3PLs and Software Vendors: Keep Innovating Your Business Models

Most of the time, when people talk about innovation in supply chain management and logistics, the focus is on technology (e.g., social and mobile) or business processes (e.g., same-day delivery and omni-channel fulfillment). But what about innovation in business models? Is there an opportunity for 3PLs and software vendors, for example, to innovate their business models to deliver greater value to clients, differentiate themselves from the competition and gain market share, and achieve greater financial success?

Of course there is, and it’s already happening.

Over the past decade, software vendors have been moving away from the traditional model of having customers pay large sums of money upfront to implement software solutions in-house toward software-as-a-service (SaaS) and cloud computing models where customers pay over time to access solutions deployed remotely via the Internet.

In the 3PL realm, it’s no longer outsource everything or nothing. Many service providers now offer customers more configurable service options, where customers can choose which functions they want to keep in-house (such as procurement) and which ones they want to outsource (such as day-to-day operations and IT). Some 3PLs and their customers are also starting to adopt Vested Outsourcing principles in the way they work together.

And as I’ve discussed in previous postings, the business models of 3PLs, software vendors, and consultants continue to converge. A successful 3PL today, for example, is an operations manager, a consultant, and a technology provider all rolled into one.

Simply put, 3PLs and software vendors have been transforming their business models over the past few years. The challenge now is to keep looking for additional opportunities to innovate. But how do you find these opportunities?

You can start by answering these three questions:

1. Is your mission statement aligned with your customer’s objectives and desired outcomes? As highlighted in a recent HBR blog posting (“When Business Models Trump Technology”), an Israeli company, Netafim, captured almost one-third of the “seemingly commoditized” micro-irrigation equipment market by changing its business model to better address the needs and constraints of its customers (read the posting for all the details). According to the authors, “Netafim went so far as to change [its] mission statement from ‘making the best drip irrigation equipment for customers’ to ‘helping the world grow more with less’, an objective far more aligned with the objectives of its customers, the farmers.”

This reminded me of the Jaguar and Unipart Logistics case study I wrote about last year. Jaguar and Unipart created the following shared vision statement, which they review at the start of every meeting between the two companies:

”To support Jaguar dealers in delivering a Unique Personal Ownership Experience to Jaguar Drivers worldwide, ensuring industry leading owner loyalty through partnership and world-class logistics.”

This shared vision statement aligns both companies toward a common goal that both unifies and transcends the interests of each company.

Simply put, if your mission statement and objectives are not aligned with those of your customers, then an opportunity exists to change your business model to close that gap.

2. What challenges and constraints do your customers still face that you can solve or alleviate for them? The SaaS model emerged in large part to address a problem many companies faced: they had limited IT resources and limited (and shrinking) IT budgets. Supply chain and logistics organizations face many challenges today, such as finding and retaining talent, enabling new business processes quickly, and dealing with high variability in supply and demand. The idea here is to take a step back and look at all of the resources and assets you have at your disposal (including those you’ve only been utilizing internally) to see if there are opportunities to bundle, price, and deliver them together in new and unique ways to solve the problems and constraints your customers still face.

3. What is your customer’s total experience with your product or service? In their July 1997 HBR article “Discovering New Points of Differentiation,” Ian C. MacMillan and Rita Gunther McGrath write that “most companies, in seeking to differentiate themselves, focus their energy only on their products or services. In fact, a company has the opportunity to differentiate itself at every point where it comes in contact with its customers—from the moment customers realize that they need a product or service to the time when they no longer want it and decide to dispose of it.” They go on to say: “We believe that if companies open up their creative thinking to their customers’ entire experience with a product or service—what we call the consumption chain—they can uncover opportunities to position their offerings in ways that they, and their competitors, would never have thought possible.”

The article outlines how to map the consumption chain, which includes answering questions such as: How do customers find your offering? How do customers make their final selection? How is your product or service delivered? How is your product or service paid for? What is your customer really using your product for? What do customers need help with when they use your product?

The bottom line is that by exploring these questions in detail, you will likely uncover opportunities to streamline and improve your existing business model and practices.

I’ll end with a quote from another great HBR article related to this topic: “One secret to maintaining a thriving business is recognizing when it needs a fundamental change.” Something to think about and discuss in your next strategy meeting.

For related commentary, see the following postings:



  1. I really enjoyed this post and there is a lot to consider on the subject. I can’t imagine solving customer challenges or sharing innovative ideas without first talking to them, in great depth, dimension and detail, and truly understanding what they are looking for. Performing quantitative surveys and qualitative research are two excellent ways to gaining customer insight and understanding their top priorities and needs. However, gaining insight is only one part of the process. It is equally important, and often more critical, to use that data and those customer findings in productive and innovative ways. Customers are unique and it’s unlikely a single solution can help all customers collectively all the time. Research helps with understanding trends, challenges, strategies, tactics and overall needs, but innovative solutions are designed with individual customers in mind. No matter how large or small the customer, they’ll appreciate the in-depth research, deep insights and peerless innovations you bring that uniquely fits their model environment and improves their competitive advantage in the marketplace.

  2. An excellent and thought-provoking post. Around our shop, we try very hard to keep an outside-in perspective, working back from what our customers (and their customers and trading partners) need toward the tools we provide them with to meet those needs. The Netafim example cited here illustrates this strategy perfectly, with the change from a mission rooted in products to one based on the customer’s ultimate goal. By making this fundamental shift in our thinking, we can do more to delight customers than we can through any incremental change around our products or services.

    – Andrew Atkinson, Director, Product Marketing, E2open