Rethinking Business Systems: Innovation and Adaptation for Success

One of the things that you and I talked about is... The level of knowledge and understanding about business systems in this industry, it's not just this industry, it's everywhere, but in the capital goods industries, automotive, construction equipment, cranes, material handling, marine, forestry, mining, all of that stuff. The people that use systems have never really been trained on systems.

And the people that trained them by the system were systems people. Yeah. And those systems people, although I love them to death, they don't understand the operation that they're applying a system to, typically. Typically.

I'm going to build a system. I'm going to get an analyst, somebody who knows how to design systems. I'm going to get a programmer. I'm going to put code together so that I can run it on a machine. And then I give it to the person who's going to use it and show them how they're supposed to use it.

And it's a bit of a trap, I think. We never ask the person who's doing the job what they'd like to see. What would make their life easier? How could they do that job easier? Am I fair in making that comment? I

Yeah. Yeah. And I think you pointed out quite nicely, I've been saying we've been transaction driven for a long time. Now we need to be data driven. And that transition. that transition confuses people. But, you know, if you go back to selling and the principles of selling, what does the customer need or want is kind of, if you want to be successful at selling, you've got to find out what those things are. And then you've got to address them. And I don't think systems people, right from the get-go, I mean, I'm going back right to the beginning with machine language coding, with having to overlay programs because we didn't have enough space. to the expense of data and files. Like $100,000 for a disk drive, for goodness sake,50 years ago, today it's a buck. Yeah. And I don't know that...

So my example has always been the steam engine to the electric engine, and that was the 80s, the 1880s, and that happened quickly because the tool was so much better all by itself. Yeah. But the methods that the tool was applied to didn't change for a generation,20 years, because it was almost too much for society to handle. Yeah.

I think, you know, my background was swimming and there's been some remarkable changes in swimming. The first and most obvious one is the pool and water. And in the 60s, the water prior to, the water was cleaned with either chlorine or fluorine after it was cleaned with ozone.

The resistance of water with air bubbles in it is much less than it is without them. Right. Meaning the times were much faster.

Yeah, right. It's kind of obvious. But then the next one that came along was gutters. Do you remember swimming pools used to have gutters?

And if you look at competitive pools, there are no gutters. With the gutter, the water would hit the wall and would come back into the pool, create a wave that was greater resistance, take away the edge and have the... gutter gone and it's the top of the pool

water just slips off the side of the pool doesn't come back in so again time went down and when i was doing it we shaved our bodies we we wanted to be so much that

our body you know what the hell is this all about yeah and it came back later now look at the bathing suits yeah

Precisely. It's legal. Yeah. And the times are so much faster. Then we go to things like the high jump, the pole vault used to be landed in a sand pit. Yeah. I'm not going to jump seven feet up. It's going to hurt the head like hell when I land on the ground, but you put a big fluffy pillow there. Yeah. 10 feet. Cause it doesn't hurt. We've got this same thing with systems, but I don't think we've ever really. gone up high enough in the helicopter to say, what in the hell are we trying to do here? Until you came along, XAP came along, Microsoft came along, Infor came along, a whole bunch of different people who just continue to do the same thing. And we have unbelievable screw-ups, dealers that implement a new computer system that don't get financial statements out, don't get invoices out. How the hell can that happen?

Exactly. What kind of testing?

You know. As I get older, I'm not sure that I get wiser, but I sure have a lot more questions.

I know. Asking questions. I know. And that's, you know, our teaching style is Socratic. We don't give answers. We ask questions. And hopefully through that evolution of... questions, we come to an agreement staircase where we get the other end of that. Oh, that's okay. I understand that. So somebody calls in to the parts department and they want parts. And one of the things that I've always struggled with is asking people at the counter or on the phone or technicians, when you call looking for parts, what's the first thing you want to know? And almost invariably, everybody says, have you got it? Yeah. I said, okay, what's the second thing you want to know? How much is it? Yeah. Okay. So then we look at systems and we've, you know, we've, we've come a long way from the abacus, but the customer calls in, the technician calls in. And the first thing that the parts department asks is who the hell are you? Yeah.

And that's the first thing that they put into the computer.

Yeah, we've got to get going. Well, I don't want it, or I want to have you got it. Well, I've got to go through to get, I've got to see who you are to know whether I can let you have it or not. Where did that come from? That's baloney. It's really the same kind of thing. Here comes service. I think that's kind of where you started. Customer calls in, they've got a complaint. The first thing we've got to do is find out if the complaint is real or if it's a symptom. And that's pretty simple, too. How do you do that? You inspect it. Yeah. And so here comes technology. And we've got sensors. We've got GPS. We have a health check remotely. We can get alerts on our phone, on our computer, all different manners. There's a problem with that machine. We still, who are you? It's the first one.

Yeah. And over the years, and this is where it gets distressing. When I started with the Caterpillar deal, you started with one too. In 69, the parts market share for Caterpillar, and they surveyed every customer in the world face-to-face. But you could still then. 1965 was the last time they did it. In 1970, they did 20%, and they went to every five years, we'll get the full thing. But talk about... Important information. What do you like about doing business with us? Who do you go to if you don't buy from us? What do you like about doing business with them? Talk about valuable, valuable information. And now we've got a whole bunch of people. In 2025, the market share has gone from 83 to 38. And I say to people, well, this is really cool. You've got another 50 years and you can lose another 10%, another half of your market share. What are you going to do about it? They don't even know that's true because we don't measure that. Yeah.

Not transaction, it's data.

This whole thing gets complicated. So you came along with a new system, a brand new third, a centennial opportunity to create a new system from scratch with all the existing software tools to make it happen. What's the biggest problem you've had in trying to build that system?

Take a simple thing like payroll. Yeah. And apply that to a technician. Yeah. We have two needs for time with a technician. One is to put it onto a work order so we can bill it. And one is to put it into the payroll system so we can get paid. Yeah. So the way it kind of evolved is we started with time cards. A hundred years ago, we filled out a piece of paper and we handed it in at the end of a week or a day or a month or whatever the hell it was. And I had a bunch of people sitting down at the end of the day. Well, what did I do today? Yeah. And we're like looking out at the people that you're dealing with. How many of them have the technician enter his time directly versus how many of them have two people involved? One, the technician and one, somebody else to put it on the computer.

What I found interesting is 1971, we put in ID cards for technicians and wands on the floor to work time. Then the first thing we had to do was create something that could be read. by a wand that would represent what the technician was working on. So we created a card that had the work order on it, the segment on it, the description on it, standard time on it, et cetera. So information for the technician as well as for us, but again, still transaction. So you had to get into the work order by wanding the card and then recognize it's you by wanting an ID card. And those two things then created the job. Well, that was a little better because the technician didn't need to walk to order parts. And the technician didn't need to think about at the end of the day what he was doing. And then we got a little smarter and said, well, wait a second. We only need to have the guy sign on to a job. We don't need to have him sign off. We can have him...

sign on to the next job, and that automatically signs them off. Well, gee, that's a little smarter. And then we said, well, why the hell do we need a wand? Why can't we give the guy a keyboard and have them talk to the computer or put his own time in directly? And it started evolving. But if you look out, I bet you 50% of the dealers in the capital goods industries, whether that's automotive or marine or whatever the hell it is, still have two people involved in payroll.

We don't understand continuous improvement. Again, I don't think we've trained employees to be critical about what they do. Is that a fair comment?

Yeah.

Yeah. Yeah. The Facebook illustration of how you used your time or the cell phone, how you used your phone, you used it more this month than last month or Google Maps or whatever ways. Here's how many miles, here's where the trips were, here's what you did, all of that stuff. And we're nowhere near that. You know, parts orders. And I'm going to pick on the same thing between service and parts. 50% of the dealers, I would bet you money, have the technician walk from their bay to the parts department to order parts and stand at the counter waiting their turn if there's somebody there. And then they talk to another person about the parts that I need to order for this repair, and they knew what those parts were before they went.

Yeah, and so now I've got two people involved in that. Again, the same damn thing always. Getting a quote for a machine. Renting a machine. Machines down in a field. Why don't we just replace the machine? Boy, that's expensive. Well, how expensive is it when the guy can't use his machine for three or four or five days? Yeah, yeah. That's expensive now. Well, it's the income he's lost by not having his machine available. No, we don't think about that. This whole thing is heading for a train wreck.

In fact, I think the dealer today, Steve Day and I chatted about this about a week ago. The dealer today is at risk. Their market capture, their market share on parts and labor, which is where they make the money, is at the point that it's marginal. And what we've seen over the last 20 years, the dealers. have had trouble. The cost of equipment's gone up dramatically. Cost of interest has gone up dramatically. Wages of people are under severe stress. So how do they solve a profit problem? They get rid of people.

And when they get rid of people, customers follow them out the door. So our customer retention goes down. Yeah. Meaning our market share goes down. And here we go in that ever-diminishing circle until you finally disappear up your fundamental orifice.

Yeah, I agree with you, and we're heading to that place. If I use the U.S. government as a model, which is not what I want to do, but just as an illustration.

Isn't it, though?

That's right, I am Canadian. So I can be an equal opportunity abuser and dump on both governments. It's very empowering. The circumstance today in the United States is that 27% of our GDP goes to expenses for the federal government. Yeah. And if you take the last 20 years out and go back 230 years, the average was 20. Yeah. How the hell did we get to 27? And I think it's the same thing that you were talking about. We keep adding, keep adding, keep adding. I start with a budget of a million bucks. Well, I need a million and a half next year. And it just kind of happens. And there's no cop at the door that says, wait a second, I don't have any more money. What are you spending more money for? And now, and I use this as an illustration, not trying to present anything either way politically, here comes Trump and Elon Musk and the, quote, unquote, the Department of Government Efficiency. Yeah.

And look at the chaos that that's created in the last three to five days. Oh, my God. USAID. Oh, my God. You're allowing people to withdraw and you're going to pay them eight months salary and benefits? what's going on here? We can't have, whoa, slow down, stop.

That's right. That friend of mine before I got here, he says, you're going to love it here, Ron. You're 2,500 miles away from all the BS. It's really true. So we come around again. I think it. I think this generation that we're at now,2025, where we're at now is our education system, I think, has failed. We're not generating out of our school system, whether it's grade school, technical school, university, or wherever. We're not creating work-ready people that can sustain our society. They don't have the skills. And one of our contributors, Ed Gordon, who's got a pretty sharp guy, a couple of PhDs, one in history, one in economics, says by 2030,50% of the American workforce, which happens to be around 75 million people, will not have the skills to be employable.

Yeah. Well, you opened up a magic word called thinking. I don't think we have people going through school that are thinking as much as they're being brainwashed. You know, think about how we learn addition and any mathematics. It's the number series. One plus one is two. Well, what about one plus one is 11? You put that in front of a young person, they get confused. No, one plus one is two. Well, there's no two anywhere there, but there's two ones. Why isn't it 11? And now they're stuck because they don't think. And I don't know. So you're going to

I really would. I'd like to go back to what education was in the 1800s. You know, until the president of Harvard in the 30s decided he wanted to make more money, the model that we had in America was the classic education out of England. Oxford and reading, writing arithmetic kind of thing. And he said in the 30s, this is a fact, you can verify it, we can make a hell of a lot more money if we start adding some classes. It didn't matter whether that was going to be contributing to societal gain. It's going to be good for you. You're going to do a lot. So we have studies like women's studies. I'm not going to pick on that, but, okay, tell me how that contributes to betterment of society. It makes you better as a person. You're smarter and better rounded. But what does that do for society? And then, you know, here comes the magic bullet. How did we get to, my grandson wanted to be a nuclear engineer.

So we applied to Purdue, which is where he got in. And he comes back at me when he's 17 years old, says 350,000, Bobby. I can't do that. Even with all my scholarships, it's still 170 grand. I can't do that either. How did I get to a place that education costs that much? You know, that's a whole

Is it ever? But it's all related to the same damn thing. We don't think about what we're doing. We don't have people that are thinkers. Continuous improvement, Edward Denning and Duran back in the 1980s. It was really exciting. Then it dissipated. We don't have any staying power. So we came to Six Sigma. Oh, that didn't work. Then we went to Five S. Oh, that didn't work. We relabeled it, charged more.

I forgot. We have casual dress days now. Oh, we can work from home now. This all becomes interesting. You know, on the counter is an example in parts. Or technical advice. Why don't I have a bunch of people on the phone? Customer wants some help with technical advice. Should we give it or not?

And then here comes the. Right to repair. Should you share your technical information, your engineering information with me or not? That's another interesting one, isn't it?

I don't like defensive strategies, period. And I think part of that... I attribute to the fact that I grew up in a competitive swimming world. And I learned very quickly that it's not me competing with other people. It's me competing with myself. Good point. If I can be the best that I can be and it's not good enough, so be it. But if by being the best I can be, I become the winner. Fantastic. And I used to say to people, there's eight people in a race. You get up on the block and you finish last. But you beat your best time. You won. You won. It just didn't happen today the way you want to. So we get this whole thing again. We're defensive. I want to protect that. But our actions decry that. I have technicians. And that guy that goes out and did all of that magic that reduced the... The warranty costs, and he was expensive, and the company is saying, well, gee, you're costing me money.

When are we going to get to the point that we look at Amazon in the 1990s, and here we are, let's say,30 years later, just to put a funny on it, might be 32, might be 28, doesn't matter. And they're the largest retailer in the world. And what did they do? They made it easy for the customer. Yep. And they did it with systems. Oh, my Lord.

And that's those guys sitting in the kitchen that you're talking about. You've got six or eight or ten guys. And we open a couple of beers and start, well, how would we like to do this if we were starting from scratch? Yeah. We don't have very many people that have that kind of knowledge.

I'm going to call it a kiosk, just to use a different term. If I only had, it's a walk-in situation. I'm walking in. I'm not driving in. I'm walking into a McDonald's and I want something. And I've got two channel opportunities. One's with a person, one's without a person. I wonder if you did an experiment for a week, what the customer would choose, the kiosk or the person?

I'm with you. So let's go to that. The line for the person is long. Yeah. The line for the kiosk is long. What is the solution to shortening the line? People? And your resource, right?

Add another person or add another kiosk. Which is the most cost-effective way to do that?

So again, I'm with you, but I don't think we are looking critically at how we operate a dealership. And I think that's going to lead to the demise of the dealership. I think we're already seeing it in Canada now. There's two Caterpillar dealers. When I started, there were 10. When you started, there were 10. When I started, you know, there were 10 provinces and two territories, Northwest Territories and the Yukon. How many are there today? More. And the United States has 50 states until... such time as Trudeau becomes the governor of the 51st state. Who would have thought? I mean, we get all of this stuff, but nobody... I'm in Moscow, Matt, working with...

Oh, I've been in Moscow often. I trained there for... Had training classes for eight years, nine years up there, and I did a lot of consulting work there. So I'm with a dealership. I'm talking to one of the leaders who's got an MBA. He's married and has three children. He's 45-ish years old. And I asked him, you know, if you could wave a wand, what would you change here that would make your life easier and be better for the company? His response floored me. He said, don't do that to me. Just tell me what you want me to do. I was floored.

And so I... And this is 25 or more years ago. And I came back, I started doing the same thing here with different managers. If you had a wand, what would be the first thing you'd change to make your life easier here at work that would also be a benefit to the company? And I get a whole bunch of glossed over eyeballs. Yeah. Hadn't really thought about that. What the hell's the purpose of a leader? But to help the employee be better at what they do, to help satisfy the customer with more of their needs. to help make more money for their employer, to provide a safe environment, and they're not looking at how they do the work? What is this crap?

I would say yes, but I think that's an excuse. If the industry made enough money as a return on assets, the cost of the asset wouldn't matter a damn. I'm going to make 350% return on assets. Or I'm a rental company. I'm Sunbelt. I get 50% return on assets. Holy macro, baby. Oh, I only do $4 billion a year. You get $2 billion net taxable pre-tax income? Holy crap, baby. Right. Doesn't matter how much the machine is. I'm getting, holy, geez, you can't do that other than with illegal drugs. You know, so I don't think that's the problem. I think the problem's people. Example, why do I need to have a journey mechanic do a 250-hour or a 500-hour preventative maintenance service? Why do I have a guy who's got 20 years experience, every training school that I ever sent anybody to that I pay $45 an hour to, why do I want to have him doing maintenance? Well, in fact, I don't.

And my assistants tell the market I'm not interested in doing maintenance because the market can go out and hire somebody at half the price of the journeyman and do the maintenance because they redefine maintenance as changing filters and fluids. Yeah. That's not what maintenance is. How do we let them get away with that? Because the cost per operating hour should be the driver for the customer. You can reduce the cost per operating hour by doing maintenance properly. Period. It's been proven everywhere. And we're stuck. So all of that, I believe that there will be parts dealers who will sell parts to machine owners that they purchased from the guy who made the part, who sold it to the equipment assembler, the OEM. And they just took out a level of the supply chain.

And it's been happening. Yeah. And that's why Amazon has become so successful.

So if the parts business is going to go away because I can start up a company, you and I can start up a company and we'll create it, we'll call it a Kappa, construction area of parts availability instead of NAPA. We'll carry 3,000 to 5,000 part numbers, all the fast movers. And we'll sell them. We'll buy them directly from the people that sell it to the OEMs and we'll sell it for half the price of the OEM does. Yeah. Is there anything that's standing in the way from that happening in your view?

I'm in a small apartment where I live. It's around 1,800 square feet, two bedroom, two bathroom, nothing fantastic. But I've got four. Alexa devices.

And wherever I go, I get notifications. And it's all related to exactly what you just, the other day you looked at such and such. We have something in your shopping cart you're looking for that has a special price. Here's what it is and how much you're saving. Would you like me to add it to your order now? Yeah. And again, it's relating back to making things easy and simple for customers. to conduct their business. I need soap. I need a pill, a subscription renewed. All of these things are predictable. My $500 service, it's predictable. My engine is overheating. I'm told that through a diagnostic, through a sensor, and I call the dealer and I call the customer back and say, Mr. Customer, your engine is overheating. We would like you to shut it down so that you can stop problems. Or, gee, you really bought that part for that hydraulic repair from George? Where do you get the part?

Are you putting that $30,000 pump at risk because you saved three bucks on a part number? We don't have those discussions anymore. And I think part of it is because we're defensive, we're protecting what we've got. Part of it is we're stuck in a model that doesn't work anymore. Part of it is... We blame high cost, but the reality is low-skilled workers. All of that stuff is not sounding good.

I really believe that's coming, Matt. Now, there are wonderful opportunities for people that satisfy customer needs. Just like you say, I'll spend more money with those guys because they satisfy all my needs. Whenever I have something I want to get done, they do it. Yeah. And that's what was something to me.

So let me take that one as an illustration. I got tired of my customers being mad at me because my company would not do what I wanted the company to do. As a result of that, I left the company. I'm going to start doing it myself so that I can satisfy the customer the way that I want to satisfy the customer and everything works. And that's what happened to independent mechanics as well. It's every single place. I think I want to stop there. That's enough provocation for a lot of people to consider, to think about. How would you wrap up this discussion? What would you say would be the message you want to pass to people that you want them to consider?

I agree with you 100%. And, you know, an example of that is Alex Kraft and his company Heave. And we did a podcast recently, and I said, well, how's it going? He said, not bad. We just did a review of 2024. I said, oh, anything interesting? He said, yeah. A customer makes a request, needs repair or maintenance on his machine. Our average response is one minute. So from the customer request to somebody responding to that request, it's one minute. I said, wow, you do that for every single customer? Yes. Every single transaction? Yes. I said, okay, what else? He said, well, within five minutes, the customer has made a decision about who he wants to have do the job, and the job is underway. I said, well, why aren't they buying it from the dealer? Well, the dealer didn't give them a timeframe that was good enough. What was the timeframe? Oh, three. three, four days if it's field and a couple of weeks if it's shop.

I said, okay, well, how long are these jobs? He said, well, the average job we did in 2024 was five hours. And the dealer is saying to the customer, we want you to wait three hours for a repair that they can do in five hours, or three days for a repair in five hours. And the answer that came back from Alex is, seems so. I said, terrific. How many mechanics have you got signed up? He said, well, we've been at it for about a year now. 600,700 technicians that are involved from zero.

So data, defensiveness, model bias, all of this other stuff, it's not good. We got to get the dealers to look at the clouds are upside down and look at it differently. Look at it with fresh eyes or their life is limited.

Yeah, it's not meant to be a commercial for Alex, but it turns out that way. So that's great. I want to do this again in a couple of four months.

A couple of four months on this particular subject. I want to do something else with you on your software so that we can start getting people to be more aware of that.

Okay.

I'll get a special room just for you. Awesome. I'll put padding on the walls.

That's right. That's right. So, Alex, thanks very much for your time, and thanks to everybody who's been listening to this The Clouds Are Upside Down podcast. I look forward to seeing you again in the very new future. Mahalo. Thank you for listening to our podcast. We appreciate your support. Should you have any thoughts or comments, please don't hesitate to contact us at www. learningwithoutscars. com. The time is now. Mahalo!