Strategy For Logistics Service Providers
A strategy identifies challenges, issues and risks with markets and their dynamics; and, going forward, can set the direction where the company is going for new markets and new business and customers to grow sales and profits
All logistics providers—3PLs, transport, forwarders, warehouses, logistics centers, ports and other--and whether they are asset based or non-asset based should have a strategy. The strategy identifies challenges, issues and risks with markets and their dynamics; and, going forward, can set the direction where the company is going for new markets and new business and customers to grow sales and profits.
Surprisingly, despite the purpose and benefit, many service providers do not have a viable, current strategy. Instead they view developing one as too much work, react to what customers ask or what competitors are doing, or have one that is outdated. In a way, they letting business vagaries drive their direction and future. Having no strategy can be a risky approach, especially if competitors, established and the potential new entrants, have a well-done strategy and especially given the reality of global economic change.
The strategy can be operations focused or it can be a significant change, to transform the company. Which strategy is developed can be based on and reflect risks for the business or for the service sector, competition, or changing customer and/or market segments.
There are two parts to a successful strategy—first, developing one and second, executing it. Developing a strategy comes from serious, formal strategic planning process. It involves a blend of financial and non-financial objectives. The plan should also focus on the present business, and how it will adapt to the future and new services and opportunities. It identifies where the company is going--and where it is not going-- and what it takes to succeed in that service arena.
The starting point is where the business is now as to present dynamics with trends, markets, services, and customers; value proposition, and competitive positioning, coupled with sales and profits. At any stage of the planning process, at the minimum, a SWOT (Strengths, Weaknesses, Opportunities, and Threats) is useful for the present and potential future scenarios.
Planning contains mistakes that can limit the ability to develop a worthwhile strategic plan. Some of the shortcomings that can lead to a bad strategy include:
- Firms only go out one to three years with the plan. While that span is easier to deal with than looking out five years or so, that is based too much on what has happened, miss-assumes what will happen, over-assumes the company’s position in that future trend and is not strategic. It is more like a budget or extended sales plan.
- As a corollary to the short-span view, companies confuse goals with strategies. Increasing sales or reducing costs by a certain percent is a goal, not a strategy.
- Providers try to mimic what a competitor is doing, especially if it is new. That is not a strategy. A good strategy separates the business from the competition. Emulating competitors or chasing the next new logistics service is a short-sighted approach that often lacks understanding of market niches, operational nuances and value proposition.
- Companies stay with what they are familiar with, their comfort zone. This can be a myopic bias against performing the diligent planning analysis that is necessary.
- It does not identify and address hard questions and challenges, such as how sustainable the present business approach and operations model are. That negates the concepts of strategy and of planning.
- Planning is not rigorous and does not adequately assess both external and internal factors. Internal analysis does not get the rigorous attention it should get. Diligent self-assessment is required, but it can be difficult. Overestimating abilities and underestimating problems short-circuit any serious planning.
- Companies oversimplify trends, especially global ones, and their impact on future business. They let the past dictate too much of what will happen, even against the dynamic and changing global business world. Firms do not comprehensively deal with uncertainty and look at “what if” scenarios. It is a dismissive approach based on the past. Change, with its speed with competitors and markets, is more than local; it is global.
- Businesses create a wish list of strategies. Aggregating a catalog of possible ideas, no matter how worthwhile, is not strategic planning. The effort dictates potential strategic choices be culled and prioritized and that hard decisions must be made on what to do.
- Service providers do not scrutinize how well the strategy positions the service offering to the dynamics of global economic and business forces. They also overestimate potential competitive advantage—and underestimate its transiency-- that the firm may create with its strategic placement.
- Companies keep the planning within the C level and do not extend down to others who may have a better understanding of the present activity. There is also an underlying assumption that what a company and its executives do are transferable to the future. This lack of communication and buy-in with the planning often continues with attempts to execute the strategy—attempts that often fail.
- Planning is an annual process with little happening with regards to implementation. That creates frustration and lack of interest with the effort.
There are basically three approaches for logistics service providers to strategically differentiate themselves:
- Status quo. The conservative, stay-the-course option may seem like the safest choice; but it carries significant risk in the ever-changing and competitive global economy. Executives with strong risk aversion favor this way. It depends on the past to predict the future and on simplified assumptions to assume away uncertainty.
- Organic growth. This can be a slow and assumed steady method using internal capabilities and resources. The approach implies high expectations and requires improved performance.
- Aggressive growth. External partnerships or alliances and, especially, merger and acquisition are options with this choice. In addition to identifying right target firm, timing is an issue with this choice.
Companies, whether using organic and aggressive, can pursue one strong initiative or a few worthy opportunities. These approaches mean there will be an allocation, even reallocation, of resources--capital, people, assets and technology.
Going forward, firms should adapt and change their present businesses and build new ones. Companies should both change existing services and create fresh service offerings. It is not an either-or as to adapt or create; it is to do both, unless the plan involves divestiture or maximize profits of the present service and let it fade away.
Strategy implementation is critical. The best strategy, without good execution, will struggle to succeed. And the more dramatic the strategy is with scope and impact, the greater is the challenge for sound execution. An operations strategy has an internal capabilities and requirements, perhaps best-in-class. The significant change strategy has both internal and external requirements. Each strategy carries different proficiencies to implement and creates challenges for present executives, managers and employees to have the skills to implement the strategy.
Achieving the strategy separates planning for the sake of planning and planning needed to advance into the future. It also demonstrates the conviction that the company has in the strategy. Executing the strategy means communicating the plan within the company and with stakeholders to build support—both operating and financial--and aligning the business with its strategy. Adequate resources and defined responsibilities for execution are needed, along with corresponding, relevant metrics to track progress.
The transformation and its rate of implementation to carry out the strategy may require recognizing and dealing with the need for change management. In reality, there are strong similarities between change management and successfully implementing a strategy.
Tied to the grand strategy are underlying strategies and implementation plans for sales, pricing, marketing, positioning, operations and technology. Logistics providers should recognize the life cycle to their services, especially with regard to profit maximization and the commodity service view of their offerings. This service life cycle creates the need for the subset of strategies and fulfillment of them. How people within the company grasp and execute these opportunities can have significant effect on long-term margins.
While direction can come from the top level, carrying out the execution needs clear lines of responsibilities couple with a coordinated, cross functional effort by different groups within the company. There can be no standalone activities for success. It should be integrated. The potential for assuming away the need for the collaboration can create unnecessary surprises and failure to gain all the market, operations and financial benefits of the strategy.
Strategy planning and execution are not easy for logistics providers. They are a challenge. But as difficult as they are, doing nothing in the face of dynamic competitive and market changes can be dangerous for all stakeholders. Logistics providers that do not plan well and implement well let events drive where they are going. They do not control it. These providers are market followers, not market leaders. As a result, these firms do not transition to take full advantage of opportunities. They miss out on market share, customers and profits that companies, who have a coordinated planning and strategy execution, earn and enjoy.
Tom Craig, author of this post and President at LTD Management, will also be speaking at the 6th CSCO Forum this June, in Chicago.