Long term CIRM member SMD, Service Providers in South Africa, write

CIRM, Communication, Insight, IT and Communications — By on February 8, 2020 at 7:30 AM

Andile Dhlomo, managing director at SMD Marine

Long term CIRM member SMD, Service Providers in South Africa, write on Disintermediation

The service man in the middle

Recent changes in the maritime environment can be best described by what the Harvard Business Review refers to as a VUCA world. V representing the Volatile nature of business where change occurs at a rapid pace. U representing Uncertainty –  lack of predictability and  large prospects for surprise., C representing  the Complex nature of business where there are a multiplex of forces, confounding of issues and no cause-and-effect chain causing confusion. Lastly A which represents the Ambiguity nature where there is haziness of reality, the potential for misreads, and the mixed meanings of conditions.

In this VUCA world there is therefore very little interest in abstract knowledge but a high demand for higher order thinking.  There is a need to move from procedural to metacognitive. Leaders therefore need to adopt a systems’ thinking approach, a worldview that perceives organizations and industries as participants in a larger system rather than individual entities reacting to outside forces.  It provides a framework for recognizing interrelationships rather than individual items, an opportunity to see patterns of change rather than events and also a need to see structures that underlie complex situations.

I believe that one of the least engaged topics in the VUCA maritime environment is disintermediation which is one of the primary threats to the existence of service companies.  One of the best descriptions of disintermediation provided is found in Kaufman (1999) where he describes disintermediation as the removal of intermediaries in economics from a supply chain, the act of cutting out the middlemen. Instead of going through traditional distribution channels, where there exists some type of intermediary (such as a distributor, wholesaler, broker, or agent), companies or manufactures may now deal with customers directly.  Disintermediation forms part of reshaping the value chain which can include compression of the value chain by removing certain parts of the chain.

While disintermediation has been around for many years, the well documented success of this phenomenon is around the early dot-coms, these include the likes of AOL, Amazon, Yahoo!, eBay, E*TRADE, and others created disintermediation in the delivery of products and services by intervening in the traditional flow of goods through distribution channels.  This off course involved the use of the internet as a channel of trade. These firms struck terror into the hearts of established value chains which consisted of traditional manufacturers, distributors and potentially retailers.

We have come to witness the same phenomenon in the maritime environment, where longstanding relationships are suddenly tested, and most manufacturers are questioning the value provided by service companies in the value chain in the delivery of services. This I believe if born of primarily the low growth experienced by the maritime industry.  Low growth in new vessels being built has further created a perception that there are higher returns in maintaining existing vessels.  This obviously leads some to believe that the service business is attractive business, and that service companies are not keen in assisting manufacturers grow their business.  The perception is that service companies are content with the status quo and for them it just business as usual.

I believe that this notion is incorrect.  Service companies that I interact with indicate that they are making an concerted effort, expanding resources, be it time, investment in people, marketing and promoting the business of most manufacturers they represent.  This is sometimes seen as inadequate to some manufacturers as there are no immediate returns; and as the old saying goes, ‘if you want something done right do it yourself’, many manufacturers therefore believe that if they have control of the value chain, they can do a better job than the regional representatives which happen to be service companies. With the low growth environment, margins have also come under pressure.  There is also a belief that with the compression of the value chain reduction in the overall price can be achieved as each partner in the value chain does not need collect margin.  This can be true if partners in the value chain do not add value to the chain and price is the only determinant of success.  Most maritime business leaders know that in our environment, price is not the only determent of success and thus merely reducing prices will not result in sustainable growth.

So, what can service companies do in the face of disintermediation? I believe client relationships are crucial in these challenging times.  There is no substitute to being close to clients, actively listening and understanding their needs and not merely responding with a product in hand.  Secondly, communicate value. There are a number of organisations that deliver an excellent products and services, but they fail dismally to communicate how these products and services add value to their customers. If customers do not know about the value proposition and question the price of the product, then it is the company’s fault for not properly the communicating value added to their business.  Thirdly, deliver value, merely communication value is not enough, value needs to be added to the customer’s business. Customers must have a reason to choose one company over the other. Seth Godin says, “we live in a culture where people are free to choose.  Organisations therefore need to do the difficult work of telling a story that resonates with potential customers and deliver on these promises.”  Lastly, service organisations need to be consistent in delivering value.  This cannot be emphasized this more.  Some service companies are extremely erratic, one never knows what to expect from them.  At one point they are efficient and at another, they extremely inefficient.  Being consistent in the delivery builds trust.  Trust will set your company apart from multiple competitors.

I also believe that manufacturers have a role to play.  So what can manufacturers do differently to remain sustainable and improve relationships with suppliers in their value chain.  A story is told of a technology company that faced a challenge of low productivity within their operation.  They figured out that low productivity is directly linked to employee engagement.  To effectively increase employee engagement, this company had to do away with their current performance measures, which were only tested once a year. They replaced these performance measures with bi-monthly check-ins between the manager and the individuals. In these brief check-in sessions only two questions were asked. One was, what are your plans for the next two weeks? Secondly, how can the manager help you?  This effectively meant that the individual was being held responsible for their individual performance and the manager felt accountable for the individuals’ performance.  This approach increased the trust between the management and the staff resulting in improved employee engagement. When engagement improved productivity increased. What I am aiming to illustrate is that; instead of manufacturers attributing the lack of performance to service companies, they need to come to the party, improve engagement and rebuild the trust.  Trust can be simply built by asking similar questions as above. What is happening in your regions and how can the we as manufacturers of the product assist you to achieve your set goals?  This practice would help to ensure that both parties are reasonably held accountable for the performance or lack of thereof. For instance, if the service company is not delivering on their promotion requirement the question the manufacturer could ask is, have I ensured that I have adequately supported the service company, with the materials, relevant sales training, properly communicated our unique selling points that differentiate our products and services to our competitors?  If neither party is investing in relationship building, then trust will not be fostered, and performance will naturally decline.

It is Peter Drucker who said, “No business survives over the long term if it can’t reinvent itself and adapt to its changing environment.” The maritime industry is faced with hyper change and I believe that disruption could come from outside the industry changing traditional business models, rendering traditional businesses obsolete.  I believe, it is in working together rather than working against one another that we can keep abreast of the changing environment, reinvent ourselves and adapt to the changing environment.

SMD Africa Marine, is the most trusted maritime technology solutions partner in Sub-Saharan Africa. We build trust by consistently providing value adding solution to our clients.  Our client’s business is to ensure safe passage of people and goods thus our products and services are aimed at adding value at every point of the value chain.  Our team of experts, ensure that we keep your equipment functional, reduce unplanned breakdowns, ensuring vessels are always within the compliance requirements.  All this is aimed at giving our clients the ability to focus on running their business while we take care of the compliance needs resulting in enhanced safety of life at sea.

 

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