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Independent dealer Featured

6:23am EDT April 21, 2006

Mike Gentile affectionately calls is.group’s 500-plus independent dealers cockroaches for their ability to adapt to challenges presented by big-box retailers such as Office Depot.

It is Gentile’s job as president and CEO to lead the office retail cooperative through a series of struggles not just with larger national competitors but sometimes within his own organization, as well.

“Running a cooperative is like herding cats,” says Gentile of is.group, which collectively does $2.5 billion in annual sales. “The minute you’ve got them all going in one direction, then you’ve got a group that’s going to go in a different direction. It takes a tremendous amount of collaborative communication and building consensus on the direction that we need to go in, which is not a skill set that you have to fully utilize in a Fortune 100 environment, where I came from.”

In the traditional corporate structure, the person at the top wields the power. A board of directors may have oversight, but day-to-day operations and the vision for leading the company forward belong to the CEO. In a cooperative such as is.group, Gentile not only has a board of directors, he also works for the members of the organization.

This requires him to really focus on communicating and building a consensus — skills any CEO can use to be a more effective leader.

“One thing you can’t do in a co-op is dictate any actions or conformance,” Gentile says. “Some of the more persuasive ways of building consensus are through best practices — implementing something, beta testing, sharing the results with others, allowing them to network amongst themselves, letting the process of osmosis take over.”

After spending 16 years in the corporate world, Gentile knows that in any organization, communication is key. It starts by figuring out what everyone’s initial opinion of a particular idea is.

“If it’s a program of services, we’ll go out and we’ll take the temperature of dealers to see what the participation rate would be,” Gentile says. “If there is a cost associated with it, we’ll assess the cost and see if folks are amenable to that before we go down that road.”

The most important thing is to make sure you are getting a true cross-section of opinion and not basing a decision on the last phone call or who yelled the loudest.

Building a consensus is not an easy process. Gentile has implemented a number of strategies and learned to adapt along the way.

“What it really comes down to is trying to identify a mutual need within a constituency,” Gentile says. “Any group of people, if you can identify a mutual need, then you can use that as an opportunity to begin to brainstorm how to meet that need. There will always be disparate opinions on what tactics to take, but the overall strategy is the one where people have the agreement that something needs to be done.”

Finding out what that need is can only take place by staying close through communication.

“In any organization, if you’re close enough to your customers — whether your customer is internal or external — and you’re listening to them, you don’t need to have a two-by-four hit you across the head and say, ‘Here’s a need,’” Gentile says. “If you’re in tune, you should be aware of issues that you need to address in order to make your organization more vibrant, profitable and grow.”

Gentile communicates with his constituency in a variety of ways — annual and regional meetings, a bi-monthly newsletter and a weekly e-mail called Fast Facts. And it’s important that that communication is a two-way street and that Gentile has the opportunity to hear people’s concerns.

“We’ll do member satisfaction studies,” he says. “We’ll constantly be polling people on various issues. I personally get out and conduct listening meetings with our dealers. I go out to a marketplace and get 15 or 20 dealers and we’ll talk — find out what’s on their minds. It’s not an ‘I got you’ session; it’s ‘I care about what you think about this.’ If people generally feel good about their job, they’re going to do a good job.

“You have to communicate broadly and often. Whether it’s internal customers or external, you tell them once, you tell them again, then you tell them what you just told them. People’s bandwidth today is really challenged. The onslaught of communications that we get on a daily basis — whether they’re e-mails, voicemails, phone conferences, written communication — people are overwhelmed with communication. It’s not that they’re not paying attention when you think they are, they’re just overwhelmed, so you need to find alternate ways to communicate your message.”

One of those alternatives is giving dealers an opportunity to communicate without input from is.group.

“We had a bulletin board that we set up on our Web site,” he says. “The members felt it was too sanctioned by is.group. They wanted something more independent, so they developed their own blog called IS Think Tank, independent of our Web site. That has become a vehicle that fosters open communication, the sharing of ideas.

“They’re complaining about things. They’re offering solutions. Some organizations or companies might say, ‘We’re not sure we want to sanction that type of an activity.’ But if you’re running an open environment, you’ve nothing to hide — allow people to speak openly and candidly, and it has worked out well. That’s really how the members communicate among themselves.”

Communication and consensus-building can help identify and solve problems. In Gentile’s case, it contributed to finding a solution that could ultimately keep some of his members competitive against the big box retailers.

In his regular discussions with dealers, Gentile noticed a recurring topic. Manufacturers, in an effort to streamline their supply chains and decrease costs, began increasing the minimum buy for retailers, which increased pressure on the independents.

“It kept coming up,” Gentile says. “The need was so apparent, it was dominating the discussion. The board said, ‘Let’s go out and do some hard-core research.’”

That led to the implementation of a regional distribution center system that serves as an example of the best and worst of what a cooperative can be and shows how important it is to make sure everyone understands the premise of a major initiative in an organization.

“In essence, the dealers were continuing to come under significant operating pressures, trying to support their inventory needs, and manufacturers weren’t cooperative to the independent dealer,” Gentile says. “If the dealer developed a strategy that they were going to stock less and buy more from the wholesalers — and we really have in this industry a duopoly with wholesalers — that would result in lowering their gross margins because they would have to buy product through the wholesale channels and compete against big box retailers who are buying everything direct from the manufacturer.

“There was the possibility that the independent office supply dealer could be a fade-to-black scenario as happened in many other industries, such as pharmacies, local theaters and florists. You can go down the list where big box retailers have come in and, through acquisitions, rollups and outward predatory pricing and marketing strategies, have removed an entire independent distribution channel.”

Is.group hired an outside consulting group to investigate the challenge. Following the consultant’s advice, two years ago, it developed a regional distribution center system that allows the cooperative’s members to buy collectively and match the buying power of the national chains.

What the consulting firm didn’t provide was an easy way to explain the new system to members.

“We call it self-distribution, not wholesale distribution,” Gentile says. “The members of the cooperative are shareholders. They’re not customers.”

In other words, Gentile couldn’t simply dictate an order and have members use the new system. It sounds like a simple solution, but the system wasn’t viewed as a panacea by all of the independent office supply dealers. While the vast majority of members now use the system, about 200 couldn’t make the switch and left the cooperative.

“We went through an attrition rate in ’04 and ’05 where the model that we had built was for some dealers a round peg in a square hole,” Gentile says. “Some dealers are more stockless in their distribution model, where they depend on the wholesaler more, and is.group was not the right fit for them.”

While he is proud of the benefits the system provides, Gentile did learn a few lessons about implementing large initiatives.

“People don’t change unless they feel they’re in trouble,” he says. “That’s just human nature, and it manifests itself in people’s professional behavior. We had unrealistic expectations in the beginning when we invested in the (distribution centers) with the concept — build it and they will come — totally underestimating the need in the marketplace and the level of dealer sophistication to recognize the need.”

Those who did remain are clearly reaping the benefits.

“We’ve had folks that have gone from high single-digit inventory turns to mid-teens by utilizing the (distribution centers),” Gentile says. “It’s allowed them to free up tremendous amounts of working capital to reinvest in their businesses. Many of these folks have purchased another delivery truck, hired another sales rep or upgraded their computer because they don’t have inventory sitting on the floor sucking up capital.”

Gentile knows that better communication up front might have eased the transition.

“Certainly, more due diligence and preparation may have prevented some of the issues we had to overcome early on when we introduced the model,” he says. “Too many programs I’ve seen — and I’ve been guilty of it in my past corporate life — where you come out with programs and services or marketing initiatives with all the best intentions, but they’re not truly tested. All you’re doing is really liquidating a lot of good shareholder equity.”

HOW TO REACH: is.group (317) 845-9155 or http://www.isgroup.org/