The Roemer Report November 1985

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In Search of Trucking Excellence

How can senior trucking executives prepare for the trucking environment of tomorrow? A good place to start is by checking all your management baggage from the era of regulated trucking at the door. Then seriously re-examine many of the most popular management tenets of the 70s...many of which no longer hold water. We highly recommend the new book, The Winnin Performance: How America's High-Growth Midsize Companies Succeed, by Donald K. Clifford, Sr., and Richard Cavanaugh Bantam Books, Inc.). The most successful of these firms -- those with sales between $255 million and $1 billion -- seem to have succeeded by overturning many of the basic management nostrums of the 70s. Here's how: (1) Traditional managers have sought success by moving into attractive high-growth sectors. Yet, the most successful companies have created impressive growth and profits by creatively developing markets that could be called downright dull by conventional standards.

The most profitable companies have been niche players...segmenting a market and ingenuously meeting hidden customer needs. (2) The winners typically focus on the top line, not the bottom line. Most have a clear and concise statement of company philosophy ands-­ values -- and they don't deviate from them. Moreover, they place extraordinary emphasis on offering superior quality in their products or services. Not surprisingly, the bottom line then takes care of itself.

INNOVATE OR EVAPORATE: (3) The author found that the most profitable firms don't compete head-to-head against larger competitors. Rather, they change the ground rules of the com­petitive environment by innovating. (4) And, here is one for senior trucking executives to ponder at length. About 75% of the most successful midsize companies are not the low-cost producers in their industry. They don't compete principally. Rather, they create a value for their customers that surpasses the actual cost of their products and services. (See last month's Roemer Report for more details.) (5) Excellence has its price. Executives at the best midsize companies work an average of 64 hours per week compared with 57 hours a week that the Robert Hanf organization found was typical for executives at 100 large companies. (6) The midsize winners were obsessive tinkers and innovators. They don't follow the old manage­ment by exception approach... 11If it works, don't fix it.11 Their approach was precisely the opposite... 11If you don't fix it, it won't work."

A DEREGULATION OVERVIEW: The deregulation shakeout isn't over yet, half a decade after most trucking controls were lifted. Most ex­ perts predict a few more tremors before the dust settles completely. Some permanent changes are evident now, however. Deregulated price competition drove shipping prices into the basement, where they'll probably stay. For shippers, lower transportation costs have left the pressure off higher product costs. Shippers also enjoy better service these days, because it's easier to take their business else­ where. Without operating authority, it's also easier for truckers to lose business these days. But not all the benefits favor ship­ pers over truckers. First, Uncle Sam is off truckers' backs. Com­ panies are more free to hustle and grow. Tired trucking firms are no longer protected from failure by territorial rights. As they purge their fleets of unnecessary cost and waste, leading firms are looking demonstrably stronger. Efficiency is only one benefit of freedom. Education is another--computers are adding brains to this new brawn, bringing improvements in loading, routing and driving. Of course, deregulated prices caused profit margins to shrivel, but even this has a silver lining. Lower prices lead to larger volumes for many firms. Indeed, market shares for the ten largest companies have grown over the last five years.

LABOR'S LEVERAGE LOST: What's taking labor so long to rebound from the recession? When the economy improves, labor usually isn't far behind. Workers want to recover their layoff losses as quickly as possible. For the fifth consecutive year, however, unions are accepting smaller wage increases than last year. Workers are taking home only 2.8% more than in 1984, but last year their raise was 3.1%. The salary slowdown seems to afflict unions of all sizes and shapes. Even at America's largest companies, unions are settling for far less than the inflation rate. In fact, it isn't diffi­ cult to find some groups (grudgingly) accepting pay cuts. Consider the long United Steel Workers strike against the Wheeling-Pittsburgh Steel Corporation. Workers re­ turned to their jobs earning up to 16% less than when they walked off. A combination of factors are responsible for the trend. First, unemployment remains historically high for an economy in recovery, and industrial unemployment is higher still.

Workers are beginning to recognize their employers' needs to keep products priced competitively with imports, too. Finally, the relatively mild inflation of recent years has eased the upward pressure on salaries. Nobody's ringing the bell for labor unions just yet, but experts think the situation could get worse before it gets better.

PENSION INSURANCE PREMIUMS TRIPLE: America's pension system is getting better, but the cure isn't cheap. The Pension Benefit Guaranty Corp. lost $1 billion last year rescuing troubled pension funds, and intends to get it back. A plan approved by the U.S. House would triple premiums to cover the loss, raising the ante from $2.60 to $8.50 per worker. To avert future deficits, the bill makes it tougher for employers to collect. Employers could no longer put pension liabilities into loser subsidiaries to qualify for the insurance benefits. The new rules make entire corporations liable for a subsidiary's pension obligations. Employers must also wait longer to collect-­ the new rules require 60 days' notice. Companies that survive after bailouts face stricter recovery measures, too. To recoup payouts, the Guaranty Corp. can seize a third of their net worth and 10% of their pretax profits for a decade. Although these measures may hurt, insiders believe the advantages outweigh the costs. Re­stricting benefits to programs in genuine, imminent peril makes it harder for any pension fund to go under, they say. The bill has yet to move to the Senate and President Reagan, who supports the pension prescription.

OPENING THE BOOKS TO OUTSIDERS: Are payroll records part of the public record? Union employers are being ordered to let pension fund managers audit the records of non­ union employees. The Supreme Court opened this Pandora's Box earlier this year--but what's inside? Fund managers are hoping to find a source of new pension fund revenues. One estimate predicts a seven-fold return on their audit investment. The picture isn't nearly as bright for employers, who gain nothing in return for the in­ creased clerical and administrative costs. Even more expensive is the prospect that multitudes of nonunion employees will be re uired to join unions. The danger is especially strong in the 29 states without “right to work" laws. Observers also fear for the future of marginal companies, which may buckle under the weight of the new burden. Actually opening the books, however, concerns companies more than anything else. Their records are nobody's business but their own, they say. They fear that payroll records might be used against companies in other ways, perhaps in contract negotiations. Confusion seems likely, too. Consider a nonunion employee who helps out with union work on an isolated occasion. Would union pension contributions be required for this employee? Companies fear the pension funds have nothing to lose by setting their sights high.

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