The Expanding Role of Services

Customers and suppliers are demanding more services

One of the most discussed topics in the industry is the expanding role of services.  Services remain both a significant opportunity and conundrum for many wholesaler-distributors.  Structuring and delivering services that customers are willing to pay for remains a massive challenge, measuring the profitability of service offerings continues to confound a great many distributors, and mastering the organizational changes that an expanded services focus requires eludes all but a very few distributors.

Customers and suppliers are demanding more services; increasingly agile competitors stand ready when distributors are unable to deliver such offerings; and with continued pressure on product margins, services represent one of the primary levers for growing revenues and profits.

ACTION POINT: Identify the services that customers demand, especially the ones they are willing to pay for.

The New Economic Environment

Things will not revert to the way they were.  

The new economic environment is a term intended to capture the breadth and depth of changes to the perceptions and realities that now exist globally across industries, sectors, and companies.  The crisis was not just an event, but a catalyst that precipitated a series of ongoing, fundamental changes.  Things will not revert to the way they were.

This new economic environment is characterized by increased volatility, uncertainty, and unpredictability.  Any one of these represent a significant challenge to the effective and efficient management of a wholesale distribution company, but when all three exist to a very large extent-- and high levels of complexity are also added to the equation--the landscape becomes challenging indeed.

ACTION POINT: Wholesaler-distributors will need to understand and be prepared to capitalize on deep, ongoing shifts in the structure of the U.S. economy, deploy new business models, and explore new sources of capital and funding.

Decisive Actions for an Uncertain Economy

This only serves to highlight the critical role of human capital in the wholesale distribution business. 

In considering the trends, implications, and opportunities for wholesaler-distributors it is worth emphasizing that while bold strategies and prudent investments will be essential, execution remains the ultimate differentiator.

The best customer segmentation and cost-to-serve analyses will deliver nothing to the bottom line if the organization does not--or perhaps--cannot--execute against those recommendations.  This only serves to highlight the critical role of human capital in the wholesale distribution business.  Products, services, technology, and analysis are all mainstays of the organization, but the workforces ability to execute its roles and responsibilities will ultimately decide success for failure.

ACTION POINT: Understand the value of your human capital and the importance of execution in every role.

Decisive Action for an Uncertain Economy

Striking the right balance will require an intense focus on getting much closer to the customers

Facing the forces of change: Decisive action for an uncertain economy contains a central message about confronting the challenges facing wholesaler-distributors today: charting a successful course in this new economic environment will require a combination of bold initiatives and prudent investment.  

Striking the right balance will require an intense focus on getting much closer to the customers--to better understand their product and service needs; leveraging advanced analytics--to identify and prioritize cost reduction and revenue growth opportunities; and building a highly motivated, capable, energized, and enabled workforce to effectively leverage the latest technologies and methods to delight customers.

As they consider decisions in each of these areas and contemplate the "right" information technology (IT) infrastructure to enable those capabilities, wholesaler-distributors must look beyond the next two to three years.

ACTION POINT: Only by considering longer-term implications now--while aggressively managing today's business--will distributors position themselves for success in the new economic environment.

Decisive Action for an Uncertain Economy

Going forward, distributors must strive for a predictive and proactive posture.

Even as the U.S. economy gradually emerges from the throes of the worst economic crisis since the Great Depression, many wholesaler-distributors continue to struggle financially.  Tremendous volatility, uncertainty, and unpredictability characterize the economic environment and will likely remain the core characteristics for some time to come.

Going forward, distributors must strive for a predictive and proactive posture.  The worst of the crisis may (or may not) be over--either way, now is not the time for complacency.

ACTION POINT: Avoid complacency and recognize the volatility, uncertainty and unpredictability of the times.

Measuring your own Performance

Learn from your mistakes and capture what you have learned 

In addition to organizational targets, it can be useful to monitor your own performance as a manager over the course of an innovation project.  Make sure that you take time to review your projects so that you can improve your performance the next time.  Learn from your mistakes and capture what you have learned in a briefing document so that others in your organization can make use of it.

Systematically compare your products and processes with those of other firms, and meet and share experiences with people in similar roles to yours.  Look beyond your immediate organizational and geographical environment to ensure that you have the widest possible basis for new ideas, and encourage experimentation among your staff.

ACTION POINT: Establish sets of measurable criteria for success to identify how and where you can improve your innovation management.

Measuring Innovation Success

The first factors to measure are resources you devote to the process, such as time, money, training investment, strategic targeting, and overall guidance.

In addition to monitoring the efficiency of the process, it is also important to establish whether or not it is benefiting the organization as a whole.  The first factors to measure are resources you devote to the process, such as time, money, training investment, strategic targeting, and overall guidance.

These can be compared with outputs, such as the number of new products introduced, and profits derived from them: improvements in processes, calculated through customer satisfaction or efficiency surveys; comparisons with competitors; and overall business performance.

ACTION POINT: Keep track of the resources required for innovation and evaluate their impact on the organization.

Sharpening Your Skills

you need to diagnose how your organization manages the process.

The capability to make innovation happen develops over time and through trial and error.  To ensure your organization keeps improving its capacity for successful innovation, you need to diagnose how your organization manages the process.

Innovation process measures include:

• Number of ideas generated at the start
• Failure rates in the development process, and in the marketplace.
• Number of percentage of overruns on development time and budgets.
• Customer satisfaction measure--did the customers get what they wanted?
• Average time to market, compared with industry norms.
• Development time per completed innovation.
• Average lead time for the introduction of a process innovation.

ACTION POINT: Review and audit even small-scale projects.  This may not offer immediate benefits, but will make your organization better at innovation in the long run.

Managing the Network

Networks can be short-term and for a specific purpose, or they can continue for as long as members see it worthwhile

When the network is operational, you need some core operating processes on which all parties agree, such as:

• Network boundary management: how the membership of the network is defined and maintained.
• Decision-making: How(where, when, who) decisions get made at the network level.
• Conflict resolution: How conflicts are resolved.
• Information processing: How information flows among members and is managed.
• Knowledge management: How knowledge is created shared, and used across the network.
• Motivation: How members are motivated to join and remain within the network.
• Risk and benefit sharing: How the risks and rewards are allocated across members of the network.
• Coordination: How the operations of the network are integrated and coordinated.

ACTION POINT: Networks can be short-term and for a specific purpose, or they can continue for as long as members see it worthwhile--this may require periodic review and "re targeting" to keep motivation high.

Networking and Shared Learning

Networking also helps innovation by providing support for shared learning...

The benefits of innovation networks don't happen by accident.  Challenges to networking include: how to manage something you do not control; how to see system level effects and not self-interest; how to build shared risk-taking and avoid red tape; and how to avoid free riders who get benefits without contributing.

The key issues in setting up a network are providing momentum for bringing the network together and clearly defining its purpose.  The need for a network may be crisis-triggered or driven by a perception of opportunity.  Third parties play key roles here: network brokers, gatekeepers, policy agents, and facilitators.

Networking also helps innovation by providing support for shared learning, which allows for the status quo to be challenged, and for assumptions to undergo critical reflection from different perspectives.  Shared learning provides a wider perspective, prevents insular ideas, and brings in new concepts.  Shared experimentation reduces the perceived and actual cost and risk of trying new things, and shared experiences can provide support and open new lines of exploration.

ACTION POINT: Develop a process of shared learning to combine knowledge and experience across teams or organizations.

Understanding Types of Innovation Network

Working together across a sector or region to improve competitiveness through product, process, and service innovation.

There are several types of innovations networks.  Below are some examples:

• Entrepreneur-based - Bringing different complementary resources together to help take an opportunity forward.  This strategy is largely dependent on the entrepreneur's energy and enthusiasm in getting people interested in joining -and staying in--the network.
• Communities of Practice - Networks that involve players inside and across different organization.  They are bound together by a shared concern with a particular aspect or area of knowledge.
• Spatial Cluster - these form where key players in a given industry are situated in the same geographical area--Silicon Valley is a good example.  Knowledge flow among and across the members of the network is helped by the geographical closeness and the ability of key players to meet and talk.
• Sectoral Network - These bring different players together because they share a common market sector or business model, and often have the purpose of shared innovation to preserve competitiveness.
• New product or process development network - networks that share knowledge and perspectives to create and market a new product or process concept across more than one organization.
• Learning network - Working together across a sector or region to improve competitiveness through product, process, and service innovation.
• New technology development network - Sharing and learning around newly emerging technologies to fully explore their potential--for example, the pioneering semiconductor research programs in the US and Japan that resources and information from universities across the globe.
• Emerging Standards - Exploring and establishing standards around innovative technologies--for example, the Motion Picture Experts Group (MPEG) that works on audio and video compression standards for digital sound and video.
• Supply chain learning - Developing and sharing innovative good practice and possibly shared product development across a value chain, such as between manufacturer and distribution.

ACTION POINT:  Look within and outside of your industry for the innovation networks that can spark ideas for your organization.

How Developed is your Capacity for Innovaiton

a constant flow of challenging ideas...

In evaluating your innovative ability you can consider the following questions:

• Do I have links with a wide range of outside sources of knowledge--universities, research centers, and specialized agencies?
• Do I practice "open innovation" by using rich and widespread networks of contacts from whom I get a constant flow of challenging ideas?
• Does my approach to supply management permit "strategic alliances"?
• Do I have contacts within the research and technology community?
• Do I recognize users as a source of new ideas and try to co-evolve new products and services with them?

ACTION POINT:  Once you and your innovators have been exposed to new ideas and concepts form other areas of your industry, or even other industries altogether, you can experiment to generate new concepts.

Networking for Innovation

Innovation has always been a multi player game

No person exists on their own, and no organization operates in isolation.  Innovation has always been a multi player game, and in a world of "open innovation," where not all the smart people work for you, organizations are increasingly turning to networks to help them manage innovation.

The benefit of innovation networks can be substantial.  For small firms, the limiting factor is often that they are separated from developments in the wider market--they lack the overview of market intelligence a larger firm can access.  Linking up in networks means they can tap into each others resources, ideas, and knowledge.  However, even larger firms are increasingly realizing how important a resource this can be, and adopting innovation network tactics accordingly.

ACTION POINT:  Innovation networks allow you to share resources and reduce potential risks of developing new products and processes.  They give you a diversity of perspectives, and access to knowledge sets and experience outside those in your organization.

Inviting Ideas On Line

...allow users to interact and provide their ideas to design and co-create products and services.

The Internet has made it possible for vast numbers of users to be contacted effortlessly, and for them to contribute ideas easily, widening your potential poof of ideas.  Crowd sourcing uses Web 2.0--the interactive, user driven components of the Internet--to allow users to interact and provide their ideas to design and co-create products and services.  Examples include Adidas, whose mi-Adidas platform lets you design your own shoes, and the Lego Factory website, where users can design their own Lego toys.

Increasingly, companies like BMW, Kellogg, and Unilever are creating virtual innovation agencies, opening their doors to ideas from users by using the Internet to capture and review these ideas.  Even simple arrangements like competitions and challenges can be a useful way of capturing user ideas focused on a particular challenge or target, especially if they are distributed over the Internet to encourage a large number of participants.

ACTION POINT: Use the power of the Internet to source ideas and involve your customers.

Asking the Best Users

Prototyping and test marketing let you observe users'  reactions to new ideas

Focus groups identify users and their interests as an input to innovation design, and later, as a sounding board.  Prototyping and test marketing let you observe users'  reactions to new ideas, and allow them to add their own.

Lead-user methods help you identify early adopters among your user base, to help shape your idea while you develop it.  Finally, communities of practice are small, often volunteer, groups of uses that use innovation solutions on a continuing basis, such as the Linux community, music software groups like Propellerhead, and Apple's i-platform devices group. 

ACTION POINT:  Get input and feedback from a variety of sources.

Involving Customers

they will have plenty of ideas about how they would like to improve or change what they are using. 

Everyone is creative--and that includes the end users of your innovation.  Users are not simply passive consumers of new products or services; they will have plenty of ideas about how they would like to improve or change what they are using. 

An important theme in managing innovation is learning to work with users as co-creators of innovation ideas for two good reasons.  First, their ideas can help make a better innovation, and second, if you involve them they will buy into the idea.  These users do not have to be limited to customers--the same applies to process innovation.  Changes to the way people work can tap into their ideas about how the process should improve.  Otherwise, they may find ways to resist the change.  There are two ways of encouraging these ideas--appealing to specific users who are likely to contribute, and encouraging contributions from the entire user base.

ACTION POINT: Seek the creativity of your customers and those doing the work to find ideas for innovation.

Progressing in Stages

The whole company is involved in experimenting with new ideas and improving processes, in sharing knowledge and creating the complete learning organization. 

Involvement in workplace innovation develops in five stages.  You can use this model to identify the stage your organization has reached, and what needs to be done to progress toward higher involvement.

• Level One - Innovation is random and occasional.  People do help to solve problems, but here is no attempt to build on this, and organizations may actively restrict the opportunities for innovation to take place.
• Level Two - An organization attempts to mobilize involvement.  This needs a formal process for finding and solving problems in a structured and systematic way, and training employees to use it.
• Level Three - High-involvement capability is coupled with the strategic goals of the organization, so that improvement activities of teams and individuals can be aligned.  Strategy deployment, and monitoring and measuring are required for this.
• Level Four - High involvement produces profit.  Individuals and groups need to be empowered to innovate on their own initiative.  This requires an understand of, and commitment to, overall strategic objectives.
• Level Five - The whole company is involved in experimenting with new ideas and improving processes, in sharing knowledge and creating the complete learning organization. 

ACTION POINT: Determine the level of innovation that exists in your organization and work toward creating the complete learning organization.

High-Involvment Innovation

any change by which work is rendered superior in quality or more economical in cost."  

High-involvment innovation has been around for a while.  Denny's Shipyard in Dumbarton, Scotland, back in 1871 asked--and rewarded--workers for "any change by which work is rendered superior in quality or more economical in cost."  

It makes a big difference to firms like Toyota that do this on a systematic basis-it receives around two million suggestions a year from its workforce.  Kawasaki engineering, another high-involvment player, has a staggering seven million)--and it implements the majority of these.

ACTION POINT:  Encourage your employees to look for any change that renders superior quality work or more economical cost.

Involving over the Long Term

to change the way people think and behave on a long-term basis requires a strategic development program. 

Once you have started the innovation process, the difficulty lies in keeping it going long enough to make a real difference.  Many organizations start the process, have an initial surge of ideas and enthusiasm, and then see it gradually ebb away until there is little or no continuous improvement (CI) activity.

This isn't surprising--to change the way people think and behave on a long-term basis requires a strategic development program.

ACTION POINT:  One of the most powerful agents for change in organizations is mobilizing the efforts of  employees to deliver a steady stream of continuous improvement. 

Involving Employees

every pair of hands there comes a free brain.

Creativity comes as standard equipment with everyone who works in your organization.  To paraphrase one manager, with every pair of hands there comes a free brain.  The challenge lies in engaging this creativity--or how to tap into this resource to keep making innovation happen.

An organization can choose to involve all employees in innovation (high involvement) or only a few (low involvement).  The extent of involvement depends in part on whether the planned innovations are radical (high impact) or incremental (low impact).  Either way, employees must feel motivated, empowered, and enabled to contribute if they are to help in innovation.

ACTION POINT: Engage the creativity of your employees through motivation, empowerment and allowing them to contribute.

Forty Eleven -1 or 4011-1?

DD is going off line and will no longer be available.

For those of you that have suffered through the last 6 1/4 years of the DD you will be happy to hear that the pain is over. Today will be the last post you will have to endure. That's right DD is going off line and will no longer be available.

For any topics or posts that you found interesting, you can click on their title before midnight tonight and then either print the post or cut and paste into word for you own personal records. You can burn them later at your leisure.

So with that being said DD, aka Geschaft Taglich (German for more Hefewiezen beer please) bids you auf wiedersehen.

ACTION POINT: Just Kidding April Fools, 2o11. Auf Wiedersehen means on again seeing, which will be on Monday. :)

PS - Geschaft Taglich does not mean more beer, it is deutsch for Business Daily. Have a good weekend.