2012: Cutting Through the Fog of War

Prepared for Affiliated Distributors Electrical Supply Division

2 October 2011

Simplicity Partners

“We are an elite team of practitioners who make businesses sustainable.”

•Our Mission:•To be the premier business growth firm•To provide the best value in the marketplace•To create and share a culture of learning

Profit/ PractitionerDrives Our Economic

Engine

We Can Be The Best In The World At Helping

Companies Work Efficiently and Effectively

We Have A Passion For

Making Things Work Right

A Well Managed Business

Goals

Objectives ObjectivesObjectives

Action/ Behavior

Action/ Behavior

Action/ Behavior

Action/ Behavior

Action/ Behavior

Directi

on Feedback

ECONOMIC INDICATORS: DOUBLE DIP OR SLOW GROWTH?

2012: Climbing Back From The Bottom

US Leading Economic Index

US Coincident Economic Index

US Lagging Economic Index

Jan-93

Jun-93

Nov-93

Apr-94

Sep-94

Feb-95

Jul-95

Dec-95

May-96

Oct-96

Mar-97

Aug-97Jan

-98

Jun-98

Nov-98

Apr-99

Sep-99

Feb-00

Jul-00

Dec-00

May-01

Oct-01

Mar-02

Aug-02Jan

-03

Jun-03

Nov-03

Apr-04

Sep-04

Feb-05

Jul-05

Dec-05

May-06

Oct-06

Mar-07

Aug-07Jan

-08

Jun-08

Nov-08

Apr-09

Sep-09

Feb-10

Jul-10

Dec-10

May-11

100,000

200,000

300,000

400,000

500,000

Value of Private Nonresidential Construction Put in PlaceSeasonally Adjusted Annual Rate

($ Millions)

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09Jul-0

9

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10Jul-1

0

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11Jul-1

1

100,000

200,000

300,000

400,000

500,000

Post-Lehman Private Nonresidential Construction ValueSeasonally Adjusted Annual Rate

($ Millions)

Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-110

50

100

150

200

250

Private 2+ Multi Unit Permits Seasonally Adjusted Annual Rate(000's)

Private Multi Unit Permits Linear (Private Multi Unit Permits)

Aug '10 Sep '10 Oct '10 Nov '10 Dec '10 Jan '11 Feb '11 Mar '11 Apr '11 May '11 Jun '11 Jul '11 Aug '11 Sep '11 (E)10.50

11.00

11.50

12.00

12.50

13.00

13.50

US Automotive SalesSeasonally Adusted Annual Rate

(Millions)

Aug '10 Sep '10 Oct '10 Nov '10 Dec '10 Jan '11 Feb '11 Mar '11 Apr '11 May '11 Jun '11 Jul '11 Aug '11 0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

US Auto Sales SAAR By Type(Millions)

Total Car SAARTotal Truck SAAR

But Don’t Forget Psychology• Will the economy fall into recession?• What happens to commodities?• Will the consumer stop spending?• Are industrial production numbers a mirage?• What about automotive?• Where will construction go?• Will we have jobs?• What about the debt reduction plan?• What happens if Europe collapses?• Will a slowing China ruin everything?• Will energy prices skyrocket?• What happens if stagflation returns?

Ambiguity

DISPELLING AMBIGUITY: THE C-SUITE PERSPECTIVE

2012: Cutting Through the Fog of War

How Does This Impact Demand?

• 2,642 C-level executives invited to participate• 153 respondents in total• Research completed between September 14

and September 29

Constructi

on/ Dev

elopmen

t

Manufac

turing

Business

Servi

ces

Distrib

ution/ Wholes

ale

Finan

ce

Facili

ties Man

agem

ent/

Mainten

ance

Retailin

g

Telec

ommunications

Archite

cture

0%

5%

10%

15%

20%

25%

30%

35%

40%37%

31%

12%6% 4% 4% 2% 2% 2%

What is your firm's primary role?

Less t

han $5 m

illion

$5 milli

on to $24 m

illion

$25 milli

on to $99 m

illion

$100 milli

on to $249 m

illion

$250 milli

on to $500 m

illion

Greater

than

$500 milli

on0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

10%

24%

46%

11%5% 4%

What are your company's anticipated 2011 revenues?

Decrease by more than 10%

Decrease by up to 10% Remain Flat Increase by 10% Increae by more than 10%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

12%4%

43%

29%

12%

Compared to the prior 12 months, how much investment in new facili-ties or facilities expansion would you anticipate your business com-

pletes in the next 12 months?

Decline >10% Decline 1% - 10% Flat Grow 1% - 10% Grow >10%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0%

14%

28%

33%

23%

5%

10%

36% 34%

15%

12%

4%

43%

29%

12%

Compared to the prior 12 months, how much investment in new facili-ties or facilities expansion would you anticipate your business com-

pletes in the next 12 months?

Pre Aug 8Aug 9 - Sep 13Sep 14 - 29

New factory/warehouse construction; 18

Existing fac-tory/ware-house ex-

pansion; 15

New office building construction; 24

Existing of-fice building expansion;

15

Factory/warehouse

renovation; 30

Office renovation; 72

Sale of exist-ing

factory/warehouse space; 21

Sale of existing office space; 15

Which of the following will your organization likely undertake in the next twelve months? (Select all that apply)

Significant decline in worldwide GDP

Small decline in worldwide GDP

No growth, but no decline Modest increase in worldwide GDP

Significant increase in worldwide GDP

0%

5%

10%

15%

20%

25%

30%

35%

14%

25%

31% 29%

0%

How do you believe the broader global economy will perform in the next twelve months?

Postpone indefinitely Postpone a few months No impact Slight increase in pace of implementation

Rapid completion of all projects

0%

10%

20%

30%

40%

50%

60%

10%20%

55%

14%

2%

What impact will your expectations of the global economy have on the pace of implementation of planned construction and/or renovation

projects in the coming year?

IMPLICATIONS FOR THE CONSTRUCTION TRADES

2012: Cutting Through the Fog of War

Implications for the Construction Trades

• Corporate hesitance to spend• Longer and more involved sales cycle• Increased price competition• Diminished value of relationships in place• Shift from build to renovate

ADAPT TO SUCCEED2012: Cutting Through the Fog of War

Adaptation #1: Managed Ambiguity

• Multiple higher-likelihood scenarios• Timeline and action driven• Heavy focus on next 90 days• Well defined future state• Clearly outlined assumptions • Short term focus on revenue, internal

obstacles

A Well Managed Business

Goals

Objectives ObjectivesObjectives

Action/ Behavior

Action/ Behavior

Action/ Behavior

Action/ Behavior

Action/ Behavior

Directi

on Feedback

Elements, In Triplicate Please

• Clearly defined future state• Small number of achievable objectives• Understanding of external threats• Documented list of assumptions for success• Internal focus on why it won’t work• 90 day action plan

Plan the Work, then Work the Plan

• Review weekly– Sales activity– General assumptions– KPI

• Review monthly– Revenue– Specific objectives

Harness Your Team

• Small group of leaders who can get things done

• Define a game plan, playbook for each scenario

• Fewer meetings, more joint work• In God we trust, all others bring data

Adaptation #2: Push the Sales Team

“Increased revenue cures most ills, but the right revenue cures them all!”

The 45 Second MBA in Marketing

• Three ways your company can compete1 – Best total cost = Operational Leadership– Best product = Product Leadership– Best total solution= Customer Intimacy

• World class organizations choose one to drive their business

• Which model describes your company?

1. Treacy and Weirsema: The Discipline of Market Leaders. 1997, Perseus.

Cost

Price

CustomerValue

SupplierProfit

CustomerBenefits {Zone

ofPossibleAgreement

Driving Force For CustomerTo Buy

Driving Force For SupplierTo Sell

Source: Frank Cespedes, Harvard University. November 2008, YPO MI West

Maximizing Pricing and Value

Success and FailureSuccess:

Solution Marketing SolutionProgram and Resources Opportunities

Transaction Marketing TransactionProgram and Resources Opportunities

Failure:Solution Marketing Solution

Program and Resources Opportunities

Transaction Marketing TransactionProgram and Resources Opportunities

Source: Frank Cespedes, Harvard University. November 2008, YPO MI West

A Tale of Two Sales Guys

Charlie, the Finder

• Sets aggressive goals• Communicates progress• Asks for field support• Works with ops to improve• Consistently beats

expectations

Bob, the Minder

• Accepts your targets• A black hole• Hides “His” customers• Lets ops figure it out• Consistently tells you why

he missed expectations

The Big Finish!

• Do not expect a double dip recession in 2012• Data is quieter than fear, but still positive• Companies continue to plan for construction• Slight downgrade in anticipated demand• Prepare for increased ambiguity• Manage your sales team

DISCUSSION2012: Climbing Back From The Bottom