The 2020 Mid-Year Economic Update_long

Bruce Merrifield on Innovation

executing the part we're making money on it.'

… Not all innovations are the same. Innovation can happen at an individual's level, going across the top from left to right, at a departmental level. It could be a company-wide thing, it could be intra-company, between big factory and big distributor, or big distributor, big customer. It could be some supply chain initiative, which typically don't work but they're always out there. And the innovation could be just making whatever we're doing more efficient – same old thing, just idiot-proofing it. It can make it more effective, it could be more customer-friendly et cetera, and it could even be transformational if it's clever enough."

Employee Participation
"This is a formal program where everybody's encouraged to come up with ideas but as soon as they do they're checked out and acted on and so forth and people are complimented and massaged until they turn more. For years Japanese manufacturers were having 20 times the suggestions per employee as American factories, and even more scary, they were making 20, 30 percent of them actually happen. Even more scary than that they had trained their employees well enough to not only come up with ideas but then to evaluate on a cost benefit the idea, and if it was in certain criteria to go ahead and make it happen and then report the new idea with the new solution in place getting results sort of after the fact. So that bottom-up energy and capability is talked about in those slides.

… If we really have a bottom-up innovative culture then the tools would start to come to life. You can't go invest in tools if you don't have a blueprint and skilled carpenters and so forth. Another vision you want to have is a project portfolio, where you're listing and keeping track of these things and seeing how they're going. Don't be surprised if things you thought were the most promising start to fizzle out, and really need to be not necessarily killed but maybe rethought."

Rewarding Innovative Ideas
"I think systematic praise works great. In the turnarounds that I've been involved in I educate everybody in the company about what a praising statement is. And if you look at article 6.3 on my Web site it'll explain it (www.merrifield.com). I boil it down to a 4 by 6 file card, and it just says what happened, who was involved, what personal qualities they bring to bear to make this happen, and who benefited, was it the customer or a department, as many beneficiaries as possible, and out of that little card you can create a summary praising statement, and every Friday, I call it the Friday Good News Bulletin, systematically you print these things up. I give salespeople quotas – they've got to come up with two or three of these things a week, et cetera.

… So we're not putting any money in this, we're just saying we want to do stuff that helps us take care of these customers and make these big eight of service excellence get better so we know we're giving the customer good service. They'll stay with us and grow with us so they'll take care of us in the future. Most employees want to have pride in their work, they know that customers need to be taken care of, and they want economic security and growth. You can teach people these kinds of things." 

Editor's Note: D. Bruce Merrifield Jr. started his strategic consulting and business speaking practice, Merrifield Consulting Group, in 1980. He has focused historically and narrowly on how to maximize the effectiveness of independent distribution channels. Merrifield recently discussed innovation management for distributors during an MDM-sponsored audio conference in January, excerpts of which follow below.

Innovation Giants
Starbucks: Why are people who can't even afford the product going in there and having a $1,500 a year habit amazes me. But you realize that when you take a commodity like a coffee bean and you buy it by the wholesale bag – and prices are super competitive and margins stink – you could try to put it in smaller bags and put a brand on it and mark it up a little bit per cup, or you could serve it, with value-added services and try to charge a little more.

But because of Starbucks' experience, they get this enormous loyalty and retention and charge a price to beat the band. And when we look at somebody like Starbucks we should ask questions like what's underlying their magic; where does the magic come from? Let's expose the art, the mystery, and make it more of a science. How can we dumb that down and reapply it in an appropriate way to wherever we are, so that we are doing a better job of holistically meeting our customers' economic, emotional and latent hidden needs that they don't really even know they have?

The Creative Economy
"The quote 'creative economy' is really the byproduct of two big forces. On the left-hand side they're the threats of hyper competition: We're all immature markets. Ninety percent of the stuff we sell are commodities that our customers can buy from anybody else: They can buy the same brand name, they can buy no-name brands that are equally good in quality and probably made in the same factory in China for less. And we're trying to get more and more efficient but we've been doing it for 23 years. That's what best practices in an industry is all about. We've been to trade shows, roundtables, and we've all got the same tricked-out software from the same super tricked-out wholesale distribution-specific software vendors.

So we're getting into a law of diminished returns of how do you just do what we've always been doing, ever finer, ever more efficient. And we're finding that our brand's eroding. So that's the hyper competition part. But then on the opportunity part we see that maybe if we could go out and listen to our very best customers and staple ourselves to prop paper going through the place and looking at how they use our products – can we see needs they didn't realize they had, come up with solutions they didn't know were available? That's meeting latent needs. Can we do outsourcing? When we come to a new idea we should assume we don't have to do all the stuff, we can control the idea, and we can control the customer, but maybe like Apple with iPod we can outsource to somebody that that's all they do, and we can find these people and we can communicate and coordinate with these people via the networked economy.

Defining Innovation
"I've sort of come up with one definition of innovation, and you notice it's got four parts to it. I want to make money, it's got to be profitable, you've got to implement, and a lot of people aren't very good at executing. But ideally we'd do it in an area that's very strategic for us and very fruitful for us and we'd do it in a creative fashion. So how do we strategically focus in the right areas for us? How do we get novel insight and foresight on our channels, and then make sure it is sort of building our core competencies, get the creative juices and ideas flowing, really develop those ideas? And then say 'All right, let's get buy-in for making the very best one or two ideas really happen, and of course

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