence, you can’t build on your CRITICAL MASS to achieve the NEXT LEVEL. By not effectively managing your leadership role, you significantly inhibit the growth of your team and your ultimate prospects for success. Which Role will you play?
Strategic Question 3: What financial management skills training?
Strategy three ensures each dealer manager has at least a fundamental understanding of financial management. Gaining expertise in these skills contributes greatly to successfully achieving challenging revenue and profit targets. And, you must include service and parts managers in this group.
In the machinery distribution business, Revenue Center Management, with a monthly P&L for each Department, has proven to be the very best model for developing financial competence in the leadership team. This requires “open book” management, providing each of the five Revenue Centers monthly financial results illustrating actual against monthly budget.
Seven requirements to build financial competence in your leadership team:
- Basic Revenue Center P&L discussions monthly.
- Absorption Rate as a management development tool.
- Key Profit Indicators (KPIs) for each Revenue Center.
- Understanding cash traps.
- Understanding cash conversion cycle.
- GP Contribution Ranking Reports for Parts Line Items and Customers.
- Examine overall Sales Mix.
(Full detailed explanations for each point are preserved in the text above.)
Strategic Question 4: What sales and marketing investments?
Even today many dealers still use outdated techniques from the 1950s and 60s. Prospecting Technology now includes all tools that improve deal visibility and closure rates. Buyers use the internet for preliminary research, and dealers must integrate digital marketing with sales teams.
To stay competitive, dealer reps must receive:
- Technology-based lead generation support.
- Training in basic selling skills.
- CRM software to enhance account management.
Strategic Question 5: What product support investment?
Strategy 5 emphasizes 14 Service and Parts Department Investments critical to success. These include leadership training, metrics, technician programs, pricing optimization, and customer profitability ranking.
The Service Department can deliver over 250% greater profit after direct expense than new equipment sales, yet service and parts managers are often undervalued despite being major profit drivers.
Strategic Question 6: What information technology investment?
By Dr. Nick McGaughey, CPA
A dealership must assess its readiness for digital transformation. The IT strategy should align with the business strategy, enabling greater strategic effectiveness, operational efficiency, and customer experience.
Digital technologies include websites, social media, analytics, cloud computing, mobile, visualization, IoT, and information security. A clear execution roadmap is required for implementation, covering customer demand, skills, data, technology agility, and risk management.
Conclusion
Leaders in today’s machinery distribution business must develop people, markets, and financial competence. Revenue Center Managers must be seen as business managers first, employing world-class practices, monitoring KPIs, and fostering collaboration.
This article is an abstract of Strategies, Tactics, Operations for Achieving Dealer Excellence (564 pages), available at www.mcdonaldgroupinc.com.