By Bill Wade, Wade & Partners
Business for the average heavy-duty distributor seems to have been solid through 10 months. (Why? Don’t ask!)
These good short-term results can create a complacency trap. Without an obvious wolf-at-the-door, what’s motivating life-blood innovation? How about better results? Recent multi-source research concludes that 60 percent to 80 percent of premium profits (profits over industry averages) are directly due to innovation.
We have repeatedly shown that in the intermediate term, innovation is the only creator of increased distributor net worth.
Some of the leading distributors/service providers and marketing/buying groups are innovating to avoid death. Maybe they can see that Amazon Business Prime and a few innovative distributors and truck dealers are taking customer-centric, digital commerce to new levels, and are profiting handsomely.
Without innovation on your part, these leaders will steal sales on your most profitable items bought by your lowest-cost customers. Think: sales off 5 percent, profits off 50 percent.
For ‘proof’ look at publicly available industrial distributors’ earnings and market cap trends over the past year. It’s likely that valuations for private distributorships and their rep relationships will suffer the same fate.
‘Rep Relationship’ valuations are a newly identified asset, but with prospects of devaluation. By 2020 product knowledge and training will primarily be served by 24/7 multimedia on any device, just short of ‘Siri, hand me that wrench.’ By then 50 percent of buyers will be millennials. They see both outside and inside sales reps as an inconvenience for commodity rebuys.
For suppliers and distribution, I feel that it’s critical to put the redefinition of the role of reps (both factory and agency) in a customer-centric way on our innovation ‘must do’ list.
Merrifield’s Five I’s of Innovation
Pay attention to distribution guru Bruce Merrifield’s ‘Five I’s’ to build your own Innovation momentum:
Innovation needs analytical INFORMATION to identify and precisely target areas of opportunity and investment. Line Item Profit Analytics (LIPA), for example, ranks customers by profitability, then allows you to take deep dives to find the underlying, root causes for profits or losses. Distributors with “Line-Item Profit Analytics (LIPA) Management” capability can:
- Go “Open Book,” explaining company progress to everyone;
- Put all employees on bottom-line, gain-sharing incentives;
- Watch everyone grab newly visible ways to increase customer value and/or lower service costs;
- Pay big bonuses out of even bigger profits;
- Work less. Plan and cheerlead more!
- Understanding these causes gives you the INSIGHTS to reduce hidden, unnecessary, lose-lose activity costs for suppliers, distributors and customers.
But, employees won’t act on new plans from these insights until you first announce (future) changes for INCENTIVES. New incentives (by themselves) will not, however, train people to execute new tactics and remove their fears of initial failure and lost income.
The INITIATIVE to act is usually missing, but you can find it by creating small initial wins to build self-fueling confidence.
Skip Today’s Trendiest ‘Airport Business Books’!
The same trendy bromides, such as “Fail Fast, Fail Forward, Fail Better and Glorify the Losers” just don’t detail the actions that need to be taken the way the Five I’s do. There are other steps you can take to increase your innovation:
- Allocate separate resources for the new stuff. You need a separate budget led by a full-time champion, or the pressure to make monthly numbers will win;
- Design low-risk, high-return experiments with guaranteed educational returns;
- Provide enough of a positive philosophy of “let’s try it!”;
- Consider an outside company trainer to run weekly, one-hour, virtual meetings to keep everyone on task until snowballing wins emerge.
One book you must read is “The Everything Store” by Brad Stone (available from who else but Amazon), the story of Jeff Bezos’ creation of Amazon’s DNA. What a ride!
For more on these concepts, contact us at firstname.lastname@example.org or email@example.com to set up a virtual ‘GoTo Meeting’ session. We can help design an approach to lifesaving Innovation and appropriate, affordable action plans.
Bill Wade is a partner at Wade & Partners and a heavy-duty aftermarket veteran. He is the author of Aftermarket Innovations. He can be reached at firstname.lastname@example.org.