How B2B firms can achieve digital potential
Seven action points for chief executives of business-to-business companies to counter the common myths on the path to digital transformation
The valuation of digital ‘unicorns’ and the overall high visibility of new technologies such as artificial intelligence (AI) and automation are creating a buzz around digital, often described as the next big thing in business.
However, unlike business-to-consumer (B2C) industries, in which channel disintermediation has been the prime source of digital value, the path in business-to-business (B2B) industries is not as clear. Chief executive officers (CEOs) of B2B companies usually struggle to clearly articulate their firms’ digital potential, and typically have to counter several myths on the path to digital transformation.
Myth 1: I understand digital is a great enabler, but it’s hard to quantify tangible numbers, which I can track objectively.
Not having a clear path to profit and loss (P&L) impact undermines the attention that B2B firms can put on digital. In a home improvement leader, for instance, while customer relationship management (CRM) software had been deployed to make the lead management process digital, it was hard to connect this CRM intervention to sales uplift.
But P&L impact needs an “end-to-end process” to become faster and more effective. Rather than point digital interventions, this will need a clear visibility of leads being sourced from external social media sources, accelerated to the mobile CRM system, which is easy to use for the frontline sales force, and finally to deep engagement with consumers until conversion. While digital actions might accelerate some part of the process, unless the CEO insists on seeing the path to increased new sales via digital origination and acceleration, the cash register will not ring.
Myth 2: Digital’s value is primarily about e-commerce and transactions.
The real value-addition for B2B from digital is likely to be earlier and deeper engagement of customers with the value proposition. Data shows almost 75% of Indians use the internet for early inspiration (see figure 1). This becomes critical for higher-value categories with a long decision-forming process, such as home, car and white goods buying.
Myth 3: Peers are not yet adopting digital enablers in a big way, so I will wait a few years to figure out what I should be doing, if anything.
Firms in the business-to-original equipment manufacturer (B2OEM) segment might think that customers are comparing them only with their peers in the same industry: this is not true. Our direct interviews with end OEM customers show that the same customer (an operations manager on a shop floor expecting raw materials from his key supplier, for example) is used to a much more transparent way of tracking orders in other B2C industries, like pizza delivery.
In India’s core B2B industries, we have seen a high net promoter score accrue to providers who offer to put high visibility and self-serve capability in the hands of their customers. This is a great opportunity but also a threat, if someone else offers it first to your customer.
Firms will need to significantly raise supply chain efficiency, as unmet promises will be much harder to play down in the digital age of transparency. In a global textiles major, we saw the key ask from customers is less about a higher service level and much more about service level predictability. It needs to be underpinned by supply chain improvements and then delivered via digital portals and apps.
Myth 4: We are assembling a crack digital team to drive digital fast. The information technology (IT) organization can keep the normal systems running as usual.
While the two-speed IT model is attractive and can provide quick results, it is likely to stall after some time. The reason is that after initial pilots are done, digital interventions have to rely on the underlying enterprise data and processes to scale them to full rollout. And while the crack team might have created world-class customer front-end apps, the back end is still being run by the core IT team, which will become a speed breaker. In an industrial products company which is trying to cross-sell and which provides key account digital interfaces to its sales team, the scaling up slowed down because the company lacked a single view of the customer.
Myth 5: Let us launch many digital initiatives, as it really motivates my employees. What’s the downside of doing more, anyway?
We see B2B CEOs starting off with a large number of pilots and then getting logjammed when those experiments need to be rolled out at scale. This happens as the initial view on the amount of effort for digital interventions is that it is quite small, focused largely on the customer-facing ‘app’ layer. Not doing the ‘full-stack redesign’ with complexity reduction can significantly reduce the impact of the digital solution at the time of scale-up to full potential.
Here are seven action points for a CEO to ensure the B2B firm avoids these myths.
The CEO should insist that the path to P&L value be laid out clearly upfront:
It should be reframed as a digitally-powered business solution, not a digital programme. Pick three or four digital micro-battles where the firm can create tangible return on investment (ROI) which is 2%-3% cost advantage, 3%-5% growth acceleration or 5%-7% net promoter score and pricing premium over competition.
But companies should watch out: keeping the leadership off these digital micro-battles is a recipe for underperformance, since digital is much more about business, customer and operations understanding. Without business driving this initiative, it is unlikely to succeed.
The CEO has to become the firm’s de facto CDO:
The power structure, respect and expertise in industrial firms are still firmly in the C-suite, and expecting the chief digital officer (CDO) to pull off transformation enabled by digital is unrealistic. The CDO can be a powerful enabler, but CEOs have to arm themselves with the right tools, create the right vision and drive the energy. Best-in-class organizations see the CEO, the chief marketing officer and the chief operating officer playing the de facto sponsor role for digital enablement—with strong enablement by IT and the CDO.
Keep the customer at the centre of digital transformation: Most likely it will need a seamless deployment of digital-plus-physical solutions:
In B2B sectors, unlike services industries, the real value is inspiring customers early—much wider and earlier than looking only at the purchase point dynamics.
For instance, at a tyre company with extensive Indian operations, we found the customer engaging with the category about six to nine months before the actual purchase (see figure 2). This calls for a ‘consumer marketing’ mindset to be built into the organization, much wider than the typically prevalent sales mindset. And the company needs a digital-plus-physical set of actions, not just digital alone.
Be paranoid; look across categories to find ‘digital effectiveness’ superstars:
Customers are making comparisons across industries, and most digital use cases are related to the ‘value chain,’ not industry. Hence, adopt customer insights as the core of the digital value identification. A one-size-fits-all digital approach will not fit the B2B landscape, especially in the context of industrial goods and services firms.
Build a plan to make the IT organization digital-ready:
This is critical to realizing digital value via scaling successful pilots. Enabling IT to become digital-ready is not a nice-to-do; it’s a must-do. It’s important to start with a realistic assessment of the digital-IT capability and digital-people capability to set core IT on a path to digital enablement.
Prioritize ruthlessly, but have actions in different digital horizons:
Running more than three to five digital end-to-end interventions at one time is usually going to be too time-consuming. Hence, using the business and customer value lens to prioritize a select set of digital initiatives—which will drive disproportionate value—is key. However, a balanced time horizon approach is needed.
Cost and operational efficiency is the first port of call. At the same time, having one or two big bets, which disrupt the profit pool and create huge competitive differentiation, should also be on the agenda. However, getting distracted by constantly searching for “Uber-like” disruptions while ignoring very real efficiencies and customer experience transformations can lead to lost opportunities.
Use the digital programme to train your employees to adopt an agile way of working in the firm itself:
B2B companies which successfully adopt digital transformation along the above lines can get a beneficial side effect. Digital programmes are best implemented via an ‘agile’ methodology, which is quite different from the traditional ‘waterfall’ way. This approach keeps the customer at the centre and carries out fast-cycle design, build, test and redesign actions. It also encourages cross-functional teaming. All these attributes can help B2B firms not only drive digital well, but also accelerate other core programmes. For instance, GE has globally adopted agile software development and created its own version, called FastWorks, and is extensively using it across multiple businesses.
Though their path is fraught with pitfalls, B2B CEOs have the potential to guide their firms to unlock never-before value from digital. It is incumbent upon CEOs to dispel these myths by becoming digitally savvy.
Anant Bhagwati is a partner in Bain & Company’s Mumbai office.
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