I'll bet that seven in ten of you would say that your company is slow to change behavior. The turtle depicted here moves faster than your company.
So here's another story for you. It's 1998. I'm the new Director of Circulation / Analytics at Eddie Bauer. I inherit a corporate planning process that is, to say the least, convoluted. The employees responsible for the process LOVE THE PROCESS. This is why they come in to work each day. They work to maintain the process.
I look at one of our catalogs. I look at a segment within the catalog. It is a segment of customers who purchased recently. These customers are being given a 20% off promotion. Their p&l looks something like this:
- $ per Book = $4.00.
- Profit Factor = 25%.
- Cost of the Catalog = $0.80.
- Profit = $0.20.
I walk over to my Planning Project Manager. We have a dialogue. The dialogue goes something like this.
Kevin: What does the profit and loss statement look like if we take the promotion off of the segment?
Planning Project Manager (PPM): We don't do that.
Kevin: We don't run scenarios to understand the most profitable strategy?
Kevin: Why not?
PPM: Because that's not how we do things around here.
Kevin: Let's change that.
PPM: We can't change that.
Kevin: Why not?
PPM: Because our stakeholders want a forecast that generates a ton of top-line demand.
Kevin: But now I am responsible for top-line demand.
Kevin: So how about running a scenario on just this one segment. Can we make more money by not applying promotions to these customers?
PPM: I'll do that.
A few hours later, my SVP, an individual two levels above me, steps into my office.
SVP: Why are you removing promotions from our customer base?
Kevin: Who told you I was removing promotions from the customer base?
SVP: That's not important.
Kevin: It's important to me.
SVP: Regardless, we don't take promotions off of the customer base. That's not your call.
Kevin: Who's call is it?
SVP: That's a good question. I don't know.
Kevin: Am I accountable for delivering sales gains and profit improvement?
Kevin: Then I'm going to remove the promotions and deliver a baseline sales plan that we can all talk about collaboratively.
SVP: Why would you do that?
Kevin: We need an accurate picture of what our real merchandise productivity looks like.
Ok, the SVP leaves my office. I immediately walk over to my Planning Project Manager (PPM).
PPM: Hi Kevin, say, I just wanted to tell you that we're not going to run your scenario for you. That's not how we do things around here.
Kevin: I just spoke with our SVP. You are right. We are not going to remove promotions from just one segment. We're going to remove them from every single customer in every single catalog and every single email campaign.
PPM: You can't do that.
Kevin: I can.
PPM: You can't.
Kevin: How long will it take to get the scenario run?
PPM: Well, that's a tough question. Your request is a low priority, as far as I am concerned. I have a lot of bosses to please.
Kevin: You report to me.
PPM: Like I said, I have a lot of bosses to please. You're new to this area, so maybe you aren't up to date on how we do things.
Kevin: I'll tell you what. I will run the scenarios myself, and I will tell all of your bosses that you refused to run the scenarios. Let's go with that scenario, ok?
PPM: Wait, what?
Kevin: Your choice. Either get this done in the next two days, or I'll do it myself and I'll tell all of your bosses you refused to run the scenario.
Two days later, promotions were removed from all customers.
Not surprisingly, the business was 10% smaller. Nobody was happy with that.
But this started a conversation. By removing the impact of all promotions, we could see what our baseline productivity was. This was the first step in determining just how unhealthy our business was, from a top-line standpoint.
Now, these promotional discussions never stopped. Every Executive questioned what I was doing. But the Inventory Director and I delivered a year where we were on plan, a year where promotions were down by 80%, and a year where we achieved record profit. Turns out all those promotions didn't move the needle whatsoever ... and when you took the promotions away, the baseline forecast delivered sufficient (and ample) profit.
Turns out, however, that it is harder to change the behavior of your own employees than it is to change the behavior of your own customers!