Specialist and generalist businesses
05 October 2012
Specialist or generalist - what is the best rental strategy? IRN columnist Kevin Appleton considers the arguments.
There is a good deal of debate around the rental industry globally on the relative merits of being a product specialist or a generalist rental business.
This is a topic which tends to come round in cycles as generalist operations appear cheaper to run and become the vogue when times are tough.
On the other hand generalist operations have a tendency to default to a ‘lowest common denominator’ sales approach and consequently lose potentially lucrative market segments to smaller specialists.
So the cycle tends to shift from one approach to the other, with the danger that the more fundamental underlying issues are never addressed.
So let’s look at the deeper arguments in favour of a generalist versus a specialist approach to product management.
Generalist businesses: the advantages
Generalists have, by definition, a wide product palette and a consequent, theoretical ability to balance demand across seasonal patterns (e.g. generators and heating in the winter, generators and air conditioning in the summer).
They also have a wide appeal across industry types (e.g. events, building maintenance, construction, industrial maintenance).
Generalist businesses: the disadvantages
The big challenges with being a fully integrated generalist, I would argue, are centred on maintenance, logistics and knowledge.
At the extreme end of the spectrum you wouldn’t want to have the same engineer fixing a tower crane as a hand drill, the same truck delivering a 40 metre boom lift as an aluminium tower or the same person offering advice on a complex power supply project as on using a cement mixer.
Specialist businesses: the advantages
I think specialists score in two areas.
First, and obviously, they are able to organise themselves to ensure that maintenance, transport and knowledge resources are absolutely attuned to the products being supplied.
Second, and less obviously, the better specialists are driven to a much more segmented and intelligent approach to customer acquisition and business development.
Specialists business: the disadvantages
They don’t have the luxury of selling heaters in winter and air coolers in summer, but rather need to find customers whose activity is seasonally weighted in order to ensure their demand and sales revenues are balanced across the year.
In powered access rental it could be Christmas lights installers and industrial maintenance in the winter and construction and outside broadcasting customers in the summer.
Stronger specialists tend to become better at being order MAKERS rather than order TAKERS, simply because they have to.
Combining general and specialist business operations
But the best model is surely some kind of hybrid. Where a product demands specialist maintenance, logistics and sales support knowledge it really lends itself to a degree of organisational separation within a larger generalist organisation.
This model could perhaps incorporate a separate ‘hub’ depots for transport and maintenance, along with sales support centres forthe more technical customer queries.
At the same time, having a large ‘generalist’ network (which offers tools and small plant) presents a tremendous potential sales channel for the more specialist equipment.
If the ‘generalist’ side of the business is given a financial motivation to sell specialist rental too (for example, through allocation of specialist sales into local depot accounts), this can be a very powerful combination because it retains the interest of the general business in offering the whole portfolio, without having to be an out and out expert in it.
Generalist businesses and the challenge of construction equipment rental
My only area of doubt in all this is where traditional general plant fits in (diggers and dumpers).
It is an area where technical differentiation is hard to prove, it is generally widely available in most markets from local and regional general plant ‘specialists’ and it consequently tends to generate poor levels of financial return compared with power tools or more technically complex specialist equipment.
Maybe the solution here for aspiring generalists is to offer it but not own it – via a re-rent or strategic alliance.
In any event, the debate will go on…
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