The ABC's Of Modern B-To-B

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A business tsunami is hitting the U.S., and I don't know if enough is being done to help the survival rate.











Last week, I brought my message about growth and innovation in the services economy to the Institute for the Study of Business Markets -- a premier B-to-B think tank based out of Penn State. Being one of the primary gathering places for B-to-B marketers, many old-line companies that make paint, lumber, chemicals, steel, paper, and industrial tools and components were represented.



Of all the sectors competing in the globalizing economy, this group of industrial juggernauts worries me the most. Revenues and profit margins as they have known them are slipping away to the Asian powerhouses extraordinarily fast. Global supply-chain managers show little loyalty -- contracts are often lost based on pennies on the price. Service models as a way of bolstering their income and retaining their brand dominance haven't quite taken hold. Six Sigma process-refining efforts are yielding little to write Wall Street about. And their customer bases in other, particularly American, industrial companies are shrinking.



PLAINTIVE QUESTIONS.

Some are desperate, some are in denial, some are scrambling for new ground. But no one's prepared for the uncertain future that everyone agrees lies ahead, as was evidenced by the questions at the end of my presentation.



"Based on your analysis, how will American industrial competitiveness hold up?" "How do I prepare our workforce for the next 10 years?" "What will it look like in 35 years -- will we even exist?"



And then, the more pleading query: "What guidance do I give to my children to position their skill sets to be competitive in the future? Primary and secondary education in this country is woefully behind the times and schools aren't recognizing the shifting global economy through their curricula. I fear my kids aren't going to have the same opportunities I had." As leaders, many senior managers feel unprepared, and don't know what to try to stabilize first.



If you work in a B-to-B company struggling with this scenario, I have some good news and some bad news. The good news is that even in its current chaotic state, your company may have more opportunities than ever. The bad news? You will have to change a great deal to take advantage of those opportunities. Here's my advice on how to go about it:



Play the Ecosystem. Smart companies who supply core industrial components -- from paint to ball bearings to wood -- are analyzing their customers' businesses to find new ways to add value. Instead of just supplying paint, PPG (PPG) goes the distance to provide painted parts to its customers. Manufacturers such as Siemens and Johnson Controls (JCI) no longer sell heating, ventilating, and air-conditioning [HVAC] equipment to customers, they sell conditioned air at negotiated rates they know they can meet because they're intimately familiar with the technical capabilities of their products.



If your company is simply selling or supplying products to a customer, then it's behind. If your product isn't being sold as part of a solution package that includes a service, information/transaction, and/or value-chain component, competitors are crafting an offering that will shift the basis of competition in your industry away from your product's core feature set towards a solutions-oriented value proposition.



Look at your products in the context in which they are used. The winners in this game will be customer-centric companies who will do whatever necessary to help their customers solve problems and make more money. Often this requires adding capabilities, services, and/or logistics to an offering.



Partner Up. There's a reason we see so much partnering today: The pace of change, capital investment required, and risk of failure for exploring innovative ideas is so great that almost no company can afford to go it alone. Yet to stay in a leadership position, bold moves must be made.



One answer to this challenge is to develop solutions side by side with your best customers, trusted vendors, industry players, or even your competitors. For years, we saw Microsoft (MSFT) and Intel (INTC) optimize software and chip sets to support the growth of desktop computing. Analyze the ingredients of these successful co-developers and what do you find? Joint recognition of opportunity; proprietary technology; market knowledge; access to distribution channels; willingness to support each other through financial, legal, and structural means; and finally, drive to win.



If you find that your company's opportunities are limited due to its own knowledge and resources, find a situation where this set of attributes can be brought to bear against a vexing issue and see for yourself how two heads can be better than one.



THE NECESSARY CHANGES.

Now for the change part. Neither of the suggestions above can be achieved without concerted and thoughtful change-management efforts. Innovation by its very nature is inextricably linked to change, whether it's realized as a new service, product, process, or business model. Organizations that haven't mastered a competency in change management will be unable to sustainably compete in the future. Here are the key steps:



Become More Customer-Centric. Our research has shown unequivocally that B-to-B companies lag behind B-to-C companies when it comes to understanding customers. Better research and analysis, more contact with customers, and measurement of customer satisfaction can help reverse this trend with the result being more empathy that can be poured into innovation efforts.



Experiment with New Business Models. Businesses that sell commodities based on price are doomed to failure in today's economy. Our cost structures are simply too high. Leaders must promote creative thinking around the value proposition and solve latent needs to move forward into fresh territory. Giving permission is the first step.



Create a "Second Path." Most operating models don't allow for much innovation because they're structured to drive consistent business results quarter over quarter. To attempt disruptive innovation experiments, leaders must recognize that innovation requires failure, that investments must be made, that people make a difference, and that these bold moves are distinct from business as usual. Therefore, a "second path" must be pioneered that recognizes these differences when it comes to supporting innovation efforts.



Six Sigma won't get you there. Opportunities to achieve competitive advantage through the product quality revolution and its cousin -- business-process reengineering, which elevated quality and efficiency concepts above the shop floor and into core business processes and operations -- are mostly tapped out. Six Sigma delivered on its inward-focused promise of maximizing corporate operational efficiency, but it leaves us unprepared to shine the focus outside the organization and onto the unmet, unarticulated, even unrealized needs of your customers.



In a like manner, marketing doesn't equal listening. American auto manufacturers sell only 20% of the vehicles in California. How can we sell just 20% of the cars in our own nation's most populous state? Detroit got so focused on marketing the cars it had to sell that it lost sight of techniques to solicit, hear, independently observe, and act upon its customer's needs and desires. This is an important lesson to relearn -- no matter what industry you're in.