Momentum Case Study: Why Volvo Penta’s Russian Dealerships Chose Service Collaboration Over Competition
Volvo Penta is a global, world-leading supplier of engines and complete power solutions for marine and industrial applications. Their comprehensive, reliable solutions have helped customers all over the world increase productivity and performance – in every detail. By continuously improving their offer, through innovative, sustainable power solutions and the strengths and expertise of the entire Volvo Group, they have redefined premium for the modern market, operating entirely through their independent dealership network.
Seva Gavrilov joined Volvo Penta 22 years ago and took over leadership of the Russian business in 2007. He has always had a passion for nautical engineering, having graduated from the Marine Technology University in St Petersberg as a Naval engineer but also as a visionary with a head for business. Now, he is leading Volvo Penta through a programme of initiatives that are giving their dealerships a competitive edge, more momentum and increasing the company’s market share.
moreMomentum believes, as a result of our research, that successful long-term managers and companies have established ‘Momentum’, starting with 4 Winning Habits – Direction, Dialogue, Decision-making and Discovery. In this series of Momentum Case Studies, Jan van Veen, co-founder of moreMomentum, interviews proven managers across the globe who are successfully implementing the 4 Winning Habits to lead innovative, energised and engaged teams.
Challenges facing Volvo Penta Services in Russia
In the early 2010’s Volvo Penta decided its route to increased growth was through the large corporate fleet owners such as the shipping and oil companies who controlled significant purchasing budgets. A major obstacle to this goal however was the dealer network that had created Volvo Penta’s success to date. At that time, the dealers saw each other as competitors and lacked trust. When it comes to corporate customers, many dealers are smaller local companies which do not have the resources, skills or confidence to respond to large-scale bids and service contracts. They lacked expertise in areas such as advanced corporate financing, project management, HR, etc. On the other hand, the larger dealers needed access to local markets for customer relationships, delivery and customer service. Seva needed a new approach to dealerships.
An obvious solution would have been to consolidate the dealers into a smaller number of large companies that could cope with the large deals, but in a large country like Russia that was impractical – they needed to keep access to small local areas. Instead, Seva created a strategy that would do two things: reverse the company’s focus so it put customers/fleet owners first and also encourage collaboration between the dealers instead of competition. All this could only be achieved by influence, to change how the dealers worked with each other, so a new environment of trust and co-operation could be built. The strategy was planned out over several years and introduced step-by-step so as not to scare people, but take them along on the journey.
Here we will show how Volvo Penta in Russia demonstrated each of the 4 Winning Habits in the implementation of its plan, creating momentum for long-term sustainable success. The strategy shows that momentum can start in highly competitive environments or even in other companies, elsewhere in the value chain, when the 4 Winning Habits are employed.
Direction – the common cause that everyone can get behind
Seva needed the dealers in the network to see the value in each other instead of just competition. Each had different strengths and skills that could be of use to the rest and enable them to reach and respond to more varied customers. This goal of collaboration was the direction driving the programme, although the dealers didn’t necessarily know it in the beginning. They soon realised however that along with collaboration come happier customers and a reduction in stress levels.
Dialogue – open discussion at and between all levels to encourage new ideas
The Volvo Penta annual dealer conference had always focussed mainly on reporting and products, so it was attended by dealers’ more junior managers. Starting in 2012 however, the agenda was changed to focus more on communication. It started with simple steps such as roundtable discussions that let the dealers identify common opportunities and solve common problems by themselves instead of with Volvo Penta’s intervention. Whereas before they would often blame each other, open discussion now started even on contentious subjects such as price wars. In the second year, Seva provoked discussions to create a realisation that collaboration was possible and even desirable. He made them think for themselves how it could work and what the benefits would be, and they produced 30 benefits of sharing resources (e.g. specialised mechanics, financial experts, parts, knowledge, etc).
The focus of the conference shifted to strategy, and with added training on subjects such as finance, communications, leadership and finding solutions from conflicts, it attracted more senior delegates as it was seen as a decision-making forum. From the third year, the dealers created their own agenda which has gone on to strengthen trust and collaboration.
It shows that once people start to talk they also start to trust and then solve issues which were critical but difficult to solve before – Seva Gavrilov, Volvo Penta
To support the new collaborative approach, Seva improved the bonus scheme to reward dealers who contributed to the success of the group. Now, only 30% of bonuses are sales driven, the rest being based on competencies, skills and as a reward for sharing resources. There is even an extra bonus that dealers can award to each other as thanks for assistance. Since bonus levels also define the next year’s discount they are extremely valuable and sought after.
Decision-making – local decision-making empowerment
As a result of the new open environment, the dealers have taken it upon themselves to support each other. The smaller dealers, that used to rely on discounting, are now being ‘lifted up’ and actively supported by the larger ones. They’re not only a source of leads but can keep local customer relationships going and provide local provisioning in regions that would otherwise be too costly. Dealers are now regularly sharing mechanics, knowledge, financial expertise, etc.
In order to reinforce the new culture, the top six dealers voluntarily withdrew themselves from the annual ‘Best Dealer’ competition for four years, making the rest more motivated to win. Now, the competition is much tougher and the winners are more representative of the whole dealer network.
In addition, the four largest dealers joined forces to mutually fund and develop new management reporting software, connected to the accounting systems, to measure daily performance against targets. It provides a report on sales, customer satisfaction, parts, etc. Soon it will be rolled out across the entire dealer network, meaning common standards and quality for the big fleet customers.
If Volvo Penta had developed the software it would have been more expensive and created resistance. Because they did it themselves they made it in the way they wanted and paid for it themselves. I expect the roll-out to be quicker than if Volvo Penta had done it – Seva Gavrilov, Volvo Penta
Discovery – Looking for new external trends, opportunities and threats
The conversation with customers has changed. Dealers are less and less seeing themselves as just parts suppliers and breakage fixers. They are looking for other values such as budgeting, parts supply forecast, telematics and other service solutions.
Having in mind shared resources, dealers now know they can provide better service to customers than before. This also opens up opportunities which dealers were not able to afford before such as better payment terms to customers, quicker service, etc. Some dealers have also started to open branches in remote areas as they see them as opportunities rather than cost.
The next step in the programme is to develop higher levels of customer service, to create such a good feeling about the brand that the people in customers and dealers feel proud to use Volvo Penta products. Their relationships will grow into trusted partnerships where the smallest to largest customers can be open to changing market conditions and challenges they see approaching.
The group HQ in Gothenburg, Sweden has been watching Seva’s programme carefully and has already implemented some similar ideas internationally. Since the company is in a transition period from being largely product and dealer focussed to Customer focused, Russia’s key message is to enforce the shift to end-user benefits. Improvements in change processes, complaint handling and collaboration between groups such as sales and service can make huge improvements.
Beyond that, Seva wants the dealers to think about why they are in business in the first place. He wants them to make so much money that they spend more on their life, to make a better world for themselves and the people around them. – Seva Gavrilov, Volvo Penta
It’s important to make the connection between profits and common social values and that will be the subject of the next conference. Money and profits are only the intermediate result, there are more objectives behind it.
What will they do with their profit? What is the bigger game? What is their direction?
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