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

What Distributor Innovation Looks Like in 2013:

Rethinking Your Business Model

Discussion Leaders

Mike Marks, Managing Partner, Indian River Consulting Group Tom Gale, Publisher, Modern Distribution Management

January 17, 2013 1 PM ET

Sponsored by

Download handouts (PDF) : www.mdm.com/slides or info@mdm.com

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Distributor Innovation in 2013

Tom Gale

Modern Distribution Management

Mike Marks

Indian River Consulting Group

Sponsored by

Download handouts (PDF) : www.mdm.com/slides or info@mdm.com

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The Take-Aways from the Q4 MDM interview* with Roy Vallee, who was retiring from Avnet as Executive Chairman

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)

* 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

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-

• perators who live in the tactical world

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Agenda

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

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Old Definitions No Longer Work

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

*http://sethgodin.typepad.com/seths_blog/2010/03/the-factory-in-the-center.html

The Factory In The Center*

Are You Still Feeding The Hole?

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Your First Choice- Evolution or Revolution

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. In stable market conditions, market dominance can often be created with incremental improvement, year after year getting better and better, using the tools

• f process improvement, 6Σ, and lean.

McKinsey Quarterly, June 2011 Mike’s car at Sebring 2012

Both choices feel the same pressure on the inside. Lower pressure means talk and no change

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The Old Model- Think Spanish Armada

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

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Critical Needs

Segment #1

Critical Needs

Segment #2

$$$$

A “one size fits all” model means spending more money but providing less of the critical services

$$ $$

Targeting segments allows us to tailor our investment for maximum effect

Death of the Generalist

Old School Model

• Get scale quickly to

get lines and economies of scale in expenses

• Get good

relationship sales reps and let them hunt

• Leverage suppliers

for discounts New School Model

• Build market

segments of one to increase switching costs

• Lean out labor

intensive processes

• Manage sales reps

like a SEAL Team with clear missions

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Agenda

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

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Business Models

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

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A Single Example Of A Multi-Sided Platform

The Apple App Business Model

The spooling of the turbocharger is called the network effect

Most businesses have a cracked turbocharger housing so this doesn’t work. Once a customer 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.

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Customer Centered Innovation

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

• Interesting live links for further research

Bettencourt’s HBR Article: The best innovation blogs Why web surveys don’t work and can hurt(Malcolm Gladwell’s Spaghetti Sauce) How are your innovation efforts (5 wet monkeys)? 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

Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth. Peter Drucker

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Agenda

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

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Where Do You Stand In January 2013?

MDM’s 12 Dist MDM’s 12 Distri ribut bution T

• n Tren

ends ds f for 20 r 2013 Your ur mar market im impact pact 1 (Lo 1 (Low) t ) to 4 (high) 4 (high) Yo Your c competitive p position 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

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Your External Assessment

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

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Agenda

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

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Outsourcing- Two Definitions

Traditional: Outsourcing is the contracting out of a business process, which an organization may have previously performed internally or has a new need for, to an independent

• rganization from which the process is purchased back as a

service Strategic: Outsourcing means do what you do best and buy the rest Just remember that most distributors are already outsourcing supplier negotiation if they are in a buying or marketing group

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Choosing Something To Outsource

Think critically about what your sticky customers are actually buying from you without using the old words of service, relationship, or trust Consider what are your firm’s three greatest strengths and three greatest weaknesses (This is hard) The BS answer is great people, great lines, and strong relationships followed with bad IT, margin pressure, and the economy Candidates for outsourcing must meet two criteria 1. The process or function has been a long standing weakness (or at least a pain in your rear) 2. The process or function is NOT something that is critical to a customer choosing you as a supplier You potential outsourcing partner must have the same importance to you that you do to them or someone will get hurt

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Service Unbundling

Companies grew because the economies of scale (aggregating the resources necessary for production) produced more customer value than the loss from cross subsidizing It often occurs when the incumbent has a cross subsidized value proposition that means some customers are disadvantaged to the benefit of other customers

• The underserved customers can be captured when they are given a

more attractive value proposition

These adjustments are like the San Andreas fault

• There are constant changes in underlying customer needs as products

and markets evolve and it appears stable until the earthquake

When a different partner can provide the needed service (or part of it) better or more cheaply, the customers will choose the alternative that is in their best interests at the time

Years ago most distributors had fleets of delivery trucks to service the last mile. This has been replaced by UPS as they carved out the piece that they wanted

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Victims Of Someone’s Unbundling

This Is Easy To See Looking Back

Your Kodak Moment is when you finally see the part of your value bundle that has died and gone away

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The Indian River Innovation Hit Parade

Invest to become analytically led and strategically driven

• Business development and growth is a corporate responsibility
• Market Access means aligning your resources to true growth opportunities
• Recognize that all dollars of gross margin are not created equally

Migrate self directed sales reps to management directed ones

• Sales reps execute corporate growth plans
• Segregate market serving activities that are a fixed expense from market

making ones that produce long tail leverage

Take pricing out of the hands of sales reps and drive it by customer segmentation (Velocity-based strategic pricing is a good beginning)

• Start with understanding what customers are actually buying, which is usually

not the product itself

• Learn about your customer’s business so you can price by value produced for

them, not your own costs

Commit some time to ongoing research and study about your business

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Key Take Aways For Today

Spend time reading and watching all of the included links

• For extra credit order the Business Model Generation book

Find a non-core area of your business where you stink and find a way to outsource it Do some customer centered innovation with one of your stickier customers and unbundle the service package to suit their needs Pick something on the Indian River Hit Parade and go do a proof of concept project Exercise, eat well, be nice, and look at MDM often

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Thank You!

Sponsored by

Download handouts (PDF) : www.mdm.com/slides or info@mdm.com

A list of the links in this presentation are in this event’s follow-up email, which includes these handouts. Or email info@mdm.com for the links.