Managing change
New study says most management teams aren't ready for change
By John R. Johnson -- Industrial Distribution, 5/1/1999
Newton, Mass.--Turnover is generally regarded as a bad thing in business. In fact, distribution executives love to crow about the low turnover rates within their companies.However, a new study suggests that a lack of change among management teams at distributorships is cause for alarm. As enormous change -- resulting from consolidation, new technology and competition from new channels -- continues to rain down on the distribution sector, 90 percent of executives surveyed expect their senior management teams to remain largely stable. The study says that is a clear indication that distribution is unprepared for the widespread changes now underway within the industry. Indeed, the study predicts the trend is symptomatic of a common shortcoming in human resources strategy -- hiring based on current, rather than future -- requirements.
The report, titled, "Addressing the Leadership Challenges in Wholesale Distribution," was produced by Russell Reynolds Associates and the Distribution Research and Education Foundation, a part of the National Assn. of Wholesaler-Distributors. The study surveyed 202 senior executives of NAW-member firms, with revenues ranging from below $20 million to more than $100 million.
Forty-nine percent of respondents say their management will remain largely stable over the next three years, while 41 percent say their leadership team will undergo only slight changes. Just 10 percent say management will undergo substantial change between now and 2002.
"We won't be in that group [maintaining a stable management]," says Motion Industries president Bill Stevens, who recently promoted Tom Robertshaw to vice president of business development, focusing on acquisitions. Stevens says it's important for management to be able to focus on a specific aspect of the business, like integrated supply, acquisitions or information technology, while also being able to focus on its traditional business. Therefore, "we will be making further management changes mid year to help clarify some of that. I don't feel that anyone has enough time to deal in all of those areas anymore.
"We'll also be adding some positions to deal with our North American global structure, and we'll have [new job] definitions coming out. I see this as the greatest period of change we've ever been in. Part of it is because of demand of market, but the other part, which is exciting, is the growth opportunities we have, and in a way you have to segment that so it's clear for [management]."
Often, the stagnant management problem is worse at smaller companies, where a single executive has run the business for decades and has either fallen behind the times, or is skeptical about giving up power to a new leader. The study says the viewpoint of small company executives may be attributed to several factors, including private ownership structure, difficulty in finding appropriate executives and uncertainty regarding how to expand their company to meet the changes ahead.
Robert J. Gariano, head of Russell Reynolds Associates' global industrial manufacturing and distribution sector, and a former executive at W.W. Grainger, says that's a problem for small and large distributors alike.
"What's clear is that in this industry, distributors don't make good use of corporate governance techniques," he says. "They aren't recruiting board members that can add to their business. The extent that corporate governance is not used as a resource is a bigger problem than we initially thought."
Gariano says the problem rests with the traditional backgrounds of distributorships being privately held, family-owned businesses. In that situation, when a job needed to be filled, firms often looked within the family, not to outside blood. Even distribution giant W.W. Grainger, with sales of $4.3 billion, named Dick Keyser its first non-family CEO just four years ago.
"It goes back to the roots of being an industry dominated by non-public companies," says Gariano. "Public companies are forced, because of judiciary responsibilities, to have a board [with a wide range of representatives]. Private companies tend to shy away from it because they don't want a board looking over their shoulders, but boards also can provide a lot of strategic input and advice."
Although the study implies that stale management will be a problem in the future, 25 percent of respondents did report a significant change in the composition of their senior management teams over the last two years. Within this group, two main reasons are cited for the change: 50 percent attribute such change to the demands of organizational growth, and one-third point to executive turnover.
Indeed, the industrial sector has certainly seen its share of executive turnover over the past six months. New management has been put in place at nearly one-third of the first 30 companies appearing in ID's 1998 Top 100. New executives have taken over at the industrial division of Premier Farnell Corp., Sammons Distribution (Briggs-Weaver), Industrial Distribution Group (which was still searching for a replacement for Marty Pinson at press time), JLK Direct Distribution and Bowman Distribution. Applied Industrial Technologies, Airgas, and Motion Industries have recently bolstered their senior management by adding new titles to their executive teams.
The study also points out that consolidation and the growth of information technology are viewed as both the biggest challenges and the biggest competitive advantages on the horizon. Ironically, information technology is seen as a threat and a competitive edge, suggesting the industry will place major emphasis on this area in the future.
Rich Knopke, owner of Kansas City, Mo.-based Contractors Supply Co., which was purchased by Hertz at the end of 1998, is somewhat sympathetic to what owners of distributorships are facing.
"I just think it's all a result of the tremendous amount of change, and also the volume of it, and the fact that it's probably even going to accelerate a little more, and I suspect it tends to paralyze management," says Knopke, who is a member of the DREF board. "On the flip side, it's very invigorating, maybe too much at times. But obviously the successful management teams are going to have to be adroit at positioning themselves correctly, deal with more speed in their decision-making, and be willing to take gambles that they wouldn't have expected to take a few years back."
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