Delivering for Best-in-Class Wholesaler-Distributors
May 23, 2017  |  ByMark Dancer, NAW Institute for Distribution Excellence Fellow
NAW-Innovation Turns the Table on Amazon-Distributors in the Digital Era #17

Distributor leaders are rightly concerned that disruptive online marketplaces like Amazon are attracting customers and winning business. Many are seeking to implement state-of-the-art e-commerce platforms to have a shot at competing on a disruptor’s terms. There is another path, one that involves offering new value for customers that is not offered by disruptors. This path is often about changing the traditional distributor business model away from its traditional offerings. It is about innovating the business model and for many distributors, it just might be the key to winning in today’s hyper-competitive markets.

 

In our research and conversation with distributors, one leader put it this way, “Digital tools are all about doing business differently. We are taking a hard look at our business model and what we think it will take to compete effectively in the future. Every part of our business is up for grabs. If we know what we need to be, then we can be smarter about the digital tools we need and how we will use them.” There is a lot of insight in this statement and it’s worth unpacking three key points.

  1. Digital tools can enable new business models. Many distributors use digital tools to improve the productivity and effectiveness of their internal operations. As companies gain digital experience, they understand that it’s not just about doing things better, but it’s about doing things differently.
  2. The rules for competing effectively have changed. Distributors already know that customers go online to seek options and answers before they contact suppliers. This new reality means that unless a new approach is adopted, distributors only engage customers when the buying process is well along and perhaps very near a decision. Distributors need to adopt new approaches to compete for new business and retain their existing accounts.
  3. Knowing what distributors need to be requires a disciplined approach to innovation. The need to change is a given. The question is how much a distributor will change. Committing to add new capabilities and services that are fundamentally different from what a distributor has offered before holds promise, but also risk. Markets are changing quickly and distributor leaders have a responsibility to ensure that their companies move forward in a way that is open to change and may end in a place that can succeed.

Distributor leaders can leverage research as they move forward to innovate. Our last two books, Becoming a Digital Distributor: Strategies and Tools That Create Value and Getting Results From Your Digital Investments, introduced the Innovation Radar concept (it is further discussed in this “12 Different Ways for Companies to Innovate” article) and shared insights from Professor Rob Wolcott, Executive Director of the Kellogg Innovation Network. NOTE: The following illustration is shared in both books to drive home the point: When it comes to innovation, following a disciplined and proven process can identify the right priorities for your business. Setting your sights on the right priorities is the first step to driving successful change.

We incorporated this framework into our research and found that distributors tend to favor four of the 12 options for business model innovation. This means that the most common approach for distributors to use digital tools as they strengthen or change their business model involves developing a vision that addresses four primary elements:

  • Platform. Digital tools shift a distributor’s core platform from its warehouse and inventory toward collecting and acting on the data and information enabled by digital tools. Distributor business models are evolving from managing inventory to managing information.
  • Customer experience. Every distributor must decide how its desired customer experience is changing as customers go online and leverage their own digital tools, and as the distributor’s competitors do the same.
  • Process. Results are not achieved until a distributor’s people work differently. Distributors need to take a fresh look at the critical processes that deliver the desired customer experience and identify how those processes will be directed and enabled by digital tools.
  • Value capture. Ultimately, the return on digital tools is achieved through improved margins, productivity, sales or share. In the context of business model innovation, a distributor must decide where these returns will be gained and then create plans for achieving the required financial results in concert with new information-based platforms and processes that will deliver the required customer experience.

Distributors are going through a period of change and uncertainty, and the best innovation opportunities are still to be discovered. Today is about risk and reward. Distributors that take risks in a well-thought out way and leverage their learning as they develop new processes will have the best chance at success and rewards.

As part of my new Fellowship with the NAW Institute for Distribution Excellence, I will attend the KIN Global—the flagship event of the Kellogg Innovation Network at the end of May. I will look for insights that can be applied to innovation in the manufacturer/distributor value chain. I will share what I learned in future blog posts. If you have questions or priorities about business model innovation that you would like me to consider while I’m at this event, reach out to me at mark.dancer@channelvation.com.

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Mark Dancer, NAW Institute for Distribution Excellence Fellow

Mark Dancer, NAW Institute for Distribution Excellence Fellow

Mark Dancer founded the Network for Business Innovation to drive awareness, advocacy and excellence for B2B innovation, and to enable an exchange of ideas between leaders on business transformation, technology adoption, social impact and community engagement. For more than 30 years, Mark has worked with leading companies to achieve go-to-market excellence across a wide range of industries in developed and emerging markets.
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