Distributors have been through cycles of challenge and response before, but change is different in the digital age. Past challenges came from industry insiders with game-changing business models built around leveraging scale and removing redundancies across the value chain. Examples include big-box retailers, high-share consolidators, integrated suppliers, disintermediators and vertical integrators. The challenge for distributors was real, but the changes were familiar. New rules of competition emerged, but the fundamental roles of manufacturers, distributors and customers remained.
Competition demands that customers are served with ever-more efficient solutions, and effective experiences and new players will always emerge to offer compelling customer experiences and business models that create economic advantages over incumbents. Legacy businesses may slow progress by leveraging loyalties and reinforcing traditional partnerships, but change will still happen. New threats arise. New opportunities emerge. Progress happens. All of this is familiar to distributors.
However, in my conversations with distributor leaders, I often hear that today’s change is different than past change, and that it is accelerating. When I ask them to explain the difference, several answers emerge. Among the most important:
- Digital transformation is massively expensive — The adoption and use of digital tools is very challenging for distributors because of the required investments in the technology itself, and also because of the time and cost to transition a distribution workforce to build the knowledge and skills essential for the digital age.
- The challenge is from outside distribution, not from within — New market players are technology driven. They seek to leverage digital tools around a mission of replacing existing value chains, and by doing so, disrupt markets. They grow by trial and error, pursuing their passion as they arrange private and public financing that is not available to distributors.
- Data sophistication is essential, and 100% transparency is coming — Distributors have long sought to protect their customer and internal data as proprietary and their last line of defense against disintermediation by suppliers. Today, the act of participating in a virtual market means that the market will collect the distributor’s data and may use it for the market’s purposes. Traditional value chains are moving toward full transparency between customers, distributors, and suppliers, driven by competitive pressure and enabled by the Internet of Things. Going forward, what matters is how a distributor uses the data, not how they protect it from others.
- Business model innovation is required, but not a core competency — Distributors are highly skilled at driving change through continuous improvement. Traditionally, this approach is about “doing more with less,” but distributors are finding that continuous improvement can sometimes lead to offering customers new services. However, more may be needed. To compete with entirely new business models, a distributor may need to change their own by mastering the discipline and best practices of business model innovation.
None of this is to say that there is no hope for the future of distribution. There is. Lots. Change starts with leadership, and my work as a Fellow for the NAW Institute for Distribution Excellence has identified a common characteristic of distributor leaders that are making the best progress: Successful distributor leaders are curious. They ask questions. Lots of questions, asked of many constituencies, and seek to understand the answers they receive. Knowledge is power. It has always been and always will be. And when disruption happens, and markets change, new power is gained through new knowledge.
I offer these thoughts because I believe they point to how distributors can best take advantage of the upcoming MDM Forum: How Distributors Should Respond to Amazon Business. First and foremost, this event is a compelling opportunity to ask questions and understand answers. The forum brings together distributor leaders, representatives of Amazon Business and thought leaders from inside and outside distribution. Its success will be judged by whether it generates new ideas and insights and works to create a new shared understanding. The forum will fail if participants default to defending their convictions and businesses. Curiosity is essential. Justifying your role in the value chain comes later.
With this in mind, my kick-off comments will share significant preliminary findings from research for the next edition of NAW’s Facing the Forces of Change® report and our just-released challenge paper, Creating Innovations and Shaping the Future of Business. (You can find our more about the latter here and here) There is much work ahead, but distributors are making progress.
I will also offer several suggestions for asking questions and understanding answers at the MDM Forum, and explain why I think they are appropriate. I’ve learned these lessons from many years of facilitating high-stakes discussions between distributors and suppliers. My assigned goal in these situations is to create a win/win solution. The first step towards that goal is to create a common understanding, one built by asking questions and listening to the answers. With this in mind, I offer these suggestions to everyone attending the forum:
- Set aside emotions and focus on gathering facts – Conflict between traditional and new players can be real or imagined, and it may be significant or inconsequential, but conflict is always amplified by emotion. Emotion comes from feeling threatened or frustration from a lack of progress. Emotion clouds judgment and precludes curiosity. Set it aside and replace it with a plan for asking questions.
- Explore business models – Business models have many facets, all worthy of exploration. Understanding business models is crucial to understanding motivations and predicting actions. Ask questions that go to a business model’s priority customers, business processes, supplier or seller relationships, core competencies, organizational structure, reward systems, key performance indicators, financials and more. Some of these areas are confidential and proprietary, but many are not. You must ask to find out.
- Accept that if your customers buy elsewhere, you must follow – To do otherwise is to accept lower sales, smaller share and a diminished future. Customer behavior is complicated to predict, but by asking questions and understanding answers, one can build a foundation for developing scenarios and making plans for dealing with changing customer behaviors and preferences.
- Know that if you don’t have conflict, you don’t have enough coverage – Conflict between manufacturers, distributors and increasingly, online marketplaces is the norm, not the exception. Sometimes players are competitors, but at the same time, they can be customers, partners or collaborators. If your business does not see conflict, it means that you are missing the opportunity to serve or sell customers. Ask questions about where conflict may exist, and explore how it can be managed for mutual benefit.
- Consider some really big ideas for working together – When pursuing progress, it is often said that “the perfect is the enemy of the good.” That line of thinking also holds true when considering whether new market players are an opportunity, threat or something else. One way to work through this dynamic is to skip over apparent issues and try to imagine jointly pursuing an entirely new and strategic opportunity. By thinking outrageously big and different, it is possible to put problems and barriers in context and, even better, find workarounds. I have a few enormous ideas and will put them on the table at the forum.
I look forward to attending the conference and to making my contribution to helping distributors be successful in the digital age. If you have questions or comments in advance, please feel free to reach out to me at email@example.com. Above all, remember that curiosity may kill cats, but it is essential for making businesses thrive.
Mark Dancer is a leading authority and author on channel innovation and transformation. He is also the founder of the Network for Channel Innovation and a Fellow for the NAW Institute for Distribution Excellence.