Kyle Uebelhor: Hi, you’ve got the Alexander group’s global manufacturing and distribution team here with myself, Kyle Uebelhor, and my colleagues, Andrew Horvath and Arshad Carim.
Guys, 2023 was a pretty interesting year in terms of what companies that we saw to be quite successful did. I don’t know, there are a couple of major themes, Andrew, that we picked up. What were your thoughts? As we wrap up the year and really look ahead to 2024 and some bold predictions.
Andrew Horvath: I think the big themes are that a lot of the predictions that people were very confident in last year at this time, just simply didn’t come true. It looks like the global economy, the U.S. economy have avoided some of the pitfalls that we thought might occur.
So a lot of the doom and gloom has been replaced by somewhat tempered optimism.
Arshad Carim: Yeah. And I would say that’s leading to, companies that we’re working with focusing on modernization of their go-to-market model in many different ways.
Kyle Uebelhor: Yeah, Arshad, I would agree with you, those that we’ve worked with, and those we’ve seen, really become modern in terms of their expectations.
Three major themes came up this past year. And I think those will continue to perpetuate forward, but really getting good at marketing. And we’re not talking big M or brand here. We’re talking about the things that make marketing smart and how it interacts with the commercial team, the sales team.
Customer lifetime value. If your folks are focusing in on that, we have to think about the acquisition cost, but the perpetual value that we have, especially if we look up any kind of leaky bucket or what are we doing to create differentiation for our most valued customers over their long term relationship with us. I think one of the things that we picked up on a lot was customer service. Customer service is now almost universally being replaced with this idea of customer experience. The CX. And the CX actually comes with excellence. So it’s pretty interesting.
In that look at 2023, Andrew, you hit it well. Many organizations we see had a pretty good year. So if we were to shake the crystal ball or look at that magic 8 ball and pull forward, we did have a chance to talk beforehand.
We think we’ve got seven big predictions this year. Seven big predictions that should come true for 2024 for most of our audience out there in manufacturing and distribution on a global basis. And we’ll walk through these. I think they’re pretty interesting. And I think if you pull a few tidbits away, it might be helpful as you plan for your start of your year.
Prediction number 1: Companies that don’t continue to begin shifting to commercial models that are no longer associated with product centric, but are customer or client centric run a huge risk of actually becoming disintermediated. Specifically having the best widget will no longer win the day. You really have to think about your entire commercial organization from marketing to sales to service orienting themselves around: who are our customers? What do they need? And how do we give them value?
Arshad Carim: Yeah, Kyle, I’d say the race is on at this point. I’ve been working with a couple of different subsets of clients in the industrials and manufacturing broader space.
And to see who’s going to get ahead of this and really break that transformation mold earlier, I think there’s some first mover advantage there. There’s some pain to go through as you do this. It’s a real transformation for commercial models, but this is happening in other industries as well. And it implicates not just sales, but marketing, sales, service, customer success, all of it.
How you think about accounts, how you think about managing those accounts and then how do you structure your teams? And matrix that together, right? So you don’t completely up-end the org structure that you have, is a challenge that we’re seeing companies wrestle with today and tomorrow for sure.
Andrew Horvath: Yeah, one case in point there guys is a lot of talk about infrastructure, build and continued spending on upgrading the grid. A lot of our electrical components, manufacturers and distributor clients, they know the market is going to increase over the next 10 to 15 years at a decent clip, double digits, maybe.
In a growing market, how do you get more than your fair share? Product is important, obviously, but being able to customize solutions, be more of a service provider and to stand out from your direct competitors. That’s where you’re going to see above market and getting your unfair share of growth.
I would add too I think there’s a big competitive element around owning the digital layer, owning that digital or recurring kind of software element of these solutions.
And that’s another highly competitive area that I think is going to have some advantage for those who move fast, Kyle.
Kyle Uebelhor: Yeah, you’re right. One last thought on this one, guys. I’m actually, seeing a lot of folks who have been so product centric, jumpstarting their product innovation and product category management teams to become more modern, more advanced, past their competitor advantages by being customer first.
I think those types of engagements where we’re helping organizations rethink product development. It’s not just about getting the next new widget to be slightly better. It’s really what are we doing to deliver those clients something new and different. I don’t know, Arshad, you had a couple thoughts on prediction number two.
Arshad Carim: Yeah, so number two, profitability is really going to elevate to the front of commercial leaders priority list because of many factors, including market consolidation and the resulting pricing pressure. And with that, also a lot more focus on value based pricing, becoming critical for hitting margin targets.
Gone are the days of cost plus, right? It’s about value. What can you deliver and how do you build that into your pricing? So a lot of activity around strategic pricing. What that means, how that permeates through the organization and how it impacts, your selling and other resources.
We’ve got a lot of customers of manufacturers and distributors being gobbled up by PE firms and, the consolidation is really causing a lot of this pricing upheaval.
Kyle Uebelhor: Yeah and I think, in addition to that we all went through this massive supply chain conundrum in 2022, early 23, a lot of folks with the inflationary wave took price early.
Andrew and you and I were joking about this in the hallway a couple of weeks ago. If you didn’t take price by now, you’re in trouble. And that is to say, you’re not going to just be able to ride the wave on price. You have to become value based pricing go forward.
Arshad, you mentioned something interesting that Andrew and I alluded to. And I think he’s seeing it a lot in his space right now. It’s this notion of consolidation and or fragmentation of conglomerates. It’s interesting.
Andrew Horvath: Yeah, you got that both sides of the coin. There are a lot of these larger conglomerates are shutting some of their non core businesses like carve outs that are going into the private equity world are going to be absorbed by other strategics.
A bit of a refocusing of the core competencies and what does that mean for go-to-market models, right? Being very good at what you do in a little bit narrower space and then building economies of scale there. A bit of more of a specialization play. Then you’ve got this idea that in formerly fragmented areas, and a lot of the down market type firms that are out there, consolidation is occurring.
The private equity space has moved on some of the larger manufacturers and distributors now they’re getting to more of that contractor space or the single shingle service providers think in the insulation world, roofing contractors. So that has an impact on the suppliers that sell into those spaces .
It’s not, no longer is it going to be being able to take price on a one off basis. You’re now dealing with a buying group or something like that with a lot more buying power. So the unit economics or the way that we’re selling to those links in the chain down the road are going to change and impact profitability.
Arshad, to your earlier point. How do you deal with that? How do you cover those markets more efficiently? How do you price more effectively? What’s your key account approach to these larger buying groups going forward?
Kyle Uebelhor: I think what we see is anytime you’ve got a merger and acquisition or divestiture, you have an opportunity, there’s chaos. It’s inevitable. There’s going to be something that’s going to break as you do this and make it happen. But the opportunity is for those of you who’ve been in a legacy system for quite a while. Don’t lose sight of that chaos. Don’t not take advantage of that opportunity in front of you because we’re seeing a lot of organizations who have gone through this are going through this divestiture and or mergers of integrated companies to change behaviors and get modern in the way that you do.
It’s a great chance to move your team because they see a reason to do it. It’s pretty important right now to use that as a lever for growth.
Arshad Carim: Yeah, if you think there’s go-to-market updates that are necessary at some big fortune 1000 companies, think about some of these small down market owner operator type businesses that have no approach to optimizing their coverage model. So there’s a lot of blocking and tackling that some new sponsor owner is going to have to take on pretty quickly.
Kyle Uebelhor: We’ve covered off on three big predictions. Number 1 companies are going to continue to be shifting their commercial from product to customer centric. Cost plus pricing is going to be a big deal. So pricing is an issue. Prediction number 2. This continuation of acquisitions and divestitures. Prediction number 3.
If we roll into the next one, it’s another summary of, I think, big macro things that are happening and that is that you have to be beginning to rethink how you position yourself to create differentiated value. Value propositions are evolving to become more inclusive across the entire spectrum of what you deliver. Marketing, sales and service is a team sport that has to come together. And what it does and where I’m seeing this with some client work right now, companies are stepping into higher order magnitude conversations.
We’re not just selling an HVAC system into an engineer or facilities solutions individual, but we’re talking to the C-suite of an organization to become the connected dot or the connected tissue to what they’re doing for ESG. So it requires higher order of thinking for your sales teams. They have to step up and they have to partner with marketing and service at the same time.
And Arshad, we discussed this a few minutes ago. This is a big deal because not everybody values that the same way. So you have to be conscious of how you segment your customer base.
Arshad Carim: Yeah, it’s pulling up and elevating the capability set that you need within your teams. You mentioned Kyle. Because they have to start having that type of conversation that connects to the broader mission that’s being put out there.
And I think it connects back to making sure you’re really in tune with the buyer journey and that leads you down the path of the right segmentation. It’s also it’s marketing. It’s pricing. That’s all implicated, right? In terms of how you go after it. And yeah, I think there’s a lot of challenges for companies as they seek to execute on those.
It leads into prediction number five and we’ve got a lot of experience with this. And maybe Andrew, I’ll have you chime in. Commercial excellence. Commercial excellence is a term that’s so bantered around right now. But it’s just the connective tissue and building out a revenue operations team who can help support your executive leadership with the right thoughts.
Andrew Horvath: Yeah, I think it’s one of those where the expectation of having a metric scoreboard or a database way to manage the business and not leaving sales marketing to be this black box. It’s becoming par for the course. Boards are asking for it. The C-suite’s asking for it. Building the capabilities that it used to be nice to have, but now are absolutely must haves to be able to make an organization flexible and allocate resources correctly.
It’s just, it’s beyond the point now where any organization of size has to have it. And when you don’t, things like misallocated investment, a lack of any sort of speed or urgency to go tackle a new market or new geography, ways to cover the market that aren’t cost effective. So this is the sort of thing we’ve been banging the drum for years on this, and the costs that are associated with having a good revenue ops team are more than paid for by the uptake and productivity and management of costs that you get on the back end of it. We probably can’t scream it any louder, but we’re going to, we’re going to put it in again as one of our predictions and then, see more people go through with it this year.
Arshad Carim: Yeah. And Andrew, I think to your point, the evidence too, that I’m seeing is whatever the role is, the revenue leadership aspect, that person is being invited into the boardroom more and more to talk about these issues. Commercial excellence. What are you doing? How are you evolving? How are you transforming?
And how does that relate to our renewed mission in purpose as a company? So they are in there and they’re being asked to do it. Where in the past, I think that was less common.
Andrew Horvath: Yeah, I think we had a stat earlier that said that the revenue ops or sales ops leader was the hottest job out there. It’s tough to fill and the demand really outpaces supply right now, but just goes to show you how popular of a function that is.
Kyle Uebelhor: And the cool news is for those of us in the industrial and manufacturing distribution space is the fact that this play has been written elsewhere. We can learn from what high tech, what life sciences, what others have done and port that over so you can jumpstart your process with the right talent, the right focus and the right charter.
Commercial excellence will not go away. In fact, we’ll hear about it and we’ll see it in the board reports going forward and value creation plans for private equity companies throughout.
Arshad Carim: I think I’m going to take us home here, Kyle, around sales compensation. Something that we at the Alexander Group tend to know a little bit about and work with on a daily basis. Sales comp is going to continue and has been on a pretty fast tear to become much more globally led.
And we’re also with that seeing a pretty major shift away from Legacy Commission-based programs of the past, so volume-based, to more growth oriented, quota based systems of the future. And it’s a one way transition, it’s not going the other way. So that idea of, hey, we need a global sales comp framework. We need the set of jobs that go with that and we need a set of cogent plans that drive behaviors that align to whatever our key strategic objectives are with some level of regionalization as needed, right? There’s local conditions, et cetera, but we’re driving a more unified strategy overall. We need that to be reflected in our compensation program, and that symbiosis between the jobs and the comp plan could not be stronger and more in focus than it is right now.
Kyle Uebelhor: And I would argue it’s not just the eyes and ears and minds of all the executive teams on this. The data is telling us that the harmonization of these types of comp plans is becoming more and more alike, as opposed to different.
So not only do you need this from a global view. Region to region, country to country, we’re seeing harmony in the way people are doing this, whereas we can no longer allow one of our regions to go off and do something uniquely different. The data says people are moving towards a sort of more harmonious view. And it’s crucial for you to take lead and control of what that is.
Andrew Horvath: You guys have done enough projects this year where you’ve seen the movement is, not to oversimplify, but it’s somewhat away from commission as the primary mechanic for a lot of these plans. And I think the whole idea, all the discussions that we’ve had that our clients have had about adding roles that are in business development and customer success. You can’t keep adding those roles and investing what they’re investing and expect a commission plan to still be the way you pay people. If you start to supercharge the way that people acquired new business, the quality and quantity of their leads. If you start to have the sellers shed some of the activities that occur post sales, you naturally have to assume a greater productivity from your seller or else you’re spending a lot of money for no result. And a commission plan, as we know, doesn’t typically jive with those greater expectations.
Arshad Carim: Yeah, and by the way, this ties back to prediction number one around product centric to customer centric, right? We’re not just selling products and paying a commission on them.
We’re selling broader solutions. We’re selling digital, we’re selling software. These are more complex. These require a different compensation approach.
Andrew Horvath: And tie it back to another one too. And that’s the acquisitions piece. When you start to bring on other lines of business, other products, just, other organizations that are in your footprint, you give your sellers a larger bag to go sell from.
And the natural result in the commission plan is you get paid a heck of a lot more for not doing a lot, right? You can attach product to it and all of a sudden see a big uptick in your comp. That can’t be, you’re not really realizing the gains from that acquisition.
Kyle Uebelhor: No leverage in doing that. That’s right.
All right, guys, we said seven bold predictions. We walked through six. Number seven, the more things change, the more they stay the same. And that is to say, I would bet that when we get back here this time next year, many of these things, if you haven’t addressed them are going to have to still be addressed.
The question is how fast do you want to keep up? And I think that’s a big piece of what we are saying, differentiated leaders, those we consider to be best in class, are the ones that understand this holistically has to be addressed. You can take a one or two at a time. In fact, we say don’t try and do more than three things in a given quarter, but all of these things matter.
Customer centric. Work on value based pricing. Understand that value propositions and customer lifetime value are the way of the future. How does sales compensation in a global perspective fit within the total view of who you are? And no, by the way, don’t lose sight of the fact that there’s going to be a lot of movement and corporate structures coming up as we move into the new year.
I don’t know, Andrew, Arshad, maybe in that order. Other final thoughts?
Andrew Horvath: Guys, we are recording a podcast on predictions. I don’t think we’ve mentioned the term AI once. So we got to throw something in there about that. Yeah, I think it’s with a measured approach and there’s more to come on our point of view on that soon, but I think clearly not paying attention to it would be a big mistake.
Putting all of our faith in AI being the big game changer and save your profitability would also be a mistake. I think it’s injecting all of what we talked about today with the right degree of AI relative insight, right? So things like customer centricity, how can we go collect better VOC and use that to boil down a whole lot of VOC to get what really matters. And you can see how it applies to all of our predictions here. So I don’t want to leave that out.
Kyle Uebelhor: But you’re also not saying that AI is going to disintermediate every seller that we have.
Andrew Horvath: That’s right. And then hopefully, we’re back here doing these predictions next year instead of an automated avatar.
Arshad Carim: Yeah, real quick, I would say, start your transformations early. If you’re going to embark on these, get going and embrace some risk. There’s going to be bumps on the road, be ready for that and anticipate and mitigate, but get moving because you might be left behind if you don’t.
Kyle Uebelhor: Andrew, Arshad and myself are here throughout the year for any time you want to have a conversation. But also the firm is here. There’s a lot of great things coming our way in the new year, be on the lookout. We’ll be happy to connect you with all the communities, all the events, the research that we’re doing. So that you can become a little bit more confident in your actions against these bold predictions. And thank you so much for the time.
