Technology changes channel economics, capabilities and capacities, also changing the rules in favor of some and disrupting others. Evaluating changes in the go-to-market channels is another technique for assessing the silent signs of disruption.
Customers disrupt companies when they choose alternative approaches to meeting their needs. When this happens the average age of a company’s customer base tends to lengthen as current customers stay and new customers materialize at competitors or even in different industries. Diagnosing those signs of disruption was the focus of a prior post.
Choice disrupts channels
Channels create disruption. Customers choose more than a company, product or service; they choose a channel and where there is choice there is the opportunity for disruption. Channels are disruptive in multiple ways including traditional channel strategy and commerce tactics such as:
Channel partners no longer offering your product or service, or
The channel placing competing products or services ahead of yours, or
The channel is no longer effective at attracting customers, or
Their economics and commercial terms turn negative
The points above address channel strategies and tactics. However, if channels are a source of disruption, then there should be a way to assess the signs of disruption.
Thinking of channels as another form of customer
What is the average age of the people working with you in the channel? The same concerns with customers apply to channel partners and suppliers. If they are not attracting younger professionals, then chances are talent is going to other players, channels and markets – besides yours. This is an early disruption indicator, one that is playing out in several industries where digital technology changes channel structures.
The next question looks at channel partner strategies and actions. How has the structure of the channel and suppliers changed? Market structures change based on how executives see the future, they change based on seeking greater opportunity and moving away from other the status quo.
Are channel players and suppliers consolidating to gain scale and buy growth? Disruption is a factor behind consolidation strategies as companies seek to grow scale through acquisition while organic growth opportunities wane.
What is their relative investment in new capabilities and capacities? Look at investments over the last three to five years. Channel partners and suppliers who switch to a cash cow approach are saying much about their expectations for future growth. What constitutes an investment? Hiring more people is more operational than strategic. Investing in new tools, new geographies, and new relationships represent strategic choices that reflect confidence in the future.
If you are tempted to increase vertical integration for either of these issues, think again. Ask why growing up is better than growing out into adjacent markets and if the opportunity to grow up is because others are making room by leaving. If players are leaving the value chain or they are losing their effectiveness, then you may be seeking vertical headroom for all the wrong reasons.
Channel disruption is particularly disruptive
Companies, products and services come and go, but change the channel and the industry changes. The technologies that comprise ‘digital’ differ from their big iron predecessors. Mobility, social, analytics and even cloud support fundamentally human solutions like the apps on your phone, the intelligence in recommendations etc.
People choose and their choices create disruption. Choosing channels creates a dynamic for disruption as choosing a path to the market changes everything in the market. Understanding the path to market and the investments of players along that path helps identify sources of digital disruption.