There comes a time in the life of a business when everything changes. Momentum shifts. Best practices that are fundamentally accepted no longer work as effectively as they once did. Disruption is all around. Change has arrived.
Entrepreneurs call it the tipping point. New York Times bestseller Malcolm Gladwell wrote about it in his book of the same name. Andrew S. Grove, the author of “Only the Paranoid Survive” and former CEO of Intel, calls it “the strategic inflection point.” Gladwell views this critical juncture in the life of a business or an industry as an exciting and promising time. Grove is more cautious, recognizing the risk in the potential reward of a company shifting on its axis to embrace new tools, processes and approaches to their business model.
The distribution industry is at its strategic inflection point. What we do next will make or break businesses in the coming years. Other industries have been at this point where everything changed. Distributors, get ready because our time has arrived.
What is the Strategic Inflection Point?
A strategic inflection point is a critical moment in a business where a significant change occurs. This point is characterized by rapid growth, decline or disruption that requires the business to adapt and change strategies to survive.
Thirty years ago, Grove coined the phrase “strategic inflection point” to illustrate to leaders that they must act decisively at that juncture in their businesses or lose control. The inflection point in a business signals change can’t be stopped. Strategic inflection point adds a keyword to that ominous phrase, showing leaders that with the right strategies, they can come out the other side stronger and better than before.
If you need a visual, think about math. In a bell curve, the inflection point is when the upward (convex) curve turns downward (concave)—or vice versa. These critical junctures occur due to competitive factors, like when Amazon bought Whole Foods, or environmental factors, such as the COVID pandemic. Or, in some industries, regulatory changes can create the same disruption. Even customer preferences or competitive pressures can create that point of no return for a business.
The entertainment industry experienced a milestone in 1927 when Warner Bros. Pictures released The Jazz Singer – the first feature film to have sound. This was a strategic inflection point for the film industry because it fundamentally changed how the industry made movies.
While some embraced this change, others ignored it, believing actors talking to one another wouldn’t catch on.
Today, we couldn’t imagine enjoying a movie without sound, but in 1927 it was a foreign concept to actors and movie-goers. Charlie Chaplin was one of them. He didn’t believe his fans wanted to see him in “talkies.” It took until 1940 for him to make his “talkie” debut in The Great Dictator.
Chaplin’s career never recovered from his reluctance to embrace the film industry’s strategic inflection point. When ignored, strategic inflection points can be damaging.
What Factors Influence Our Strategic Inflection Point?
Distribution had been insulated, for a time, against some of the disruptive factors faced by other industries. Even healthcare went digital while distributors were still using their Excel spreadsheets.
It is ironic that Grove suggests we, as corporate leaders, often miss the strategic inflection point. He says the strategic inflection point, “Almost always hits corporations in such a way that those of us in senior management are among the last ones to notice.”
Distribution has experienced several significant disruptions in the past few years. Many of us have been so busy reacting that we’ve come to a, “can’t see the forest for the trees” situation.
That black swan COVID was perhaps the biggest industry disruption in our lifetimes. We’re still feeling the effects of the global pandemic on our supply chains, but three other disruptors driving us to a strategic inflection point include:
- Inflation hit a 40-year-high in 2022, and higher-than-usual inflation is expected through the end of 2023. Inflation drives up costs and causes existing customers to shop around for the best price. In this economic environment, distributors are squeezed by high material and labor costs which pressures the bottom line.
- Consumerization and the war to find talent are two human-related issues pushing us toward the tipping point. B2B buyers are increasingly spoiled by a B2C experience that personalizes each interaction. Your customers want a richer online experience with the easy searchability of an Amazon ecommerce platform. At the same time, distributors struggle to find the humans to serve our customers. Korn Ferry calls it the “$8.5 trillion talent shortage.” It’s ironic, of course, that our customers want a more personalized experience while we can’t find enough warm bodies to give it to them. (Hint: Technology can help in this area.)
- Of course, technology must be on this list. Not only does computer automation offer distributors a way to streamline workflows, but software now can bring together our siloed data points into a unified whole. These tools can help us automate away the need for some of the talent that we can’t currently find. On the flip side, digital tools also make it much easier and less expensive to cut out the middle point in some interactions, allowing suppliers and customers to transact directly. Companies can use technology to market, sell and service their customers. These tools have smashed the barriers to entry for your competitors. Technology has even enabled new categories of competitors, such as group purchasing organizations (GPOs).
These are just a few factors coming together to form the perfect storm. As a distributor, these factors signal a strategic inflection point where the fundamentals of running your business have changed. The pandemic accelerated the change.
The Next Phase of Your Strategic Inflection Point
Humans are blessed with the dual abilities of hindsight and foresight. We can look back on our lives and, with the perspective of time, realize that everything changed at that critical juncture. We can plan by learning from the past.
Without the right tools, distributors lack hindsight into the historical data on your long-running business. But I am here to suggest that the signs are upon us that we’ve reached a pinnacle where we can keep climbing or fall.
Call me Paul Revere because I am ringing the bell to suggest that the distribution industry is now at our strategic inflection point. If your business stays the same now, you may not be here in a decade (or even five years). What you do right now will set you apart or kill your growth.
You may think I’m looking at technology as some kind of savior. Technology won’t save your business, but it will give you the tools you need to work smarter and faster to remain competitive. Even when inflation skyrockets and another pandemic threatens your supply chain, technology gives us a strategic advantage. The time is now to use that advantage, change your business and prepare for the distribution industry’s next wave.
Karthik Chidambaram is the Founder and CEO of DCKAP, which simplifies digital commerce for distributors, and organizer of DCKAP Summit, a conference on growth for distributors. He bootstrapped the company from his small apartment in Chicago, Ill. DCKAP was started with two people, two computers and two desks and is now a global and distributed team. Karthik holds a Master’s Degree in Computer Engineering from Illinois Institute of Technology, Chicago.