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How Distributors Can Create a Culture of Innovation

By Bridget McCrea

If attracting innovative talent and keeping up with the digital revolution is putting your distributorship behind the 8-ball, it may be time to spin up a new, internal entity that's focused on the future.

In July, tED Magazine published Amazon Business Vs. Large Distributors—What's the Threat?, which assessed the impact of Amazon Business on large electrical distributors through the eyes of Alex Moazed, CEO of New York-based advisory firm Applico. In the article, Moazed talked about how the e-tailing giant had yet to conquer the electrical supply sector, but said that it could soon if large distributors don't step up to the plate sooner rather than later.

“Amazon's coming,” says Moazed. “And while it can [afford] to buy the largest electrical distributor if it wanted to, Amazon doesn't need to buy it. It's not like the Whole Foods deal, where the acquired entity had a logistics infrastructure in place for perishable goods.” Moazed also said that large distributors have two choices:  Figure out how to exit the business and sell their shares, or buckle down for a war unlike anything they've ever seen.

Going a step further, Jason Hein, a partner with B2X Partners, says that while large distributors do need to take Amazon Business seriously, there are key challenges that the e-tailer faces that should be accounted for when building a strategy to compete. “These challenges provide valuable direction to large distributors on how to compete as Amazon Business continues to gain traction with a new generation of buyers,” says Hein, who prior to becoming a consultant worked at Amazon, launching many of the current categories for Amazon Business.

For example, Hein says it may be harder for Amazon to simply “acquire companies” to enter a market, he explains, particularly for targets that are service providers. “Amazon has a unique company culture—one where employees work by Amazon's 'Leadership Principles,'” he explains. “There is great power in this approach: staff at all levels are trusted to make decisions provided they align with the principles. This helps Amazon move quickly because decisions are made by the people closest to the results.”

In addition, Amazon prefers employees who can move into other departments or divisions over those who are only a “fit” in one. “Amazon's hiring process is notoriously difficult,” says Hein, who personally participated in over 100 onsite interview loops, out of which Amazon extended offers 15-20% of the time. “Amazon's strategy of always 'raising the bar' when it comes to hiring makes it hard to envision an acquisition in which all (or even most) of the company employees would meet Amazon's standards.”

Finally, Hein says the need to integrate acquisitions into the Amazon culture actually limits the number of firms Amazon would want to target. “Amazon isn't looking to buy a company, only to lay off most of the staff because of culture fit,” Hein says. “This applies even more so for service firms, where the people are the company's biggest asset. Therefore, the hypothesis that Amazon could buy up a few small distributors and cobble them together into an Amazon-style 'mega-distributor' is unlikely at best.”

Promoting a Culture of Innovation
Justin King, co-founder of the DigitalBranch, and senior partner at B2X Partners, says the distributor that wants to create a successful corporate culture that not only embodies the traditional distribution tenets—but that also incorporates e-commerce and technology—can start by separating the “business of digital” from the “business of distribution.” In other words, don't try to layer one on top of the other; instead, view one as being independent of the other.

“We're seeing companies have good success by separating the two, and realizing that their traditional culture doesn't allow for quick enough changes and shifts (i.e., the kind that e-commerce may require),” says King, who points to Kellogg's Bare Naked granola brand as a good example of how a very large firm created a smaller, more-nimble brand of cereal under its corporate umbrella.

“Kellogg realized that it needed to build a different culture, and that doing that as part of the larger brand would take too long. They needed to move faster, and they wanted to do that online through testing,” says King. “To do that, Kellogg created an internal innovation team that reported directly to the CEO.” That SWAT team of innovative thinkers had its own budget and accountability that “lived outside of the purview of the larger, parent company,” says King.

By taking this step, the manufacturer was able to do things like offer “customize your granola” options online without having to work through the typical bureaucracy and red tape of a large corporation. “Within weeks, they created a test environment. That's pretty quick for an organization that I would argue is much more complex and bureaucratic than any electrical distributor.”

King says distributors can borrow a page from Kellogg's playbook and explore different ways to get e-commerce, digital, and/or mobile strategies up and running quickly, but without disrupting the current business model. The same strategy can be used on the human resources front, where younger, millennial recruits will likely gravitate toward innovative, forward-thinking employers whose models incorporate digital strategies.

Taking the First Step
Acknowledging that there's no “one size fits all” approach to the culture issue, King says a good first step is to ask yourself questions like:  Is our company's culture innovative? Are we attracting innovative people to our team? Are we innovating and improving in a way that truly serves our customers? And if not, what do we need to start doing differently?

In some cases, the answer may be to follow in Kellogg's footsteps by “spinning up” a new department or organization that can serve as an innovation arm for the broader distributorship. Create a SWAT team that has the autonomy to act on your customers' behalves, says King, and that attracts the new talent while also staying accountable to the firm's executive team “while operating outside the purview of all the processes and restrictions that a distributorship itself is under.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.



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