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Digital technologies have opened the door for distribution leaders to achieve dramatic improvements in productivity and create compelling customer experiences. Many leaders are leveraging digital tools as a foundation for continuous improvement and some are hoping to go much further by innovating the traditional distributor business model. Either way, the adoption of digital tools is prompting leaders to focus on strengthening their company’s abilities to remain competitive and lead.
In my recent report, CEO Insights on Innovating the Distributor for the Digital Age, we asked distribution leaders about their approach for strengthening their company’s capabilities. This article shares five priorities for building capabilities – defined as your people, processes, tools, and culture – as a strategic initiative. The best approach will include aspects of all five priorities, and we suggest that distribution leaders use them as a diagnostic for their actions and plans. Our research indicates that the building of capabilities is the #1 metric for distribution leaders for a simple reason – it is not possible to predict the future, but your business can be ready when the future arrives.
A systematic approach to identifying critical capabilities starts with reimagining your business model as one with a new purpose or mission. For example, many distributors are applying advanced analytics to identify their most profitable and loyal customers. This work could easily extend to innovating a distributor’s business model by reimagining the priority suppliers, essential business processes, high-impact employee capabilities, new revenue sources, improved pricing policies and competitive cost structures.
Of all the digital tools, developing social media content around new value-creating solutions is a particularly helpful approach for communicating customer-focused innovations, reinforcing the distributor’s brand and expanding awareness of new capabilities. Analytics teams can be deployed to serve specific accounts or focus on common issues shared by priority customers. Logins on e-commerce platforms can lead to customized sourcing experiences, and customer portals can provide purchase histories and predictive analytics as well as updates on collaborative projects and shared metrics tracked by both you and customers.
We recommend evaluating multiple models as an innovation project. The goal is to identify strategic capabilities that are common across various models and start developing them. Other business models that distributors might consider include evolving to a hyper-efficient provider of logistics services, competing solely on front-end capabilities (e.g., marketing, sales and customer service), or selling distributor services through an access economy model (e.g., Uber, Airbnb).
Sometimes, a leap is required to make progress and distributors may identify surprising new capabilities by jump-starting a creative process. Out-of-the-box capabilities are critical for breaking the vicious cycle of price pressure and margin erosion faced by all distributors in all markets. They are mandatory for putting distributors in charge of their destiny rather than ceding the future to the forces of disruption, disintermediation, globalization and more. Here are three options to help kickstart your creative approach to identifying critical capabilities:
• Launch a “Future of Distribution” initiative with your trade association – Go beyond participating in best-practice discussions with peer distributors and establish a series of events to invite suppliers, distributors (from other lines of trade or global markets), technology experts and futurists to contribute their expertise, priorities and ideas.
• Define requirements for leading as an entrepreneur – Most distributors herald the values established by their founder, usually several generations ago. By doing so, distribution leaders act as stewards as they focus on protecting their heritage. New capabilities for competing in the future can be identified by examining the entrepreneurial skills required to launch a new sister business, one that competes differently in the distributor’s market.
• Coin a phrase and create a brand – Identify a new hypothetical brand by coining a phrase for new value created for customers, suppliers and your own business. Then translate the phrase to a new brand name. Test the name with customers and suppliers. By renaming your company, you can reimagine your business model and then create a plan for developing its critical capabilities.