Transforming Enterprises with AI and Business Analytics Insights

Very weird.

Yeah, for a lot of years, even from getting out of graduate school, one of the biggest problems that everyone faces is just the data. And so when I started working, I worked for W.R. Grace and they were doing everything by hand. So one of the projects I got ended up doing was automating all that and then applied that in my next job at Avis, where I was responsible for funding and handling the finance of purchasing all cars around the world and the foreign exchange and a lot of other challenging things of assets, you know, cars and, you know, getting paid. And so through all that, I'd built up models to, you know, forecast and anticipate because it's very difficult to go to a bank after you really need money. You have to go long before when you don't need it. And so forecasts were pretty important. And shortly after that, I ended up going to work for one of the first buyout companies, AEA Investors.

And they did close to 100 acquisitions that really was building companies up. And when you do that, you find out, absolutely what you don't know. And generally forecasts were derived by asking the sales team, which was a waste of time, and or coming up with what you needed financially in order to structure the deal. The realities were somewhat limited, other than historic. And historic oftentimes were distorted by the actions prior to sale, which camouflaged a lot of the issues. So over that time, we started building algorithms to forecast and that got better as time went by. But then late in the 1990s, there's a professor at Harvard that had produced a paper on the net promoter score. So we were tracking customer retention as one of the primary drivers for having reliable forecasts. And that score just is a standalone. You have front runs your ability to anticipate growth, which is what the professor was tracking.

I think he looked at 14,000 companies and if you had a high score, you had a 79% chance that you're going to grow in the next 12 months. What we found was it had a close to a 90% correlation with your customer retention. And then later, as we introduced real time. negative comments and words and tone, actually on a phone call, we do that for one of the big communication companies. We could track and actually forecast the anticipated retention rate and also your net promoter score real time. So we introduced that, that then kicked into what are the other factors for the drive growth? interaction, distance from a location of service, a whole range of different things that go to that. And unfortunately, for planning purposes, every location is different. You have different competition, different road systems, different people. And of course, people represent the top three reasons why you lose customers. Number one is you didn't call them back.

You didn't tell them first they had to call you. you know, not keeping them informed and meeting their expectations. Number two, change of personnel. Yours or theirs, it's a 50% loss rate in the next 18 months. And then you have an untrained, you know, somebody who just is not professional, you know, handling the customer. And it's just like a bad waiter. If you've only gone to the restaurant once or twice, a bad waiter, you'll never go back, no matter what the food tastes like. So. A lot of this is it's built on consistency and repetition of transactions. It's not revenue. Unfortunately for the equipment industry, the OEMs are selling equipment, which is the primary revenue source, but it's not how the customer sees the dealership. The customer sees the dealership through transactions. So by using AI, we're able to identify what are the key drivers. And that's where this all came from.

And actually do variations. So by putting it on a computer, rather than spending a week. coming up with one solution, and then starting from scratch again. I think they had, I mean, most of the companies had a sea of people doing this. Right, right. And with a computer, you could give them multiple alternatives in moments with a couple of changes and assumptions.

In the 70s. Yeah, mid-70s.

Yes. And it was a challenge to Avis had a lot of computer power and a huge IBM facility, literally at the headquarters. And it was way underutilized. And a lot of people treated it as a black box. You put information in, you see what comes out. And then if it's wrong, you adjust the information that you put in.

Right.

That's how it works. I mean, the benefit of, after having been at Avis and Grace, I had banking contacts all over the world. And also at Avis, I'd been involved in the acquisition of a bunch of the franchisees, you know, moving them to corporate and also some other acquisitions. So I had... That experience, going to a buyout firm by automating the process of evaluating potential acquisitions, they would take maybe a week to three weeks to evaluate a company. I moved it to about 20 acquisition potential targets within a week. And then it was just continuing to automate that and validating. our ability to forecast with reliability what actually was going to occur. It was still, it's made a big difference as this thing's progressed, but at least got us into a position to intelligently talk about what the opportunities were.

It's been quite a while, right?

The people, when you look at the primary driver of a successful business is the people. And the people team determines the retention of the customers. So if you don't have, I mean, as I said, the top three reasons for losing customers are people, people, people. Yeah. Probably even more than that. And people think that, oh, it's price. Price usually is fifth or sixth on the list and only as an excuse for some failure of the service. Yeah. Why am I paying you that much when you don't deliver on time or when you didn't do it right the first time or stuff like that?

And simple training things make a huge difference. I always tell people that if you answer the phone, no matter what they ask, you say yes, because everything's possible. It's just when and how much. So there's no money in saying no. And the difference between saying a negative versus a positive, and we track this because we monitor phones. If I tell you, like on a part, that you can, you ask me, do you have that part? And I say, no, I don't have it, but I'm going to have to order it. That's a 14% close rate. But if I say, yes, I can get it to you next Wednesday, that's a 75% close rate.

Am I being too embarrassed? Yeah, the whole industry is reactive. And that's really the problem. So by forecasting, you turn the paradigm because the industry looks backwards, usually 60 days,90 days out of date. It's really who screwed up and who can I blame? And the manufacturers are just as bad. By putting a forecast in front of somebody, you change the paradigm to what's going to happen with a high degree of certainty. We've gotten the forecast up to the last three years. We've been running better than 95% accurate for customers' transactions. And we're deriving revenues based upon patterns of purchase and pricing.

We're forecasting specifically by customer. The whole world revolves around two people exchanging goods and services. And everybody else supports that moment. And that moment, depends on where it takes place and who's involved, is affected by did you proactively call that customer and keep them informed? Did you deliver on what you promised? And it's more than what you promised. It's also what's the customer's expectations because that overrules whatever you promised. So that's the reason why you have to keep them informed if you're outside the window of expectations. And the industry as a whole doesn't really focus on expectations. And yet that's the primary driver. And your employees are the ones that kind of manage that process.

Yeah, we benchmark them for a lot of the major companies in a lot of industries. So we'll do benchmark surveys to find out what is the expectation. And one example of a major company. they couldn't make a delivery for seven weeks. That's the best they could do. But the expectation in the marketplace was four days. And the question that this all was driving that is why can't they penetrate this market? And you're going seven weeks versus four days. There's no way that anyone's going to buy from you.

You can tell them where they stand relative to everybody else. What's their retention rate? And the dealers that understand this, we've got a whole bunch of them now that are at 98% retention rate, which on a rolling 12 months, the industry as a whole loses 55% of their customers on a rolling 12-month period.

Rolling 12 months, yeah. But you have to look at it. It's not a point in time. It's, you know, the 100 customers you had is, yeah, it's 12 months,12 months,12 months. So if you've got a 90, you know,95% retention rate, which people think is a good rate, well, every month you're losing 5% of those customers. So over a period of 12 months, you've lost 60% of your customers that you started with 12 months ago. Yeah.

Yeah, the added challenge, Ron, is that because this is a service-driven, not something that's postal-driven or delivery-driven, Euradius, we've got dealers that have never retained a customer for more than three years,40 miles from their branch.

Yeah, but if you look forward, the benefit of looking forward is what are you doing right? What can you improve? It changes the paradigm. And usually improving is... A lot of the problems are process. I mean, the process, we track phone calls into the sales department. You know how many actually get answered? Zero. It all goes to voicemail. You know, one company after another. So you got to look at the process in the systems that you're using. And you can only do that at each location.

Our experience, we've put it in a number of places. We've kind of given up because they don't really have control of their phones the way you really need to focus. So we've put it in with a bunch of large companies and some of the big, actually big communication companies. They're behind their firewalls and monitoring all their phone calls.

Yeah, but you can do it. Almost all the new cloud-based phone systems that are out there will give you the metrics that we're talking about, Ron.

Yes, it's fairly easy to do. And we do that with we set up a company's data pile, but that's kind of a big enterprise operation, but set up another company, Chatter Hub. So we're rolling that out. But again, what always happens is large companies grab it. So you only have so many engineers and people to work on it. So it's always a challenge rolling out these ideas.

It's as if the education, you know, people bought into it. We came up with all those ideas. Originally, those are all U.S. ideas. Very similar when I got into the steel industry, we had the technology back in the 50s for continuous, you know, casting, forming and rolling. And it was adopted outside the country in France and Japan. The same thing happened once Ray Jones at GE moved a lot of his production to Japan on the electronics front so GE could make money and overcome the problems with their manufacturing in unions. Just like what's happening now with China. It's like the body snatchers. You put your manufacturing over there and your technology and all of a sudden you've got a plant next door that's... Looks and talks just like your plant. Yeah.

And apply them.

It does, but you have to have a team. And I think as we're doing this, you know, we've been doing the reflective executive functions. So we're looking at, you know, what makes up the team. And what is surprising is that an entrepreneur and his team tend to be people that are problem solvers. They tend not to be great business builders. Because you need people that they're innovators. And so what happens is they have a lot of things that they're addressing and they aren't as good at building the foundation. So you end up having to have on your team somebody that completes the forms, puts the systems, loves routine, because that's the foundation and the success of a business.

And as corporations grow, you get more and more of those people that you know are not innovators or thinking of solutions they're just going to do it the same way they've been trained and then you hardwire that with siloing the responsibilities and unions and now you've got a system that absolutely can't change and is just waiting to die so one of the keys here is how do you keep that team invigorated with the right people in the right positions like a basketball team

And they're doing that. But the people that are making those changes, they tend to be myopic. I always point to the pennies catalog. They found that shower curtains, they were measuring the catalog based upon the number of dollars, like a store, the number of dollars shelf space. How much is it worth? So they put their approach was that we only want pages that are going to generate the right amount of money. So they had 60 pages of shower curtains, but they forgot the, you know, the baths and the bath mats because those weren't generating the revenue. But then people stopped looking at the catalog because all it was was shower curtains. Yeah. And so a lot of times you end up the silo. And the algorithms drive you into a corner somewhere.

So unless you've got a team that's, you know, you've got people out there always scouting, and then you've got people making sure that the food's delivered to the front lines, they have clothing, they have, you know, whatever is required to support that movement forward. There's a different role. It's a... And a lot of times when you're in a reactive environment, and I think the equipment industry is extremely difficult because it's reactive and seasonal cyclical, is that people can't, they're so busy reacting, they can't think about going forward. So without the ability to forecast and look forward, they fall back into the phone calls or rushing out on whatever the crisis is with the customer. And the year goes by and nothing happens. So a lot of this and change, I think that's the big thing.

It used to be 20 years or 14 years that manufacturers would put in a fixed line production, which would then set the stage for how everything downstream worked. Once you moved in the 80s to variable manufacturing, so you could run multiple products on the same production line. And then the introduction to CN. type equipment where you could change on the fly. It wouldn't take you a day to re configure, you know, a machine for the next product line. That window has gone, you know, went to seven years and went to three years. And now even the car companies can from start to finish push a car out within 18 months. Yeah. Which is, you know, that changes. It's the speed in which this is taking place. And the AI, this is kind of the interesting thing, anything that's routine is ultimately going to be automated. Whether it's physical or whether it's the middle management job, which is a routine job, those things are going to get automated.

And then with AI, the automation will shift based upon the demand. So a lot of things that team on the, just like. The human body operates whether you like it or not. Your heart keeps beating. Those things will adjust with the input automatically. So this becomes how do you keep in balance your management team and stay current with the rapidly changing world that you're faced with? It's really kind of very exciting times, but it's challenging.

Yeah, I think with the schools having, when I was in graduate school, I substitute taught. And most of the teachers at that time were barely ahead of the class as far as content and material. And so what I think happened there is it used to be with women not in the workforce, you had really high quality pool of teachers that were available.

And smart people. Once women got into the workforce, into real responsible jobs, that wasn't of interest to that group. And so it got farmed out to less capable teachers and less trained and less, you know, actually not interested. That was what I saw having substituted at, you know, some actually decent schools in and around Chicago. The quality was just not there. So that continued to erode. And you've got unions making demands that are putting the it's putting all things out of perspective. It's not focused on the kids. That's right.

It's the customer is the kids that it's totally lost on any type of government entity. I've run into that over and over again. They forget that the customer living in the town. are the people that reside there. It's not, you know, the controlling interests that seem to fight over how money is spent or how situations can be manipulated and abused.

It's the key role for a successful branch is having that service manager be a problem solver and open and willing to look at better ways of doing things to meet the needs of the customer. The branch manager tends to be somebody that is receptive to that, but also recognizes the importance of repetition and maintaining the foundation of a working, functioning branch.

That's true. I mean, that's what's happening is that you can see it in the offices. Only 50% of the offices in the cities today, we have a full floor down in the middle of Chicago, Clark and Madison. It's been empty for three years. Nobody wants to come back.

Well, yeah, that's why you're looking at $3 trillion of real estate loans that are going to hit the banks and pension funds in the next probably 18 to 36 months.

It is, but the time, the reason why you had distributors is it was always a time leg. Yes. So, and you had inventory. But with industrial printing, I mean, our military now is flying in factories and they're making their, you know, the aircraft carriers are fully capable of making any part in their manufacturing, you know, bay. So they're printing it. which brings you right to the local, you know, right to your doorstep. So there isn't handling and shipping and the need to have someone, you know, sitting there with a large, you know, bunch of inventory. As long as I've got the drawings, I can make it for you. And so it's the same thing with food and same thing with water. So all this stuff is coming to that local moment and the efficiencies that go with that. So it's like they're, you know, you watch it over and over again. There were 9,000 or 10,000 office products, distributors in the U.S. They represented 60% of the market.

You know, that's after Staples and OfficeMax Office Depot took a chunk with the box store. That consolidation that's taking place is weirdly... They're transcending the local delivery issues. But with the delivery of Amazon and that whole process, you're bringing that, it's bringing it to your doorstep. You don't have to go out. You don't have to buy it. And what will happen is you'll end up having, whether it's in the city out in the middle of nowhere, you'll have economies that are created. Because I think statistically you only need like 4,000 families to have a viable economy. you'll end up seeing this fragmentation take place in a rapid rate with the technology as it moves forward. It's not command and control, as you can see, especially with our governments and local governments. Those decisions, you're losing control of the decisions, and they're misguided on a lot of the activity.

Yeah, I think it's just bringing it as you have to think of this as a whole, you know, it's like a team. In the military, they put together a patrol and people assume roles. Someone becomes a comic. Somebody becomes a mother. Somebody, you know, fills the voids of that community that is that unit. The same thing is required on building a management team. You have to, you don't hire exactly the same person that looks and talks just like you. You have to hire a mix of people, just like you're putting together a basketball team. You have to hire a mix of skills and mentalities to make an effective team. So that's what we're trying to create, but also maintaining the flexibility to deal with the ever-changing environment. As you're talking about this dealership concept, when you take the diesel engine out of the machine, you're removing 90% of the parts.

So the reason, you know, an electric vehicle, they can assemble that and do it cheaply is that you don't have that many parts. It's, you know, it's relatively from a manufacturing standpoint, you know, a lot simpler than what you've been faced with and building. You know, cars are the best.

I think they've totally missed the boat. It was similar to, I mean, I've seen this over and over again. When I was buying steel mills, I picked up one of Bethlehem's mills in Seattle, and they had 17 layers of management. to the floor. They had more people outside of the steel mill than inside the steel mill. And it was costing them, at that time it was costing them about $600 a ton to make rebar. And we could do it with a plant manager. two superintendents and pretty much everybody else was on the line other than the accountant who ever the woman who or man who was answering the phone so we could make that same rebar for under 200 a ton yeah and that's what's happening here is that this is going to come down to assembling a team but the people on the team are going to be the ones that are actually you know in it interacting.

It's not, you know, so a lot of the mundane stuff will get automated, but with a flexibility capability that a lot of times old systems don't have. It's really the impact of AI. But this is all about people. And it's about, you know, who do you have? And are they trained? And most people aren't. You know, they're narrowly trained. They don't have a broader picture. They don't know how they fit. So like Sam Walton ran a walk and talk program. He'd do, you know, from what I gathered, six stores a day. And he had walked the store, forced everybody to get on the parking lot, see what the customer sees. He always had the branch, you know, the store manager at the door to answer questions because he was in charge of, you know, buying what was required for that specific store to stay viable and knowing where it was located. The best fertilizer a farmer has is the cells of his shoes. The same principle applies here.

It's 10 years. And it's the same thing why Sears went under. Sears required, it cost them 15 to 17% just for their warehouse operation. Walmart came in and they dropped that down to about 6% because they put a distribution center and then, you know, for the things that they needed. store and deliver to the 20 stores that the distribution center supported. And then they had one of my brothers ran Sunbeam Moster. I mean, he had an automatic feed every day. He knew what was required to ship to every store. They're shipping direct. Yeah. Just like you said.

And it changes. It changes. It takes because of the resistance to change that you're faced with, which is there's an important element to that. You don't want things moving too quickly because oftentimes you can't see the consequences. But still, that resistance to change right now has created. probably the most opportunities, more opportunities than possibly imagined. This is probably the most wonderful time ever for finance, for manufacturing.

You're not going to have it. It's exciting. I don't think I've ever seen anything close to this. No.

And I think the people are out there. That's what we're doing. The executive function test, we're finding that people are there. surprisingly, they actually are filling the critical jobs, the ones that are successful. Exactly. So it's just really giving those people the tools. You can't have everybody being out there on the front line. You'll have chaos. So it's also getting the team to appreciate each other and the roles that are necessary to keep the organism viable. whether it's a company or a community or whatever you want to look at. And I think that, you know, that goes with getting the right people in the right jobs. It's training and education. And also what's missing in a lot of places is that they're not getting the broad education. You know, they come up a silo. They only know what's important. They keep on doing. It's the end of time, what they were set out to do.

And you talk to them and you interview them, and it's just like, have you really gone out there? Yeah. When I worked for Avis, Colin Marshall, who later took over British Airways, required all of us to work two weeks at one of the local stations and washing cars. I drove a bus at Kennedy Airport, washed cars at the 66th Street Avis location. And you find out what's going on. You stand behind the counter and you find out the monitor that you're using trying to book. Rentals is a disaster.

I think that a lot of this is getting people to really look at. Very simple things. How do you retain your customers? And also really focusing on who's really touching that customer and what's the experience. And that's why the customer satisfaction surveys, we do that for a whole bunch of companies. And the reason is it front runs that retention rate and you hear about the problems, but you have to be listening.