Since 2016, millennials have formed the largest part of the U.S. workforce, whereas the average age of the C-suite executives who determine the strategic priorities for distributors hovers above 50. The frequent result is a disconnect between the omni-channel experience that today’s customers expect and the ability of leadership to provide it to them.
In the recent MDM webcast, Distributor Leadership in the Ditial Age, Mark Dancer, of the Network for Channel Innovation, discussed ways in which leaders in the distribution industry can successfully steer their companies through the choppy waters of digital disruption. His near-daily conversations with leaders in the distribution industry started with three questions:
- What is happening in your marketplace and with your customers and suppliers?
- What do you need to know to react to those changes?
- Where are you taking your business?
The responses to those questions have been slowly changing over time as the mindset of leaders encompasses the new digital reality. According to Dancer, there was a time when leaders would hang up the phone when he asked about their digital vision. Now, the steadily growing awareness of the importance of technology is mirrored in their questions and concerns. At first they just wanted to know about which tools were out there, because they felt that they needed to have digital tools simply to be a modern business. There was an expectation, in other words, that having the technology was enough. Absent a clear sales strategy, however, leaders often found that adding a digital technology, for example a customer relationship management (CRM) system, drove sales down rather than up.
Over time, questions from leaders have moved on to how the various digital tools work together, to how to get a return on investing in them, to how to use them to effectively run a business in real time and finally how to use them to be a successful leader. The shift overall, Dancer says, has been from “I have to adopt these digital tools” to “I can use them to innovate my business, create new customer experiences, and drive my business forward.” One distributor arrived at the insight that, although he could not predict the future, he could be ready for it when it arrived.
A Different Business
Digital innovation means that distributors are becoming different businesses than in the past. One distributor, only half-jokingly, asked Dancer if it was time to outsource his warehouse. Twenty or twenty-five years ago the warehouse was the core asset for a distributor and the running and managing of inventory were the core business processes.
Today, the processes that make you successful are shifting towards the front end, to the customer experiences that you create, to your sales and marketing programs. The products that you sell, your warehouse and your brand need to be complemented by, and to a certain extent are even being eclipsed in importance by, your people and your processes. And that in turn demands a continual stream of product innovation.
For example, e-commerce by distributors is essential but it isn’t everything. What are you to your customers beyond the transaction? You can think of e-commerce solely as the point at which a customer places an order in their shopping cart and you earn a margin, but if you’re a front-end business and you’re leveraging digital tools across your business, you need to be thinking about how your use of digital technology can drive presence as well as solutions for your customers. Here are three examples of companies that are using digital tools to enhance the customer experience:
Eyeglass retailer Warby Parker reduces the anxiety of shopping for frames online by using a “virtual booth” that allows customers to upload a photo of themselves and sample different frames
The TradingTable website allows food-industry operators to streamline what Dancer calls the “arcane, difficult, and complex” business of food supply by submitting all supply orders on a single platform
Flexe reconceptualizes the warehouse industry by using the access economy model (think Uber, Airbnb) to connect customers who need warehouse space to those who have it, and allow them to scale as necessary
All three of these have solved the problem of how to take a traditional business and use e-commerce to make it different. As Dancer pointed out, it’s significant that none of these companies were started by distributors. Part of the reason is that many distribution leaders do not view themselves as entrepreneurs. They didn’t get into business by starting a business; they joined a business that already existed. Now they’re in a position where they have to learn a new set of skills, often very different ones than those required in the running of a traditional distribution business.
You Can’t Be Amazon
This being a webcast about business distribution in the digital age, it was inevitable that Amazon Business would make an appearance. Dancer had a few recommendations for leaders on this. The first, perhaps surprisingly, was for them to sit down and use the website, to experience as a customer the innovations that Amazon have made during the past year, such as purchase orders, authorized buyers, data and analytics. The point is not to try and become Amazon Business – you’re not going to compete with them by becoming an online marketplace. You’re going to compete with them by doing things that are different.
One of the reasons change and innovation are particularly urgent for distributors is that digital tools are also providing more options to manufacturers. To some extent, manufacturers don’t need to care about distributors in the same way they used to because they know they will be able to use those distributors who do survive the digital transition, who in most cases will be the best, most innovative ones. In many cases they also have the option of using Amazon Business to go directly to customers and end-run distributors entirely.
For this reason, it’s a good idea to partner closely with your suppliers in talking about your vision for your business moving forward. At present there is a disconnect between how distributors see themselves in terms of their digital vision and how they are seen by the manufacturers they work with. Network for Channel Innovation research shows that almost 80 percent of distributor CEOs rate their vision as strong, very strong, or game-changing. Suppliers, however, put that figure for even the companies they view as being their best distributors at less than 50 percent, and for all other distributors at a measly 15 percent. Follow-up research with the CEOs that believed they had a strong vision demonstrated that only about a third of them actually did; for the others it was more a case of “Well, a year ago, I didn’t have a vision, but now I do and so it’s strong.”
The CEO Checklist
You can’t predict the future, but you can be ready when it arrives. In the meantime, here is a CEO checklist that Mark recommends to help you prepare:
- Foresight is a learned and practiced skill
- The business I have is not the business I need
- I can’t wait for customers or suppliers
- E-commerce is essential, but not everything
- New results require new behaviors
- We can’t do it alone
- I can decide my company’s fate (for now)