Deep Dive: Tipping the scales
Distribution is moving closer to a new way of doing business in the digital age; are you ready for the change?
This week’s Deep Dive was first published two weeks ago. Substack glitched and this edition was sent twice to some subscribers and not at all to others. I’m sending it again so that everyone has it and because it is an important edition as we enter my second year. That's right, we are passing our one-year anniversary. Thank you! Please watch for this week’s Quick Take as it will introduce plans for my second year. I need your feedback, so please send your comments.
—Mark Dancer
It’s time to start looking for a tipping point in how distribution practitioners do business in the digital age. A tipping point for digital distribution will be precipitated by the accumulation of new strategies, practices, behaviors, and measures until a critical consensus is reached, consciously or not, followed by a rapid acceleration of change. Distribution’s tipping point will be driven by digital technologies but realized as the purpose and ambition of digital non-natives currently derided as legacy companies or incumbents. The distracting complexity of managing giant line cards of products to achieve a delicate balance of fragile margins will not disappear, but it will fade. Robotic process automation, artificial intelligence, and smart products and services will act to push complexity into the background. The Palo Alto Research Center described how technology automates away the complexity of modern automobile engines from the conscious minds of drivers. When cars were young, owners needed to be accomplished mechanics, attentive drivers, and crisis managers. As vehicles became digital technology platforms, drivers could sit back (literally), enjoy the experience, and assume that the complex engine would operate efficiently and effectively. Distribution professionals will experience the same transition as their companies become technology platforms. I’ve searched but have not yet found any reporting or predictions about the coming tipping point. But I did find a helpful BCG article on the evolution of traditional businesses into technology companies: “It Takes More Than Technology to Be Like a Tech Company,” by Hans-Paul Bürkner, Saurabh Tripathi, Edwin Utama, and Yvonne Zhou. In this edition, I report on Bürkner et al.’s insights and explore the defining characteristics of distribution before and after the tipping point.
Envisioning a tipping point
Distributors are working overtime to deploy digital technologies to achieve game-changing experiences, reinvent manufacturer/distributor partnerships, and optimize their operations. B2B companies are at the beginning of their digital journey, but leadership mindsets are changing rapidly as opportunities emerge to create unbreakable loyalty, expand share of markets and wallets, gain new revenue sources, and optimize profits. I can sense that a tipping point is just over the horizon—one defined not by the mastery of individual digital technologies operated in silos, but by merging digital knowledge and capabilities to form a way of doing business as a new class of technology-enabled B2B companies.
The tipping point I see is not about a winner emerging in the battle between marketplace platforms vs. traditional distributors. Nor is it about suppliers embracing disintermediation to severely diminish or eliminate the role of incumbent distributors. These fights are real and ongoing, with many battles ahead before a war is won, if it ever is. No. The tipping point replaces the long-held principles, strategies, policies, programs, and partnerships of old-school analog distribution with a modern concept and practice of distribution in the digital age. As a discipline, digital-age distribution will be understood and executed by distributors but also manufacturers, platforms, and more. In a way, distribution is experiencing a coming-of-age moment, maturing, and stepping up to operate globally and locally for the betterment of customers, communities, society, and the economy.
The new philosophies and practices of digital-age distribution are not yet written down in books or papers or spoken through podcasts and keynotes. Moreover, the B2B leaders I know are not predicting or calling a tipping point, but I can see one in their evolving language and growing confidence. And there is evidence if one reads carefully between the lines in reported progress. I see it in my examination of the coming acceleration of B2B value created by the Internet of Things, possibilities for distribution-centric demand centers, digitally-enabled OEM services, repurposing of physical spaces, value-chain partnerships enabled by artificial intelligence, a collaboration between the tech sector and distribution industry, and more. Viewed individually, these reports point to trends. Viewed together, they represent a revolution. We should all be on the lookout for a tipping point.
Understanding technology companies
Looking for coverage of the coming tipping point, I found BCG’s article on the definitions and aspirations of traditional businesses operating as tech companies. After acknowledging the mind-boggling achievements of “big tech” companies, including Apple, Amazon, Facebook, Netflix, and Google, the authors point to the migration of top talent to tech firms as an existential threat for all companies in all industries. To win this fight, Bürkner et al. suggest an if-you-can’t-beat-them-join-them metamorphosis:
This begs the question: Shouldn’t all companies become technology companies? Of course the business media has been telling us for years that many—maybe all—traditional companies are now tech businesses, thanks to the pervasiveness of digital tools. But it’s not that simple. There’s a big difference between adopting advanced technologies and operating the way the digital natives do—that is, using technology does not automatically turn you into a tech company.
Going further, as established businesses become technology companies, their goal is not to defeat or replace but to lead and create:
For nontech companies, becoming a technology company should not be so much about unseating the leaders or even protecting turf. Instead, it should be about acquiring the crucial tools for pursuing opportunities in the digital age. Yes, technology is one of those tools—it’s new technology platforms that give rise to entirely new offerings. But just as important is the mindset that enables companies to exploit the opportunities that technology presents. We think of it as a “restless change” mindset, a mix of intellectual attributes such as ambition, optimism, imagination, a questioning spirit, a tireless pursuit of new ideas, and a defiant persistence in the face of daunting odds. It is also this mindset that enables companies to attract good—even the best—people.
As the current generation of business leaders is replaced by the next, there may be a shift of values that includes a willingness (or desire) to do business differently. This ambition marks the tipping point. By focusing less on digital transformation and more on digital creation, leaders seek to use all tools at hand for a common purpose. Digital transformation is, by definition, changing the old into something new. Digital creation is, again by definition, bringing something new into existence. Transformation is defensive, or at least hesitant. Creation is going on offense, full bore. One of the tipping point signs is the disappearance of “digital transformation” from the lexicon of leading B2B leaders and, I suspect, winners.
The purpose of tech is to create wealth, not profits
B2B innovators will not succeed by imitating or attempting to match big tech. B2B innovators will invent their own way of “business tech” because, as Bürkner et al. assert: “There’s a big difference between adopting advanced technologies and operating the way the digital natives do—that is, using technology does not automatically turn you into a tech company.” The difference between big tech and business tech is defined first by limitations and then by aspirations. As the authors also explain: “For most companies, however, the hope of competing in data analytics and cloud computing and e-commerce, search, and social media is a forlorn one,” and “…with the network effect, whereby these companies’ algorithms are perfected as more people use them, they are unlikely to lose their leadership position anytime soon.”
Big tech companies’ size, sophistication, and power are without parallel. Apple’s market cap exceeds the GDP of all but the seven largest nations. Facebook, Netflix, and Google are not far behind. But the B2B practitioners of business tech are not daunted. The BCG article calls for a guiding ambition defined by optimism, inventing, and optimizing, but not defending:
But the purpose of becoming a technology company should not be primarily to defend market share—above all, it should be to benefit from the enormous opportunities that technology can unlock. New technology can help companies increase sales by enabling them to better understand and meet the needs of customers, respond faster, and produce goods and services of higher quality. It can also help companies cut costs by streamlining processes, reducing the number of mistakes and the amount of waste, and outsourcing to specialist providers.
Another sign of the tipping point is a shift from looking for answers in data, evidenced by strategies, programs, and policies directed by opportunities divined by analytics. Instead, the role of digital distribution is to collaborate and integrate with customers and, by doing so, follow a shared purpose of serving the customer’s customer, using data to unlock previously unimagined value:
And there is another benefit: it can help companies tap the valuable information that they possess but that, without sophisticated data-crunching capabilities, lies dormant and, in practical terms, worthless. The word “legacy” carries pejorative connotations in this digital age. When it is used to describe systems and thinking, this negative sense is justified. But if “legacy” is taken to mean “experience,” then older, predigital companies may have an advantage. They possess vast quantities of information that could be used in creative ways—if only they could be recovered from corporate archives. New technology can help by [prying] open the past in order to propel the company into the future.
Just as transformation gives way to creation as a business term, I have noticed that value will give way to wealth. Value creation is a limiting concept, often associated with adding support to products. Products make their way through the value chain with success measured in sales, share, velocity, turns, and ultimately, as profits earned by manufacturers and distributors. However, wealth may refer to assets, profits, outcomes, and states of being that are measured not only in financial and economic terms but also as social goods. Profits are essential as a measure of successful stewardship of public and private resources to achieve quality, efficiency, and productivity. Wealth is a community measure, meaning a collection of customers and citizens. Unlocking wealth through data and technology is the future of distribution.
Good is never good enough
In Distribution Leans In, digitally confident distributors stepped up to apply technology to help business customers survive the lockdown. They did so not to take share or garner profits but because it was right. When I asked many business leaders, they did not see big tech working to achieve the same ends, at least not in a human-to-human way that was intimate and local. Big tech has earned a reputation as controlling, evidenced by walled gardens, social contagions, attention-economy tactics, and relentless pursuit of unicorn scale. Business tech is liberating, not controlling. Bürkner et al. reveal:
By controlling the flow of information, [big tech companies] have inserted themselves between companies and their stakeholders, particularly between suppliers and customers. In the process, they have captured a lucrative business in a wide range of sectors, including marketing, sales, and distribution.
B2B incumbents are fighting back but can’t hope to win on digital scale or sophistication. Before the tipping point, I have learned that business leaders with a legacy mindset yearn for a “return to normal” as the pandemic and supply chain crises fade. But post tipping point, next-generation B2B innovators know that there is no return to normal unless the ordinary state is defined by a relentless pursuit of creating economic and social wealth. Striving, not dominating, is the defining characteristic of post-tipping point innovators, and it may be a common characteristic of reformed big tech digital natives and transformed nontech incumbents. The best of both will be defined by the relentless pursuit of doing good for customers and citizens. On this dimension, B2B companies of all sizes may compete with tech overlords because the quest to create wealth is a cultural value. Bürkner et al. describe a level playing field, or perhaps détente:
What, then, will distinguish companies? How will they be able to secure competitive advantage? Of course, part of the answer is their technology and the extent to which it is leading edge. But the biggest distinguishing factor will be their mindset. It is an irony that the most distinctive, and therefore valuable, dimension of the big tech companies is the human one. When they are pared back to their irreducible core, they are left with a “restless change” mindset.
Bürkner et al. explain how the new mindset manifests among nontech incumbents and reformed tech giants: “Companies that can regain the enthusiasm, excitement, and energy that they possessed on their first day can expect to prosper. Those that dare to recline will start to decline in today’s fast-paced business environment. Those that rest on their laurels may as well rest in peace.” The future, post tipping point, is the sustained pursuit of good and the expansion of wealth. As I have argued, the future of B2B innovation is collaboration, integration, and optimization to better serve the customer’s customer. B2B is a place where diverse people come together to work toward an objective goal, making things better for customers. BCG’s article places equal value on customer commitments:
The focus of a company’s restless change mindset must be the customer. If technology can help companies maintain a constant dialogue with customers—and truly understand their spoken and unspoken needs—the restless change mindset can help them develop products and services that meet those needs.
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By my estimation, the coming tipping point occurs as the complexity of running a distribution business is automated away, freeing up leaders, managers, teams, and workers to focus on delivering new technology-enabled experiences for customers, suppliers, and communities. The most competitive big tech and transformed nontech companies are defined not just by the excellent deployment of leading-edge technologies but by restless minds seeking ever more value created as wealth for customers, communities, value chain partners, and employees.
Am I right? We’ll see. Should every sentient B2B leader and innovator imagine a tipping point and look for it? Definitely. If they want to remain competitive. Bürkner et al. offer five questions to help incumbent businesses become technology companies. I have morphed the questions to help B2B innovators ready themselves for the coming tipping point:
Will your leaders support a root-and-branch review of your company’s activities, consider the requirements for operating as a technology company, and identify critical points of pain and opportunity?
What are the three most urgent and impactful wealth-creating pilot projects that your company can implement as pilots to overcome your pain points and capture opportunities?
How can you bring your leaders and teams together to work collaboratively with customers, break down silos, and strive together to transform together in preparation for the tipping point?
As you design and roll out successful pilot projects, can you engage your value chain partners, tech vendors, educators, and thought leaders to foster a shared purpose for better serving customers while creating social and economic wealth?
As you transform and work toward competing as a post-tipping point company, how can you recruit, hire, retain, reward, and develop essential employees to win in the digital age?
Please share your comments, ideas, experiences, and direction below. Don’t be a stranger. Click here to schedule a call or send me a note at mark.dancer@n4bi.com.