Deep Dive: In pursuit of digital collaborations for B2B services
How can manufacturers and distributors work together to further the cause of game-changing services in the digital age?
Way back in the 90s, much of my channel work focused on creating multichannel strategies and programs for manufacturers. Many suppliers realized they needed to optimize multiple routes to market in order to gain maximum market share. Companies that sold direct recruited distributors. Manufacturers committed to distribution developed direct sales channels. Then, big boxes and integrated suppliers emerged and were added to the mix—after the shock of dealing with new power players was overcome. I was reminded of this time as I read McKinsey & Company’s article, “How to boost growth in industrial services: Better customer experience” by Hugues Lavandier, Hyo Yeon, Senthil Muthiah, and Kevin Neher. The authors lay out a clear path for improving customer service experiences for OEM products, but the article does not mention distributors. This is a missed opportunity. Distributors are working hard to become customer experience companies, shifting away from their legacy as business models designed to take orders and deliver products. I wonder if OEM service businesses might grow faster, gain more share, and create new customer value through collaboration with distributors—especially if those collaborations are designed around doing business in the digital age. In this edition, I share ideas that stand out in McKinsey’s article and add perspectives on B2B innovation and the future of distribution. I encourage you to read the article and push your thinking forward.
Consumer experiences have nothing to offer
To begin, I start at the end. In a summary paragraph, Lavandier et al. argue that customer experiences are changing, and they stress the importance of personalized services enabled by “digital tools they [customers] have become accustomed to having in their personal lives.” I agree that digital experiences as consumers influence expectations for what people expect of technology at work, including how they acquire products and source services. But the influence of consumer technology has been around for many years, and high-quality digital experiences designed to meet complex business needs are accelerating. Digitalization of consumer service experiences may have gotten off the ground more quickly than business applications, but by comparison, consumer needs are easy.
Moreover, consumers provide a mass-market, attracting startups, disruptors, and investors. B2B innovators should understand consumer offerings, but aim for services enabled by digital tools that address business customer demands for return on investment, measurability, accountability, automation, skilled worker job evolution, long-term collaboration, and more. Doing otherwise is shortsighted and misguided.
Offering industrial services enabled by digital technologies opens the door to new manufacturer/distributor collaborations—baked into integrated channel and service strategies, policies and authorizations, revenue recognition and margin allocation, and data-based partnership models over time. As reported in Innovate to Dominate and Distribution Leans In, the most innovative distributors embrace customer journey mapping and digital tools to invent new customer experiences that will define the future of distribution as value-creating, human-centric, and data-enabled. The opportunity for collaborative design and execution is grounded in what remains unchanged—manufacturer and distributor business models are complementary, and they create improved and expanded outcomes for customers compared to solo pursuits.
Collaboration is a monumental undertaking
Getting back to Lavandier et al.'s insights, their article offers five frames for optimizing OEM service experiences. Each of the headings below is one of the frames. I add insights from my work and the published work of others. I hope to dig deeper and build the case for a digital-age collaboration between manufacturers and distributors around the services offered by manufacturers to customers. I do so with my eyes wide open. I fully understand that services are a growth and profit sweet spot for manufacturers, and that service customers are perhaps the ripest plums in the customer services orchard. Business customers, especially those that procure value-creating OEM services, are often sophisticated, forward-looking, capital intensive, and data-savvy.
If a manufacturer’s service offering is succeeding, why would they let distributors in the door as partners? Why indeed? I can only offer Peter Thiel’s wisdom that, “Every one of today’s most famous ideas was once unknown and unsuspected.” Said differently, in the digital age, seeing the impossible is essential to avoid being blindsided by others. Much work lies ahead. Let’s get started.
Know key customers.
To know is to understand. Psychology professor Harry Reis argues that mutual understanding is perhaps the most crucial ingredient for creating successful personal and professional relationships. Lavandier et al. make a similar argument for relationships with OEM customers:
Companies need to know who the key decision-makers are for specific customer journeys and what each one values in order to deliver on that value. OEMs can gain insights into needs by conducting interviews and surveys, or by asking sales or service representatives who regularly interact with the client. Once OEMs know which people to craft customer journeys for, they can determine how to craft the journey and how to measure whether or not it’s effective.
Manufacturers and distributors know the same customers, but from different perspectives grounded in business models built for purposes that are not the same—which may enable more profound knowledge and better understanding. OEMs understand decision-makers through the lens of product performance, while distributor understanding is aligned with operational execution. By combining customer knowledge gained through human experiences and each party’s data and analytics, OEM services may address the impact on discrete product performance and overall operations and foster a collaborative capability to optimize total cost of ownership, quality, worker productivity, logistics management, and on and on.
It's important to note that Reis calls for mutual understanding, which in B2B requires data transparency and human contact. Distributor employees are in more frequent day-to-day contact because their people live and work where customers live and work. Manufacturer contact is more episodic, but offers intensive visibility to product and application information and insights. Both parties have digital data. Distributor ERP systems contain the nuts-and-bolts data of orders, costs, and deliveries. Manufacturer products offer a digital representation of equipment functioning for monitoring, repair, energy use, and so on, if enabled with IoT capabilities. Working together, manufacturers and distributors may offer key customers deep and powerful mutual transparency to build solid relationships and unbreakable bonds.
Understand how customers want to interact—and why.
In Harvard Business Review (HBR) article, “What do Customers Really Want,” Eric Almquist and Jason Lee argue that “product design virtuosity, high-powered market research techniques, and copious customer data” too often lead to solutions that “suffer from ‘feature creep’ or the return of billions of dollars’ worth of merchandise by customers who wanted something different after all.” This thinking applies to the design and delivery of OEM service experiences at key customers, and Lavandier et al. call for well-designed communications:
How a customer prefers to communicate with an OEM may depend on the industry, type of service, or specific customer journey. Some may want to be in touch all the time, especially if they have equipment that a vendor’s field-service team regularly maintains. Other customers may want to communicate only when they make a purchase. Whatever the case, a company can use its existing customer interactions to pinpoint trouble spots and decide which communication channels to use to improve them.
For consequential B2B customer investigations, I often argue that storytelling is a critical and underutilized tool. Storytelling gathers insights into a narrative that includes a plot, heroes, and villains in the pursuit of overcoming difficulties to survive and thrive. By adding storytelling as a research process, distributors and manufacturers may gather more actionable insights about customer interaction preferences. And by telling stories with customers, all parties will build a service-centered relationship that is open to investigation and problem-solving in a very human way, reinforcing the impact of interactions to achieve company, professional, and personal ambitions. Storytelling builds communities, and community values are essential for delivering sustainable returns through OEM services.
Provide a mix of analog and digital.
In Deep Dive: Making space for work, I argue that B2B companies can reimagine physical spaces with radical ideas that give customers, employees, and communities a place to do their work. My thought is inspired by Brian Chesky, co-founder and CEO of Airbnb, as shared here. Chesky describes Airbnb as a “three-dimensional” business, meaning a tech company that operates in the real world, facilitating experiences in physical spaces. It seems that B2B companies are the opposite—physical-world companies that facilitate experiences in digital spaces. The best B2B innovators will do so seamlessly, creating immense customer value. Lavandier et al., get the ball rolling:
Not all improvements have to be digital. Digital services can strike a balance between what the customer needs and what the company can afford to provide. A steel company, for example, might assign account executives to service its largest customers but direct smaller ones to order parts online.
And in a related article, Finding the right digital balance in B2B customer experience, other McKinsey authors argue digital experiences can offer benefits that may overwhelm traditional barriers. That is, speed beats price:
Business-to-business customers are already demanding a better experience. In a recent McKinsey survey of 1,000 B2B decision makers, lack of speed in interactions with their suppliers emerged as the number-one “pain point,” mentioned twice as often as price. And digital solutions loom large in executives’ thinking as a way to make routine tasks more efficient. Some 86 percent of respondents said they prefer using self-service tools for reordering, rather than talking to a sales representative.
Increasingly, I advocate that proximity is more important than coverage in designing channels. Proximity is the use of technology to shorten the time between a customer's need and the delivery of a solution. In traditional channel strategy, coverage is achieved by selecting channel partners that serve targeted customers. A new digital age collaboration is emerging to accomplish better outcomes. Proximity is a North Star for designing digital experiences, optimized through new distributor and supplier working arrangements.
Manufacturers may deliver improved customer service experiences by partnering with distributor leaders on a mission to shorten the time required to answer a question, solve a problem, or deliver products through human and digital means. By pooling capabilities and integrating processes, a kind of hyper-coverage is achieved. Traditionally, coverage is thought to be intercepting customer needs as they happen, but digital-age coverage predicts customers’ needs for proactive solutions. The careful integration of analog (human) and digital (virtual) experiences is mandatory.
Identify and fix customer pain points.
Metrics are a fundamental tool for monitoring performance and sometimes diagnosing problems and finding solutions. Lavandier et al. offer a practical example:
One industrial OEM identified a poor sales experience as the reason for stagnating revenue. The company wasn’t sure which part of the sales journey to fix to yield the biggest payoff. To find out, the company established baselines for key metrics including sales per product, sales per customer, and total sales, and ranked the relative importance of each. To determine the value that it could derive from specific improvements, the company analyzed the key metrics, customer-satisfaction survey results, and other data. It also interviewed customers to understand their preferred sales process and the process improvements that could change their buying behaviors.
An updated version of demand centers, applied in the context of OEM services, might provide a path to digital age execution by finding and addressing customer pain points. An HBR article, “B2B Customers Expect More Than Ever. Demand Centers Can Help” explains, “Business customers increasingly control how they buy. They expect to engage with the companies they buy from through a coordinated blend of human and digital experiences and sales channels.” Modern demand centers diminish reliance on pre-planned marketing campaigns and proactive sales processes. Instead, customer touchpoints are served with digital experiences and rapid deployment of human resources. By collaborating with distributor partners to optimize OEM services, a platform built on coordinated digital presence, social media messages, human knowledge, and AI-enabled rapid response, might put service customers in control. The goal would be to help customers find and procure OEM services and put them in charge of how services address their pain points.
Monitor progress and update as needed.
Peter Drucker, exalted management guru, is famously quoted as saying, “What gets measured gets managed.” Lavandier, et al., are on the case:
As initiatives roll out, OEMs can keep a pulse on the impact that they’re generating. Among data points to track: if initiatives are working as intended, what customers are saying about revamped customer journeys, and if journeys are working well, whether it’s time to move on to the next fix. By collecting feedback, OEMs can also determine if additional refinements are needed.
But what about performance drivers that can’t be measured? Should they be ignored? Larry Prusak argues that judgment is a highly consequential personal skill in an appropriately titled HBR article, “What Can’t Be Measured.” Elsewhere in HBR, Sir Andrew Likierman opens with, “A decision must be made. The facts have been assembled, and the arguments for and against the options spelled out, but no clear evidence supports any particular one. Now people around the table turn to the CEO. What they’re looking for is good judgment—an interpretation of the evidence that points to the right choice.” Likierman then defines judgment as “the ability to combine personal qualities with relevant knowledge and experience to form opinions and make decisions” and offers six components—learn, trust, detachment, options, and delivery—as improvable skills for developing and exercising judgment.
Wow. By managing what can be measured and offering judgment for what can’t, I can imagine a hugely influential brand for OEM services, delivered through combined human and digital knowledge, experience, data, and analytics. Hard to do? Yes. Worth the effort? Definitely.
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Hat tip to reader Steve Bernstein for letting me know about McKinsey & Company’s article, “How to boost growth in industrial services: Better customer experience.” Steve adds this sage advice:
The world has changed, and buyers are far more in control of their destiny. Change is an opportunity for those who grab it. Companies that focus on the customer are favored to win by a long shot (think Uber replacing taxis, Netflix killing Blockbuster, and all the others disrupting various industries). Steel manufacturers can benefit from focusing on the customer’s experience and their success (desired outcomes) per this McKinsey case study: Building a customer-centric B2B organization. Don’t be roadkill!
In Deep Dive: Shooting for the moon, I posited that the future of B2B innovation is collaboration, integration, and optimization to better serve the customer’s customer. Calling for manufacturers and distributors to work collaboratively, share data, and integrate processes to deepen and expand OEM services is nothing if not a moonshot. As customers, service buyers are the most prized and protected relationships for distributors and manufacturers. The insights and arguments presented above point to opportunities that will not be realized without new mindsets and committed leadership. I offer three provocative questions to help kick down doors:
Are you aware of new and emerging B2B innovations for creating powerful business customer experiences? Or, are you stuck on stupid, looking for inspiration only from consumer experiences?
Does your talent strategy recruit high potential employees with distribution experience if your company is a manufacturer? If a distributor, do you recruit from manufacturers? How can you hope to discover and develop game-changing partnerships if you are organizationally blind to the other side?
Does your company have a strategic framework that embraces collaborative partnerships to pursue your most strategic accounts? Or do proprietary concerns preclude partnerships? Does your professional subconscious screen collaboration opportunities before they enter your rational mind for consideration?
As always, please share your comments, ideas, experiences, and direction below. Don’t be a stranger. Click here to schedule a call or send me a note at mark.dancer@n4bi.com.