One of the most significant concerns we hear in our research about industrial suppliers is that the quality of service they provide is good, but the quantity of service they provide is less than optimal and getting worse.
In the past, many industrial suppliers have been able to differentiate themselves through their products. That’s becoming increasingly difficult as products are commoditizing to the point where end users are much more likely to accept “good enough” with respect to product features and quality.
The situation industrial suppliers find themselves in today reminds me of where the computer hardware industry was in the early ‘90s… specifically for IBM. The company was in tatters and the board was considering taking action to split the company into pieces and sell it off. Before they went through with that, they hired a gentleman named Lou Gerstner to take over. He had never run a technology company before, which turned out to be an advantage.
Mr. Gerstner made a large number of company-saving changes, but perhaps his most significant was in changing the culture and focus of the company. He recognized what most devoted employees were unable or unwilling to recognize – that many of the product categories in which IBM participated were commodity spaces. The products they sold were similar to those sold by competitors, just more expensive. He re-oriented the entire company around services, focusing the product offering primarily on those requiring significant services, divesting the others such as PCs. Today, a very successful IBM looks more like a services company than a products company.
As an industrial supplier, you need to look closely at yourself and ask whether your product spaces are becoming commoditized. If so, are you more likely to be successful competing as a low-cost supplier or as high-service supplier? Companies who aren’t clearly one or the other have trouble when products commoditize.
Once you select your strategy, you must stick with it. I regularly see commodity suppliers that have taken a “high-service” strategy embark upon cost reduction programs that inevitably cut service levels. Cost reduction programs can be very useful, but not when they erode the supplier’s core value. Like IBM in the early 90’s, most of these companies do not understand what they should really be selling. They may receive payments for products, but they’re really selling the services that make those products effective.
Bart Schwartz, President / ICR / 630.503.6093 / email@example.com