Distribution Disruption

By Eric Schmidt

Strategic inflection point 

Research indicates we are at a strategic inflection point with wholesale distribution – a time in the life of a business when its core fundamentals (or progress) are about to change.  This inflection point offers an opportunity to grow to new heights, but could also just as likely signal the beginning of the end. Many distributors are wrestling with this inflection point by exploring incremental growth and cost reductions.  Most have faced evolutionary change (ex: geographic expansion into contiguous markets, extension of product offerings into complementary categories), but few have faced truly transformational change. They are not accustomed to new competitors leveraging new business models, rapid adoption of new technologies, or seismic shifts in how people want to interact and transact.

Few are investigating and assessing the disruptive forces and considering truly strategic questions, such as:

  • How should I be leveraging digital innovations?
  • What will be the basis of future competition?
  • What business models can I enable with Digital?

A great example of this disruption and disintermediation is happening with B2B marketplaces, and in particular, Amazon Business.  At its core, Amazon is a disruptive juggernaut that is massively impacting traditional sales and distribution channels. Amazon is investing heavily in enabling business buyers to purchase online using the same tools and user experiences these same buyers have become accustomed to as consumers in shopping for their personal purchases on Amazon.com.  The brutal reality is that Amazon has the expertise, deep pockets, data, and incredible execution capabilities that will change how and where business buyers are transacting. While Amazon remains the most notable and recognizable example of this potential disruption there are countless other threats to wholesale distributor industry.

The Brutal Reality...

“Great” companies, as described in Jim Collins famous book “Good to Great”, “confront the brutal reality” of their markets and situations.  Management at these companies gather facts, understand trends and do something about them. They have no fear of testing new approaches in the face of changing market conditions, and will risk failure rather suffer mediocrity or death by inaction. Great companies work incredibly hard to stay at “Day 1”, because Day 2 is stasis followed by irrelevance. Followed by excruciating, painful decline. Followed by death. The research (from Delloite) above talks to the “historically conservative posture” of many distributors.  The report goes on to say “When it comes to investing in emerging technologies and other innovations, their preference is often to adopt a wait-and-see attitude, allowing others to test and refine before considering adoption. Show-Me, Show-Me again, and then maybe I’ll consider it in the future!”  That is definitely not an approach that meshes with with “brutal reality” facing many distributors today. Many will have to overcome their history of conservatism and find ways, resources and initiatives that can help shape a new tomorrow. A great example of a company going on the offensive to “disrupt itself” as a way to propel the company faster and further into the future is Nike.  In mid-2017, Nike unveiled its plan for Growth called the triple double strategy (2X). With a promise to double its “cadence and impact of innovation”, double its speed to market and double its “direct connections with consumers”.  Part of the strategy includes streamlining distribution to only those that deliver the fastest, most profitable growth. That means Nike could potentially edit out a number of distribution partners from its current slate of 30,000 retailers to focus primarily on only 40 that offer superior customer experiences, quality service and storytelling that differentiates the brand.  That’s incredible – read that line again – going from 30,000 retailers to 40! And selecting those 40 (or whatever number that ends up being) based on their ability to provide outstanding customer experience and tell remarkable stories.

The Future is all about CX and Customer Insight

Distributors of the future will study and learn from the retail transformation journey and apply relevant B2C lessons to their own business and customer interactions.  We firmly believe that in order to stay relevant and be the “preferred route to market”, distributors in all industry sectors are going to have to focus on creating incredible customer experiences and develop the capabilities and abilities to acquire insights which can be translated into amazing stories and innovations.

On the surface, this may seem like an oversimplification – but we firmly believe that if the people and ‘way of working’ are in place to create terrific experiences and develop deep insights those distributors will be well positioned for future success.

The technology, data, tools and expectations of today’s customers are overwhelming.   It’s easy to see why so many companies struggle to ‘successfully’ implement Digital Transformation initiatives.  Let’s define Digital Transformation quick to make sure we are all on the same page:

Digital transformation is the process of using digital technologies to create new — or modify existing — business processes, culture, and customer experiences to meet changing business and market requirements. This reimagining of business in the digital age is digital transformation.

It transcends traditional roles like sales, marketing, and customer service. Instead, digital transformation begins and ends with how you think about, and engage with, customers.

Digital Transformation really is about the application or enablement of technology to help improve customer experience and thus drive growth.

Now that we got that on the table – the million dollar question is why aren’t more distributors being successful with their efforts? – Or even taking them on to begin with?  In our experience, a big part of that answer lies in the cultural aspect – the leadership and the support of the people needed to drive a transformational effort. To help illustrate this point, we have pulled a couple of tweets from Alex Osterwalder, author of Business Model Canvas and founder of Strategyzer. 

2/9/19, 11:26 PM

If you fear failure don’t become an innovator or entrepreneur. You‘ll suffer. Being humiliated and getting it wrong UNTIL you get it right is part of the job.  Failure is never the goal and it’s definitely not pleasant. Yet, it’s an excellent instrument to test & adapt ideas!

11/14/18, 5:56 AM

It strikes me again and again that companies already HAVE all the innovation talent AND ideas they need.  What they DO NOT HAVE are tools, processes, rituals, KPIs, & incentives required for innovation to thrive!  Why not? Because they’re optimized for management not innovation.

These tweets are obviously focused on Innovation and the needs to drive innovation in an organization.  A lot of those same sentiments we believe are needed to successfully drive any type of digital transformation.  You need the leadership, culture, philosophy of working iteratively and the people to do it. We are going to focus on the change agents and intrapreneurs needed.  In our experience, most organizations that we have encountered know they must change, adapt and transform, but they struggle with the how. And the how is not a simple answer, and most likely is wrong at the start.  You need people who are willing to drive change, potentially fail, run into roadblocks, pivot and keep making progress, and most importantly, you need an environment that supports them. Most people won’t even start or don’t know where to start.  And if they are subjected to traditional management concepts and expectations – it is even less likely that they would ever start.

Importance of change agents and intrapreneurs.

We will borrow from an excellent blog from Brian Solis (found here) that talks better than we could about the importance of change agents and intrapreneurs. Inside every organization are those who are challenging convention, seeking new methods and solutions and introducing ideas on how to compete for the future. They represent the future of the organization. But, many times, their efforts and thoughts, are met with resistance. More so, these idealists can be viewed as deviants and renegades – nonconformists who distract work and strategy from common objectives and performance standards. Without executive support, organization or official charter, however, these mischief-makers are at great risk of taking their purpose and drive elsewhere. Make no mistake, innovation is an imperative. But for innovation to prosper, it takes a culture that cultivates and incentivizes new behavior and pursuits. It takes leadership. And, it takes talent, expertise and passion – not only to challenge convention, but also to push through the barriers that hinder the road forward. The good news is that there are individuals strewn throughout most organizations today who are ready and determined to innovate. Alongside those change agents I talked about previously sit the intrapreneurs. When officially recognized, sanctioned, and organized, these intrapreneurs and change agents represent critical building blocks of the future.

Change is difficult, scary and threatening.

For the most part, corporate cultures are risk-averse, political, and rife with human dynamics, models and policies that hinder or dissuade innovation and transformation.  But like all forms of evolution, digital Darwinism will only continue. Intrapreneurs and change agents might come across as disruptive in the organization and it’s natural to manage them against existing protocols. But the disruption they introduce isn’t disobedience, it’s a rebellion against convention for the sake of convention. If nothing else, that seemingly-disruptive behavior is a signal that these are the people you need to deploy in your transformation programs.

Our hypothesis is that the preceding paragraphs are vital and we would almost argue it is the primary reason why most Digital Transformations fail or are not even started.  Driving change in an unsupported environment is scary and/or potential career suicide – especially without understanding of the way the change should be driven – in an iterative, agile way.  That manner of work – agile & iterative – is crucial as well (and we will talk more about this more in a subsequent blog). We believe that is the other key component in setting up distributors for long-term success.

In summary, more and more distributors need to look at the coming (or here) inflection point and consider how they will truly adapt their businesses to this new reality.  We believe the answer lies in focusing on Customer Experience and Insights. However, before we discuss the technology, the processes, the goals, etc…we think distributors should look at their people and their methodologies prior to starting anything.  Do you have the right people to drive transformational change and do you have the tolerance for working in a truly more Agile and iterative way?

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