“Do you have any “Seven Percenters” working for your Company?”

A few years ago, I was hired as the President / Chief Financial Officer of a $500 million family-owned wholesale grocery distribution business that was in existence for over 60 years. The business was delivering tobacco, candy, groceries, etc. to convenience stores from Maine to South Carolina. When I joined the Company, it was in severe financial trouble:

Negative cash flow
$2 million deficit in retained earnings
Fully drawn bank line of credit
Very low and declining gross profit margins
Extremely high employee turnover
Poor vendor and customer relationships

I joined the Company because of my past successful experiences with “financial turn-arounds.” My immediate goal was to get the Company to breakeven status both financially and for cash flow purposes.

Six weeks after I joined the organization, I attended a meeting of the Company’s sales management. There were nine sales executives at the meeting; the Vice President of Sales and eight Regional Sales Managers. My goal was to evaluate the quality, caliber, moral and attitude of the sales management team. I immediately observed that this meeting was conducted to vent every possible excuse as to why the sales force could not do “their jobs.” Not a single word was said about growing sales, providing good customer service or improving customer satisfaction. Collectively, they complained that:

Prices were too high compared to the competition
Important products were constantly out-of-stock
Fill-rates were very poor and below acceptable industry standards
Product selection for customers was poor compared to the competition
Deliveries to customers were often late causing additional labor costs for storeowners
Delivery shortages and overages were excessive
There are shortages of promotional material from the vendors

After listening for forty-five minutes, I, quite literally, could not stand it any longer. Everything said up to that point was negative and laden with excuses. There had not been one single problem–solving discussion to develop solutions to any of the problems mentioned. It had been a forty-five minute whining session. I interrupted and began asking the questions that I had jotted on my note pad during the meeting. There was an easel in the corner of the conference room still untouched. I went and moved it in front of the sales group to highlight some critical points.

The first question I asked each individual in the group was, “What is your actual job function for the Company?” I certainly had no idea from the dialogue I heard during the first part of the meeting. As I looked around the room, the question generated some very red faces. After a long pregnant pause, I asked the question again. With some frustration, I commented, “If I were to get out your respective job descriptions, what would they really say?” That comment finally got some reaction, and we started to list what they believed were the important functions of sales management for the Company. I wrote the job responsibilities on the easel for everyone in the group to see. By the time we were done, there were eleven primary functions, which included:

Recruit and hire the sales force
Train the sales force
Motivate the sales force
Provide leadership for the sales force
Deliver the goals and objectives of the company to the sales force
Carry out the vision and mission of the company
Act as a liaison between the company, customers and vendors
Obtain product knowledge for the sales force and customers
Provide quality customer service
Provide promotional information of products being advertised by the vendors
Provide direction to the sales force regarding client acquisition

After we finished developing the list, I asked the group to prioritize it, from the most important to the least. Next, with these items listed on the left side of the easel, I drew a line down the center. I chose to quiz the individual who was the most vocal during the complaining portion of the meeting. David was a big, confident type of guy and actually liked the attention. I said, “David, I am going to assume for the benefit of this exercise that you worked fifty hours last week.” He nodded approval, and I wrote the number “50” on the top of the pad just to the right of the line that I had previously drawn. Then, I asked how much time he actually did spend last week on the number one priority item on the list. He stated, “Actually, none last week.” I went to the second item and asked the same question. This time, he estimated that he had spent about a half an hour on this function. I wrote down a half an hour next to the second item. By the time I had gotten to the sixth prioritized responsibility on the list, he estimated that he had spend a total of three and one half hours of a fifty hour workweek on the six most critical functions of his job. I stopped the process at that point to recap for the group what I illustrated during this exercise. David had spent seven percent (7%) of his time last week (3 ½ hours of the 50 hour workweek) on the six most important functions of his job as Regional Sales Manager. That also meant that David spent 93% of his workweek either on the less important functions of his job or items not even on the job description.

I looked around the table at the group and quickly estimated that this sales management team had an annual salary expense to the Company of about $1.5 million. Based upon the results of this exercise (7% of a typical manager’s time was spent on the six most important functions of their jobs), they were costing the company an average of $1,145 per hour. ($1,500,000 ¸ 9 Sales Managers = $166,666 per manager, 2,080 annual working hours x 7% efficiency = 145.6 efficient working hours, $166,666 ¸ 145.6 effective working hours = $1,145 cost per hour) For the last forty-five minutes, all they did was literally complain about every aspect of the operational functions of the Company: purchasing; warehousing; distribution; order entry; customer service; accounting; and marketing. Interestingly, I also noticed that the group never complained about the sales department, even though they were obviously failing horribly with their sales effort.

It was at that point that I identified the first of many critical problems and issues that had put the Company in severe financial trouble. I knew then that if I went through the same process with every department in the Company, the results probably would be similar. These problems were not isolated with the sales management. This was just one example of the many problems of every department in the Company. It was apparent that poor leadership, lack of clear, focused direction and absence of personal or corporate accountability caused these problems.

Does some of this story sound familiar? Do you know of companies with similar problems? Do you have any “Seven-Percenters” working for your Company?