Today’s business world is filled with volatility, uncertainty, complexity and ambiguity. Distributors that don’t change may find themselves unable to compete in the new environment, according to Dirk Beveridge, author of Innovate!: How Successful Distributors Lead Change in Disruptive Times. Beveridge recently spoke with MDM about the importance of innovation in distribution.
MDM: Why is innovation so important today to business owners?
Dirk Beveridge: Innovation is critical, maybe more so than ever before, for the 300,000 distributors across this country. The real question is why is it more important now than ever before?
What I’ve seen is that we really are living in what can be called disruptive times. In fact, I think 76 percent of those we surveyed for the book believe that they are now leading a business in an age that they could call disruptive.
In disruptive times, if we don’t change, if we don’t innovate, if we don’t even potentially transform our businesses, we are going to be in trouble. Maybe not tomorrow, but certainly in the future.
MDM: What kind of trouble is the most likely thing to happen?
Beveridge: I talk to distributors every day of my life. I talk to distributors who have had to sell and distributors who are in acquisition modes. And I hear story after story of distributors who have found themselves in the position where they have had to exit the business. They wake up having to get out of the business, having to sell it, not at the value they had hoped for, not at the value they had planned for, and they’re waking up and saying, “Because of the position of the business, I need to sell, and I don’t have the wealth. I haven’t created the value, I haven’t created the wealth that I thought I would at this time, and I’m going to have to work until I’m 70-plus years old.”
Most distributors ride the economic waves. In good times, they do OK. But in bad times, it becomes very, very bad. In the Great Recession this country lost 3 million jobs and I think 300,000 businesses. If we don’t change, if we don’t innovate, the business will be negatively impacted. What that impact will be will be different based on the individual company.
MDM: So it’s not just predictions or indications of what could happen, it’s what is already happening.
Beveridge: Good times can camouflage poor performance. After the manuscript for my book was submitted, the publisher came back to me and said, “Dirk, wait a second. Why innovate? Alan Beaulieu is going around this country saying how good things are for distributors. They’re making the numbers and everybody’s getting 2 and 3 percent growth. Why innovate?”
It goes right back to a fundamental premise that all leaders need to have ingrained, emblazoned, in their minds and maybe a plaque on the wall that says: “Good times camouflage poor performance.” I didn’t write this book, I didn’t do the research, I didn’t devote two years of my life, on this project because I’m worried about these distributors next quarter or even next year.
Alan Beaulieu tells us things are going to be good for at least three years. I’m concerned about that 90 percent of distributors who are not prepared or preparing for the future beyond those three years. When you know that the business is going to turn. When we know that these new competitors are going to get stronger and impact our business even more. When we know the economy is going to take another hit.
That’s why I wrote the book. That’s why I think innovation is so important right now.
MDM: You sound very passionate about this and about the evidence you’ve seen and the research you’ve done.
Beveridge: My greatest hope for this book and for the things we’re bringing to the industry right now is that we start a new movement. A new movement of innovation, change and transformation.
We all need to create a new movement, a new spirit of innovation, change and transformation, because this has been a very old, conservative, slow-to-change industry. The industry is filled with great, wonderful people, skilled, talented people, but we’ve been too slow to change and now is the time to do it.
MDM: Where’s the disconnect? Have the predictions, such as the ones for economic growth over the next three years, affected it?
Beveridge: Let’s talk about those three years. The urgency to innovate and the propensity to innovate are inversely related. Right now in these good times, for the next three years, the urgency to change is
not going to be that great. This has been the history of this industry.
But the ability to innovate is now. When things are going good, when you are bringing profits to the bottom line, when you are making the sales. When the market is saying good things to you.
Now is the time when we need to look at our businesses in new ways, to start peering into the future to say: What does our business need to become in the future? But unfortunately the urgency isn’t there.
In ‘08 and ‘09, when everybody felt the need to change, maybe they started thinking about innovation, but the fact is they didn’t have the bandwidth. They didn’t have the resources, they didn’t have the capital. They were in a survival mode, and they couldn’t.
I think it’s critical to help the industry understand that you might not feel the urgency to change right now, but you will. You will, at some point in the future. You have to plan ahead. You have to.
MDM: What is the goal distributors need to aim for as they make changes?
Beveridge: At a very high level, the goal is, how do we create a sustainable and relevant business in the future? With all of the disruptive and constant pressures that are impacting our businesses now and will impact our businesses to a greater degree in the future, how do we create a sustainable and relevant business going forward? That’s at the highest level.
We in distribution are caught in this world of sameness. We are caught in this non-differentiated business. If we’re going to create a sustainable and relevant business, a goal we need to set for ourselves is to create a new, magnetic value proposition that truly drives a point of differentiation and separation from others that are serving our customers.
Another goal could be: Have we built the culture of an organization that is attracting the quality of talent that we are going to need in the future.
Every company obviously has financial goals, but I think one of the things that stops innovation and change is using today’s metrics – the need for certain profitability, the need for certain gross margin, the need for immediate ROI – when we try to innovate. And if we don’t use new and different metrics, innovation efforts will stall or will stop.
MDM: What has put the industry in this position? What can we learn from the past?
Beveridge: One of the key reasons we’ve been so slow to change is because we’ve been incestuous in our business and in our industries.
If you think about it, who do distributors hang with? They hang with other distributors. Who do fastener distributors hang with? They hang with other fastener distributors. Who do plumbing distributors hang with? They hang with other plumbing distributors. Who do CEOS from building material distributors hang out with? They hang out with other CEOs from building materials distributors.
And while that’s good, it has caused a void of new ideas and new thinking being brought into our industry. For too long we’ve been listening to the same people, the same gurus, and we do need to do that. There is so much domain expertise out there, it’s phenomenal, it’s wonderful, it’s great. We need it. We need it for today. We need it for the tweaks. We need it for the incrementals. We need it for the next year.
But what we have failed to do is open our eyes to outside of our industry, what’s going on outside of this industry that we can lift and shift into our business. We don’t do that.
We need to get outside of our typical circle. And we need to inject new thinking into wholesale distribution.
MDM: It sounds like you think the industry has alienated a lot of other industries?
Beveridge: No, I don’t think they’ve alienated it. I think we have not consciously sought to learn from other industries. And I think we need to. We have to. We must.
Dirk Beveridge is the president of 4th Generation Systems and the author of Innovate! Learn more about the book or how to order it at www.dirkbeveridge.com.