Industrial companies often face a unique set of challenges when it comes to realizing digital’s promise. The technical complexity of their offerings and their convoluted channel models, the market power of distributors, multi-step/multi-party buying processes, the relative concentration and/or fragmentation of their markets, and pricing transparency considerations all conspire to make it difficult to optimize digital connections to customers. In addition, industrials and B2Bs are typically anchored to an asset-oriented, product-out, and functionally siloed operating model and intermediated from their downstream stakeholders.
As industrials and B2Bs re-assess their digital efforts, it is critical that they recognize the unique challenges and opportunities they face and address them directly. Anyone that has attempted to drive digital in an industrial organization is likely to recognize one or more of them:
• Digitizing old ways of doing things: Using digital for transactions and interactions along the lines of current practice risks hardening approaches that may be inadequate for competing in an ecosystem that is being fundamentally reshaped. Many organizations we work with lack an understanding of how their ecosystem is evolving, and how those changes flow through to define the digital capabilities that will be difference-makers in the future.
An industrial distributor we advised wasn’t sure about the impact that business management software companies, which provide specialized software to help field service contractors such as plumbers, landscapers, and electricians run their businesses, could have on their channel structure. While they struggled to decide whether to engage them, these players continued to rise in popularity in the industry. Without a clear perspective on how their ecosystem would evolve, they risked ignoring a potential future sales channel and key partner.
• Imposing technology-centric as opposed to customer-centric solutions: Industrial and B2B organizations often engage in “arms races” with competitors to create tools and services like online calculators and benchmarking tools. While these kinds of digital offerings demonstrate technical prowess, they don’t help customers solve problems or fulfill their “jobs to be done,”– which are the underlying problems they aim to solve and the reason they choose one product or company over another. This is most common in organizations where digital transformation lacks alignment between IT and business leadership on priorities. Industrials are especially vulnerable to this error because it is culturally congenial to their ways of thinking and operating.
• Imposing digital goals on business units that are disconnected from business impact: Some corporations seek to motivate business units with top-down mandates that fail to reflect the diversity of strategic objectives that might exist within a portfolio, or that work against their interests. A global materials company we know of set a target of “50% of sales online” that is being dutifully propagated across all its business units, whether online sales are important or even beneficial in the markets they serve. When this happens, digital is seen as a set of milestones to fulfill, rather than a means towards a desired end.
• Creating separate digital solutions within functional silos: Digital, by definition, is a horizontal capability – it should cross traditional organizational boundaries and permeate a business’s entire operating model. Yet many industrials are organized around functional power centers and potentially misaligned incentives that can discourage the collaborations that are necessary to optimize digital solutions. Examples we often see include marketing experiments with social media, but sales and branch operations remain stubbornly analog; or, new software that provides greater visibility in order-tracking, but sales reps fail to promote it to customers. To succeed, digital efforts must be coordinated across all functions in the organization.
At its root, each of these blockers turns on the failure to align a company’s digital transformation efforts with its overall strategy and goals. To avoid them, companies must change their way of thinking from one that is primarily initiatives-driven to one that is outcomes-driven. The first area of focus for digital change should be on the concrete results that leaders want it to achieve.
Creating an Outcomes-Driven Design for Industrial & B2B Digital Transformation
In our view, there is no such thing as a digital strategy, only business strategies and outcomes that digital can enable. In an outcomes-driven approach, a portfolio of digital priorities is explicitly defined to advance the business strategy via impacts that can be measured—for example, revenue growth, operational efficiency, and customer retention. For this approach to work, the implications for a company’s operating model and capabilities must also be proactively identified and addressed.
This flips the script from an approach that is one-size-fits-none, where digital initiatives lack customer or market-back input to guide them, to one that is holistic, intentional, and trackable. If employed appropriately, an outcomes-driven approach can also be utilized to identify and potentially stop initiatives that are not on strategy.
A Structured Approach to Defining Digital Priorities
Effective digital solutions are focused on customers’ jobs to be done and clearly defined business outcomes. The five-step process that we have successfully used to help industrials companies identify and prioritize their digital priorities is laid out below.
For example, we recently advised a global materials company that was mandated to move half of their sales online, whether online sales were important or even beneficial to the markets its various business units served. Digital was seen as a set of milestones to fulfill, rather than a means towards a desired end. By applying an outcomes-driven approach, the company landed on two distinct sets of digital initiatives, tailored to two classes of customers (market leaders and small players). Having this degree of focus allowed them to further identify and align on which efforts were transformative “needle movers” and which were merely “table stakes,” so they could prioritize, resource, and sequence the initiatives appropriately.
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