Dealers whose business is growing with additional locations often wrestle with the question of how best to manage their larger operations. Dealers who are considering a merger or acquisition should anticipate changes in how their roles will change with increased size and complexity.
In this installment of Planning for Profits, we’ll focus on the questions that face dealer principals, CEOs and board members when considering or implementing an expansion strategy.
Specifically, we’ll address the vital questions about management structure and the development of their managers that we see as key to successful growth. We believe that answering questions about people is more important than any other factor in a growing dealership.
What is the biggest driver of success for a growing dealership?
Success is about talent. Combining two poorly managed dealers results in a poorly run larger dealer and poses a bigger risk of failure. But there are significant benefits to leveraging good leaders and managers of a combined organization. So dealers who are expanding should consider the bench strength of their skilled, motivated managers. They can do so by delegating to them as much — or more — than they can handle.
Because success is about talent, you need to consider developing or hiring key managers who have the skills and experience to head up larger organizations. To pay for top talent, you should restructure the roles of some people in your organization.
For example, instead of having a parts manager at each location, you should have a lower-cost parts lead person at each store, and a very capable and well-compensated parts manager for your entire operation. We’ve seen dealerships that pay an outstanding parts manager six figures who more than pays for himself in better margins, faster turns and more satisfied customers.
What must change as we add more locations?
As a dealer principal, your role will change as your organization expands to multiple locations. As the leader and driver of the organization, you must deal with important issues of strategy, structure, priorities, communication and resources. These roles will take more of your time — and they should.
More importantly, the roles of your key managers must change as well. Because only you and your board can deal with the more strategic issues, you will have to take a step back from the day-to-day operations that many dealer principals are used to doing. With greater scale, you must delegate and make sure that you have managers in place who are capable of planning and running your business operations. They, instead of you, will need to plan and execute tactics so that your front line people can more effectively sell, support, collect and serve.
How should stores be managed?
A key role that should change is the store manager. How each location is managed is a source of some controversy because there are differences of opinion.
Some expanding dealers choose to keep the “strong store” manager system, a structure that duplicates what a traditional single-location entrepreneur does. Expanding dealers who choose this model believe that delegating management authority to a store manager keeps the decision making closer to the customer. They believe that only an on-site manager can keep things running well.
We disagree. Our experience is that the strong store manager model is not the best, and larger dealers must change to a structure that emphasizes the same culture at every dealership location of the group.
We also believe that the dealership must be managed as one enterprise and should employ group-wide leaders of sales, service, parts, finance and other functions. From our experience, store managers are redundant.
Our views are based on our experience working with growing dealers who create significantly better performance by driving, with their new locations, a single and unified management system and culture.
By incorporating the acquired or merged dealer location into “the system,” they’re able to quickly improve performance and find substantial synergies from the expansion.
The benefit of managing the functions as an enterprise, rather than by individual store, means that any new programs or processes can be implemented immediately at all locations. Also, good ideas or benchmarks from one store can be quickly duplicated at the other locations.
Too often, with a strong store manager model, the store managers resist important dealership-wide initiatives. The “Not Invented Here” syndrome often gets in the way of implementing good ideas. This seldom happens when there are sales, service or parts managers who are responsible for these functions at each location.
How does the work of the dealer principal change with growth?
In most large dealer groups, the title of the leader will be president and CEO (chief executive officer). This title indicates that the role will involve more leadership and strategic decision making than it will daily operations. The leader is responsible for returns to shareholders, as well as for developing a high-performance culture within the group.
The president and CEO must have the mental agility to move from one topic to another quickly. He or she must be comfortable with managing change, have the interpersonal skills to speak with farmers and with “suits,” and possess a goal orientation that is vital for a leader of an organization that may have hundreds of people depending on him.
With the complexity of a large group, more communication skills are absolutely essential. This means more meetings and making sure they’re worthwhile for everyone involved.
We also emphasize “communication skills” because a growing organization will face crises that are part of any new and expanding enterprise.
Finally, the president and CEO must be a leader. Although they will certainly have achieved good functional skills in sales, finance or support, it is necessary to recognize that the art and theater of leadership becomes more and more a part of your work.
In this article we have focused on questions facing the leadership of large multi-location dealers. Many of the lessons can be applied to single-location dealers, as well, or to dealers who are considered expanding to additional locations.
Remember, “It’s all about talent.”