It’s an exciting time to be in the wholesale distribution business. There has never been a time in our industry when the pace of change has been this momentous. Why? Technologies and industries are converging, creating change in how our energy is produced and consumed. Whether we want to believe it or not, market convergence is becoming the industry norm.
The challenge for distribution executives and their customers is that everything is being interconnected. Lighting, automation and renewables are just pieces of a much larger energy puzzle, with multiple business sectors now coming together, overlapping, competing and partnering to win over tech-savvy customers. This convergence represents an extraordinary opportunity for companies to redefine themselves, embrace change and build new business models for long-term success.
Most people would agree that efficient, renewable, sustainable infrastructure will play a central role in our future. Today, there is a developing mashup of not only technology but of markets and business models toward more decentralized, more resilient, more efficient, privately-governed infrastructure. The current era of energy production doesn’t look like centralized, utilitygoverned power plants. Instead, it looks like your neighbor’s 10-kilowatt solar system, the 44-kilowatt-hour battery in your electric car, the smart thermostat in your home and office and the wind turbine you pass on your way to work, all intelligently intertwined on a dynamic “smart” grid—it’s called the convergence.
What is the Convergence?
In basic terms, convergence is the intersection of four technology sectors: energy, information, buildings and vehicles. As you can see from the chart below, convergence encompasses many applications not addressed by electrical distribution... However, most of the convergence revolves around energy infrastructure...and at its core, energy control and efficiency is your market. We’ve witnessed other such technological mashups in recent years. In fact, most of us now carry around the result of the convergence of computers, telephones, media and commerce. It’s called a smartphone and its emergence has transformed the technologies that underlie these products and the companies that make them, as well as those who use them. The same things happening in our industry will transform our businesses, our customers and our communities.
Convergence will result in an interconnected world, yielding a diverse array of products and services that are greener, more efficient and potentially more profitable for all segments of the supply chain. Convergence brings together a wide range of energy carriers—electricity, thermal sources, fuels—with other infrastructures, such as water, transportation and data networks. By focusing on the optimization of systems across multiple platforms, we can better understand how to increase reliability, reduce costs and minimize environmental impacts of our energy systems.
Why is Convergence Important to Wholesale Distribution?
Independent distributors recognize the value they bring to the market compared to large, national “centralized” distribution. Our opportunity in energy convergence is to understand and embrace the changing dynamics of the market and drive related solutions to customers. To meet the demands of customers today we need different go-to-market strategies, partnerships, economic models and time horizons—in short, a convergence of infrastructure, technology and business.
Many distributors recognize that addressing this convergence is critical to their company’s success. However, while some are taking steps to capitalize on this convergence, few are executing with a fully-developed strategy. Here are some of the reasons why.
Decision-making complexity within the commercial market requires distributors to adjust their go-to-market approach.
Commercial segment opportunities are present in both retrofit and new construction. Convergence is part of the smart building trend and requires distributors to respond to new technology, software, services and competitors. Distributors must navigate complex value chains to reach and influence key decisionmakers (e.g., developers, architects, engineers, C-suite executives). Transitioning to a segment-specific, solutions-sales approach that addresses value chain and customer pain points will be necessary for success.
Residential segment dynamics present additional challenges but addressing the pain points of contractors and homebuilders will position distributors for success.
The residential segment is substantially smaller than the commercial segment but the number of applications for “smart” devices is growing rapidly. Convergence is part of the larger home automation movement, requiring seamless integration with other technologies from non-traditional players. Market-leading distributors will work within traditional value chains to enable contractors and homebuilders to drive customer demand.
Successful convergence strategies will require distributors to stretch beyond their traditional capabilities.
For each segment targeted, distributors should assess their capabilities against best practices in four key dimensions: the clarity of their convergence strategy, their offerings, selling and influencing capabilities and partnerships. Distributors should then create a roadmap to execute their new convergence strategy, recognizing that changes will take time.
2020 Vision: Clarify Your Energy Strategy
The future distributor needs to partner with end users, understand their priorities and be their trusted consultant in solving both facility needs and performance requirements in a way that limits risk and meets customer goals. The market, your supplier partners and customers are asking for this type of partner.
Opportunities abound for the distributor who can show customers how to take advantage of the technologies and efficiencies that will address their needs without upfront costs and risk. That is the key to selling convergence solutions.
The Impact of Renewable Energy Sources
I believe solar photovoltaic is an integral part of any energy program. However, to be successful today a distributor must provide value through a much broader spectrum of energy or “convergence” solutions. Customers must view your company as an integral partner in their energy strategy, not just a solar distributor. An energy distributor should also investigate convergence technologies that address electrical and HVAC efficiency, energy generation, energy management, energy storage, electric vehicle infrastructure, building envelope efficiencies, water/wastewater solutions, green automation, micro-grid infrastructure, modular and nanotechnology, wireless data solutions, drone integration and support and artificial intelligence solutions.
Lighting is the first step in a convergence conversation...it cannot be the only conversation. Lighting is a large part of most distributors’ businesses and the industry is changing rapidly. There are many new companies, sales strategies, technologies and competitors in the lighting market... Adding value in this space and leveraging other efficiency solutions is the direction the industry is taking and what customers are desiring of an energy partner.
One way to add value for customers is to understand the unique financing options available in the market today and the value these financing alternatives offer all parties in the supply chain. One financing solution gaining rapid adoption is the “as-a-service” model, which allows customers to meet their facility performance goals off-balance sheet with no risk, capital or maintenance expense. It is also a perfect solution for distributors since they get paid for all equipment upfront and can bundle solutions together creating much larger sales volume. For certain distributors, it also opens an opportunity to substantially increase revenue if they are willing to be the finance partner of the customer themselves.
This financing model offers ongoing margin enhancement over a multi-year agreement instead of a one-time equipment sale profit. Every market has unique financing options and becoming an expert in financing and incentives will add value and close more sales.
When you plan to prepare your company to compete in a converging world, consider the following questions:
- Does your company have a clear view of “where to play” strategically in the new energy ecosystem, “how to play” commercially and “how to win” competitively?
- Is this positioning matched with a convincing monetization strategy that will be margin- and revenueenhancing?
- Do you have a roadmap to deliver digital connectivity to customers’ assets and integrate that into the wider energy ecosystem to offer services of real value?
- Do you have a clear view of what capabilities you can deliver yourself and what could be better delivered through outside collaboration?
- Do you have the right balance and connections between continual customer service improvements to your existing core business and the innovation that you need to put behind new product and service offerings?
- Are you adequately preparing for the exponential increase in data management capabilities that will be required as energy transformation takes hold?