Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of ONE leaders. To learn more about INA AI, please visit our website at www.ina.AI.
[00:00:40] Speaker B: Hi everyone, and welcome to another episode of our Titanium Economy podcast series. Today we are joined by Paul Miller, who is the former head of global e commerce at Grainger and a pioneer in industrial digital transformation. Paul played a key role in scaling Granger's e commerce business, helping it become one of the largest industrial digital platforms long before most of the companies even recognized the potential of online channels.
So what we'll do is we will dive into his experience building digital businesses today, the challenges of scaling it in an industrial setting, and what lessons industrial companies can take away as they navigate their own digital transformations. Paul, a very warm welcome and very excited to talk about digital and industrials with you today.
[00:01:29] Speaker C: Thank you for having me. And when you call me a pioneer, I think you're just calling me old, but I'll look past that.
[00:01:35] Speaker B: All right, so Paul, obviously we have to start with Grainger's story. And I think most of the folks, at least in the industrial space, are very familiar with Grainger's amazing story of digitizing its business. Let's start with, for the benefit of our audience, with a brief overview of the company and what it does, and then we will dive into the digital story of it.
[00:01:59] Speaker C: Sounds good, but, you know, it's interesting because Grainger is truly a pioneer in digital. And well, before I got there, I joined there in 2010, and it goes back into like the late 90s, like even maybe 95 or 96, that Granger saw a lot of technology that was coming along that they thought could be interesting. Things like catalogs on a CD ROM that most people now don't even know what a CD ROM is, but they were putting catalogs on them, thinking that it was a good and efficient way to be able to deliver massive amounts of content to customers. They pioneered things like putting terminals within customer locations so that they could use electronic data interfaces to be able to communicate back and forth and pass orders along. Rudimentary sort of efforts, but things that were really precursors to what people see now as just commonplace digital tools. The one thing that I'll call out though, which is, you know, sort of a turning point, is at one point I think Granger probably viewed their forays into these technology areas as things that could even potentially spin out and be separate companies In, I think, 98, 99, 2000, somewhere around there, they. They even had views that, you know, maybe they could spin off and, you know, list one of these companies as a standalone. And what they came to realize is that the best outcome is when they serve their customers better the way their customers want to be served. And not about building these new standalone offshoot businesses, but rather using these digital tools to deliver excellent experience. And, you know, the whole theme of our conversation today is going to be about, you know, know, why industrials really need to embrace this. And for me, the centerpiece of it really comes down to customer experience. And how do you really understand what your customers are trying to do and deliver experiences that go well beyond what their expectations are. And so often we've seen industrial companies kind of ignore that and provide what I'll almost call green screen types of experiences. You know, it's almost equivalent to looking at some order entry screen as opposed to thinking about it as something that should be delighting customers. And, you know, often people talk about B2C. And I've spent a lot of my career in B2C. I worked for some great retailers and some great brands. And what I came to realize through those experiences is it truly is about finding those insights about what drives customers and then using those to create that next experience. So that's just a little preamble what I'll say about Grainger, you know, amazing company that today is about $17 billion in sales, about a $50 billion market cap, a stock price that is over well over $1,000. So very successful company that sells, you know, some of the most boring products in the world, and they sell them really well. You know, maintenance, repair, and operating supplies. People don't get all that excited about mops and brooms and buckets and motors. But I'll tell you what, when you have a couple million of them available to customers and you can get them in their hands very, very quickly, it can become a really exciting business that delivers what customers need. You know, they have a slogan, you know, they talk about for those who get it done, for the ones who get it done. And that's. That's who they are. They try to be that resource that people can use to be able to get what they need done. These critical roles, maintaining facilities, keeping people safe, that that's at the heart of what they do. They're a global company, although I'd say, you know, much more emphasis is within North America, very strong operations here. A couple of businesses that they've launched to approach other customer segments that have been very successful. One in Japan, one that's global, but really has a huge presence in the US called Zorro. So that's kind of some background and happy to chat further about all your topics that we've been chatting about.
[00:05:51] Speaker B: Right. And Paul, you mentioned some of these rudimentary digital tools, but back in the 90s or even the early 2000s, they were by no means rudimentary.
[00:06:02] Speaker C: Right.
[00:06:02] Speaker B: This is what the digital world was back then. And Granger was among the first companies, not just in industrials but across sectors, across industries to start thinking about that. And so what drove that push internally? What was it that, that led them to believe that that is their next step as, as a company, as an industrial company?
[00:06:26] Speaker C: It's, it's, it's one of those, you know, looking back on it, what were the, what were the real drivers? I think there were several, I think there was new technology emerging and leadership there that, that really had a good intellectual curiosity. What can these things do for me? I look today at AI and I think similarly, like people go, oh cool chat, GPT and some of the other algorithms and, and you know, models that, that people are looking at, but they don't necessarily know what they can do with them. But if they don't try stuff, they'll never figure it out. I think for Grainger, and when I talked about it being rudimentary, that wasn't meant to be a slight. I mean the reality is they were doing things that were sort of basic, what we consider basic now, but at the time, you know, it was more groundbreaking. Here's the problem though. If what you're doing is cool and interesting from a technology standpoint, but isn't solving customer pain points, I don't know how valuable it is. And I think what the key insight was is that if customers are really trying to understand where is my order and how do I order more of that thing I ordered before and how do I compare product A to B to C or how do I get exposed to more products than what I'm currently seeing within a catalog or within a branch? That's when the web started to be that much more important because you can do those things really, really well now. When I joined Grainger in 2010, it was a billion dollar online business. It was 23% of company sales. So it wasn't like immaterial, but it wasn't the powerhouse, the driver that digital is now for the company. You know, when you look over even the tenure that I was there, we got to over 50% of company sales. I haven't looked recently, but they quote numbers, you know, up in around the 70% range of sales that are, that are influenced by digital or transacted through digital channels. You know, I think that pivot, that point that really occurred, where they went from like a decent portion of sales to. To a dominant portion of sales was when they flipped that switch and made sure that everything that they did was aimed at solving these customer pain points. Creating greater availability information, creating greater visibility to assortment, creating greater tools to be able to pick the right product, to manage your account, all those sorts of things. And sometimes I tell people that it's the most boring products and the most boring services that actually make you the most money, but it's true. Like, it doesn't have to be 3D rotating, you know, see it in your room technology, which is all cool stuff in the right, in the right setting and in the right use. But, but really those basics of having the best customer information possible, the best product information possible to do your job, like, that's not easy. And people try to look for those shiny objects and those things that are more sexy, but the reality is the big money is made by doing those basic things really, really well. And, and so a lot of the advisory work that I do with companies helps them to focus on, like, where are your basics? How is your customer file? How are your email addresses stored? What information do you have appended to? Not just that name and address, but what does the person do? What has the company bought before you know? How do you leverage prior purchase behavior? How do you do all these things better? How do you look at your product information to make sure that, like, if somebody is using a product to do a certain thing, do you understand what they're actually doing? Not the product, but what they're trying to accomplish? And this is where there's companies like McMaster Car that I will say does it better than anybody else because they understand the way people are using products and they merchandise those products and they curate those products based on how people actually use them. So if I'm trying to glue two things together and I'm going to have it in wet conditions, and one of those is metal, one of them is rubber, and I need to do that. What adhesive do I need?
If I can go onto something and be able to pick based on those exact conditions that I gave you and feel confident that that product is the right product, wow, that's powerful. And that's where the best players are spending their time and energy. And that's the kind of stuff that makes people's jobs easier, which, which makes their life easier, which ends up creating good margin cushions, that you can sell these products at decent prices and people are seeing the added value of buying from you instead of it just being all commoditized.
[00:10:43] Speaker B: It's a great pivot also to make for an industrial company like that, what digital tools can help me serve my customers better. And it's an amazing story. And I'm sure, Paul, it was not easy, right? As you were trying to scale up some of those digital tools and trying to scale up that E commerce platform. So could you just talk through some of the challenges that you faced as an organization as you were trying to build that business at that scale, the E commerce business?
[00:11:13] Speaker C: Well, you know, some of this gray hair, which you won't see on the podcast, but some of this gray hair definitely comes from trying to solve some of those pain points organizationally. But the reality was we had a lot of smart people in the company, but we didn't have a digital organization in place. So the first thing that had to happen was we had to start building some key roles to be able to accomplish the critical transformation and growth that we were charged with. The CEO, when he interviewed me, said, paul, do you think we can get this to be half of our business? I think he was kind of joking when he said it. And I said, we can get more than that, but we need to have the right people, the right technology and the right processes and analytics to be able to do the right things and know that we're doing the right things and to check and adjust and fix things as we go along, you know, some of the biggest challenges that we faced goes back to one of your earlier questions, which was, you know, people wondering, you know, so you're talking about doing these things. It sounds like what consumer companies are doing. We don't do that in B2B. Had to get over that, that hurdle, that inertia, because people were looking and saying, well, you know, why do we need to have all those nice images? We've got a description, it's fine. It's a product number and a name, and whenever somebody calls and they give us that. So what's. Why do we have to have something different? And the reality is, again, people get used to experiences online that are good. Now, the. One of the big terms that a friend of mine, Andy Hore, coined, he talked about the consumerization of B2B. And it really struck a chord with me because that's the reality. It's not about making B2B companies into B2C. It's about understanding that in B2C experiences things like search, things like merchandising, things like categorization just work really well. And if you can apply that within a B2B setting and layer on top of that the things that are uniquely B2B you've got a fighting chance of really succeeding. Having to build the right team was super important. Building the strategy around that consumerization of B2B and understanding a customer back type of strategy. What are my customers really looking to do? And by the way, internal and external customers. We had a lot of things that we built that were just as valuable for internal team members. A quick example we built click to chat on the phone with video. Well, we found that the ability for a salesperson to be in front of a customer and have them say, well hold on, let's go together to customer service and let's find the right answer. Or for themselves to be able to educate themselves and know, like here's the right answer to the question the customer just asked. That was super valuable. Initially that wasn't a use case that we were, that we were thinking about. We were thinking about customers being on top of that roof, you know, wanting to look at that blower motor and know that it's the right one. Yeah, that happened. That was important. But it became just as important that because we had people in the field working with customers, that we give them the same great tools and the ability to really answer customers questions. When you've got a million products or 2 million products, there's not an individual that can ever be an expert on all of that, even, even a sliver of that. So your best chance is to be an expert on how to find the right answers. Almost like a Sherpa, if you will. And so that was really important, having the right people, the right technology. We went through a massive technology overhaul. We were on a dated platform. We pioneered a lot of new work with Pybris, which is now SAP's commerce solution. It was bumpy at the start because we were both learning things along the way. It was a small German company before it was bought by SAP, but we co created and co engineered a lot of solutions that I think are still in place today. You know, Grainger built an amazing technology team that followed that. You know, some of the people you know that we brought in had no experience in B2B but were really good at thinking through how do we create these types of underlying software solutions to do what we're doing here. You know, those are key pillars. And the last thing I'm going to say is there's always going to be skepticism. There's always going to be people that say, well, is it incremental? Wouldn't my customers have just done that anyway? And that happens both on the marketing side. Something I haven't talked about and we can definitely delve into is just because you build it doesn't mean that they will come. One of the things that you definitely learn from the consumer side is that you still need to drive traffic. This math equation is still traffic times conversion times average order value equals sales. Traffic's a key component. And so things like digital marketing, email, paid search, social, you know, other things that drive traffic to your website become increasingly important. But if you can't get the internal folks to say, yeah, that makes sense, you're dead in the water. So coming up with the right metrics, the right analytics that not just the digital team is espousing, but that the internal team, the analytics teams, finance teams are feeling comfortable with, you know that that is a topic on its own, but is a really important aspect to be able to get the support that you need to invest the kind of money needed to build like a true world class digital solution.
[00:16:11] Speaker B: Right. And speaking of this skepticism, Paul, you and I were also talking about it that if you think about the industrial sector more broadly and more so of the companies that are manufacturing focused and let's say less on the distribution or the logistics side of things, the perception within those circles is that this is not for them. The digital transformation is not relevant for them. This is more for a B2C setting like the consumer world, the retail world or the finance world. So how do you challenge, first of all, why do you think that perception exists? And also how do you challenge that?
[00:16:49] Speaker C: I love getting into conversations with strong manufacturers in the industrial space and having them start from there. And I think a lot of it is born from the fact that industrial distribution was really the key way that they went to market. It wasn't so much manufacturers going direct to end customers. The centerpiece of how customers learned about and purchased so many of these products historically has been through distributors. And I think what that's created is manufacturers who look at distributors and feel a sense of fear, if you will, that if I do too much to either go direct to my end customer or to have too much of a, have Too much of a, of a presence online or directly that my distributors are going to get rid of me. And that's a real fear that many manufacturers will share. The reality is there's a new balance out there. The Internet has created complete transparency. Anybody that wants to learn about a product can learn about virtually anything with a couple quick searches. They can also buy virtually anything on a number of sites that we all have access to. Alibaba, Amazon. You know, so many of the sites that we all have access to have a ridiculously large assortment of products. So my view is, and you have to be a little careful in having these conversations with manufacturers is that there's, there's a wide range from doing nothing direct to doing everything direct. I'm not ever going to be the proponent that says manufacturers should never sell through distribution, but I believe that manufacturers need to be the authority in their product.
I worked at Williams Sonoma years ago, and it's a retailer of wonderful kitchen and entertaining supplies. And the reality there was we talked about being an authority in cooking and entertaining. We sold pots and pans and lots of fun cooking stuff. But people came to us, us because we were an authority. They knew that if it was going to be Thanksgiving and they're, they're making a turkey, buying that, that overpriced turkey roaster was going to deliver a great Thanksgiving. It's not just about the bird, it's about the experience. So I try to apply that same thinking. And if I'm the manufacturer, I should have the best product information available for my products. I should have the best tools readily available for customers to be able to use to, to know if that product is right for them. That might be a combination of live people conversing with them. That might just be great testimonials, great information. They can use comparison tools, all those sorts of things. And by the way, those can be used both direct to the customer or they can be syndicated out to your distributors. And the whole view of distributors saying, oh, well, if you do all this stuff direct, I'm not going to sell. The distributor that does that is shooting himself in the foot. Ultimately, distributors are going to decide what right assortment they should have. They will purge skus that don't sell. But bottom line, if you're a manufacturer that's taking it seriously, building the right digital content. And I'm talking about content first, then experience. But if you're building these contents and experience sort of things, then you're putting yourself in a position to help your distributors sell more of your product. And if the circumstances are right for you to be able to sell some of your product direct as well. Now, there's a lot in that. You have to price it appropriately, you have to make sure you're not promoting it aggressively and undercutting key distribution partners. But there's a lot of room, like I said, from doing nothing direct to doing everything direct. And that's where I think manufacturers, it's kind of, I think one of the next horizons is manufacturers doing more and more. I'm seeing some of them too in the work that I do that are saying, well, how do I become a better player here? How do I understand more about what my end customers are looking to do? There's a separation between me and my end customer. When I've got all these players in between, how do I close that gap and be more relevant? And that's where tools are coming in. And there's so many things helping facilitate, whether it's things like live chat again, where you can start pulling in people from manufacturers, whether it's the kind of experience we just talked about. There's a lot of room there for manufacturers to be able to invest in this. And a lot of times I talk about this and people, you see their eyes pop, pop open and their heads spin. It's not about having to boil the ocean and do it all at once. There are many things here that you can start with and really start to build towards being more of a digital player. It doesn't mean you have to take every single thing you do and create a full digital experience. It really comes down to harnessing the ones that are going to be the most important, most powerful and getting those going forward.
[00:21:24] Speaker B: Right. And Paul, what do you think are the risks for manufacturers or like more broadly the industrial companies who fail to see this or who fail to embrace digital like going forward.
[00:21:39] Speaker C: Okay, here's the bottom line.
When you think about who is working in these industrial ROLES now, like 10 years ago, those people were probably in high school or earlier.
And many of the people who were in these industrial roles out there, end customer roles, have moved on, they've retired, or they're in senior roles and they're not buying products anymore. Bottom line, you've got people, you've got an aging process that's happening here where more and more younger generation people are coming into these roles and they rely on digital tools, they rely on the ability to SMS somebody a quick answer as opposed to have to pick up a phone and talk to somebody. They want to be able to go online. And search and do all these things and in many cases not talk to somebody, but they want to talk to an expert when needed. So you have to find that right blend. This isn't about everything just becoming fully self serve. Like I've got a ton of respect for Amazon, but I think where Amazon business misses the opportunity and, and where I think great industrial distributors and manufacturers still have a wonderful opportunity ahead is by being the authority in these experiences and in this process of people finding the right product. I still believe that there's great opportunity there because it's not just about an algorithm spitting out my suggestion. It's about being able to rely on somebody in a, in a company that the product that I'm getting, the solution that I'm going forward with is the right one for me.
[00:23:07] Speaker B: Right, so for last question, you are familiar with the concept of titanium economy, right? How it is the under the industrial sector, which is the undervalued, underappreciated sector of the, of the US economy, which is actually the engine and the driver of the US economy.
In context of this conversation, what do you see as the biggest opportunities for, you know, digital driven business models within the industrial sector that can further propel the titanium economy forward?
[00:23:40] Speaker C: You know, I joke a lot about the boring products that I'm involved in and it truly is me just kidding around. I love the fact that, you know, it's these roles and these products and these companies that drive the economy, not just of America, but of the world. And you know, it's, it's cool when you get to work on a, you know, a fashion brand or something that that's, you know, really cutting edge. But the reality is getting stuff done well and having confidence is still at the, the cornerstone, like the future. It's about understanding these things. And you know, people who are buying products want to know like, when's the next time I need to buy that product. So things like subscriptions become important, but digital subscriptions that, that work seamlessly. Like I love when HP launched their, their Inc subscription and again this is early stage, but they launched it in a way that it's monitoring, it's IoT monitoring the device. So I think there's going to be a real convergence of IoT of big data, of these digital experiences coming together in an industrial way that just makes people's lives that much easier. Ultimately, I don't think you're going to see the ranks of people working in these companies growing at the rate that they have historically. So people are going to have to be More efficient, they're going to have to have tools that help them do things. And I believe these tools that we're talking about are game changing in the ability to really drive that efficiency and job satisfaction. Because now you can have that quality of output. Knowing that the things that you're doing are most likely correct, and knowing that you've got these tools helping you, I think that drives in itself higher satisfaction. So I think this is where it comes together. Being able to have the right data so you can analyze it and understand what's happening, factor that into these experiences, be able to rapidly iterate, you know, to, to. If you think about, you know, nirvana is a, as a fully personalized experience where everything that's coming to me is relevant to me and what I'm doing right now. And you know, we, we have shades of that. You know, a lot of people get irritated when they say, did see digital advertising? Oh my God, I was literally just talking about that. Why am I seeing ads for that? Well, you know, it's, it's a digital world and, and there are, there are signals that these platforms are getting that are helping them to deliver these ads to you. People get freaked out by that, but the reality is they're actually more relevant ads for you than if you just got generic ads. But, you know, there's, there's a lot of, I think, philosophical things that, that are going to need to evolve. But ultimately, you know, I think the stuff that we're talking about here starts to drive, you know, a lot more relevance, a lot more activity that really increases the quality of people's lives. And that in itself, I think, is the cornerstone of the titanium economy.
[00:26:23] Speaker B: Perfect. Awesome. Thank you so much, Paul, for your time today and really appreciate all your thoughts on digital for the industrial sector. And I'm sure a lot of our audience will find the insights to be really valuable.
[00:26:38] Speaker C: I look forward to seeing everybody in Chicago.
[00:26:41] Speaker B: Awesome. We do too. Thank you.
[00:26:49] Speaker A: Thanks for listening to Aina Insights. Please visit Aina AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
