There is merit in setting up a separate distribution outfit with a strong sales bias and culture. It's a natural extension of owning a set of customers who are loyal to the Alpha brand. Also, it offers an opportunity to leverage the existing customer base by serving products manufactured not only by in-house divisions, but even by competitors. By enhancing the power of choice at the customer end, you are reinforcing the customer's bonding with the company.

Alpha can choose to stick to its traditional product-centric approach. It can become a reinsurer, an insurer, or a manager of mutual funds. The two critical requirements here are: whether it can function at a level that gives economies of scale, and whether it possesses the required core competence among its people. You also need to balance the volumes-margins issue. You need to ensure that the basic product cost of each of the products is low, in relation to competitors, even as you top it up with customer service and product superiority.

A customer-centric model, now under consideration at Alpha, needs a different approach. This would entail creation of a CRM platform to distribute products to a continuously evolving customer. Even in this situation, one must ensure that the fixed costs of distribution are recovered from the base set of products manufactured in-house. That alone gives a degree of control over operations, and ensures that costs do not go haywire.

There are four ways in which the customer-centric model can be deployed. Alpha can develop and distribute its own products. It can make own products and distribute both own and others' products. It can manufacture products for others on contract, and distribute them through own channels. Finally, it can move out of product-making and become a pure-play distributor. It is in making this choice that the real mettle of Menon and his team is put to test. The crucial question is: what is the vision at Alpha for the new distribution business?

The cost of setting up a distribution network is high. You may not be able to recoup the investments if you decide to just distribute own products. A pure distribution set-up, without manufacturing capabilities, is a vulnerable proposition, as it does not always give you enough throughput and margins to justify the costs of distribution. Besides, small-time direct selling agents with no overheads can wipe you out of business. The best alternative is to manufacture some products where scale can be achieved, and use ones own network to distribute both own and competitors' products. An Own portfolio of products gives a depth to the business.

A major area of concern in the kind of structural transition that Alpha is undergoing is in the choice of products. It is important to ensure that they enhance Alpha's brand value. If they dilute customer perception about Alpha as a brand, then there could be some dissonance in the customer's mind. So, this is another area where Menon needs to tread with caution.

The payoffs from an independent distribution business unit are considerable. You get a critical mass. The productivity of channels improves. The speed of response increases. A single-window provides simplicity to the customer in meeting his requirements. At Marico, for example, we have hived off our sales and distribution activity into a separate business unit called the Sales Division. The move was driven by the need to develop cutting edge competencies in the sales system.

There are, however, a few critical issues that Menon and his team should reckon with. Structure always follows strategy. It is not the other way round. What is the single-largest strategic objective before Alpha? To secure geometric leaps in customer base. How does it want to achieve this? By offering multiple products to the customer from a single window.

On the face of it, this is okay. But it is important to review the strategy of each of the four business units. What is the source of competitive advantage in each? What is the basis on which it competes in the market place? What specific skills are required at the sales level vis-a-vis competitors-product knowledge, customer access, and speed of response? It is necessary to look for complementaries here across units. Without those synergies, there is no point in putting a new structure in place. It will simply not deliver.

It is equally necessary to ensure that there is no misalignment between the sales unit and the business units. Team work and collaboration at the top, of course, is a given fact. But since the channel is an instrument of delivering strategy, it is important to ensure a common understanding of business objectives, and key success factors across Alpha.

The cost of not doing so could spell trouble at a later date. For example, the ease of getting new business in a particular segment might motivate salesmen to focus on that segment in preference to others. This could lead to a perception among business units that the sales team is giving ''unequal focus'' on some products. That is why it is necessary to fix, right in the beginning, the templates of each business with clearly defined goals and time frames.

This is also the right time to review the performance measures at Alpha, both at the strategic and operating levels. If increasing the number of customers is a business priority-as is the case at Alpha-then the number of 'new' customers acquired should become a major performance measure.

Alpha seems to be looking at distribution business as an opportunity for rapid growth. The essential premise behind this plan is that the company has a large customer ownership which is not fully catered to by its independent business units. An immediate reaction is to be judgmental and say, ''Does this mean a failure of the individual business units?'' This question is fundamental, and addressing it is crucial to the success of the impending change in the organisational structure of Alpha.

We at Alpic have gone through a similar phase. We have faced many a transition in the past. Be it delinking from the bills discounting market in 1990, exiting corporate finance activity in 1994, moving out of retail deposit in 1997, or the most recent disengagement from a joint venture for underwriting with Allianz AG.

Alpha recognises that a single-product business centre approach is very risky in the context of open markets. Alpha also recognises that today's customer has access to multiple products and options and, therefore, is sure to run away if the company does not offer all products that are available in the market. There is an analogy in what we have been trying to do at Alpic. We are demerging the distribution activities from all our business units, which we have redesignated as ''factories.'' We see the setting up of a distribution outfit independent of the factories, a sure way of retaining customers and growing them, too. Look at the Bancassurance model in the UK. Its success is clear evidence of how the new structure will work.

The success of the distribution-factory architecture is determined by the extent of customer ownership on the distribution side, and the nature of alliances on the factory side. It is unfortunate that most marketing infrastructure look at the customer base as no more than a record in their computer systems.

Such an approach will not give any sustainable advantage, since databases can easily be bought and tele-marketing companies will easily reach out to them. For example, at Allanzers-the financial distribution arm of the Alpic group-the focus is on relationships and customised product development. Such a focus is a key necessity in a distribution-driven company. This approach however, needs a good training plan, quality relationships and motivated manpower. Of course, a good technology infrastructure is crucial in maintaining good service standards.

Alpha's decision to set up a separate distribution company has to be backed by a history of proven customer ownership. The transition would have to be carried through carefully, with considerable training of the staff. Affiliations and product choices should be based on customer needs, rather than on the revenues generated by the factories. To have the financial factories as a partner will be an advantage for the distribution business. However, no single partner should have a majority stake in the company. That alone will pre-empt conflicts with the customer-centric approach of Alpha.

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