Some industry pundits like to sound-bite the big shifts taking place across every distribution sector the past few years. “The big are taking share, technology laggards are toast, and Amazon will destroy the industry while AI takes over the world.”
It’s not that clear-cut or simple. It is a disservice to the deep value this industry – in all its wonderful, fragmented forms and go-to-market models – which has evolved quickly to continue fueling the most agile and resilient economy in the world (this from a guy who doesn’t use a lot of hyperbole).
As we at MDM prepare for our SHIFT | The Future of Distribution Conference next month, I’m thinking about the waves of disruption, transformation and business cycles in my time covering it – integrated supply, dot-com boom and bust, The Great Recession, Amazon, COVID-19 and now AI.
MDM has always had as its mission to help distributors build stronger businesses. Since the era of systems contracts and first use of computers in distribution in the 1970s and 1980s, we’ve helped management teams track the many different solutions and innovative ways distributors use technology, digital transformation, data analytics and other levers to create competitive advantage.
What’s different today – accelerated by the pandemic – is the underlying industry transformation from more traditionally siloed distribution management structures to flatter, more networked organizations. From command-and-control to collaborative teams that can pivot more quickly and be more responsive to the moving targets customers have become in the way they want to engage and do business.
We’ve been tracking this shift through our joint research with Indian River Consulting Group since 2017 into sales processes, with the migration from traditional outside sales-dominant models to more efficient hybrid models with stronger role definition across outside, inside and digital channel resources.
Technology has been an incredible facilitator to flattening organizational structures and elevating team capabilities – with business intelligence, CRM and other data analytics tools that increase transparency, communication, collaboration and more timely data-informed decision-making.
So, one of my big “ah-ha’s” about a year into the pandemic was in the ways leaders were creating competitive advantage differently. Prior to COVID, digital transformation was in a mature stage with Amazon fear driving focus, investment and strategy.
There are many ways to define mature, but to keep it simple, let’s say it when it’s past early-adopter stage, with wider adoption and lower cost-to-implement. That maturity cycle plays out fairly consistently as smaller companies adopt and the differentiation factor – whether technology or other innovation – decreases. Behind digital, data analytics was starting to gain traction and adoption. And then the pandemic shocked the people part of the equation.
COVID lit the fuse. Now we’re in an industry lifecycle where business model transformation – across sales process, digital, data analytics and culture – is redefining the rules to compete. The ability to execute change management and the next version of your business model is today’s most powerful differentiator and competitive weapon.
As we’ve watched distributors progress through this multi-year shift, I’ve found that perhaps no industry is positioned to leverage this sea change better than distribution due to its highly fragmented nature. In spite of the value propositions customers reward that highly successful models like Grainger, Ferguson and even disruptors like Amazon have created, there is still relatively low levels of concentration in terms of market share held by the top five largest players in nearly every sector. An exception may be argued for electronics, but even there a healthy ecosystem of local and regional distributors exists.
Distributors have always been incredibly responsive to customer needs. The core fundamentals of distribution’s value aren’t changing. The future distributor – with this core capability to manage change, to execute transformation successfully – will have the capacity to not just weather the impacts of the next pandemic, the next Amazon; They will have a fully engaged, cross-generational, collaborative team that is agile, creative and fully leverages AI and the next levers of competitive advantage.
Note: We are kicking off SHIFT 2023 on Sept. 18 with a two-hour assessment workshop to help you benchmark your own stage of business transformation that I’ve outlined my perspective on above. We’ll work through self-evaluation and round table discussions on where you think your team is across the core transformation levers of digital, data analytics, sales process and people.
Learn more about how to make this business model transformation work for you. Join us at SHIFT 2023 to learn how distributors of every size are reshaping their organization to grow revenues, expand margin and react to market conditions quickly. Here are the speakers and panelists sharing their journeys with us. https://www.mdm.com/shift-2023/shift23_speakers/.