Staying aligned

We are finalising some thoughts at the moment for our Spring Members’ Meeting in Berlin in a couple weeks’ time.  We have a range of interesting topics to cover including an agency update, the progress of the Chinese brands into Europe and the question of whether independent aftermarket players need scale to survive – a topic that I touched on in a more general way in a blog a few weeks ago.  However, the topic that has been taking up some of my time is what the best management model looks like for large dealer groups, or for that matter repairer chains or parts distributors?

These types of businesses are sometimes called ‘distributed organisations’ because each element of the organisation is broadly the same as all the others, and often mirrored as you work your way up through brand or regional levels in the structure.  The challenge is that although the total size of the organisation can be large, each unit is much smaller.  As a result, ensuring that processes are applied consistently, or new behaviours are adopted, is much more difficult than it is in a similar-sized organisation working from a relatively few sites.  Whilst a manufacturer might have the inertia of a supertanker when it comes to changing direction, one part of the ship cannot move without dragging the rest along.  A dealer group or other distributed organisation is more like trying to get a flotilla of small dinghies to make a coordinated turn.  You can send the message, but each crew will succeed to varying degrees in the execution.

At the same time there is little point in having a large and complex organisation unless some advantage is gained from that.  As I said back in January, we see more opportunities in scale than was perhaps true a decade ago due to the advance of digitalisation, and the need to have the tools and people to take advantage of this.  This is in addition to the economies of scale that come from larger volumes in purchasing, more influential relationships with suppliers (including manufacturers) and the muscle to commit to advantageous deals such as access to used cars from large fleets.  Allowing the multiple units in a large group to go their own way means that many of these potential advantages are lost.  You end up with islands of inventory of varying quality, variations in process between excellent and totally broken, islands of technology that do not communicate with each other, and no ability to build a meaningful brand that actually stands for something in terms of customer experience.

I do not observe many large groups of any type that fall into this extreme picture, but there is certainly a spectrum from relatively decentralised through to total command and control.  The latter is probably almost as compromised as the totally fragmented chaos at the opposite extreme.  It allows no room for individual entrepreneurial activity, no room to adapt to local or brand differences, and no opportunity for innovation at local level that may create new best practices that can be shared across the group to drive performance up.

We have seen examples of large dealer groups which still operate in a holding company style with central ownership, but few efforts to derive any scale synergies, and others where the general managers of individual sites may have a minority shareholding in their part of the business (either as a consequence of an earlier acquisition or a new award provided to encourage loyalty).  The first is flawed because it is more focused on finding opportunities to deploy capital across multiple businesses than it is on driving the return from that capital.  The second means that each of the dinghies in our flotilla now has its own captain, and when the admiral of the fleet orders a turn to starboard, there may be a debate about how many degrees or whether it would be better to turn to port.  Any change of direction will be slower, the ability to respond to changing marketplaces will be compromised.

Instead, we need some limitations to the degrees of freedom that each unit has.  Whilst there will be some discretion in the matters that make a difference at local level, things that make a difference to the ability to steer the group and alter the speed at which it progresses must be driven – even dictated – from the centre.  As the image at the top of the blog shows, we are not talking about an army drill squad that march and turn in perfect formation, but a more flexible model where the tools are provided, the objectives are set and the direction is clear.  The challenge for the managers of the individual units is to then work with their local teams to extract the best possible performance from their market with the tools that they have been given.