Digital technologies have opened the door for distribution leaders to achieve dramatic improvements in productivity and create compelling customer experiences. Many leaders are leveraging digital tools as a foundation for continuous improvement and some are hoping to go much further by innovating the traditional distributor business model. Either way, the adoption of digital tools is prompting leaders to focus on strengthening their company’s abilities to remain competitive and lead.
In my recent report, CEO Insights on Innovating the Distributor for the Digital Age, we asked distribution leaders about their approach for strengthening their company’s capabilities. This article shares five priorities for building capabilities – defined as your people, processes, tools, and culture – as a strategic initiative. The best approach will include aspects of all five priorities, and we suggest that distribution leaders use them as a diagnostic for their actions and plans. Our research indicates that the building of capabilities is the #1 metric for distribution leaders for a simple reason – it is not possible to predict the future, but your business can be ready when the future arrives.
A systematic approach to identifying critical capabilities starts with reimagining your business model as one with a new purpose or mission. For example, many distributors are applying advanced analytics to identify their most profitable and loyal customers. This work could easily extend to innovating a distributor’s business model by reimagining the priority suppliers, essential business processes, high-impact employee capabilities, new revenue sources, improved pricing policies and competitive cost structures.
Of all the digital tools, developing social media content around new value-creating solutions is a particularly helpful approach for communicating customer-focused innovations, reinforcing the distributor’s brand and expanding awareness of new capabilities. Analytics teams can be deployed to serve specific accounts or focus on common issues shared by priority customers. Logins on e-commerce platforms can lead to customized sourcing experiences, and customer portals can provide purchase histories and predictive analytics as well as updates on collaborative projects and shared metrics tracked by both you and customers.
We recommend evaluating multiple models as an innovation project. The goal is to identify strategic capabilities that are common across various models and start developing them. Other business models that distributors might consider include evolving to a hyper-efficient provider of logistics services, competing solely on front-end capabilities (e.g., marketing, sales and customer service), or selling distributor services through an access economy model (e.g., Uber, Airbnb).
Sometimes, a leap is required to make progress and distributors may identify surprising new capabilities by jump-starting a creative process. Out-of-the-box capabilities are critical for breaking the vicious cycle of price pressure and margin erosion faced by all distributors in all markets. They are mandatory for putting distributors in charge of their destiny rather than ceding the future to the forces of disruption, disintermediation, globalization and more. Here are three options to help kickstart your creative approach to identifying critical capabilities:
• Launch a “Future of Distribution” initiative with your trade association – Go beyond participating in best-practice discussions with peer distributors and establish a series of events to invite suppliers, distributors (from other lines of trade or global markets), technology experts and futurists to contribute their expertise, priorities and ideas.
• Define requirements for leading as an entrepreneur – Most distributors herald the values established by their founder, usually several generations ago. By doing so, distribution leaders act as stewards as they focus on protecting their heritage. New capabilities for competing in the future can be identified by examining the entrepreneurial skills required to launch a new sister business, one that competes differently in the distributor’s market.
• Coin a phrase and create a brand – Identify a new hypothetical brand by coining a phrase for new value created for customers, suppliers and your own business. Then translate the phrase to a new brand name. Test the name with customers and suppliers. By renaming your company, you can reimagine your business model and then create a plan for developing its critical capabilities.
In the digital age, competitive businesses and value chains run on data. In our research, one distributor shared that “Data and analytics are like raw power. They can take you a long way in the right direction, a long way in the wrong direction, or no direction at all.”
Careful design and implementation of data and analytics capabilities are critical for all distributors, large and small, in all lines of trade. Jim Sterne, the founder of the eMetrics Summit and Chairman of the Digital Analytics Association, shared six essential capabilities for an effective analytical organization. We’ve added our distributor-centric definitions to each of Sterne’s essential requirements for digital capabilities and suggest that every distributor create a definition for its own business, followed by a plan for developing the capability:
• Visionaries – See the possibilities for leveraging data and analytics for competitive advantage and differentiated customer experiences
• Strategists – Link data and analytics capabilities to strategic objectives
• Implementation directors – Organize, clean and use data and plan any effort related to building or using data and analytics capabilities
• Project managers – Project managers with experience in data and analytics initiatives
• Managers – First-line managers across the organization who implement new processes and drive your data-driven culture
• Worker bees – Analysts and data workers
Community concepts are taking on a special meaning for distributors as businesses seek to create competitive advantage by aligning with shared interests of end-users and business customers. Community strategies start with listening and following through with resources to help community members achieve their personal and professional goals. At their best, community strategies build brand strength and awareness and help generate and retain business. Here are three ideas for community strategies and initiatives:
• Work with your local Chamber of Commerce on economic development initiatives – Communities attract new businesses based on the quality of life for their families and the quality of business for running their operations. Distributors have a considerable impact on the quality of business in every city, county, state and region. By partnering with economic development organizations, distributors can offer tours for visiting executives, startup programs for launching new businesses and transfer programs for moving operations.
• Work with the professions that define your end-users, decision-makers and buyers – This approach involves understanding the professional standards and challenges of relevant communities and finding ways to deploy resources to assist community members. Examples include focusing on welders, electricians, buyers or facility managers. Execution can be as simple as joining community organizations. Social media can be used to provide essential information or let community members tell their own stories. At their core, these efforts are often about facilitating a flow of information in the form of best practices, new solutions and creative ideas.
• Work with other distributors as collaborative communities – Distributors can also look to their community to identify and develop critical capabilities for competing in the digital age. Granted, distributors within a line of trade compete with each other. One new idea is about cross-line-of-trade collaborations. In the same way that Amazon partners with Best Buy, distributors may find ways to collaborate around innovative ideas and building capabilities. Buying groups may play a similar role.
Be Up at Night
Distributors know that change is happening, that it’s real, that it’s different than in the past, and that it’s accelerating. In our research, we identified ten questions that can help distributors identify and prioritize the worries that keep them up at night, and the plans for creating the associated capabilities in their people, teams, and company:
1. Does my leadership team have the right mindset for driving digital progress and innovation?
2. Do our digital capacities need to be very strong or game-changing? How do we even get there?
3. Are my best suppliers sitting back to see if distributors make digital progress? Do they care if distributors fail to respond to Amazon’s challenge?
4. Do I have anyone in my organization who can do advanced analytics? Have I given enough leadership to develop our capabilities?
5. Am I missing opportunities by not looking for changes to our business model? Do we know how to go about driving innovation?
6. Do I have the ability to influence customers and guide them to shift to our e-commerce platform?
7. What would happen if customers wanted distributors to have a fully capable e-commerce platform overnight?
8. Are my digital capabilities stronger than a year ago? Do my suppliers or customers notice? Do I tell them?
9. Are supplier rebates killing initiative and innovation in my company?
10. Do I have the foresight to lead my company into the digital age?
A Look Ahead to MDM’s Digital Distributor Summit (December 4-6)
At the conference, I will discuss what I am learning in my research phase for the next Facing the Forces of Change® report to be published by the National Association of Wholesaler-Distributors (NAW). Our goal is to spend the next year in an active dialog with distributors about forces that are changing their business and markets and helping leaders connect the dots from forces to innovations. I’ll share ideas that you can use today and I look forward to learning about your thoughts, experiences and questions. Your input will help shape our research and the value we can create for the community of wholesaler-distributors. For more information and to be notified when Facing the Forces of Change® is available, go to http://info.naw.org/ftfc19. To order your copy of CEO Insights on Innovating the Distributor for the Digital Age, go to http://www.naw.org/ceoinsights.
Mark Dancer, Founder, Network for Channel Innovation, is a leading authority on channel innovation, business transformation and digital technologies. Mark is also an NAW Institute for Distribution Excellence Fellow and the lead researcher for the 12th edition of Facing the Forces of Change®.