Month: June 2017

Optimal IQ for Managers is 120

It has now been proved that you can indeed be too smart for your own good, at least in a business context.  New research shows that the optimal IQ for managers is roughly 120.  This theory is based on dividing the bell curve into three regions:

Let’s say that your IQ falls at the point marked above, which happens to be the optimum.  The colored bands show the size of three groups:

  • To the right (blue) are people who are smarter than you. They may like you, but they will not look to you for any difficult decision.
  • To the left (yellow) are people somewhat less smart, within 16 points. They respect your intelligence and look up to you as a leader.
  • To the far left (grey) are people who do not understand you at all. They think you are arrogant and condescending.

The theory is that the optimal IQ for leadership falls at the point where the size of the middle group, minus the size of the smarter group, is greatest.  A little calculus finds this optimum at 1.2 SD, or roughly 120 on the standard IQ scale.  Other theories have generally assumed a continuously positive effect of increasing IQ, but with diminishing returns.

Researchers plotted intelligence scores versus perceived leadership attributes, for a large sample of middle managers at seven multinational companies.  All attributes, like the one shown below, had a maximum value around 30 on the Wonderlic scale, or 120 IQ points.

I have long suspected that medium-bright students, who must struggle to make good grades, end up more successful than the super smart ones who breeze through school.  Throw in some military experience, and you’ve got the perfect employee.

Of course, this is in a corporate context.  It assumes you are working with a reasonably large group of people having normative IQ distribution.  There have been no studies yet on scientists, engineers, or professionals in private practice.

So, if you are languishing in your company’s IT department, maybe you are just too smart to be a manager.  I’ll see you at the Star Trek convention.

Car Dealer Megatrends – Conclusion

This is the conclusion of my series on car dealer megatrends.  The first three articles covered the long running trend toward consolidation, steadily improving process maturity, and disruption from new technology.  Like all good megatrends, these three flow together, reinforcing each other to produce a sea change in the industry.  Consolidation means bigger groups with more money to spend on technology, and the scale to exploit improved procedures.

Big dealer groups crave stability, and repeatable successes.  In my trade, software development, we have a formal process maturity model.  The bottom rung is where your success depends on “heroes and luck.”  When you own 20 stores, you are less interested in one superstar killing the pay plan, and much more interested in a hundred guys making base hits.  If you are not clear on this, I recommend the movie version of Moneyball, featuring Brad Pitt as Billy Beane.

We’re making less per transaction, but we’re doing more transactions.

I work mainly in F&I, but you can see the same general idea in the velocity method for new and used car sales.  That idea is margin compression.  The quote above is from Paragon Honda’s Brian Benstock and, last I checked, he was still hard at it.

The locus of high gross shifted from new cars to F&I, and then from finance to products.  Smart people tell me the 100% markup on products will soon be ended, either by competition or by the CFPB.  Today, when you read about the latest PVR record from Group 1 (or whomever) you will also read management downplaying expectations of further such records.

The executive, however, said the group’s F&I operations may have reached the peak in terms of PVR.

Dealership ROI is above 20% but, as you know, highly cyclical.  The stock market has been around 14% lately and, arguably, less volatile.  AutoNation has been chugging along at a steady 10%.  Investors will accept a lower return, in exchange for stability.

AutoNation was founded in the era of big box retail.  My colleague there, Scott Barrett, came from Blockbuster.  It was always our intention to remake auto retail in the image of Circuit City, which, by the way, was the parent of CarMax.

I spoke with an ex-AutoNation executive recently who told me that learning to live with margin compression is an explicit part of their strategy.  It is an iron law of economics that, in a free market, competition will drive margins toward zero.

Have a look at this NADA chart.  In five years, gross has been cut almost in half.  This is a breathtaking diminution, and then you go on the industry forums and find people bitching that vAuto has cut used car gross, and TrueCar has cut new car gross, and now some idiot proposes to cut F&I gross by putting VSC prices online.

Marv Eleazer has called this a race to the bottom, and he’s right, but this is not a race you can opt out of.  That’s not how competition works.  Think of it as a race run in Mexico City.  The smart dealers and big groups are already training to compete in the thin air of lower gross.

Cox Automotive Double Play

It is time to break out your game board once again and play “link the subsidiaries.”  I heard this one recently from a Cox person at a conference.  I don’t know if they have it in production yet, but it sure sounds good.

If you authorize vAuto to source new inventory as it sees fit, then it can connect to Manheim and automatically place the orders.  As soon as the gavel goes down, Dealer.com can pick up images and data from Manheim and immediately begin merchandising the vehicle.  Cox also owns the logistics company that hauls the vehicle, so they can report when it will arrive on the lot.

So, you could conceivably have a customer walk in to buy a vehicle that is arriving today, with the entire sourcing cycle untouched by human hands.  In fact, this sounds a little like what I described in Cox Automotive Home Game.  No mention (yet) of the COXML message format.

Update:  Details here from Mark O’Neil.  The chain goes: vAuto, Stockwave, Manheim, NextGear, and then Dealer.com.

The Voice of Experience

This is a funny little story with a serious message.  I improvised this coffee timer, pictured below, for the break room here at Safe-Guard.  On days when I arrive before Yarileen and make coffee, she can see that it’s from this morning, and not left over from the night before.

There is general agreement that “whoever made that thing is a genius.”  Well, actually I picked up the idea from another client some years ago.  This reinforces what I wrote in Why I Freelance.  If you keep moving, and keep your eyes open, you can’t help but pick things up.  I may not be the smartest knife in the shed, but I have been consulting a long time.  Más sabe el diablo por viejo que por diablo.