Logistics Services Industry
The Logistics Services industry is a rather conservative industry with a large number of strong established players like Kuehne & Nagel, DHL, Fedex, UPS, Expeditors, etc. The industry leaders have vast global networks supported by multilevel sales teams and deep-rooted operational excellence. From a technology perspective, many players have deep experience in (EDI) integration and operate large, often in-house developed and on-premise hosted, systems to provide freight forwarding, transport management and warehouse management functionality. Customers of Logistics Services providers require customised solutions that incorporate not only the flow of goods, but also the flow of money and information. The flow of information needs to be real-time and reliable. As information is produced, stored and distributed by many different parties in many different ways/formats, logistics integrators have long struggled to provide relevant information to their clients in cost-effective and efficient ways. Yes, there are sophisticated track & trace solutions at the customer interface, but at what cost are these provided?
Now, bring in new services provided by new (information) integrators that utilise modern technology leveraging cloud-based computing, social and mobile platforms, advanced data analytics, bots, AI, etc. There is an ever growing list of startup companies both in the US and Europe. These startups apply technology and new on-demand economy concepts to lower costs, increase flexibility, and streamline operations.
CB Insights recently published the graph below showing in which part of the value chain logistics startups play. There is a concentration of new services in the area of freight rate calculations/comparisons, scheduling, tracking across different providers and last mile delivery. The latter is a combination of facilitating technology and physical services utilising sharing economy principles (including Uber). In addition to this, there are startups (and incumbents) trialling different modes of delivery including robots (DHL) and drones.
Incumbent players in the logistics industry are acutely aware of these developments. There are some signs of disruption - for example bell weather customer Amazon using their own trucks and drones as well as registering as freight forwarder - albeit that these are still in very early stage of development and haven't impacted existing services too much ... yet.
Challenges and Opportunities
The challenges and associated opportunities for the established players are multifaceted:
As mentioned earlier, executives in logistics industry are aware of digital disruption and many know that they need to prepare for it. But where and when to start? And how to define what it is that needs to be done? In order to answer these questions, they need to go back to their vision and mission and thoroughly understand how those are impacted by digital disruption. Subsequently, this understanding needs to be incorporated in the organisation's strategy which most likely will result in strategic initiatives driving business transformation.
Culture and leadership approach
An often understated consequence of digital disruption is the notion that just redefining the strategy and driving business transformation is not sufficient to prepare the organisation for competition in the digital world. It goes deeper than that and requires cultural change to facilitate new ways of thinking. This extends across the organisation and most likely will need to start at the top. We see a strong leadership transformation aspect that requires the executive team to transform the way they lead in order to facilitate digitalisation of processes, advanced data analytics, agile product and systems development and so on. One of the challenges with this is that leaders will have to develop new competencies that are likely to be different from the skills and competencies that made them successful in the past - e.g. process optimisation and technology application versus sales and operations.
From project to transformation mindset
Logistics services providers tend to have a strong project mindset when it comes to both new customer implementations and strategic initiatives. These projects have a clear start and end and well-defined deliverables. Because of the long duration of (technology) projects, they are often negatively impacted by time, scope and cost overruns and may delivery aged technology once completed. Digital or business transformation is characterised by a more permanent process of change where elements are delivered in stages and processes and platforms are continually upgraded (just like the apps on our smart phones). This agile approach requires a different way of managing the portfolio of initiatives within (and around) the organisation. It also requires a different mindset and expectations from the team involved with these initiatives.
Entire value chain needs to be covered
Many transformation initiatives are focused on a particular part of the value chain such as customer interaction, marketing and reporting. True transformation will cover the entire value chain and will address end-to-end process optimisation. This has implications for performance measurement, use of data across functions and alignment between traditional functions. These implications can be addressed through the design and implementation of new operating models that cater for business process and data ownership, agile product development, innovation hubs and the assembly of cross-functional, multidisciplinary teams. This could be a way for incumbent players in the logistics services industry to drive innovation and create opportunities for internal incubation of new ventures and technologies.
One of the key challenges of incumbent industry leaders is that their business processes, organisation structure and technology landscape have grown and evolved over many years resulting in highly complex structures and a proliferated systems landscape. This makes it hard to compete with new entrants that can establish cloud-based solutions that are immediately scalable and flexible. As many leaders in the logistics industry have grown through merger & acquisition, their legacy structure is even more complex and harder to modernise. These incumbent player will need to develop a business transformation roadmap that defines how the organisation is going to evolve into a digital enterprise. This starts with a shared vision, mission and strategy and will comprise not only technology, but also the business operating model, process and data architecture, performance measurement and, last but not least, culture and change management.
As most industries, the logistics services industry is being disrupted and this is likely to strengthen over the next years either from within by incumbents or by startups and other new entrants. Logistics services providers need to realise that this will be a process of ongoing change rather than an one-off adjustment. They need to adjust their strategies to adapt to the new world and put in place business structures that truly leverage the opportunities of available technologies. Moreover, their executives need to assess how they need to change as leaders to thrive in an increasingly digital world.
At Radius 1 Consulting, we believe that Business transformation starts with leadership transformation. If you, as a leader, can’t change, then your company can’t either. We help leadership teams change, and in doing so, help bring about the change that your company requires.
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