In the last blog, the focus was on creating a sound and comprehensive business plan that can guide a company through the difficult times. While following the steps listed may seem logical and straightforward, the question is, why are so many companies unsuccessful in implementing their business plans and why do so many companies fail?

To answer this question, I have drawn some insights from two recent books. One is entitled “Stall Points,” written by Mathew S. Olson and Derek Van Bever for the Corporate Executive Board. This book focuses on the research these two gentlemen conducted into why many Fortune 500 companies have stalled in their business growth. The other is “Billion Dollar Lessons” from Paul B. Carroll and Chunka Mui. In their book, they look at the major causes for failure at the 750 companies that they studied. I have blended some of their thoughts with my own experiences in the transportation business over the past 27 years. Here are some of the lessons learned.

There appear to be two general patterns as to why various business strategies fail. The first pattern involves the process of creating the strategy; the second has to do with the strategy itself. Messrs. Olson and Van Bever argue that “revenue growth rather than any other metric is the primary driver of long term company growth. This is not to say that revenue growth without profits is desirable but to suggest that high growth through margin management is not sustainable.” Their research indicates that most large companies stall. “It is very difficult to recover from a stall.”

“Group Think” can lead to Faulty Strategies

One strategy inhibitor that has been observed in a number of transportation companies, both large and small, is the phenomenon of “group think.” Olson and Van Bever state that many companies become the “victims of group think ... Behind each revenue stall we studied, we found that the shared assumptions of the senior executive team about their strategic position were dangerously incorrect. During these companies’ growth runs, their assumptions about competitors, consumers, and sources of advantage had been dependable and useful, but somehow, across the years preceding their stalls, they had weakened, gone unquestioned, and no longer formed the basis of effective strategy.”

Smaller trucking companies are particularly vulnerable to this phenomenon since they often have a less diverse core group of executives who may have been together for some time. This may limit the scope of their experience and the realm of ideas and opportunities for growth. The other danger with “group think” in small trucking companies is that nobody wants to tell the owner or President that they are going down a dead end street.

Flawed Strategies Can Produce "Stalls" in Business Momentum

Based on extensive research, Olson and Van Bever have captured, in statistical form, the reasons why many Fortune 500 Companies have stalled and the percent of stalls attributed to various reasons. One encouraging finding is that an economic downturn is a minor reason for most stalls. Most large companies are able to transition successfully through economic storms. However the bigger issue at this time is probably whether companies are adopting the right strategies to make it through what looks like a protracted recession. The severe downturn is likely to have a serious impact on certain sectors of the market including LTL carriers and truckload carriers in segments such as automotive parts and pulp and paper, two industries where business volumes have deteriorated to levels not seen since the 60’s.

In their book, Olson and Van Bever highlight a number of reasons why (large) businesses stall. I have listed below, those reasons that have had a particular impact on the transportation industry

False Assumptions behind Premium Position Captivity

Some trucking companies have long held positions as the premium brand in their industry. This comes from a track record of quality service that allows them to charge a premium price. With so much pressure on shippers to cut costs, carriers need to be vigilant in monitoring the willingness of customers to “trade away” to a lower priced service, the ability of lower cost competitors to match the premium carrier’s service or the assumption that the carrier should give up on the low end of the market.

Premature Core Abandonment

This can be defined as the failure to fully exploit growth opportunities that exist in the company’s core business. This can be manifested in a truckload carrier venturing into the LTL business or a reefer carrier entering the flat bed business. Certainly many carriers are hungry for revenue as their core market contracts. The danger is assuming the core market is saturated and searching for growth in an area that is not a strength for the firm.

Failed Acquisition

The most frequent problem underlying these failures is a “misconceived economic model underlying a serial pattern of acquisitions ... The story behind the combination ... failed to capture the underlying realities of the businesses to which it was applied.” Messrs Carroll and Mui use the label the “illusions of synergy.”

Key Customer Dependency

For small trucking companies, there is a danger of pinning your hopes on one or a small group of customers. These create a level of dependence that is dangerous, if one or more of these customers falter or are taken away by a competitor.

Talent Bench Shortfall

Olson and Van Bever define this as a “lack of adequate leaders and staff with the skills and capabilities required for strategy execution.” The authors highlight that the problem is not just a shortage of talent “but the absence of required skills or competencies in key pockets of the firm and, most visibly, at the executive level.” The danger for trucking company executives, particularly those that have been successful in a specific segment of the industry, is to think that they can achieve similar success in another area of the business without the necessary resources, knowledge and skills.

Enhancing Opportunities for Success

Both books conclude with some prescriptions for avoiding failure. Some of the “lessons learned” include creating a culture where open dialogue and debate are encouraged, ensuring that satisfactory due diligence and effective vetting processes are in place, building consensus around the sources of weakness in the company’s core strategy and confronting operational challenges that have previously been avoided. The two books, while having some overlap, are well written and contain thoughtful material on this important topic. For trucking company executives looking to lead their companies through turbulent times, they are well advised to consider some of these important business lessons.

While all segments of the transportation industry are being hit hard by the current recession, the LTL sector is feeling the full force of the economic downturn. To pick up, consolidate, line haul, deconsolidate and deliver less than truckload shipments throughout a geographic area requires an asset heavy business model. LTL carriers require terminal networks to cross-dock, load and unload shipments to build cost effective loads. They require local pickup and delivery units and line haul vehicles to go from city to city. In this blog we will look at some of the developments currently unfolding in this industry.

Freight Volumes Declining Faster that Truck Capacity

As the Obama administration actively moves forward with an economic stimulus package to revive the ailing U.S. economy, the freight transportation market is still feeling the pain. The Institute for Supply Management reported its twelfth consecutive month of manufacturing contraction in the month of January. Based on the most recent truck tonnage index release from the American Trucking Associations (ATA), its advanced seasonally-adjusted For Hire Truck Tonnage Index sank 11.1 percent in December, representing the largest month-to-month reduction since April 1994, when the unionized less-than-truckload industry was in a labor strike. The ATA added that December’s tally marks the third largest single monthly drop since the ATA began collecting tonnage data in 1973.

According to John Larkin, Managing Director, Stifel Nicolaus, demand for LTL services is falling faster than the supply. The pattern of deteriorating LTL freight volumes has been ongoing for the past 3 quarters. LTL carriers have not been able to adjust capacity downwards to keep pace with the falling demand.

Same Number of Pickups, Smaller Size Shipments

From discussions with various LTL truckers, the phenomenon of lower weight LTL shipments appears to be happening across North America. As demand and confidence wane, shipment sizes are diminishing. This poses a challenge to LTL carriers since they cannot reduce driver wages or fuel consumption proportionately to the drop in shipment sizes or number of shipments.

More Direct to Destination Loadings

As LTL carriers seek to reduce costs and speed up transit times, they have been loading more trailers direct to destination rather than through their breakbulk networks. This process has been ongoing for several years and will likely receive a boost from the weak economy.

Capacity Consolidation

YRC is in the midst of consolidating its Yellow and Roadway LTL divisions. They are planning on removing up to 200 terminals by the end of the first quarter. YRC’s freight is being actively solicited by its competitors as they offer shippers a “safe haven” from a potential bankruptcy or chapter 11 filing.

Other trucking companies have announced terminal reductions of a smaller magnitude. These reductions along with the Jevic and Alvan failures in 2008 have removed some additional LTL capacity. The estimate is that there has been an approximately 13 percent reduction in capacity due to terminal closures and carrier failures.

ABF, long one of the best performing long haul carriers has hired a consultant to help them seek out potential acquisition candidates. For those companies with strong balance sheets, this is a time to add density at an attractive price.

Pricing Competitiveness

To generate volumes for their freight networks, carriers are actively competing on price. The LTL spot market is very price competitive. As another sign of the times, Averitt Express has just announced that they will not take a GRI (general rate increase) in 2009. Coming off this announcement, Old Dominion, that competes in many of the same markets as Averitt, has indicated that they are seeking a 5.3% rate increase. It will be interesting to see if they can sustain this increase in such a price competitive market.

More Time Definite Freight

USF Holland, a subsidiary of YRC Worldwide, on Jan. 21 launched a four-tiered plan for service.
With Guaranteed Window Delivery, customers can request time-specific service:

-- Single-Hour - For deliveries within a one-hour time window on a specific day
-- Multi-Hour - For deliveries on a specific day but within a longer period
-- Single-Day - For deliveries on a specific day
-- Multi-Day - For deliveries that must be made within a multiple-day window

Shipments using the new services arrive within the specified time period, neither too early nor too late, and receive priority handling and visibility. All four levels are backed with the Holland standard money-back guarantee.

FedEx Freight is increasing the pressure to perform in the LTL market by adding a higher level of service designed to boost market share. The new service, FedEx Freight A.M., provides a money-back guaranteed delivery by 10:30 a.m. for a flat rate of $75. The service is targeted at shippers requiring last minute changes to delivery schedules for a particular shipment or as part of a planned strategy to reach a market or customer earlier in the day.

"Similar guarantees in the market are based on a percentage of revenue, but we tested the market and found that customers want it kept simple," said FedEx Freight President and CEO Douglas G. Duncan. "A flat rate means no guess work is involved. It requires simply a notation on the bill of lading or an on-line request - no phone calls are necessary. "As companies further compress supply chains and carefully manage inventory and cash flows, this level of service is more important than ever," he said. Clearly come LTL carriers are looking at these time definite shipments, that travel on existing schedules, to generate additional revenues during these difficult times.

A Challenging Year Ahead

In the first quarter of 2009 there is too much LTL capacity chasing a shrinking volume of freight. Terminal closures and carrier consolidations are inevitable as the capacity adjusts to meet demand. It will be a challenging year ahead.

The current freight recession is taking its toll as many high quality logistics professionals are losing their jobs. It is rare when a week goes by and I do not receive a phone call or e mail from an old friend or colleague advising me that they are looking for employment. In some cases, I am contacted by people with whom I have not spoken for an extended period of time. The expectation from the caller is that even if there has been no communication for years and the relationship was not close, you will, in this time of need, provide them with leads on job opportunities.

A few weeks ago, I had the pleasure of seeing one of Canada’s premiere networking experts, Allison Graham, CEO of Elevate Seminars + Strategic Development, give a presentation on this topic. I was so impressed with her presentation that I purchased her book, From Business Cards to Business Relationships, Building the Ultimate Network. Allison is an intriguing person since it was only a few years ago that she was a receptionist in an eye care clinic. This highly motivated individual dedicated herself to the task of learning about networking and becoming a coach to professionals seeking to improve their networking skills. She has come a long way and has established herself as a leading authority on this topic.

One of the most important lessons one learns from Allison is that “whatever you want to accomplish can be done provided you surround yourself with the right people.” Networking is not something you turn off and on. It is not just something you do when your employment is terminated. It is “the gathering of acquaintances or contacts – the building up or maintaining of informal relationships, especially with people whose friendship could bring advantages such as job or business opportunities.” Networking is something every professional must do week in and week out. Successful networking takes “perspective, preparation and practice.” It also takes time.

In her book, she outlines the essential steps to effective networking. Allison first outlines the importance of creating a “personal brand.” She addresses a number of key elements (e.g. handshake, eye contact, mingling formula etc.) that are fundamental to creating one’s brand. Of particular importance is her focus on how to create “mini bonds,” which in Allison’s view involves the creation of genuine relationships and building a rapport with people about whom there is a genuine caring.

Allison outlines some excellent techniques for establishing these “mini bonds.” One of the key points she makes is that “the intensity of a relationship is not determined by the quantity of information shared between two people, but rather, by the quality and depth of information that is shared. The more intimate the dialogue, the deeper the bond.”

The book also addresses the topic of developing a Networking Strategy. Allison makes these telling points. “The truth behind the ultimate network is that regardless of how professional and polished your image and how well you know the fundamentals, if you aren’t meeting new people and building relationships, you’re not going to grow your network. Talking about networking and actually networking are two different things. It is amazing how people will say they want to build their network, but then a month later they still haven’t made an effort to get to know even one new contact.

Bottom line. If you want to expand your network, then you have to network. Networking takes work. . . . It takes six months or as many as six to eight casual contacts with others before you hit their radar screen and they start to ‘get” who you are. Expect it to take about 12 to 18 months of consistent and persistent effort to solidify the foundation of your ultimate network.”

Of course, networking is not only helpful as a tool to have a robust Rolodex that you can access in time of difficulty. Effective networking can be critical to broadening one’s base of sales prospects or potential marketing partners, or for a host of other purposes.

To learn more about creating an effective networking strategy, buy the book. It is a quick and very good read. It can help transportation and logistics professionals create their “ultimate network” and build successful careers.

We will recover. This was clearly one of the many messages that President Obama attempted to communicate to Congress and to the American people during his speech on Tuesday night and with the presentation of his budget later in the week. President Obama’s ambitious and expensive budget attempts to address, head-on, many of America’s chronic problems that have been ignored for decades. It tries to deal simultaneously with health, education, climate change, government regulation, infrastructure, energy, farm subsidies, foreign policy, income disparities, and a host of other issues. Wow! What a radical change.

While it remains to be seen which version of this budget will ultimately be approved, there is no doubt that the budget along with the stimulus package will transform America in ways both intended and unintended. There is considerable scepticism that a massive stimulus package can “jump start” the economy, creating millions of jobs. While it is certainly legitimate to question the long term consequences of spending almost a trillion dollars to create and/or stop the erosion of 3 to 4 million jobs, the fact is that without a stimulus package, it could take an unnecessarily long time to move into the recovery mode.

Of course, there will be a price to be paid for such ambitious measures. The budget deficit is projected to be $1.7 trillion (with a “T” and not a “B” or “M”). While President Obama is planning on taxing the rich (earning over $250,000 per year) to provide tax cuts to the not so rich, the question is how long will it be before the less affluent segments of the population are taxed to prevent the deficit from spiralling out of control? Isn’t it realistic to think that the pet projects (so-called “earmarks) of many congressmen will find their way into the budget? Isn’t it a matter of time before everyone will have to pay for these ambitious but much needed programs?

How long will it take before these measures take effect and we begin to move into the “new economy?” The media is now so pervasive in our society that it is very difficult to “see the forest for the trees.” There is so much talk about job losses and tight credit that it drowns out any good news. The constant barrage of downbeat news has done much to instil anxiety and a lack of confidence in the 93% of the population that have jobs and are earning money. Many folks are paralyzed in fear and are not spending money. In addition, the credit crunch is inhibiting those folks who are trying to capitalize on the low interest rates to buy a house or lease a car. This is prolonging a recession that should be in the process of coming to an end.

While much of the data about the U.S. economy shows little cause for optimism, at least three leading economic indicators have trended up in the past two months, providing early signs that the economy may have hit bottom. Most notably, Purchasingdata.com’s Business Conditions Index has trended up for the past two months. The index, which is based on a broad survey of purchasing managers and procurement executives, hit a low of 23.9 in December but has since increased to 26.2 in January and 27.9 in February. The reading of 27.9 indicates that business conditions are far from growing (growth is indicated when the index passes 50), but the trend is providing some possible indications that buyers think business is improving slightly.

Also of note, Purchasingdata.com's Buying Plans Index has also risen steadily since December from 25.3 to 28.7 in the latest survey this month. This indicates that buyers are planning to increase orders after a long decline in buying plans dating back to January 2008.

The other major purchasing index from the Institute of Supply Management has also trended up in its most recent reading for January. After hitting a low of 32.9 in December, ISM’s Purchasing Managers’ Index (PMI) ticked up nearly 3% to 35.6 in January. As with Purchasingdata.com’s index, the ISM data shows the economy is far from growth, but has perhaps hit bottom and is beginning the long climb back up towards growth. Also trending up was ISM’s index for new orders, which jumped more than 10% in January, and its production index which saw increased nearly 6%, indicating that buyers may be ready to increase orders again after burning through high inventories.

We have recovered from many recessions in the past and we will recover from this one. It is time to rally behind President Obama, Prime Minister Harper and other world leaders and support the measures that they and their teams are taking to end the recession. Thankfully, President Obama has a vision, a plan, a team and the determination to make this happen. While the plan is certainly not perfect and there are some expenditures that are questionable, we need to be positive, take prudent risks and get on with the task of moving through the recession. We need business executives who can lead their companies successfully into the post-recession period. Rather than focusing on the past and present, we need to begin thinking about what the “new economy” will look like. Shippers need to begin designing their supply chains and transportation programs to meet the challenges and opportunities that lie ahead. These include:

• A world that is greener, more energy efficient and less dependent on oil
• A world with less truck capacity but with stronger better managed transportation companies
• A world with higher transportation costs
• A world with leaner, more efficient supply chains
• A world with much more cost conscious consumers (who will be impacted by the Great Recession of 2008-2009 just as a generation of people were chastened by the Great Depression of the 20’s and 30’s)
• A world with a downsized, right-sized North American auto industry that builds more energy efficient cars
• A world where the U.S. dollar is lower in value than it is today as demand for commodities, energy and the currencies of other nations increases
• A world with low inflation and low interest rates (in the short term) that will spur investment
• A world with a more regulated banking industry that supplies credit to individuals and companies that have incomes and profits and can pay their loans and mortgages
• A world with higher taxes as everyone must repay the tax burden of the stimulus packages and budgets that have been implemented around the world
• A world with people who understand that you have to earn what you get, that there is no “free ride” and that you have work hard and obtain a higher education to move up in the world

We will be moving into the post-recession world soon. It is time for companies to begin shaping their strategies to deal with the realities of the “new economy.”