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Sea Changes in the Electrical Channel, Part III: Changing of the guard

March 18, 2014
“We are on the verge of a new energy-based solutions model for reps.  If I were a new rep I would look to develop a focus on energy-efficient solutions — not a lighting rep or a stock and flow rep." - An electrical manufacturer

The twin challenges of managing an aging workforce and finding high-quality recruits will test many companies in the electrical market over the next few years. Historically, the channel has done a very poor job of talent acquisition. Many electrical distributors, manufacturers, and independent manufacturers’ representatives have poached talent from their competitors instead of growing it. It’s created a paradoxical challenge, because many electrical companies don’t think it’s worthwhile to invest in training their people because they believe they will lose them to a competitor.

Every research participant said one of their greatest challenges is acquiring and retaining talent. Distributors, manufacturers and reps need to think in broader terms to entice talent to come to work for them, and to retain the talent they must invest in training. 

Most companies in the channel are fairly conservative, stable and traditional. However, the incoming multi-generational workforce is looking for a different value proposition. They seek more flexibility, fast advancement, learning opportunities and more frequent job changes. 

If they have not already done so, electrical distributors, manufacturers and reps must position their companies differently to attract and retain top talent. For example, one electrical manufacturer markets itself to future employees with this message: “We make a difference in the world. We deliver power to millions of people around the world. It is noble work.”

We are in the midst of a generational shift. The large population cluster of aging Baby Boomers are facing retirement. Distributors, manufacturers and reps are all plagued with Baby Boomer tribal knowledge, critical skills and experience exiting the channel. And the younger talent coming into the electrical market is wired very differently than the aging Baby Boomers.

In addition, as the infusion of a younger replacement workforce comes into our business, the following multi-generational issues will create new internal challenges for distributors, manufacturers and reps.

The last of the Baby Boomer generation will still be a part of the channel workforce over the next five years. Many of these older workers resist change and, most often, the rapid changes in technological advancements. Younger workers embrace technology and they want continuously challenging work and rapid growth opportunities

As employers, electrical distributors, manufacturers and reps must continue implementing effective performance-based systems with timely performance feedback to guard against discriminatory employment practices.

Whether you are a distributor, manufacturer or rep, attracting a talented workforce will require establishing your company’s brand as an employer-of-choice in the talent marketplace.

ATTRACTING & RETAINING GENERATIONS X, Y & Z

To attract and retain a high-quality workforce, you must embrace the following five principles. 

Ensure that your company is a compelling place to work by creating a very clear vision of what life can be for new younger employees. Make them feel part of something special. They want to feel part of something important and be personally fulfilled. They want to know  if they can make a difference working for you.

2. Train them not only for their current job but for their future job. Talented people want challenging opportunities and clear career paths.

3. Foster a culture of high standards of performance. You must value and acknowledge individual achievements while addressing low performers.

4. Pay your talented people well. Talented employees require recognition from the company both personally and financially for their individual efforts.

5. Have a family-friendly culture that balances work-life needs with a flexible work environment. Those companies that do not help employees balance work-life needs with the other four principles outlined above and complain about Generations X, Y and Z, will fail to attract and retain young talented people.

The easiest way to find young talent is to go online. Most electrical distributors, manufacturers, and reps will have to ramp up their online presence and communications on the Internet. They need to create the technological brand image of a company that wants to lead by investing in talent. Some fairly simple things you can do to accomplish this include the following:

  • Develop a career page on their company’s website.
  • Post YouTube “day in the life” videos about your company. 
  • Create a blog to exchange communications with prospective applicants.
  • Post open positions on LinkedIn.
  • Introduce Facebook or Twitter contests and games to encourage applicants to set themselves apart with ideas and contributions.

In addition, electrical distributors, reps and manufacturers should try to get younger employees to take a bigger role in their recruiting efforts. Following are some ideas that can work.

Reward employees for referring new hires. Encourage young hires to recruit their friends. Once friends are hired, younger people are more hesitant to leave their friends behind at a company.

Hire college interns and co-op students. They are inexpensive and you then have a great opportunity to retain them as full-time employees once they graduate.

Place current Millennial employees at the forefront of your recruitment efforts.  Let them “own” a piece of your recruiting efforts.

DISTANCE LEARNING

Modern distance learning is still in its infancy. The technology to enable delivery of radically better training content and results is getting a lot of attention now, and within next five years there will be more online training and employee development programs. These programs will include real-time training embedded into other systems or websites available on demand when it’s needed and easy to find through Search Engine Optimization (SEO); creating short videos to appeal to shorter attention spans; mobile optimized training; and online training and development communities.

Leading electrical distributors will have a Learning Management Systems (LMS) that allow employees to complete coursework independently, hold employees accountable for completing their training requirements, and allow managers to track its continued use over time.  The National Association of Electrical Distributors’ NAED Learning Center and EPEC training programs received high marks for training content from many of the electrical distributor research participants.

THE CHANGING OF THE GUARD WITH REPS

As with the challenge of hiring and retaining the best employees the younger generation has to offer, survey participants had a lot to say about the future of the independent manufacturers’ rep. An estimated 80% of all electrical manufacturers use reps to sell their products.  Many of these reps are members of the National Electrical Manufacturers Representatives Association (NEMRA), Portsmouth, N.H.  Historically, commodity manufacturers have wanted their independent manufacturers’ representatives to have large geographic footprints with warehouses and delivery trucks.  On the other hand, specification manufacturers have discouraged their independent manufacturers’ representatives from growing their geographic footprint.  Additionally, lighting manufacturers have always preferred the best independent lighting agent in a local market over a larger geographical footprint.

In 2010, Farmington Consulting Group published the “Rep of the Future” research report for NEMRA. We concluded that many reps were fast becoming dinosaurs.  We warned reps that to escape extinction they had to develop the following six survival skills:

  • Develop a clear and accurate strategic vision of the future — where they are versus where they need to be.
  • Implement an annual strategic business planning session with their key manufacturer partners. 
  • Employ channel marketing expertise within their geographic footprint.
  • Deploy the right strategic selling strategies to distributors, contractors/end-users and specifying engineers.
  • Execute the right technology strategies to streamline processes, become operationally efficient and improve profitability.
  • Teach people at all levels of an agency to continually think strategically, anticipating market opportunities and threats while managing the day-to-day tasks that fall within their scope of responsibilities.

Many reps have not adapted and incorporated these six survival skills. Those rep firms that have not adapted will become extinct over the next five years. Said one commodity manufacturer,  “If there is a rep agency with young salespeople who can provide more information in one day than an old rep could provide in a month, which rep do you think the manufacturer will support?  The role of a rep as a value standpoint has dramatically increased.”

Research participants estimate 30% of current NEMRA reps will no longer be in business five years from now.  Another surprising finding in the study was that the majority of the research participants believe 30% of electrical reps will be newly created firms by 2018. These newly created rep firms will come from talented individuals from the manufacturers and distributors who understand the need and opportunity in the electrical channel. 

There has been an uptick in rep firms being established by employees from electrical suppliers. Manufacturers’ requirements of rep firms are evolving, and the former employees have a good grasp of what is expected.  Much like electrical distribution, the existing rep firms must evolve and become solutions providers truly partnered with the manufacturers they represent.

These new rep agencies will be more specialized for specific lines and markets. More of these new rep agencies will have lines and services for more technical markets and will not follow the traditional electrical distributor channel.

In addition to lighting reps, commodity reps and spec reps, this channel is on the verge of a new model for reps in the energy market where reps only carry complementary cutting-edge, energy-efficient solutions for new construction, retrofit and outdoor spaces.

There will also be a much closer alignment of independent manufacturer rep agencies and electrical manufacturers with less tolerance for competitive lines.  This will be true of both existing players and new start-ups.

Manufacturer consolidation with Philips, Eaton/Cooper, ABB/Thomas & Betts  and others soon to follow will create sea changes in the pre-existing rep structure.  These mega-manufacturers will try to align their packages with fewer distributors.  Continued manufacturing consolidation will result in super-regional rep firms such as an Eaton/Cutler Hammer/Cooper rep firm; ABB/Thomas & Betts rep firms; possibly a Schneider/Square D rep firm; a Hubbell rep firm; possibly a rep focused on Emerson/Appleton products; and other platform companies being represented by a super-regional rep firm. According to one electrical manufacturer, “Most NEMRA rep firms are going to have to get bigger.  Love the local rep but that doesn’t fit the size model of most manufacturers any longer.”

Another strong possibility is that as the platforms get bigger with consolidation and a common line package, it may be cheaper for these mega-manufacturers to go factory-direct.

In addition to the larger super-regional reps, there will continue to be smaller specialty reps for specific lines and markets.  New rep firms will be founded by manufacturer and distributor employees who understand the need and opportunity and want to go to business on their own.  More of these new rep agencies will have lines and services for technical markets, and will not follow the traditional distribution channels.

According to one electrical manufacturer, “Agents are vital to the industry. They provide the local linkage between the distributor and manufacturer. As the channel evolves, so must the agent with a solutions mindset.  As manufacturers build out vertical segments, the agents will be required to have in-depth knowledge of those segments.  For some agents this will be a new expectation.  The ability to call on an EPC (engineering, procurement and construction) engineer or an oil and gas customer with knowledge of their special needs, wants,and requirements will be vital.”

Another electrical manufacturer said, “We are on the verge of a new energy-based solutions model for reps.  If I were a new rep I would look to develop a focus on energy-efficient solutions — not a lighting rep or a stock and flow rep — it’s a new and different business model for a rep agency.  It would need solid inside engineering staff and would only carry cutting-edge energy efficient solutions for new construction, retrofit and outdoor space.”

One manufacturer said more new rep firms are being established by employees from manufacturers. “Manufacturers’ requirements of rep firms are evolving and their former employees have a good grasp of what is expected,” the manufacturer said. “Much like electrical distribution, the existing rep firms must evolve and become solution providers truly partnered with the manufacturers they represent.”

A rep also sees more agencies being established in the future. The primary source will come from electrical manufacturers and distributors, he says. “I believe there will be consolidation in the rep business that will bring opportunity for future growth.  Some agencies will get larger with platform manufacturers. And consolidation will also create specialty reps to assist in specialty products for specific markets.  There will be many opportunities for specialized reps.”

Added another electrical manufacturers’ representative, “We will see new rep agencies and they will be more specialized for specific lines and markets. They will come from manufacturers and distributors who understand the opportunity.”

According to another independent manufacturers’ rep, “We have seen new rep agencies starting up with a focus on the energy market.  With so many new manufacturers, especially on the lighting side, there are many opportunities for new rep startups.  There is inherent risk to reps in this case, depending on how well capitalized those new manufacturers may or may not be, and also on whether the manufacturer’s goal is to ultimately sell to someone else.

“Many independent manufacturers’ representatives have recently had the experience of investing in missionary work required to build a manufacturer’s business, only to lose representation of that manufacturer when it is sold.  Even so, established rep agencies have taken on the risk of representing new companies in order to help their product offering keep pace with the rapidly evolving market.”

According to one electrical distributor, “We have seen new manufacturers’ rep agencies starting up.  Existing reps at times cannot take on new lines or have to give up lines due to conflicts. Some ‘legacy’ agencies are becoming complacent, which is creating opportunities for talented and experienced individuals in the market that have the entrepreneurial desire.”

To receive a copy of this research report, call Farmington Consulting Group at (860) 678-4402 or email Tom ([email protected]) or TJ ([email protected]).

About the Author

Thomas O'Connor | President & Founder

Tom O’Connor started Farmington Consulting Group, Farmington, Conn., for the distribution channel in 1982. He is nationally recognized in the distribution industry as a strategy consultant. O’Connor is also a contributing writer for Electrical Wholesaling and a best-selling author for the National Association of Wholesaler-Distributors (NAW) with his book, “Strategic Planning for Distributors: Execution Isn’t Everything – It’s the Only Thing!”

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