Smart-People Leadership Principles
I’m going to show you the right spot. The content I’m going to discuss is the reality of the business world and should be addressed if you are serious about increasing your net profit.
Do you spend more of your training budget to improve technical or interpersonal performance? I know the answer to that question as thousands of employees over the years agree the answer is technical.
It has been estimated that up to 90% of training dollars are spent to improve technical performance. Why is this alarming? Because, while you are training to improve technical performance, people issues in your dealership decrease your operational efficiency by as much as 25%. Yes, decreases.
And, I’ve had dealerships tell me they believe their loss is closer to a whopping 50%. Think about the asymmetry – interpersonal issues are burning through your money every hour of the day, yet training on interpersonal performance may get 10% of your training budget.
Consider one more fact – your people represent your most underdeveloped resource since people only use about 10% of their potential. You are going to see through the rest of this article what employees’ interpersonal behaviors may be costing your dealership and, as you will see, the numbers are daunting.
Let’s begin our show and tell by examining the following illustration.
Employee → Teamwork → Sell Service & Inventory → $Net Profit
Whenever I ask employees, “How does your dealership make money?” every person in class tells me about selling a service or product. Then I ask the following questions:
- “How does that happen?” “Is teamwork required in your dealership to sell a service or product?” You know the answer to that question.
- Those questions are followed up with, “Who is responsible for exhibiting teamwork at your dealership?” And despite their agitation with me they say employees are responsible for exhibiting teamwork.
- “Hmmm,” I say. Then ask, “Is there an ‘I’ in teamwork?” After I’m told “No,” I show them this image.
I’ll leave it to your imagination to determine what the “A” represents.
Fact: Employees agree that each one of them makes the decision whether they’ll make a positive or negative impact on teamwork. Keep reading and you will see the financial loss that is occurring every day in your dealership. Many researchers have documented that people issues contribute to a loss of 20-25% efficiency in any organization. Translated, that means you are perhaps losing 25% of profitability every hour. Calculate the cost of operating your dealership per hour. Dealerships have told me per hour operating cost is $4,000 or more. Let’s use $4,000. With a 25% loss of efficiency that translates into $1,000 per hour.
Kelly Mathison, management consultant, and Dealer Institute trainer, shows a formula that divides the cost by the net profit to identify the dollars that must be generated during the next hour to make up the previous hour’s lost revenue. Here comes the belly punch, $1,000 ÷ .02 (the industry’s average net profit) = $50,000. You must generate an extra $50,000 over the next hour to regain the previous hour’s loss. What’s the likelihood of that happening? And the numbers become sickening when you consider the dollars lost in a day, week, month, or year.
Explaining the challenge
The training/consulting the Dealer Institute has completed on a dealership’s technical performance has yielded annual savings of thousands of dollars. This is absolutely great. But at the same time, dealerships continue to lose money every hour because of people issues.
Suppose the dealership has an annual payroll of $1,000,000. A 25% loss, or $250,000 worth of talent, may be needlessly wasted. Using the formula of $250,000 ÷ .02 = $12,500,000 is the value of goods that must be sold to make up for that waste. Kelly Mathison routinely asks dealers, “What is easier, selling another $12 million in goods and services or ensuring that employees are engaged so to not needlessly waste talent inventory?”
Yes, dealerships place additional pressure on improving processes and profit margins, etc. to increase profitability – and rightly so. But at the same time, dealerships continue allowing money to walk out the door because of people issues. There are many factors contributing to this dollar loss.
First, the people issues have become a habitual way of doing business, leading people to become blinded by their comfort zone. I can’t tell you the number of times I’ve heard about the normal conflicts between parts, sales, and service. When I ask what is being done about that, the typical answer is nothing because it’s normal. It may be normal for your dealership because you are allowing it to be – but that’s another story.
Second, is the willingness to accept the bitter truth that a dealership is actually losing 25% of its efficiency attributed to people issues. Okay, maybe it’s 15%. Let’s play the numbers game: $4,000 x 15% = $600; $600 ÷ .02 = $30,000. I’m sure you like these numbers better, but still the numbers are daunting to say the least.
Accepting the challenge
Whenever any of us is confronted with challenging information, we always have three options to consider. The first option is to deny it. Believe me, I’ve been told many times, “That isn’t true in our dealership.”
The second option fits those who may seem to agree with the information but haven’t or aren’t willing to make the decision that “remaining as is, is not an option.” Of course, I’ve heard that many times too.
Option number three applies to those leaders who will agree with the facts and make the decision that remaining as is, is not an option and decide to do something about it. Doing so takes a concerted effort to identify and resolve the people issues.
Obviously, I want you to do everything that you can to improve the efficiency of your technical processes to increase your profitability. As you know, doing so is a win for everyone who depends upon the financial success of your dealership.
The overriding objective of this article is to help open your eyes that a major opportunity to increase your profitability may be looking you right in the eyes.
Writer’s note: Special thanks to Michael Piercy, vice president of business development and Kelly Mathison, Dealer Institute consultant/trainer, for their contributions to this article.
Article Written By Larry Cole Ph.D.
Larry Cole, Ph.D., is a lead trainer for and consultant to the Western Equipment Dealers Association’s Dealer Institute. He provides on-site training and public courses to improve business leadership effectiveness and internal and external customer service. Please send questions and/or comments to Larry at email@example.com.