Will Konica, Follow Ricoh's 2017 Strategy? Are Dealers Preparing for Massive Consolidation?
As the Document Imaging Channel's end-users continue to avoid printing, the industry's OEMs plan the path forward. Nothing like an evolutionary event to bring the need for bold leadership. OEMs are normally 5-7 years ahead in their business strategies. We have all heard the saying, "You can't turn an ocean liner on a dime." Unfortunately, most of the OEM's aspirations determined 5 years ago are now completely out of alignment with today's new realities.
Back in 2012-2015, the OEMs were building their models for the year 2020. I think about all the meetings where the glories of production and industrial print's future were laid out. How many meetings regarding the shift into IT services or other diversifications were attended? How many hours were spent coming up with new gimmicks to splatter on A3 devices? The OEMs are quickly discovering many good intentions are now questionable.
So, the question now is, what goes and what stays?
The industry's dealers represent many manufacturers in this article; I wanted to discuss Konica because of its massive direct footprint and share my thoughts on how Konica may take a page from Ricoh's book. Or, will Xerox look to Konica, I will also discuss some things dealers should consider as they prepare for coming probabilities.
Here's the question many Konica dealers must be asking. Will Konica sell its direct operations as we saw Ricoh do in 2017? I am in the camp that believes that it is a solid possibility.
If Konica remains tomorrow as yesterday, they will struggle under the cost to deliver in their current model profitably. As Ricoh already determined, being a manufacturer and selling directly to the SMB customers was too expensive. So, now as the entire industry understands, the volumes are not coming back and will decrease going forward much faster than pre-virus thinking so, what will the Industry's actors do?
Konica has spent the last decade plus buying dealers and diversifying into IT services through their acquisitions in that space with All Covered and others. Konica even went as far as buying the ERP FORZA; a SAP Business One ERP designed for the Document Imaging Channel. However, the question will be, can those diversifications function with enough profitability on their own without the life-support of the core print deliverable?
The other question is, if these diversifications can't survive on their own, or if Konica does sell to say, Xerox, as I suggested in an "End Of The Day With Ray!" Episode. What would Xerox eliminate to reign in cost? Regardless of who might be a buyer of Konica print and their IT Services business All Covered, most would agree to sell an ERP to dealers would more than likely be on the shortlist to go. A question is, should those few dealers on the FORZA platform prepare for new ownership?
As all the manufacturers are looking towards the future, there will be painful decisions. Many will be addressing ways to align revenues and profits, and as the OEMs make necessary adjustments, their dealers must prepare for what could be coming.
As I continue suggesting, the coming consolidation will be about shedding costs and redefining distribution to align with market realities.
The why Xerox and Konica coming together could be an awesome opportunity for both entities is about consolidation. Xerox and Konica in both Europe and the Americas have so much redundant footprint that the cost savings would be enormous as they consolidated that footprint. There obviously would also be a great opportunity to lower human capital costs.
Xerox needs a manufacturer, and Konica gives them that. Xerox has proven themselves to be bold; they have a leadership team that has the ability to make the needed tough decisions regarding cost alignment, as we all witnessed in 2019 with their restructuring of Global Imaging. The coming consolidation will not be easy and will not be about past alliances it will be about creating relevant alliances.
In the next couple of years, the industry will witness many challenges and changes. The manufacturers and the dealers who represent them must prepare and modify as needed to ensure they continue in profitable relevance. The days of robbing Peter to pay Paul because diversifications are not profitable are ending quickly.
In 2017 Ricoh made some tough decisions, and in 2020 all the OEMs will face the toughest decisions of the last 4 decades. So, as the Manufactures plan for 2025, some are planning their exit, and some are planning their consolidation strategy. Those planning more of the same or believe they will push forward their plans from 2012 or 2015 post-pandemic should instead sellout over a disastrous falling-out.
The future for the OEMs was being outlined before this pandemic. The decisions the OEMs made pre-virus may prove bad or good. However, moving forward will take boldness and the ability to understand without prejudice the impacts this evolutionary event had on the end-users they and their dealers serve.
Something all leaders must face is this. It's easy to buy someone; the hard part aligns profitably with what you bought, which takes bold leadership. The document imaging channel and its OEMs have been investing in many redundancies; it's time to align those investments to maximize profits, and that will again take bold leadership and painful decisions.
Many in the industry were critical of Xerox as it consolidated in 2019. As the industry advances to the future, its success will be determined by how successful all the channel's actors can realign cost and prepare for the impacts of a major consolidation coming.
As manufactures either sell out or realign their go to market approaches. The dealers who represent them will all be evaluated, and through that evaluation, some dealers will not make the cut; also, the larger dealers will gain greater influence with manufacturers, thereby pressuring them to eliminate smaller dealers in their marketplaces in efforts to align supply and demand.
Dealers must prepare for what's coming. Here are a few of my suggestions:
- Build relationships with wholesale distributors, regardless of a dealer size; understanding what organizations such as Tech Data or CDW can bring to your capabilities is important. It is also important to understand the alternatives for parts and supplies.
- Build e-commerce platforms and hire both employees and consultants who understand pull-economy processes, and look to possibly merge with aligning vertices.
- Evaluating your entire MIF (Machines In Field), those dealers who have the facts regarding their end-user personas' and understand all the details backed by data regarding the profitability of all deliverable categories. Will be in a much better position to either fire a manufacturer or leverage this detailed knowledge to obtain a new manufacturer. For, example instead of looking at A3 placements being replaced by another A3. Look at how many A3s could actually be replaced with A4, and that information may very well excite an A4 manufacturer to help you replace them. There are many examples of what could result if dealers intimately understood their data and were open-minded enough to inject that knowledge into a different mind-set.
- Dealers must understand what outcomes their customers are achieving and stop focusing on outdated A3 strategies, as 5 year leases, and premature buy-outs. This will take an A4 business model, and that model will surface as dealers' study all the data of their A3 MIFs.
- It is time to look in different places, and those places will be discovered if dealers start their search at their end-users. Keeping in mind searching for what you want to find is easy. However, searching for the unknown takes the ability to put aside all prejudices of what you think you knew.
There are obviously many things the dealers in the industry must do to prepare for what's coming. My hope for this article is to spark thought on all dealers' processes regardless of the manufacturers' they represent. Dealers must imagine what could be in preparation for what everyone knows is coming.
Massive consolidation and channel realignments.
Currently, all the manufacturers have plans, and my scenarios with Konica or other scenarios I have painted in the past are merely what I see as probable. My friends, I strongly recommend you also take the time to prepare and imagine because we all know that today imagined possibilities become probable and quicker to reality than any time in history.
I understand the loyalty dealers have to manufacturers; however, all dealer's first loyalty must be to their business model designed for their customers. Remembering all the manufacturers you represent will always put their business success ahead of any outdated emotional ties, as all businesses must.
This new era of our industry will put many pressures on past relationships and loyalties, and as with all evolutionary events, the coming changes will be challenging. However, these challenges will also be extremely opportunistic for those looking for opportunities. Those who look to keep the past alive will find themselves surprised when the past is no longer there to comfort them.
"Status quo is the killer of all that will be invented."
CEO/Founder TEASRA,The Innovation Channel and Host of The End of The Day With Ray! https://www.endofthedaywithray.com/