The B2B approach to digital strategy
It is easy to see why people view companies such as Alibaba, Didi Chuxing, Uber and Google as the business models of the future. They have redefined their industries, rewired the customer experience and are not afraid to fail fast, learning from their mistakes and making the changes necessary to stay ahead of the market.
But business-to-business (B2B) executives know that what works in the consumer realm does not always apply to the B2B world. The truth is that B2B companies require a different approach to digital strategy.
When it comes to strategy development, most leadership teams are divided between short-term pragmatists, who focus on practical digital initiatives that serve current needs, and long-term visionaries, who want to use digital either to evaporate the company’s profit pools or create new opportunities to become the disrupter. An effective strategy-development process resolves these conflicts by blending a practical set of near-term, high-impact initiatives with a bold idea for how the pace of digital innovation is likely to reshape the industry over time.
Getting it right starts with a few key assumptions.
Today is measurably different from prior eras. Smart devices, low-cost networks and powerful cloud-based computing has changed businesses at all levels of the organization. Customers who have grown accustomed to flawless online experiences in their personal lives expect nothing less in their business relationships. In such an environment, it is not only possible to dream big but it is dangerous not to.
The direction of disruption is knowable. The contours of disruption are often noticeable long before the actual disruption occurs. Leaders need to understand how digital trends could affect their industry and use this knowledge to shape the company’s long-term strategic vision. The harder work is figuring out how the company will get there or how to adjust when the environment changes. But defining the direction of disruption removes one important variable from the digital equation.
Ecosystems make all the difference. B2B companies operate in complex business ecosystems. Everyone in the aviation industry can agree on what the digital future should look like: state-of-the-art air traffic control systems; modern, fuel-efficient aircraft; integrated IT systems; and drastically improved customer experiences. But a digital strategy that ignores the facts on the ground would be impractical. The pace and scope of innovation is limited by regulation, expensive aircraft with long life cycles, aging technical infrastructure and concerns about the impact of digital innovation on security. Other industrial sectors face similar constraints. These factors give executives hard choices about what a workable strategy looks like and how they can make real progress against systemic complexity.
Profit pools will shift. Digital innovation will eventually change who makes the most money and how. In agriculture, people wonder whether profits will shift from traditional equipment makers to those producing connected machines and the cloud-based infrastructure to support them or to services that help farmers analyze data to boost yields. Such changes are occurring in all industries, forcing companies to determine how to tap the most profitable segments and avoid being left out in the cold.
Companies need a bold, inspiring vision, but they also need to define where and how they can make progress now. A practical way to do that is to strike a balance based on the four elements of digital transformation: digital strategy (the role your company will play in the future); business model (how you engage your customers, make money and operate); enablers (the new technologies, capabilities, skills and culture that will be central to success); and orchestration (how you need to scale from digital experimentation to transformation). This is an approach we call Bain Radar 360 Strategy. Here are the steps.
Narrow the field of vision. Selecting the best set of actionable digital initiatives requires a clear understanding of where the company is headed and which investments will get it there. That means defining the company’s long-term digital destination and then determining a starting point by assessing what the company is doing right already and how to move in the right direction.
Make progress over time with stepping-stones. Companies do not become disruptive overnight.
They break their digital vision into a series of stepping-stones — smaller initiatives that allow for step-by-step progress toward the digital future. They accelerate the first wave of initiatives and reassess what has the most promise before launching the next wave. Each wave moves toward a predetermined point on the horizon, but adjusts for changing conditions and opportunities.
Organize along pathways. Companies gain the most momentum by focusing their digital activity along a handful of pathways. Three of these involve the underpinnings of the business: the customer experience, products and services, and operations. The others are organizational enablers: building the talent, culture and operating model to support digital success; developing capabilities to bring big data and analytics into decision making; and rebooting the IT backbone to free it from its legacy past.
Developing stepping-stones along each of these pathways accelerates change, but it is important to synchronize activity across them. Successful digital leaders identify the dependencies between initiatives, arrange related stepping-stones in waves and ensure that different parts of the company talk to each other as they pursue digital transformation.