Deep Dive: Breaking the B2B innovation logjam

Can hidden secrets help break down the barriers to innovation that exist in so many B2B markets?

In this edition, I return to our quest to look for the hidden secrets that may define the future of distribution, again applying Peter Thiel’s advice as explained in his excellent book, Zero to One. I introduced the need to find “hidden secrets” in my previous edition, Searching for distribution’s undiscovered secrets. Since then, I have spoken with many B2B innovators—at distributors, manufacturers, and digital startups—and found that innovative thinking is a bit of a logjam. Some companies are hyper-focused on building buy-box environments on marketplace platforms, even as hyper-dominant Amazon announced it would open physical stores. Others are looking to implement artificial intelligence only to go where others have boldly gone before—suggesting products that customers may have forgotten to buy, or to tweak out a bit of extra margin through price optimization. We seem to have a crisis of imagination, and by re-reading Thiel’s book, I am convinced, more than ever, that his ideas about looking for hidden secrets and challenging accepted impossibilities are essential for rejuvenating the drive to innovate B2B’s accepted order.

Challenging impossibilities

Perhaps one of the most critical findings in my work, Innovate to Dominate, is that in the digital age, offense beats defense. By this I mean that leveraging technology to protect an individual manufacturer or distributor is defending a solo incumbent against disruption. In the value chain, manufacturers and distributors work together to create value for customers. Finding a way to leverage technology to improve their collaborative results would be something new, and therefore, an act of going on offense. Because digital technology has the potential to create exponential gains, improving the combined contributions of manufacturers and distributors—gains around operational efficiency or customer experiences—could be galactic in scale. Collaborative innovation would be something new, and might not only defend against disruptors, but defeat them.

For many B2B professionals, the idea of manufacturers and distributors working together by pooling data from each other’s proprietary systems is an impossible dream. Suppliers and distributors may need each other to offer a total customer solution of manufactured products, delivered with value-added services, but the partnership is uneasy. Often, manufacturers are driven to achieve growth at all costs, while distributors must relentlessly pursue operating efficiencies. These competing goals, and others, stress the partnership. Both parties are hesitant to share product, customer, and operating data, because doing so limits their leverage in influencing the plans and activities of the other. Data is closely held and kept behind walls. Opportunities for exponentially improving customer outcomes through game-changing collaborations are impossible.

Theil addresses the challenges of impossibilities head on. My reading of his insights is that to accept a challenge as impossible is to deny the history of humankind. Driven by the need to survive and prove one’s existential value, the pursuit of scientific knowledge and engineered solutions has knocked down barrier after barrier and resulted in an ever-accelerating improvement of the quality and duration of life. We are living better and longer. More to Theil’s point, companies that look for solutions to impossibilities are the most likely to find a breakthrough competitive advantage. Solving an impossibility, by definition, is essential for launching a game-changing start up business.

Overcoming convention

An appropriate mindset is essential for finding Theil’s hidden secrets that will fundamentally change how business is done and to knock down impossibilities. The necessary mindset is not about taking a position opposite to conventional thinking, but about thinking for oneself and finding a unique idea. As Theil explains, “every one of today’s most famous and familiar ideas was once unknown and unexpected” and “what important truth do very few people agree with you on?” Impossibilities are impossible until they are not. Hidden secrets about improving customer experiences or achieving breakthrough efficiencies are found in a new truth that contradicts conventional wisdom. Achieving innovations at scale is not an easy task. If it were, everyone would do so. But if a B2B logjam of ideas exists, and if it is to be blown up, following Thiel’s advice is mandatory.

To help light a fuse, I offer an insightful quotation by Joseph Nettemeyer, president and CEO of Valin Corporation, from my work, Innovate to Dominate. Nettemeyer has many ideas about the future of B2B and has had much success in driving change. In this quote, he points to the data created by the Internet of Things (IoT), an enabler creating new value for customers and redefining traditional value chain roles:

The world is changing, and the Internet of Things will change how the value chain works. Distributors can have a role but must plug into critical process and the data created by smart devices. Suppliers like Emerson, Honeywell, and Rockwell Automation manufacture the devices and have their own standards and formats. Big customers that operate equipment and facilities with smart devices will try to disrupt proprietary platforms and drive toward a single standard. As this shakes out, new data will create new value. We’ve seen proof of 25 to 35 improvements in operating performance based on faster cycle times, reduced scrap, and eliminating human error. The opportunity to create even more value is around training, consulting, selling, and supporting the right devices and helping customers manage their data. New partnerships with suppliers will emerge based on new roles filled by distributors.

Reading between the lines, Nettemeyer’s comments point to the impossibility of sharing data between value chain partners. His already-achieved improvements around operating performance encourage finding hidden secrets and shaking the foundations of business. Nettemeyer does not point to those hidden secrets, and Valin may want to keep them close to the vest until they can be acted upon. But the Internet of Things and data-driven innovations are coming to every industry, not just Valin’s industrial markets. With that in mind, I kicked ideas around with a few innovators and have distilled a series of questions that might kickstart a search for secrets hiding in plain sight:

• Can Internet of Things applications move physical value closer to customer needs? IoT data is often associated with tracking performance and predicting equipment maintenance. Working with suppliers, distributors can ensure that a qualified technician is ready to be installed when a replacement part is needed. If resources are coordinated across manufacturer and distributor systems, long-standing metrics around parts delivery and uptime might be replaced. The goal would be instant repairs with uninterrupted uptime. This goal is similar to the flat tire scenario used to explain the concept of “proximity” in an earlier edition. (Robert Wolcott defines proximity as the use of technology to drive the production and provision of services and products closer to the moment of demand.)

• Can “communities” replace “channels” as the primary go-to-market strategy framework for manufacturers? Manufacturers use distributor authorizations to align distributor capabilities and market coverage with the supplier’s business objectives. As contracts, authorizations lock in the status quo partnership. By reimagining value relationships as communities, not channels, distributors and manufacturers can create a partnership to overcome impossibilities. Historically, the exchange of value created by authorizations is about selling products and receiving payment. A new paradigm would be about exchanging data for improved operations. Read here for more on communities and here for new channel strategy fundamentals.

• Should a platform replace the value chain? In my experience, new platforms in B2B are most often conceived as providing customers a new technology-enabled option for placing orders and sourcing products. But as introduced in this edition, there is a growing realization that B2B leaders should conceive platforms as any new method designed to “help users help other users.” This is a fundamental and revolutionary mind shift. Today, manufacturers and distributors carve up available value chain margins by assuming distinct roles that intentionally create value for customers, delivered by the partners. A new mindset could be about aggregating manufacturer and distributor data, adding it to customer data collected from IoT equipment and the customer’s business system, then making that data available for customers to use in a way that benefits all groups. Today, customers compete with other customers, so this idea is about knocking down another impossibility.

Join our innovation community (by asking questions)

I will stop now, after asking the questions above. I did not uncover a hidden secret, but hopefully, I model how it might be possible to break the B2B logjam and move innovations forward by applying new concepts and asking new questions. Your questions, and answers, are likely better than mine. Beating down conventional thinking will take time. Innovation, by any method, is not about overnight change. Nor is it about turning on a lightbulb and achieving a radical idea that immediately leads to change, competitive advantage, or better, a monopoly product or service unmatched by any other player. Theil’s book also digs into establishing a monopoly as the goal of any innovator. As a goal, competitive advantage is more about pursuing best practices, which by definition, consign your business to forever catching up. True innovation is about leaping ahead.

Before I close, I would like to mention a conversation that frequently comes up when innovators from different companies (and sometimes within the same company) are wrestling with protecting their future advantage gained through new ideas. To me, ideas are like best practices in that they should be widely available across industry, market, and economy. Alone, ideas or best practices do not lead to innovations or competitive advantage. Execution is required. And execution requires culture, business processes, collaborations, funding, and more. There is a long way from an idea to innovation, and brainstorming with industry peers (or peers from other markets) is essential. Because of this, mastermind groups and cohorts, both staffed by people from multiple companies, are essential for accelerating B2B innovations.

Thiel’s concept of hidden secrets adds nuance to this discussion. Much work is needed to get from an idea to a hidden secret that can demolish an impossibility. Often, getting beyond ideas to find actionable hidden secrets is a journey must be pursued alone. But not always; partnerships can accelerate progress and mitigate risk. So I might suggest that if your cross-company brainstorming yields an idea that might rise to a hidden secret, don’t pull back. Instead, find a good intellectual property lawyer and craft an agreement about roles, contributions, ownership, and the sharing of future economic returns.

As always, don’t be a stranger. Share your thoughts in the comments section below. If you prefer, reach out directly at mark.dancer@n4bi.com.