Helping Manufacturers And Distributors
Improve Sales Performance And Profitability
Published by the Industrial
Performance Group, Inc.
800-867-2778
Issue
No. 26

Overcoming the Barriers to Improved Sales Performance & Profitability.

The majority of manufacturers and distributors are aware of problems in their working relationships. They are also aware of how these problems impact their businesses: inflated sales and marketing costs; lost sales volume; and margin erosion. Yet our research shows that only three percent of manufacturers and distributors take action to remedy this situation. In today's economic environment, how could this number be so low?

I
n a recent IPG survey 2,500 manufacturers and distributors identified a lack of trust and commitment as the greatest
A hidden force that keeps manufacturers and distributors from taking action that would result in improved sales performance and profitability.
barriers to more productive and profitable working relationships. On the surface, trust and commitment appear to be logical causes for the problems manufacturers and distributors face. However, improving trust and commitment is a relatively straightforward process. So there must something else at work here.

By comparing groups who experience these problems with those who do not, we discovered a hidden force that keeps manufacturers and distributors from taking action that would result in improved sales performance and profitability. While it may be a hard proposition to accept, the majority of problems that manufacturers and distributors experience in their working relationships are the result of what we call habitual thinking.

Habitual thinking occurs when people make decisions and take action based on their experiences or on what has worked in the past rather than working to understand the current situation and explore possible courses of action.

From our work with industry groups and trade associations we discovered that much of what manufacturers and distributors believe about conditions in their industry, the needs of their customers, and the structure and purpose of the manufacturer/distributor working relationship is more than likely to be wrong. This is not due to a lack of intellect or diligence on the part of manufacturers and distributors. Rather, these misconceptions exist and go unchallenged because their thinking is greatly influenced by what are known as mental models.

Mental Models

What we pay attention to, the meaning we attribute to information, and
Misconceptions exist and go unchallenged because thinking is greatly influenced by what are known as 'mental models.'
ultimately, the decisions we make are largely determined by our mental models. Mental models, or constructs, are deeply ingrained assumptions and generalizations that influence our thinking. Philosophers have discussed mental models for centuries going back at least to Plato's parable of the cave. The Emperor's New Clothes is a classic story about how people can be bound by their mental models.

Mental models stem from our beliefs, attitudes, and assumptions about how the world works. They represent our interpretation of the world rather than an objective analysis. Mental models provide a framework that helps us understand and give meaning to information and new experiences. They help us deal with an ever-expanding amount of information without becoming overwhelmed.

However, our mental models are not always an accurate reflection of
reality. They often lead to flawed assumptions and decisions based on what we think is happening, or would like to happen, rather than an objective analysis of the situation. This explains the slip between good intentions and action when it comes to improving manufacturer/distributor working relationships.

Mental models have such a powerful affect on what we do because they influence what we see or choose not to see. The problem with mental models is not whether they are right or wrong. The problem stems from the fact that they exist below our level of awareness. That is, we are not aware of their existence or their affect on our thinking. As a result, they continue unexamined and unchanged.

Entire industries can develop chronic mental models that increasingly lead to counter productive actions. Close-knit industry groups and trade associations are especially vulnerable because their members look to each other for ideas, information, and best practices. Dr. Edward de Bono identified and named this phenomenon Groupthink.

Groupthink occurs within industry groups or trade
associations when the pressure to conform to the current way of thinking overrides the objective analysis of alternative
Groupthink can be so strong that no matter how compelling the evidence may be, it will meet resistance or be totally disregarded it if does not match the group's view of the world.
information and courses of action. Groupthink can be so strong that no matter how compelling the evidence may be, it will meet resistance or be totally disregarded it if does not match the group's view of the world. This helps explain why American auto manufacturers completely missed the shift in consumer needs from style to quality and reliability in the mid to late 70s. Why IBM was slow to recognize and respond to the growing personal computer market. How communications giant Motorola, missed the shift from analog to digital in the cell phone market and conceded their leadership position to a company perched on the edge of the Arctic circle who was known for making snow tires and rubber boots -- Nokia. This also explains why manufacturers and distributors who have every intention of improving their working relationships never manage to get much accomplished.

We have identified four mental models that cause the majority of the problems between manufacturers and distributors. They cause problems and create conflict because, in most instances, what manufacturers and distributors think they know about the following, does not represent an accurate reflection of the realities of the marketplace.

Mental Model #1) The conditions that exist in your industry
• What changes have occurred in your industry during the past 5-10 years?
• How have these changes impacted manufacturers, distributors, and customers in your industry?
• How have you adjusted your strategy and business model as a result of these changes.

Mental Model #2) Who the customers are and how they define Value
• Do you interact with customers and at what level of your organization does this interaction take place?
• Do you know how your customers define Value and how do you know this?
• To what extent do you customize your product/service offering based on customer input?

Mental Model #3) How you should compete
• What's different about your approach to the market?
• How do customers benefit from this difference?
• Are customers willing to pay more for this difference?
• How does your approach compare to your top 3-4 competitors?

Mental Model #4) The purpose and role of the sales/distribution channel
• How well defined is the structure and purpose of your sales/distribution channel?
• Do you view the sales/distribution channel as a path to market, or a strategic resource?
• How does the structure and purpose of your sales/distribution channel compare to your top 3-4 competitors?


The first step toward improved manufacturer/distributor working relationships is for
The goal is to challenge your mental models so that you can start making decisions and taking action based on what is actually happening in your industry rather than on what has worked in the past.
both parties to become aware of your mental models and their influence on your thinking and actions. At first this process will seem foreign because it requires a level of reflection and inquiry about your beliefs and attitudes that is unfamiliar. It requires that you both challenge your beliefs and attitudes about your industry, your customers, and the purpose of your working relationships. Without a serious commitment to this process, you will tend to view this approach as, "interesting, but not relevant to our business," without deeper reflection or consideration.

Working this process will go a long way toward improving the sales performance and profitability of both parties. The goal is to challenge your mental models so that you can start making decisions and taking action based on what is actually happening in your industry rather than on what has worked in the past.

For more information on identifying and dealing with mental models, call 800.867.2778.

Return to Top

View previous Channel Focus Issues



Visit the Industrial Performance Group home page

©1996-2006 Industrial Performance Group