MDM produced a webcast last week, our 2020 Preview: Positioning for Growth in Turbulence, with Mike Marks of Indian River Consulting Group as my guest. I tried to not use the word “disruption” and failed, and Mike tried to not go off on a rant (or three) and failed. It was a great success!
We built the content around the premise that a certain number of distributors will ride the business cycle and be paralyzed by a likely downshift (not a recession), while a smaller subset will leverage the disruption in the marketplace – economic, digital or otherwise – and grow in 2020. We tried to isolate specific areas where distributors can innovate and focus on creating unique value for their customers.
Every distributor has the same levers to create competitive advantage. The primary ones we discussed – and I think critical to address for a 2020 playbook – revolve around talent development, how to manage your unique digital transformation and how you develop a more analytics- and data-driven company.
Early in our discussion, Mike referenced the latest version of the Facing the Forces of Change report series, Innovate to Dominate, by Mark Dancer, a frequent contributor to MDM. I strongly recommend you read this edition. Mark talks about how distributors tend to sit in their own echo chamber looking for best practices for improving what they are doing now. But a focus on incremental best practices can actually isolate executives from innovation and how to do new things.
Much of our webcast discussed the fundamental shifts taking place in business and sales models, and the difficulty distributors are having adapting to the speed at which customers are changing their sourcing and buying behaviors. We outlined a 2020 playbook for distributors with five key areas where distributors can gain significant competitive advantage.
One of the key themes that has run through much of MDM’s research the past few years is the shift in how distributors have to look at their own business and sales models in the face of the competition by disruptors with very different cost and value propositions. I included three slides in our presentation that Lennart Paul, a B2B digital consultant based in Stuttgart, Germany (www.warenausgang.com), shared in a seminar we conducted in Warsaw, Poland earlier this year, mapping out the digital transformation that is impacting distribution channels everywhere.
The traditional hierarchical structure of management and siloed functional departments is being stressed by a combination of the rapid transformation in the workforce, as well as by the increasing digitalization of businesses with much higher levels of transparency, communication and collaboration across organizations. As Mike noted, there are many examples of these alternate organizational structures emerging, with highly effective cross-functional teams at play, predominantly at larger distributors. “This is not some theory,” Marks said. “This is innovation, not best practices.”
Another part of our discussion I want to highlight was around the emergence of platforms. Platforms are changing channel dynamics, in some cases radically, and will impact distribution more in 2020 than ever before. I should say the evolution and transformation of platforms, as there have been platforms in some form in distribution for decades. As the diagram from our presentation outlines, the historical model for distributors was a direct relationship with customers, most often controlled by an outside sales team. The role of outside sales will still be important for most distributors, but the emergence of platforms, where the platform owns access to the customer, will demand a very different value proposition than in the past.
Specifically, Amazon Business has been the lead digital platform disruptor of traditional distributor-customer relationships, but others are quickly emerging. Mike also discussed two examples of industry marketing groups that have developed into industry-based platforms – Affiliated Distributors and Network. These organizations have leveraged digital and quickly shifted their value proposition for customers, suppliers and their members in how they collaborate and compete.
Marks wrapped up our webcast by noting that the good news for the people listening is that there is a survivor bias – most people aren’t willing to make the changes required to innovate their current business and sales models. These are the targets where innovative distributors can gain market share. I’m optimistic about the opportunities in 2020.