The 2020 Mid-Year Economic Update_long

What to Do When Your Business Environment Changes

Todays business environment creates an imperative for change. But what exactly should you change in your business? Nothing, everything, something? Changing your distribution business is expensive and disruptive, and can be catastrophic if not properly planned and executed.
business professionals shaking hands

In the past decade, the business environment has changed at an accelerated pace, primarily due to advances in technology and ever-increasing customer expectations. In many instances, the business model on which your distribution company operates no longer reflects reality. For example, customers now expect faster delivery times and to know exactly where their orders are and when they will arrive. 

Emerging competitors are often better positioned to use technology, as it is the foundation enabling their business model. From online commercial presence to bundled services to sophisticated tools for supply chain visibility to asset-less electronic procurement, new business capabilities and the accompanying customer demands have changed the environment in which you operate. 

Today’s business environment creates an imperative to change just to survive, let alone thrive. If this imperative is ignored, customer spend will continue to be aggregated, ultimately disintermediating many distributors. However, changing your business is expensive and disruptive, and the options can be overwhelming — what exactly should you change? 

What Can You Change?

Business transformations are complex, large-scale changes to your company’s business capabilities and behaviors. Their purpose is to create significant improvement in performance. A business transformation is your company’s response to the changes affecting your business. It allows you to regain some control over the changing environment.

It’s useful to think of business change as a never-ending cycle. The process is illustrated in the Business Change Cycle (see graphic). The arrow  shows that (1) a changing environment motivates (2) a business transformation — which consists of (3) a set of business changes your company initiates in response, and ultimately (4) the change impacts which must be absorbed by your business.  

The business changes (3) are levers your business can manipulate during a transformation. There are 15 common business changes that you can directly control. Each represents a core dimension of the business. 

Mike Vitale GraphThey include:

  1. Product Scope – the salable items a business offers to its customers.
  2. Service Scope – the salable tasks/activities a business offers to its customers.
  3. Industry/Market Served – the companies providing similar products or services, and the customers who require the products and services within an industry segment.
  4. Customer Experience – how your customers perceive their interactions with your company.
  5. Technology Platform – the infrastructure, applications, tools and methodologies used to operate the business and transact commercially.
  6. Cost Structure – the types and mix of cost in a company.
  7. Ownership Structure – the entities holding claims to the company’s equity and the distribution of the equity among those entities.
  8. Internal Organization – the functional roles, interrelationships and responsibilities, and allocation of staff.
  9. Sales/Distribution Channel – method of bringing products or services to a market segment, and the way they are disseminated from to the end consumer.
  10. Core Capabilities Definition – the activities a company performs together with the assets it uses to perform them for the purposing of driving value or sustaining their competitive position.
  11. Outsourcing and Insourcing – moving some portion of the supply chain from internal to external companies, and vice versa. 
  12. Risk Profile – a company’s willingness to take risks and the threats to which they are exposed.
  13. Regulatory Profile – all regulations a company is exposed to through its geopolitical presence, operational practices and business relationships.
  14. Geographic Structure – the structure and arrangement of business offices and operations in different geographic locations.
  15. Corporate Culture/Values – the shared attitudes, standards and beliefs that characterize what is important to the company and ultimately guides its behavior.

Multiple changes can be combined to produce more complex business changes. For example, by adjusting your level of insourcing and outsourcing, you can control the configuration of your supply chain. 

Also see: “4 Reasons to Adopt a Data-Driven Mindset.”

Your business transformation will consist of some combination of the 15 common business changes. You wouldn’t necessarily need to make all 15 changes. The best combination depends on what is happening in your business environment. If the changes you initiate align with the motivators, you improve your chances of leveraging new opportunities (and minimizing the impact of challenges) in your changing environment.

For example, product-only distributors might decide to bundle services with its product offering, if its customers expect training, installation, or support. Other distributors may setup product vending machines for customers requiring zero delivery times and zero overhead for managing product replacement inventory. 

Stay tuned for part two of this ‘change’ series, where Vitale will address the elements to consider changing in your business, as well as motivators to change.

Mike VitaleMike 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. 

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