Rethinking Your Business Model January 17, 2013 1 PM ET Discussion - PowerPoint PPT Presentation

Download handouts (PDF) : www.mdm.com/slides or info@mdm.com What Distributor Innovation Looks Like in 2013: Rethinking Your Business Model January 17, 2013 1 PM ET Discussion Leaders Mike Marks, Managing Partner, Indian River Consulting Group Tom Gale, Publisher, Modern Distribution Management Sponsored by

Distributor Innovation in 2013 2 Download handouts (PDF) : www.mdm.com/slides or info@mdm.com Mike Marks Indian River Consulting Group Tom Gale Modern Distribution Management Sponsored by WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

The Take-Aways from the Q4 MDM interview* with Roy Vallee, who was retiring from Avnet as Executive Chairman 3 What should keep managers awake at night? 1. Finding pathways for continued profitable growth that in today’s uncertain environment requires risk taking and innovation 2. Being able to attract and engage the new generation of workers 3. Being able to effectively allocate your resources (people and money) in a changing environment (sometimes reallocating is the biggest challenge) Consultant observation: There are new tools and disciplines that deal with all of these challenges, the issue is the curiosity and interest of those owner- operators who live in the tactical world * MDM did a seven minute interview with him in November and it can be viewed at this link: http://www.mdm.com/ext/html/executivebriefing-7min-archive.html WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Agenda 4 Questions for you: Some Changing Definitions 1. Does your executive leadership have the will to take risks and invest in Business Models And You innovation? 2. Do you have the courage to shift poorly allocated Assessing Your Situation resources to fund your new initiatives? 3. Does your future success Alternatives For Consideration depend on doing new things, and do you know what they are? WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Old Definitions No Longer Work 5 Manufacturers who source globally through alliances are actually distributors Distributors who provide private label products are acting as manufacturers Marketshare incumbents hostage to the old history are losing position to marketshare challengers who care more about customers than market practices The Factory In The Center* Are You Still Feeding The Hole? *http://sethgodin.typepad.com/seths_blog/2010/03/the-factory-in-the-center.html WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Your First Choice- Evolution or Revolution 6 Both choices feel the same pressure on the inside. Lower pressure means talk and no change In stable market conditions, market dominance can often be created with incremental improvement, year after year getting better and better, using the tools of process improvement, 6 Σ , and lean. Nelson’s victory is a classic example of good strategy, which almost always looks simple and obvious in retrospect. A talented leader has identified the one or two critical issues in a situation—the pivot points that can multiply the effectiveness of effort—and then focused and concentrated action and resources on them. McKinsey Quarterly, June 2011 Mike’s car at Sebring 2012 WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

The Old Model- Think Spanish Armada 7 I compete by providing great service with quality people. Because I do a great job for my customers, the best suppliers want me to represent them. This is a strategy of differentiation in execution To win you must be perceived by the customer as being meaningfully better than their other alternatives in areas that matter specifically to them If the customer decides that everyone is good enough then the lowest price wins and the race to the bottom begins Cherished Beliefs • If we don’t make any mistakes then everything works fine Tenured employees have wisdom • We need sales reps to manage our customer relationships Customers buy from us because we are trusted • We don’t have the money to invest in IT, warehousing, process improvement because our margins keep shrinking We will spend it if we ever get some growth WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Death of the Generalist 8 Segment #2 Old School Model • Segment #1 Get scale quickly to get lines and economies of scale in expenses • Get good Critical relationship sales $$ Needs reps and let them $$$$ Critical hunt $$ • Leverage suppliers Needs for discounts New School Model • Build market segments of one to increase switching costs A “one size fits all” model means spending more • Lean out labor money but providing less of the critical services intensive processes • Manage sales reps Targeting segments allows us to tailor our like a SEAL Team investment for maximum effect with clear missions WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Agenda 9 Questions for you: Some Changing Definitions 1. Does your executive leadership have the will to take risks and invest in Business Models And You innovation? 2. Do you have the courage to shift poorly allocated Assessing Your Situation resources to fund your new initiatives? 3. Does your future success Alternatives For Consideration depend on doing new things, and do you know what they are? WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Business Models 10 A business model describes the rationale of how an organization creates, delivers, and captures value At the simplest level there are two parts; how you add value to a market, and how you extract value (get paid) If your model provides the better value/cost ratio then you will grow with those customers who choose you over their other alternatives You will start to fail if you don’t provide a better value/cost (time & money) ratio in the increasing range of alternatives • At the time, failure is described as being subject to the economy, rising cost & time pressures, and competitive alternatives http://www.amazon.com/Business-Model-Generation-Visionaries- Challengers/dp/0470876417/ref=sr_1_1?s=books&ie=UTF8&qid=1357835553&sr=1- 1&keywords=business+model+generation WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

A Single Example Of A Multi-Sided Platform The Apple App Business Model 11 Most businesses have a cracked The spooling of the turbocharger housing so this turbocharger is called the doesn’t work. Once a customer network effect buys from you it needs to be so good for them that they buy almost everything from you. If they shop around on price and you only get the bid opportunity then you have failed to offer any differentiated value to that specific customer. Compelling value propositions make customers sticky which means they have high switching costs. WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Customer Centered Innovation 12 It is using tools and discipline to examine your business from the customer’s perspective Map job descriptions to customer requirements • Most efforts fail because of an internal customer perspective Innovation is the specific instrument of Interesting live links for further research • entrepreneurship. Bettencourt’s HBR Article: The act that endows The best innovation blogs resources with a new Why web surveys don’t work and can hurt(Malcolm Gladwell’s Spaghetti capacity to create Sauce) wealth. How are your innovation efforts (5 wet monkeys)? Peter Drucker Also study user centered design (UCD) The largest challenge is to really listen to customer provided insight rather than seeking what you want to confirm in your present world view. It is not about you, it is about them and most firms have this as an area of functional blindness WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Agenda 13 Questions for you: Some Changing Definitions 1. Does your executive leadership have the will to take risks and invest in Business Models And You innovation? 2. Do you have the courage to shift poorly allocated Assessing Your Situation resources to fund your new initiatives? 3. Does your future success Alternatives For Consideration depend on doing new things, and do you know what they are? WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Where Do You Stand In January 2013? 14 MDM’s 12 Dist MDM’s 12 Distri ribut bution T on Tren ends ds f for 20 r 2013 Your ur mar market im impact pact Yo Your c competitive p position 1 (Lo 1 (Low) t ) to 4 (high) 4 (high) 1 (ignori 1 (ignoring it) t g it) to 4 (Leadin 4 (Leading it) it) A. Uncertainty driving the market B. Generational shift C. E-Commerce to critical mass D. Mobile as a game changer E. Analytics & Big Data F. Competitive shifts with convergence G. Vending machines H. Distributors expanding product mix I. M & A activity returning J. Going global K. Growing in Canada L. Re-shoring of manufacturing http://www.mdm.com/4224-trends-for-2013-RR WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

Your External Assessment 15 Plot each letter of the MDM Trend in the appropriate box 4 based on your scoring Discuss the top left box and Impact On Your Market Potential Loss Calculated consider your risk tolerance Of Competitive Innovation Consider the lower right box Position Investment 3 as a source of funding activities in the upper right box 2 Continue To Unless you are running a life Potential Monitor For style business you need Reallocation Of Changes growth so make sure you Resources 1 know where it is Are the changing forces 1 2 3 4 providing a wind at your back or Your Competitive Response in your face? WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP