Common Ground: Uncovering Similarities in Cross-Industry Distribution

Overview

The skillset I want to highlight in the third and last post of this mini-series on transferable skills (that is ones that I gained in corporate life and I find extremely useful now in my new career as a full-time writer), is the ability to recognise a process that requires a number of its integral components to link up effectively in order to create value by delivering a product to a consumer. After several decades in business leadership, being a keen observer of how markets evolve and having a masochistic interest in economics, I can say with some confidence that one of the things that needs to be quickly understood by anybody entering the corporate world is how distribution, and by extension disintermediation, works. Distribution–how a product gets from its point of creation to the consumer–is at the core of any business, and although all industries have their nuances and peculiarities, the basic principles are similar wherever you look. Understanding such principles, the basics of how distribution works, has a critical role in strategic decision-making and is therefore one of the most important transferable skills that I have come to rely on as I transit from one occupation to another.

Distribution

In any distribution channel, for most products, intermediaries exist as links in the value chain. The most visible are human entities, but there may well be nonhuman elements (for example an online payment gateway or a security check, or in the offline world an automated weigh station) within a distribution channel as well. They represent stages through which a product must pass in order to reach the consumer at a given point in time. Optimistically they might be considered as adding value to the distribution process at each stage by facilitating the movement of the product through the channel and eventually its receipt by the consumer. When such distribution channels first emerged for a given product they did so, generally, in a way that was deemed most efficient at the time, taking into account various features of the market environment. 

Understanding how a product moves, physically or virtually, from the point of production to the consumer, and how that journey changes over time, is probably one of the most important lessons to be learned in business. Distribution economics may not sound very sexy, but for anybody involved in some way or another in navigating this business process getting to grips with the basics can be a make-or-break proposition. The business mantra that over time markets consolidate is probably true, but it is such a broad, sweeping idea that applying that wisdom to a given situation with the intention of immediately profiting from it is unlikely. More specifically, applied to how a product gets to the customer, a beneficial outcome may become more attainable. Consider, for example, a pure distributor in a distribution chain: this intermediary in the distribution channel is neither the producer nor the consumer, but he does help the product along its way to the customer and for that takes a fee–a percentage of the final price that the customer pays. If that intermediary can be bypassed then that frees up that fee to the benefit of the consumer in the form of a cheaper price, or to the producer in the form of higher profitability, or possibly to both.

Disintermediation

Disintermediation describes the process by which, over time, channel intermediaries are eliminated as producers and consumers find easier, more efficient ways to access each other. Increasingly, technology is the key to driving this process and since technology is always evolving, disintermediation becomes thought of as inevitable at some stage. While technology is often a driver of change, it is not the only factor at work in this process. Others include government regulations, changing demand dynamics, and competition. Such change is thought by some to be a natural process as if evolution takes over during the life of a distribution channel. However, energetically striving to free up and capture intermediary’s margin for yourself is not a simple, nor necessarily a desirable thing to do. The channel intermediary would not be there in the first place if there were not a good reason for it. The intermediary may be genuinely adding value, by among other things, providing a means of reaching a highly fragmented market that the producer is unable to do. Conversely, it may be providing a quality or price filter for a highly fragmented production sector, the benefits of which will be subsequently passed down the distribution chain. The key point, however, is that over time nothing stays the same.

Many a seasoned business executive will stand by the conventional wisdom that industries consolidate over time and disintermediation is part of that process. If so, then perhaps humans can do nothing about it: just sit back and wait for it to happen and be ready to adjust your work patterns to accommodate the new normal. But is that really the case? Many of the drivers of change–technology, regulations, and so on–are out of the control of most business executives who are in some way directly participating in sales and distribution. So, you might argue that your interests are best served by being vigilant in spotting a disintermediation event and be quick to react and adjust. However, it is possible to get ahead of the game by being proactive in both encouraging greater efficiency in the distribution chain and in securing a first mover advantage in the event that disintermediation happens. 

The Information Organization

A key part of any leadership role in international markets is to funnel relevant information from the regions into the organization. Multinational companies are huge information gathering machines.  Proactively using this information in a timely way to capture opportunities that come from changes in the market, especially in the distribution chain, is the obvious next step that not all companies do particularly well. A teenage niece of mine who once shadowed me in the office for a few days when visiting Singapore commented that all we seemed to talk about was money. That was partly true: in fact, what we were talking about was how changes in the market environment affected the flow and allocation of money and therefore where there may be new opportunities as a result. 

It all sounds very straightforward but there are a couple of additional factors involved that add another dimension. These are control and the devolution of decision-making within the organization. In most large multinational companies’ there exists a very fundamental dichotomy. Looking at the world from their headquarters, C-suite executives would ideally like to see consistency in processes, approaches, and company and industry practices. In this ideal world highly centralised decision-making makes a lot of sense. However, anyone who has stepped out of their own country or culture for even a short while knows such a world does not exist. Most senior head office-based business executives will certainly accept that there is diversity in global markets, and yet there remains a strong tendency to resist devolving decision-making to be closer to markets and consumers, even though there is ample evidence of the benefits of doing so.

Why is information management and devolved decision-making critical to unlocking the potential from ongoing disintermediation in distribution channels? The answer is that you have to be in a position to understand the current dynamics of the distribution channel in their historical context. That requires careful research and analysis – that’s the information bit: but it does not stop there. You also have to be in a position to act on that information when you need to in order to secure an advantage ahead of your competitors. Hence the need to think about information collection and analysis on the one hand and decision-making on the other as two sides to the same coin.

Applying the Knowledge

Understanding distribution and its bedfellow disintermediation, combined with an appreciation of the role of information and decision-making in how well an individual or organization can navigate this area of their business represents the essence of this transferable skillset. That is not to say that getting to grips with a new industry like publishing is therefore easy. Far from it. It just helps with constructing a frame of reference through which to perceive it. One of the UK’s leading literary agents, Ivan Mulcahy, said about the publishing industry: “If you come into this industry with a clear understanding of how it works, you’ll have a better chance of being successful in it.” This, then, is the goal!

Aside from the preceding few sentences, throughout this article I have not mentioned any particular industry and business sector. Diving head first into the new world of writing and publishing with the writing of Palace of Ghosts confirmed my belief that similar industry structures reveal themselves time and again regardless of which sector they occur. To be sure there are nuances and peculiarities in every industry, but even so, just as in other industries there are intermediaries aplenty, each having carved out their own niche based on the prevailing circumstances at the time. These structures persist and will continue to do so but, inevitably, change is underway and disintermediation is happening in this most traditional business of publishing too. Despite its imperfections, self-publishing combined with digital publishing is starting to have an impact. But established publishers still have a need to filter the thousands of book submissions they are bombarded with and so many will only accept proposals from third party literary agents, who provide this service as a gatekeeper.

Literary agents are certainly channel intermediaries though, I imagine, they will hate to be labelled as such. However, semantics aside, they are an excellent example of value add in the distribution channel. They do indeed provide a filter for publishers. However, they do so much more, representing writers by pitching their work to editors, negotiating book deals and liaising between authors and publishers, and generally compensating for the shortcomings of many publishers. Despite the rise of self-publishing, it is difficult to envisage the disintermediation of literary agents for the foreseeable future because they play such an important role in the overall publishing ecosystem.

Technology has enabled the emergence of self-publishing but it has also highlighted the vital role literary agents play. Another business concept, that of vertical integration, is useful in understanding how movements take place in a distribution chain. Theoretically, self-publishing on digital platforms by-passes the traditional path to getting a book published. However, literary agents and some publishers possess an enormous amount of experience and expertise about what it takes to launch a successful book that digital publishers have not yet been able to replicate. This is despite the appearance of new channel intermediaries offering a huge array of author services, including online marketplaces that connect authors with a myriad of other creative content professionals. It is a classic example of how new technology enables a level of disintermediation to take place, but then another layer of vertical integration has to compensate for the knowledge and experience shortfall that became apparent in such companies as they realised that despite the technology, they lacked certain less tangible skill sets. It is a great example of disintermediation in progress where one particular change driver, in this case technology, holds the potential for greater efficiency in the channel, but where there remains resistance to change because it is only a partial solution.

One helpful publishing blog congratulates debut writers on completing their first manuscript but cautions that while this was no insignificant achievement it represents only 10% of the publishing process. The submission process involves, the blog advised, pitching the manuscript to a bewildering array of agents and diverse publishers potentially in various different countries. This part of the process alone can take months before an author is finally be accepted. Even if the author is successful in navigating this maze, another set of hurdles to traverse and hoops to jump through await once a title has been accepted by an agent or publisher and before a book can be launched to the public.

Conclusion

Disintermediation is a transformative force that has reshaped industries, and may require proactive responses to address its implications, such as in the areas of information gathering, analysis and decision-making. The management of “organisational information” should not just be seen as a good thing to do. It is imperative that a culture of knowledge-sharing and learning is adopted. Lastly, it is important to ensure that a keen awareness of the distribution environment and disintermediation is instilled at the optimal level within the organization when considering the balance between centralisation and devolution in decision making. 

It may seem that the challenge involved in understanding distribution, capturing the necessary information and being in the right place with the appropriate authority to take action is a daunting one. It is fair to say that it is. We can comfort ourselves, however, with the idea that “You measure the size of the accomplishment by the obstacles you had to overcome to reach your goals” (Booker T. Washington). Recognising that all industries have their own nuanced distribution channels and different kinds of intermediaries, but at the same time also display similarities and share certain familiar features in their distribution economics offers valuable perspective. Creating a product, which in my case is a completed and edited manuscript, is not by itself enough. Appreciating that there is also need to understand how the publishing business works, and using experience gained elsewhere to help do that, was helpful in order to avoid being overwhelmed when entering a completely new business sector.

Shortlisting which of my corporate experiences and skill sets I should prioritise as the most transferrable to my new career as a writer in just three posts was a challenge, hence me taking nearly two months to write the three posts. My opinions are, of course, entirely subjective. The three that I chose, as outlined in this post and the two previous ones, may not be definitive but they are the ones that I find myself thinking about most as I continue on this journey as a writer.