Quick Take: Incumbents can fight back and win

B2B companies must harness their own strengths while also moving forward as digital companies; are you innovating to outdo disruptors?

Winning is “exploiting whilst exploring”

Must incumbents fear disruption? Are established businesses destined for defeat by technology-powered startups? Is there a ceiling to what incumbents can accomplish through innovation? I think not, and I found inspiration and strategies listening to a conversation with Julian Birkinshaw on an Outhinkers podcast episode, Harnessing the Power of Innovation in Incumbent Organizations, hosted by Kaihan Krippendorff. Birkinshaw does not comment on distribution or distributors, but his insights are right on target for all B2B innovators.

From Birkinshaw, I learned that disruption is overrated, at least when it comes to putting incumbent businesses out of business. Established companies have several strategy options, and one is to fight back on incumbent terms, not disruptor terms. Digital transformation is essential, but copying usually fails. Success happens, but incumbents must master walking and chewing gum, or as Birkinshaw puts it, “exploiting whilst exploring.” Established companies must keep their traditional business going, earning and growing profits while freeing and empowering some of their people and teams to fight. Birkinshaw puts it this way:

Traditional, hierarchical, top-down methods work ok as long as what you're trying to do is just deliver a standard product a million times … as we move away from efficiency and quality as the narrow definition of performance to innovation and agility and purpose, we need people to take more initiative. We need to find ways of liberating and harnessing their talents.

The art of fighting back is to avoid a confrontation, find ways to “juggle down,” and build on an incumbent’s well-established “source of strength.” For distributors, this means going all-in on e-commerce is a mistake. Distributors must fight by harnessing the internet to create meaningful value for customers, leveraging incumbent strengths, not Amazon’s strengths. Birkinshaw explains: “Things like agile have taken off because it's only since the internet that we've been able to share information seamlessly, transparently across huge sways of an organization and indeed beyond the organization, which allows people to coordinate in real-time [and] take initiative based on the information that's available to everybody.”

My take: Distributors already create more value by facilitating information exchanges than swapping products for payment. Intermediaries play an essential role in ferrying information back and forth between suppliers and customers, and through their accumulated knowledge, between and among customers. Some of the knowledge is resident in supplier product information, but that’s baby steps. Distributors collect, store, and share information as solutions, local market conditions, supply chain availability, optimizing operations, growing sales and share, and more every minute of every day.

By harnessing the power of the internet, distributors may increase the volume, quality, and speed of information exchange between suppliers and customers. By thinking laterally, distributors may facilitate information flow between customers and among suppliers. Here’s how an incumbent strategy for fighting back might work:

Distributor leaders, teams, and people adopt a platform mentality. Virtual platforms connect people “with something” with people who “need something”—people with cars, people who need rides, etc. Acting as a platform, distributors may connect people who have questions with people who have answers. As the number of questioners and answerers increases, network effects kick in. By following tech community practices, users help design how the platform works. Monetization follows, perhaps as a preferred supplier, serving existing and new customers in local and distant markets.

I can point to a precedent. Check out eCommerce Fuel, the “world’s largest community of 7- and 8-figure store owners” made up of experienced, committed, vetted practitioners, not vendors or beginners. By operating this way, eCommerce Fuel ensures that “everyone has deep, meaningful eCommerce experience to share.”

Without a doubt, distributors can do the same; in fact, they already do. Stepping up to fight as an incumbent means only that distributors must put informal practices to work, enabled by digital technologies, perhaps simply as a Slack channel or group for the public or private members. Or, just maybe, a collection of distributors and suppliers might harness an ecosystem of experienced practitioners and knowledgeable experts to scale up and create a unicorn platform. 

Your take?

Birkinshaw’s work focuses on large, often global, companies. Not all distributors are big, but distribution is a huge industry, topping $7 trillion in the U.S. economy alone. Moreover, small companies in most industries are often the vanguard of innovation. What’s your take? Can you improvise, digitize, and systematize a digital-age exchange of information? Can you fight back as an incumbent? I suspect the answer to these questions is “Yes!” and I’d love to hear from you. Please share your comments below or reach me at mark.dancer@n4bi.com.