November 2, 2018
Recently, I have shared with you the reality that Amazon is disrupting the distribution business. I could show you more dramatic statistics on how Amazon Business aims to control the $6T per year B2B distribution business. Studying in depth the online retailer’s strategy is an eye-popping realization that the grand plan is to take Amazon Business to a $1 trillion per year in the next 5 years.
During our recent Distribution Disruption event in Chicago, participants focused on how to face this disruption and how best-in-class retail and B2B distribution companies are facing the storm and what they consider the future impact to look like. To do that, we reviewed the strategic transformation and competitive business model changes made by Staples, Best Buy, Grainger, Fastenal, and others. Here are some of the critical components of their refreshed winning play.
While it may look easy on paper, designing or redesigning a business model while facing disruption is not an easy proposition. It is hard work and it might take a few years. But you also have to start somewhere. There has to be a starting point in the form of a discovery process or a holistic assessment on how you might be disrupted and what might be at stake with this disruption. Amazon, Alibaba and others might not be in your backyard yet but they might be 2 years from entering your industry. It’s time to get started.
If you haven’t held your 2019 strategic planning sessions yet, you still have time to address some of the threats. Start by assessing the disruption threat by analyzing how much of your distribution business might be at stake should Amazon Business decide to enter your industry and compete directly against you. Evaluate the share of your general-purpose, low value, and off-the-shelves products in your entire distribution portfolio. These products may well be the first one to move over to Amazon Business.
Assessing the threat level includes looking internally at your readiness to face market disrruption, technological acceleration, and abrupt changes in customer behaviors. Once you have assessed the threat, it is important to understand where you are versus the tipping point. If you still have time, you can take bold, incremental actions to turn the corner over time. This is the strategy taken by many retail companies, including Staples, Target and Grainger. If you are past the tipping point and Amazon is already at your gate, then you really have to raise the sense of urgency and make abrupt changes before its too late. Likewise, if you are already knee-deep in the realization that digital disruption is happening now, you might just be chasing a runaway train.
During Distribution Disruption, we discussed the leadership competences that are critical to go through the introspection process of assessing disruption and making change happen. We talked quite a bit about innovation and differentiation, of course. But the fact is you have to have leadership focus on the disruption and on the need to do either incremental change or to take radical transformational actions.
The four competences your leadership needs to manage disruption:
- Breakthrough Thinking: you all know the definition of insanity. Doing the same thing over and over will not lead to a better outcome. So distribution business leaders have to think creatively and take more risk in the transformation process. That includes considering the transformation of the organization structure and culture to be able to face the digital disruptors. Even the best business model can’t be executed without having the organization structured for agility, speed, and collaboration.
- Collective Mindfulness: the entire organization has to pay attention to threats and be aware of the burning platform. There is no time for denying the threat levels. Often, the sense of urgency is high in HQ and in the management ranks but the sense of urgency does not reach distribution branches or sales teams in the field. Collective mindfulness is to have all sensors in full activity mode, paying attention to details and execution, working in alignment and with the same priorities, and being willing to take risks collectively.
- Accelerating the Speed of Change: The CEO of Salesforce said it best: “speed is the new currency of business.” Amazon has been around for 20 years now but their culture is still one of entrepreneurs in startup mode. Large distribution businesses might have to look at the level of decision-making bureaucracy and their propensity to take managerial risks. Change is going to happen and you might have short windows to adapt, depending on where you are vis-à-vis the tipping point. Transforming a distribution business in a matter of 3 to 5 years requires managing the existing business while transitioning the same business to a new business model at a fast pace.
- Embracing Complexity: B2C and B2B customers love Amazon for the convenience and simplicity of the ordering and fulfilment process. Amazon Business is actually investing significant resources in services and support to make procurement easier. With changes in business model and the addition of complex systems, services, and digital offers, distributors must be able to manage the complexity and leverage it for differentiation. Then they have to translate this designed complexity into simple offers for customers. Technology can help tremendously in making this happen. Historically, this has been an area of differentiation for distribution in traditional supply chains.
B2B and industrial distributors have a great future ahead of them. Disruption is not new to them. For the longest time, they have been able to justify their existence by providing great value to suppliers and customers. Today, they are getting challenged again. This time, the forces of disruption are serious and could change the distribution landscape for decades to come. This is not the time to bury heads in the sand. It is the time for courage and mindfulness; the best preparation is intentional self-disruption. This is a matter of survival. Long live the B2B distribution business!
For more on how Amazon is disrupting the distribution business, watch our archived webcast, Amazon at the Gates.