Digital leaders in B2B achieve up to five times the revenue growth and up to eight times the EBIT (earnings before interest and taxes) growth of their peers according to McKinsey Digital Quotient®. But so far, only one in three companies has deployed digital solutions at scale.
However, sitting and waiting is not an option. Those who fail to take a shaping posture risk being left behind by the competition or cut out of the value chain entirely. Our analysis of the practices of top performers indicates that the principal challenge is to identify the transformation path (or combination of paths) that suits a given company. Digital leaders in B2B consistently have a clear sense of which pathway holds the biggest potential for their business, and once their mind is made up, they pull out all the stops. They free up cash for investments in data, technology, and talent; they think big, they act fast, and they are prepared to adapt their stance as the market evolves.
What does it take to create value from digitisation in B2B? To crack the digital growth code, McKinsey & Company have examined the practices of top performers. In our 2019 benchmarking study, we have identified four promising transformation pathways, or archetypes, that allow B2B companies to unlock digital growth potential:
- Modernise core commercial processes
Companies pursuing this archetype deploy state-of-the-art analytics to optimise commercial functions and achieve sustainable sales growth or margin improvements. Data-driven pricing is among the most common applications in this area.
- Redesign the customer journey
Many B2B customers now expect the same kind of convenience, speed, flexibility, and transparency they are used to from shopping on popular consumer platforms. More than anything, customers want faster service. According to our own survey, “slow response time” is the issue that frustrates them most in their interactions with suppliers (named by 40 percent of all participants, ahead of “pricing issues,” named by 19 percent).
- Disrupt the channel to expand the margin pool
Increasingly, suppliers see digitisation as an opportunity to restructure the value chain, especially when it comes to distribution. Companies that have previously relied on intermediaries take advantage of digital channels to build direct relations with end customers. That way, they capture additional profit and grow sales.
- Build unicorns to secure growth beyond the core business or defend against digital attackers.
In this archetype, companies use their understanding of the industry to develop new ventures, disrupt their own existing business models, and unlock new revenue streams, typically using a stage-gate financing approach. Of all archetypes, this one is most removed from a company’s existing operations. This is also why it can be pursued in parallel with other pathways, provided sufficient resources and funds are available.
To build new ventures that have the potential to grow into unicorns, successful players often adopt a venture capitalist’s approach. They prioritise opportunities according to their potential value and develop a venture portfolio. The challenge is to keep new businesses sufficiently close to the parent company for them to benefit from its critical mass, yet separate from the corporate hierarchy, in order to foster the entrepreneurial spirit of a start-up company.
Enablers to deliver impact at school
In addition to the strategies and skill sets that are specific to the different archetypes, our analysis of top digital performers in B2B has revealed four enablers that help create strategic advantages, de-bottleneck digital transformations, and deliver impact at scale:
- Talent – Build bench of technologists and translators. Successful enterprises excel at attracting and developing best-in-class digital talent, including translators who help bridge the gap between experts and executives. New talent is especially important to overcome organisational inertia and foster innovation that goes beyond the established route to market or beyond the existing business.
- Agility – Use agile teams for technology delivery. Traditionally, many B2B companies rely on fixed, sequential processes and ways of working. To accelerate digital transformations, companies should take advantage of more flexible, adaptive models in which resources are deployed based on value-creation opportunities, rather than on protocol.
- Technology – Decouple the legacy technology stack. The most successful players in our sample pursue an approach where the platforms for new digital solutions are decoupled from slower legacy systems. This allows companies to develop MVPs more quickly and add new use cases as opportunities arise.
- Data – Extend to external, unstructured, proprietary data. Digital pioneers extend the database beyond the most common sources, such as customer and transaction data. They also leverage product-related data, sales-force performance indicators, communication metadata, and data from external sources, such as social media, market reports, weather forecasts, and competitor offerings.
Do it like you mean it
For manufacturers and providers of services, digitisation is at least as much an opportunity as it is a threat. To fortify their position, they should shape the change and think big. They should be prepared to reinvent the way they serve their customers, either by redesigning the customer experience or establishing a direct channel. They should also be willing to go against the grain of existing organizational structures to create the optimal setup for the digitisation archetype they choose to pursue.
Written by Dieter Kiewell, Senior Partner at McKinsey Marketing and Sales.
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