The Fourth Industrial Revolution: Navigating Change

come out and visit Hawaii. The sense is going to start entering his brain. We've started last week a podcast with Ron Wilson where we dealt with artificial intelligence and how it was going to impact dealers. We did a podcast on it. Built data. Your company that analyzes and evaluates and advises people on market coverage deals in certain manners with artificial intelligence, but also it deals with change at a dealer level. And that's kind of what I'd like to open the door to. I don't see a lot of companies that are changing anything. I see a... transition of leadership that's been delayed by a generation, maybe 10 years. I see a lot of senior managers, executives that are leaving their companies because their career path has been blocked because their boss is still here. And I don't know how to break that logjam. So I'm hoping that you and I can have this discussion, your perspectives and thinking and my perspectives and thinking can provoke the audience to. look at things in a little different manner. So with that as their introduction, is that something you're experiencing with your clients? How do they, what do they say? No, a lot. Or do they say yes, or you bring them all this stuff. How much do they do?

Let's use CRM as an example. Where management, I believe, used CRM to control the salesman. They wanted to see how many calls, to whom the calls were being made. And then they got a little sexier. They wanted to know what they talked about, how often they talked about it, what's the number of calls to close, those kinds of things. Because that's all old-fashioned things I used to do manually for the small number of salesmen, and I'm comfortable with that. And then here comes Salesforce, which I'm going to say is CRM on steroids. gave an awful lot of the same stuff, but it added profile data of the client that made a much better picture of who, to use your term, the buyer was. But in no case does either CRM or Salesforce look at lifecycle management to say that I have a widget here that has a life of 25,000 hours. And I've got sensors and GPS that tracks the number of hours on that widget. So I know exactly when that thing is going to die. I also have analytics that tells me that if I can do a repair or a rebuild prior to failure, I can cut the bill in half. So I want to do the repair or rebuild before it fails. So those predictive analytics become absolutely critical. CRM and Salesforce don't touch any of that. You know, we're just continuing.

Go ahead. It also doesn't.

With that, and let me go further. I'm going to say every industry in the world is going through exactly the same thing because we have people that are leading the parade that are making significant impact in the market. And rental was the... the start of this. Light industrial is another piece of it. But you're having consolidation take place, not because it makes economic sense, but because there's too many people that are failing. And I'll look at the capital goods industries, and I'm going to say that every 20 years, we lose half of the people competing in the market. So in 1985, if we had a thousand dealers of lawnmowers, washing machines, on-highway engines, containers, whatever it is,20 years later, there's going to be 500, not 1,000. And the 500 that went away, went away because they weren't good at what they did. And between 2005,2025, it went from 500 to 250. And coincident with that, what has caused a lot of this is that we've put profits in the businesses ahead of people. So if you look at calculations of GDP, which is the number of units of work, population, working force, et cetera, the units that are produced, do the arithmetic, the fewer people you have, the higher your GDP growth is going to be. The higher your GDP growth becomes, you can attract money into your country. So tied with that, go back to the 1950s, when there was a conscious effort in the Cold War by America, to try and bolster countries around the world in face of the opposition, which was viewed as the Soviet Union. So we wanted to bolster the economic activity within the countries, Eastern Europe, South America, wherever you want to talk about it, as a defensive mechanism to protect against the Soviet Union, influencing Cuba, Venezuela, whomever. Well, the Cold War is over. And here comes Trump and he says, well, wait a second, we're not going to do that anymore. The trade situation that we've got now was created to allow this activity, defense against the Soviet Union and the Cold War. We don't need that anymore. Now, I want to concentrate on the biggest market in the world, which is the United States. And if you want to do business here, we're going to have fair trade back and forth. You're not going to be able to charge us 400% India on anything. cheese in Canada,300%. This is going to change. And he's causing all kinds of disruption, scaring the hell out of people. So you've got two kinds of people now. You've got people that are victims who just respond, call it the Trump derangement syndrome if you want to get into political terms. And you've got people that look at it and say, well, wait a second, that's a good opportunity. So this consolidation that you're seeing is happening everywhere. Because of another transition, there's some people call this the fourth industrial revolution. That's fine. I don't care what you want to label it. There is a huge transition taking place. And a lot of it is very immature. A lot of people that are making the decisions as to whether this is a good thing or a bad thing, use the CRM, Salesforce, et cetera, example, don't have the skill set to be able to make that decision because they haven't kept up to speed on what's going on. They're not. involved in, they're not curious. They don't read a lot. They just continue to do what they've always done, which is Einstein's or whomever you want to call it insanity. And we're seeing that unfold right in front of our face. You're seeing that with your clients. I'm seeing that with my clients. So example, we'll, we'll do a skillset review. We've got three certification programs now,120 questions,150,180, multiple choice. You want to be a master? At a specific job function, you're going to take 180 questions and you've got to get 80% in order to get that certification. So all of a sudden, job descriptions are no longer just duties and responsibilities. They're specific job functions. So for instance, you made a call yesterday. You spoke to somebody yesterday. You talked about the specific product. They said they were going to think about it. Nobody follows up that phone call the next day or the next week, or somebody goes in on your internet. portal and does an inquiry they check a price they check availability and they don't buy and nobody calls them the next day to say noticed you looked at this last night and that you didn't buy have you purchased that or would you like a little bit more information nobody does that and david griffin who's 70 and retired but not still chairman of a large material handling company says we're putting short-term profits ahead of the future of our grandchildren, which is true because we're trying to make all the money we can now to protect us. And we're not investing in the future for the next generations or the next workers and all the rest of the nonsense, which means where you are with built data is right on the front edge of that wave. And there's a lot of people are going to say, I don't understand that, Nick. They're not going to say it that way, but I don't think we're ready for that. So a lot more people are going to say no to you than say yes. Am I right or wrong?

That's a big attribute. Curiosity is critical.

Yeah, and let me pick on that one for a second relative to business systems. I've used the paper to glass statement when we brought computers in in the 50s. What we did is we took a piece of paper and we put it on the screen. So instead of handwriting something with six-part piece of paper, we put it on the screen and we printed six copies. All we did was speed it up, but we also found out people didn't know how to type. And as time passes, a friend of mine's got 13 patents pending. He can move the screen, the cursor on the screen with his eyeball. So the keyboard needing to type is going to go away. I'm just giving you a weird example of where technology goes. But when we look at the stack of software, dealer business systems, dealer management systems, whatever ERPs, whatever you want to call them, today, those people don't know the companies, their customers. business. They know data processing. They know information technology. They know software. So they can make elegant solutions, but they can't do the business properly. For instance, nobody should have fixed locations in a warehouse today. You should determine where you're going to put the part by what's available in your warehouse, locations, by size, by activity, by location, and you place it according to what the efficiency and effectiveness of that. space, use of that space is at that moment. If you and I got on a plane and visited a thousand dealers, there's a thousand dealers that have fixed locations and don't change it. And this takes us to a place where the people that are giving us the tools to make ourselves better don't understand our business. How can they make our business better? And we have that with every aspect, you know, here comes sensors and GPS. All of a sudden, I know the condition of my car, every bloody Half hour, hour, every 10 miles I drive. And how many people pay attention to that? Because, you know, I should change my car. You know, I've got 22,000 miles on my car. I've had it five years. I don't need another car for the rest of my life. So I'm dead meat as far as potential market, right?

Not yet. At least not above you. But the other, if you think about it. Walmart, Sam Walton created a different business model. Jeff Bezos and Amazon created a different business model. Which one of those two companies is the largest retailer in the world? Do you know?

You know what Sam Walton did that was different than anybody else?

There's two things he said to every supplier he dealt with. And this is in the 40s,50s. He said, Nick, I'm going to choose you as my supplier. You're going to be the only one I'm going to buy from. But I have two conditions for you. Number one, I never, ever, ever want to run out of that inventory, ever. Number two, I won't pay you until my customers put it through my cash register. And as a result of that, he didn't have any inventory carrying costs.

And why do you think he became a low-cost supplier? Not only did he not have any inventory costs, but he had a 30-day float. He would send an invoice to the supplier, or he would send a check to the supplier, or they would send him an invoice when it crossed his cash register.

I'm sure I could tell you. It

Well, it's not worth rethinking. It is an absolute necessity to rethink how business has been done. Let me come back at it in a different way. Yeah. Who's the largest manufacturer with the greatest reputation and the highest market share in the construction equipment mining world? Who is that?

Who's the number one? I

So it is CAD. And yesterday, CAD stock took a dump and everybody looked at tariffs and supply chain and those types of things as the cost because it's an easy punching bag. About 40 years ago, Don Fights, when he was chairman of Caterpillar in the 80s, so it's 45 years ago, had an article in the Harvard Business Review about their dealer number.

And the point he makes is they're partners. Yeah. They're on the same team. That's your statement in spades. Almost everybody else has a conflict. They're in competition with each other. They do not have alignment. And I'll throw names, Komatsu, Volvo, Case. They don't have alignment. The manufacturer wants one thing, the dealer wants another. So the case in point is last year, and it continues this year, there's a worry that there's not going to be enough equipment bought to keep manufacturing running. So there's a whole bunch of people whose jobs would be exposed.

So what's the manufacturer doing? They're giving you terms and they're giving you preferred interest rates. And they're giving you deferred payments. So all they've done is they've kicked the ball down the road six months, nine months,12 months, whatever the heck you want to call it. And now the problem is coming back again. And guess what? Now we've got people that can't afford to pay the interest because interest rates, which is why in America, everybody's upset about it. We're not seeing interest rate reductions in Britain. The labor department has reduced interest rates in London. the UK five times so far, and it's not going to be enough to save them. They're out of there. But we start having a world where supply chain, GPS, sensors, life cycle data, analytics, technology is all available to be a guide for us. But we don't have people that understand how to read that map yet. We have a few, but not many. Yeah.

I think it's a great thought. The ruthlessness of cost. You know, take a silly example. And this is, really weird because that's kind of who I am. I believe that parts inventory turnover should be north of 10 times a year because all I'm really interested in is return on capital employed. So I'll give you an illustration of a company I work with that did about $150 million a year in part sales and had about a 33% gross profit. So their cost of sales was $100 million and they had $75 million of inventory. So their turnover is like 1.3,1.4. Multiply that times your 33. That's your return on capital employed. Maybe it's 40%. So I took the inventory for 75 million to 15 million by getting rid of every part that didn't sell 12 times a year and saying to the market, if we stock it and we don't have it, it's free. So all kinds of people tested it. It had the desire. And we never ran out. Why? Because we kept two and a half months worth. We had 75 days of inventory on hand. And that was the simple, easiest way. That's a turnover of five. So just doing that, leaving everything else the way it was, we took our return on capital employee from 40% to 165%. Now, does that make more money?

unbelievable. So let's go further. We sat down with the group of people, big company, many stores, many parts managers. We sat down as a group and said, okay, fine. We sell this part eight times a year, this family of parts, you know, all kinds of information. How many should we have on the shelf? One, two, eight. What do you want? So we determined for 10,9,8,7,6,5,4. exactly how many we were going to have. And everything turned into a buy as sold. Everything we sold today, we bought today. So we had a lead time flow. And anything that was four or less didn't want it at all. And we didn't. And we took the turnover to 10. We went from 75 million to 15. My working with the company ended, as all things do. drain my brain. There's nothing left. So move on, find somebody else. That's cool. It took them less than a year to have that 60 million go back into inventory because it's too much work to keep it at 15. Yeah.

Yeah, it's really interesting. Go back to the... Walmart and Amazon illustration. The largest retailer in the world is Walmart. Walmart has the highest customer satisfaction, has the fastest delivery system, has the highest availability. In other words, they beat the heck out of Amazon on every aspect of the business. Amazon beats the hell out of Walmart. on sales and marketing. So they track every client, what they look at, how often they look at it, when they last bought it, when they, you know, all that stuff. But Walmart does that in the form of you bought this last month, are you ready for a new one? They do the same thing, but in a different way. So then let's, let's come forward. And I think this discussion should, this conversation should get people thinking about, am I at risk? And to... 99 point something percent of them, my answer is, yes, sir, ma 'am, you are at risk. If you continue to do what you've been doing, you will not last the next 20 years, period. Without any question, without any doubt, I'll bet you on it.

So let me go backwards. And that is true in a mechanism called 20 Groups, which was started in the Packard Company in the Northwest in Seattle by the name of Malcolm Farris, who was the vice president of dealer development for Packard. And he created groups of 20 dealers that were of similar size market. And they met three times a year. And he had a data input form that they filled out and shared every month. Mac and I created a company called Insight in the 90s. And instead of 20, we did it with 12. So I'd have Komatsu, Volvo, Caterpillar, John Deere, Bobcat. And we'd meet twice a year. And the object of the lesson was to increase. the net profit of those organizations. And we did between three and five percentage point increase over a five-year period of time by sharing best practices. And every meeting we had a little tool I called dollar time. I wanted everybody to put a buck on the table and make a presentation to all the different dealerships, stand up, use slideshows, whatever the hell you want. And we're going to vote on who has the best presentation and you're going to get the pot. You're going to get the 12 bucks, but you're going to buy drinks tonight. So it was a good news, bad news bear, because if you won, it costs you a hell of a lot more than that 12 bucks you earned. But we took the net income of the group up by three to five points over five years.

It's unbelievably huge.

What I said to them was all. I have a shelf life with you guys of 10 years. After 10 years, I'm gone. Because if you haven't already sucked everything out of my brain in 10 years, shame on you because I'm not doing it anymore. And I had 50 different dealers. And I stopped it in 20, call it 2010. I can't remember exactly when. But coincident with that, we put it online. We took part service selling, rental, administration, different brands. And we put a company together called the Capital Goods Sages, where dealers could put their own data in and they'd get answers back. Or we could suck the data for them and give them the answers. But we didn't give them numbers. We gave them graphics. So you had a frowny face. You're being greedy. You had a red light. You're in trouble. Better make some changes. Orange light, green light, smiley face, and then a greedy face. So if you're making too much money, you're at risk just as badly as if you're not making enough money. And then for every single, we had 200 different measures. For every one of those measures, I created five tips. You could buy the tip online for 10 bucks,25 bucks,50 bucks,100 bucks, depending on what the significance was on helping you improve. We sold it all online. And if that didn't work, if you tried it, but you needed help to do it, we created a group of people called ACEs who are all retired executives, just like, you know, the American executives overseas routine. And you can get in touch with these guys and they could come out and help you implement or be a sounding board or counselor or whatever. And we put that whole thing together. Unless I intervene with a dealer, they will not. do it on their own. Now, is it because they don't want to know what the answer is or they're happy with what they've got? And I think that's where the rub is. I think the status quo is something that the leadership today vigorously protects.

Stay there for a second. Let me ask you a question. Who do you think is the largest, most respective consulting company in the United States?

You don't follow that enough to be able to make a comment.

What is your opinion? Who is it?

there. McKenzie's number one.

So stay there for a second. Today. Today. Across the wires. is the statement that McKinsey is completely changing their business. Because with artificial intelligence, with Copilot, with ChatGPT, with other tools that are out there, their clients don't need them to crunch the numbers anymore. They can do it themselves. What they need is the analytics, the conclusions, the recommendations, the projects, and a roadmap of how to get them done. So they're changing their whole business. It'll probably take them a year, maybe less if we're lucky. That's a consulting project for a consulting company, isn't it? Redefine us so that we continue to exist. So let me give you another example of a similar situation. IBM hired a guy by the name of Gerstner to become their chairman. This is a long time ago in the 80s. And he had his first, I don't know, have you and I talked about this? Yeah. Gerstner has his first meeting with all his direct reports. And he's a superstar. I mean, his reputation is impeccable. And there's about 20 guys and gals in the room. And he goes around the room and he says, who are your top three customers? After four or five responses, it became clear that they didn't know. So he ended the meeting. He said, we're going to convene again in a week. And I want you to give me the top three customers. the three most important clients that you have. This is the whole corporation. This is the largest computer company in the world with the highest market share of technology in the world. And they couldn't tell who the top three customers were. So he goes back, here comes the meeting. He gets the top three customers, has a perfunctory continuation of the discussion, thanks them very much, ends the meeting. What do you think he did next? He's got 60 names. He got on a plane and went to visit every single one of them. In three months, he came back. He's got his 90-day project out of the way. He's been given input from the 60 most important clients that the company has, according to the leaders. And he asked them, what do you like that we do that you want us to continue? What don't you like that we do that you want us to stop? What do we do that doesn't really matter to you? And what would you like to see us do instead of everything else? Those four things. And he distilled it down to two or three things for every single one of those four from those 60 customers. And then he went out and executed it and saved the company, doubled the volume of the company within the first 18 months. So there's a man who, like McKinsey. Comes in with fresh eyes, which is an expression I use.

powerhouse

that's great. I love that word. It's interesting. Let me go a little bit further here for a second. We're not, okay, let me get really nasty. Grade 8 American education. There's a grade 4 and grade 8 standard testing that takes place with every student in America every year. 2024, grade eight, and they test arithmetic and English. 70% and 72% of the students in America at grade eight cannot read at grade eight level and cannot do mathematics at grade eight level. Interesting.

Like what the hell is going on here? So go up further in the helicopter or the hot air balloon. Somewhere in the 50s, it became determined by American government that they wanted you to have a university degree because you'd make more money that way. And the whole education community turned around because the product that they're trying to create is a work-ready student, an employee for the community. And they've been failing.

Okay. And in the process of that failure, In the 80s, a new program came out of California called AVID, which is Advancement Via Individual Determination. And the illustration that I use is we're all 10 years old. We go to school for the first day and we have three hours worth of testing. And then we go home and we come back a week later. We're all 10 years old and we're all assigned a class. You could be in grade three. to grade 10 based on your specific skills and knowledge level. Now we're starting to educate according to the capacity of the student. My daughter's, the curriculum is responsible for the AVID curriculum in her school district. And she says, dad, students don't have critical thinking skills anymore. So we create assessments like those tests for the 10 year olds so that I know exactly who's good and who isn't. what they need in order to get good, how they can get better, what are the different options of them in their career, and we can create a complete individualized, personalized learning path for them. However, employers look at employees as tools in a toolbox. I'm going to hire you to satisfy this need with your skill set, your tools, and if those tools... become outdated, I'll replace you.

We have a suggested reading list for interested people on our website. There's a couple of 300 books in there. One of the guys that I list in there is Patrick Lencioni, who's got about 10 books out there. One of them is called Getting Naked because you used the word naked earlier on. And what that is, is that you're starting a consulting business. So you go into a client, you're completely naked because they have no idea. They want to know who you are and what you are and what you can do and how much you're going to cost and all the rest of that stuff. And you got to become naked in it. He has three signs of a miserable job. And they're all fables, easy stories,100 to 150 pages, small format, big print, easy to read, absolutely wonderful. But in almost every class I did, I'm not doing classroom training anymore, but. I always used to start with, okay, who's read a book in the last year? A lot of hands went up. Who's read a book in the last six months? Who's read a book in the last three months? Who's read a book in the last month? I said, you know, if you're not reading books, you're dying. And then I would ask the room, I said, how many books do you think I read a month? And everybody guesses one or two or whatever. I have two going every week of all manner of stuff. Might not have anything to do with anything that I have any interest in. It might be astronomy. It might be SpaceX. It might be Neuralink. It might be what? It doesn't matter. It's just trying to exercise my little peanut so that I can stay relevant. I've got two grandkids. My daughter's got a master's in education. My granddaughter's got a master's in animal science. My grandson's in the Navy, the nuclear Navy. He's the brains of the family. He's going to have nuclear engineering and astrophysics degrees by the time he's 20. He'll have masters in both of them by the time he's 22. I said, what are you going to do with that? He said, well, they want me to go to officers training school. They want me to go to Annapolis. I said, okay, what are you going to do? He said, well, he was the head of the ROTC in his junior year in high school. He says, Bobby, this is nuts. I tell them to do something. They don't do it. It's driving me crazy. I said, well, you're in the military. You know, if you ask them to do something, it's not. It's get it done. So you don't need to worry about that when you're in the military. However, you get in the private sector, you kind of have to learn how to motivate people, manipulate people, whatever the hell you want to call it, to get them to do what you want them to do. He said, is it really that bad? I said, it's worse. That's why I got into consulting in 1980. My job was babysitting in politics. I don't like it. I'm not good at either. I like solving problems. So we've got a whole world out there. of people that don't know how good they are or how much they're missing. Companies are using training and employee development as discretionary funds, which is a huge mistake. And we have this fourth industrial revolution taking place that's changing the complete supply chain and altering between all nations on the planet.

Okay, so while you're doing that, I'm going to go down another path. I'm not going to be affiliated with any OEM. I'm going to take a replacement purse for every damn machine there is out there, and I'm going to sell it at 25% lower than you can buy it.

So let me go a different way.

Of course. Of course. They wouldn't even, I mean, at the beginning, they would think it's crazy, but customers, customers do.

So, you know, what's really funny? I started consulting another

course. And I use those Harvard. case studies as training films in my classes. Yeah. And they use that as, okay, here's, here's a case Southwest airlines, her calendar. He's the Sam Walton of air travel. His business plan was on a napkin in a bar. You know, there's examples all over the place. The trick is we have to get critical mass and we have to continue to see. The breakdown. So here's an interesting statement. The first machine owner is owned by the supply chain that starts with the OEM. Maybe it'll be a private network. Maybe it'll be private dealers. Doesn't matter. But it starts with the OEM. Who owns the second machine owner? An auction. Richie Brothers. Yeah.

It's

Yeah, let's just drop it. I like your idea. And say that's enough for one. I think we probably overloaded too many people and too many thoughts. I hope that's the case. And I appreciate your perspective.

Well, your statement that you don't know. Remember Rumsfeld, when he was Secretary of Defense, made the statement that we don't know what we don't know. That's a very significant statement.

yeah. And we don't know, you and I don't know, nor does the industry, nor does the world know what we don't know today. We do know. that there is unbelievable challenge. We do know there's a consolidation. We do know there's a fourth industrial revolution. We do know technology is changing faster than we keep up. We do know that we feel like we're victims, but we got to try and get control of our lives again. So my grandkids, I tell them all the time, I want you to be in business for yourself. Find out something you're passionate about, something that you think you can help people make money on. And give it everything you've got and understand you're going to change that every 10 years for the rest of your life.

And I appreciate that because I feel them, my friend.

Way to go. Okay, so we'll see you sometime in the fall in Hawaii. Let me see if

So on that, I'm going to say thanks very much, Nick. I think this has been a really valuable hour.

Oh, there's, there's, there's Troy and there's a whole bunch of others that are, that are coming. There's a bunch, there's an amazing amount of talent out there. And to the audience listening, I hope you got something from this candid conversation. If you have any, Thoughts or comments we give you when we send this out for consumption, we give you an email. You can send any questions or things that you want. And we're going to be following down this path for the next six months for sure until I get some indication that we're starting to make some progress. So thank you very much, everybody. And I look forward to having you with us at the next Candid Conversation. 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!