As discussed in part one of this two-part series on change management, the business environment continues to change at an accelerated pace, and in many instances, the business model on which your distribution company operates no longer reflects reality. Today’s business environment creates an imperative to change. Given that there are 15 core dimensions within your business that you could change, which ones make the most sense for you to change?
The Business Change Cycle addressed in part one showed that the business changes undertaken during a transformation were motivated by changes occurring within your business environment. It’s therefore useful to look at the kinds of things that can happen within the environment in which distributors operate.
These motivators can be organized into three categories based on their origin: competitive environment, external environment and internal environment.
Competitive Environment Motivators
The competitive environment motivators originate with respect to your competitors and their objectives to win business within your segment. The five most significant competitive environment motivators for a business transformation include:
- Underserved customer expectations — a product, service, or experience the customer desires but has not received.
- Losing customers or market share — due to price, quality, product or service mix, or availability.
- Arrival of better positioned competitors — those that have created an advantage in their commercial offering or their operating cost relative to the other companies in the market segment.
- Emergence of substitute products — products (or services) from another industry that offer similar form and function as those by the companies within the industry.
- Changes in industry structure — mergers, acquisitions, divestitures and, in extreme cases, breakups of an entire industry segment.
External Environment Motivators
The external environment motivators originate with respect to factors occurring outside of your and your competitor’s organizations — and often outside of the industry segment in which you compete. There are seven significant external environment motivators for a business transformation:
- Supply-side innovation — new products, services, technologies and other supplier developments that have the potential to change a company’s or an entire industry’s business model.
- Unreliable supply chain — when your company experiences disruptions in the expected flow of goods and services.
- Shareholder pressure — a proxy motivator indicating dissatisfaction with the performance or direction of the company.
- Government regulatory pressure — policies and statutes governing every aspect of a business, from labor to materials to commercial licensing to operational and financial practices.
- Environmental pressure — regulations that impact the environment in which the company operates, including air quality, energy, waste products and plant/animal habitats.
- Geopolitical instability — the influence of political and economic geography on the national power, foreign policy and economy of a state.
- Economic instability — the absence of excessive fluctuations (output/inflation) in the macroeconomy.
Internal Environment Motivators
The internal environment motivators originate with respect to controllable conditions inside your organization. Left unaddressed, these conditions create an operational disadvantage. But they are correctable. The five most significant internal environment motivators for a business transformation include:
- Poor business performance — indicated by how well a company is doing relative to its peers within the same industry segment.
- Ineffective systems and infrastructure — tools, technologies, or methodologies that have become ineffective over time or were poorly conceived to begin with.
- Unreliable internal labor — failing to provide the skills, experience, reliability, availability, attitudes, and relationships required by the business.
- Poor agility/adaptability — the ability to easily and quickly adjust to new business conditions.
- Planned abandonment — the intentional termination of a less effective product, service, market, and capability to make room for a more effective one.
From Motivators to Initiated Changes
You may be wondering how the motivators and business changes can be used to define your own business transformation. There is a definitive connection between the motivators and business changes. This is shown in the table below. The rows represent the 17 business environment motivators and the columns represent the 15 business changes. The black circles show the business changes supporting an environment motivator.
For example, consider the first motivator, underserved customer expectations. In responding to underserved customer expectations, a distributor may initiate some combination of the following business changes in its transformation:
- product scope
- service scope
- industry/market served
- customer experience
- technology platform
- sales/distribution channel
- core capabilities definition
Be specific about the motivators and the changes. The table just includes a summary. Suppose the underserved customer expectation is an online presence for e-purchasing trade distribution products. Most certainly, the customer experience will change to reflect the new online interactions, as will your core capabilities to support e-commerce. The transformation will create a new electronic sales/distribution channel and require adding a website and e-commerce application to your technology platform.
You might also initiate changes to your product scope by adding “web only” products and changes to service scope by adding frequently purchased product re-ordering capabilities. Finally, you may elect to change the industry/market served by utilizing the online presence to extend outside your current geographical reach. Each of the changes implemented must align back to the specific details of the motivator.
You may decide to implement all changes at once, or gradually through phases, or you may choose to implement only a few. The purpose of the table is to help you focus on the changes that are most likely to address what is happening in your business environment.
The business environment is changing at an accelerated pace, creating pressure on companies to respond. But the response must be carefully thought out, as changing your business is expensive, disruptive and overwhelming. These techniques can help you identify the best set of changes you can implement to address what is happening in your environment.
You start by clearly defining the reason for doing the business transformation (17 motivators). You can then use the table to select the core dimensions of your business (15 common changes) that address the motivators. When the changes you initiate align with the motivators, you improve your ability to properly respond to your changing environment.
Mike Vitale owns X4MU, LLC, providing advisory services to businesses undergoing transformations. He has more than 30 years of experience in information technology and organizational change management, and has authored a book on preparing companies for a business transformation, Are You Ready for Your Business Transformation? He holds bachelor’s and master’s degrees in electrical engineering, a master’s in business administration and a Ph.D. in computer science.