Deep Dive: Impact systems create the future

Can we imagine a new approach to B2B collaborations and serving customers that unleashes the power of the digital age?

Welcome! In my last edition, I shared a product-centric, tech-savvy approach for B2B companies to reinvent their business for the digital age. But B2B markets operate not just through the actions of individual companies but through organized contributions of old and new players, including manufacturers, distributors, contractors, marketplaces, networks, vendors, service providers, and more. In this edition, I explore a new model for coordinating multiparty efforts for serving customers and driving change. This approach may replace or radically upgrade the long-standing linear value chain. It is a more actionable concept than traditional ecosystems. My ideas are inspired by Robert Siegel, author of a forthcoming book that explores how the best companies combine digital and physical capabilities. In his conversation with Jeff Jordan and Jeffrey Immelt on an A16Z podcast episode, Siegel introduces the concept of “system leadership.” I run with Siegel’s ideas and invite your comments. Agree, disagree, or help me push further ahead.

Out with the old

Ecosystems are a valuable tool for understanding how markets work in the digital age and for creating business strategies that fit the complex and evolving B2B marketplace. Ecosystem frameworks help companies create unique value propositions and competitive operating models. But ecosystems don’t get things done. Ecosystems can help B2B innovators imagine the future of markets, but they are not a tool for getting to that future.

The traditional value chain doesn’t work, either, as a system for organizing B2B players in light of their emerging and evolving roles. Value chains get things done, but in a very old-school way that does not accommodate the emergence of marketplaces and other platform businesses. Moreover, value chain control systems (for example, pricing, volume incentives, reseller authorizations, and so on) and work to assume the primacy of manufactured products over value-added distribution services. Data and connectivity are rapidly becoming the defining capability for creating value, rendering the value chain’s fixation on pre-deploying inventory to a second-order priority.

In with the new 

B2B markets need a new organizing model. The idea of operating as a “system” works, but not one that parallels the organic interdependencies of an ecological system. As applied in the business world, ecosystems identify species of interdependent business types and classify them by their operating models, created value, network effects, scale, cost structures, and other observable traits. Ecosystems are a valuable tool for modeling how markets work, now and in the future. Ecosystems describe what is and what will be, but they are not a tool for creating change that delivers the future.

A new model must coordinate B2B players not as a top-down, linear chain with each step adding complementary value and delivering a pre-defined solution for customers. Instead, one must acknowledge that B2B companies are pursuing their destinies by updating business models or creating new ones, independent of the plans of others. Digital confidence is destiny, and distributors, manufacturers, and platform businesses harness digital tools in different ways for different ends. By changing their business model, B2B players seek to create change in how customers are served, and they will not be constrained by the pre-determined roles of the traditional value chain.

More than seeking advantage, leading B2B businesses are seeking to create an impact. They seek not just to compete but to transform. As has always been true in B2B, no one company (or type of B2B business) can provide all that a buyer wants and needs across every customer journey and purchase occasion. They must collaborate, but with a model that enables a group of interacting, interrelated, and independent businesses to form a complex and evolving whole. That is a system. A system that serves customers, encourages innovation, and rewards winners. A system that makes an impact.

Naming the new

Progress requires movements—a shared purpose across disparate participants as they work toward a common goal. A new movement often requires its lexicon, with new names, words, terms, and phrases for defining essential methods and objectives. With this requirement in mind, I suggest the term “impact system” as the name for how B2B companies will organize to serve customers and transform how markets work. As an operating model, impact systems are something new, and while the term may make sense, we should show how it is different. Naming it is the first step toward doing it.

Every market’s operating model could be conceived as one value chain or one ecosystem in the past. There might be options or variations within a model, but the overall model worked. I suggest that modern markets will consist of multiple impact systems, with different players or different roles assigned to players, according to the intended impact. Some impact systems may be more or less permanent, while others may be temporal—created for a task and dissolved when finished. I suggest two examples to help the new B2B organizing model get off the ground:

• Digital supply chains. Modern supply chains will run on data, and optimizing overall performance requires data, analytics, algorithms, and artificial intelligence that transcend businesses in the supply chain. A B2B supply chain for the digital age may include manufacturers, distributors, marketplaces, data aggregators, connectivity service providers, and more. At the start, an impact supply chain formed by a core group of revolution-minded companies can show the way and drive change. Over time, most or all players may join the new digital-age supply chain, cementing it in place as the organizing model for the future.

• Connected project solutions. Smart building and smart city trends will result in connected structures, transportation methods, and energy utilities working together for optimal efficiency and maximum employee, worker, and citizen experiences. Getting there will require a new approach to replace how the building products industry currently enables new construction and renovation projects. Now, projects are organized with overall oversight and execution by a line of trade — electrical, plumbing, roofing, structure-building, road-building, and so on. Smart trends are about data connectivity within and across structures, interacting with energy utilities and transportation control systems. Just as data and connectivity may force a restructuring of supply chains, so may they drive a transformation of how buildings and infrastructure are constructed, renovated, and managed. And in the same way, transformational alliances of old and new players, including governments and institutions, may operate as impact systems to usher in the new smart age.

Leading the new

Much work is needed to design and implement impact systems, but after selecting a name, the most crucial requirement is for leaders to emerge. Leaders must see an opportunity and reward in implementing an impact system. They must view the impact system concept to enable a vision, a path forward, and a reason for other leaders and businesses to come together. Doubtless, many of the timeless qualities that have made leaders successful will be essential for executing impact systems. But it is also likely that as we transition from the industrial age to the digital age, new, prioritized, or transformational leadership skills are essential. In the podcast episode mentioned above, Siegel offered four requirements for system leaders. I repeat them here and add a few thoughts advancing the cause of B2B impact systems:

• Operate at intersections. Siegel discussed the need for leaders to understand how digital capabilities and physical solutions work together at the intersection of customer needs. Often, manager and worker expertise are on one side or the other, holding back progress. To my mind, a leader must step in until an organizational competency is created for working as teams, in a company, and across the impact system. Other intersections that require leadership attention include global “sell anywhere” capabilities vs. local market solutions, virtual products vs. human-centric solutions, and new methods for monetizing capabilities that upgrade or replace traditional methods for selling products or services.

• Manage context. As humans, we process ideas through stories. It is in our genes, handed down over eons. Communicating through stories is about setting the narrative. Shared stories provide a human context for understanding change and thinking about the future. I have written here and here about storytelling as an essential skill for B2B innovators. Managing context is about making foresight real. It’s about marshaling B2B players to the cause and helping them see the benefits (and realize the rewards) of participating in the system. Storytelling is an equally important skill for leaders that step up to create (and manage) impact systems.

• Think like a product manager. As B2B markets transform, product strategies are much more critical or transformative than business strategies. Any company’s business strategy is about how the business competes, earns profits, and survives. Customers don’t care about business strategies. Customers care about products, whether a physical product or a virtual one. Systems leaders must put the cart before the horse. They must focus on innovating products as a top priority, then build (or rebuild) a business that can bring the transformational product to life. (Read here for more on product-led innovation.)

• Take risks as opportunities emerge. Few leaders will boldly go where no others have gone before. Some business classes teach the concept of innovating as a fast follower. For system leaders, I prefer the idea of a fast jumper. That is, be ready. Develop foresight for the future of your market—plan for scenarios. Build talent and capabilities in your organization and set expectations with impact system partners. Then, when a credible opportunity emerges, jump in. If prepared, you will know it when you see it. Manage risks, but avoid the risk of forgoing opportunities and overcoming challenges.

Ideas for innovating B2B

I encourage every B2B leader (and innovator) to judge themselves (and their organization) against Siegel’s system leadership requirements, and if you have the right stuff, take the right actions. Perhaps to sweeten the pot, I offer two additional game-changing ideas, again inspired by Siegel’s discussion with Jordan and Immelt.

• Use products to direct impact system activities and investments. Pixel is Google’s low-share smartphone offering, but share may not be the point. Pixel is designed to push best practices around the intersection of hardware and software. Pixel’s product design lessons are intended for Android’s open system app developer community. Similarly, traditional B2B manufacturers (and distributors) may design products (and services) in a way that shows impact system partners how to collaborate, shepherding the role of data aggregators, AI vendors, drone companies, marketplaces, and other emerging B2B players to participate in an impact system.

• Leverage the legitimacy of incumbency. Putting aside my dislike for the word incumbent as a condescending term for identifying traditional companies relative to disruptors and digital startups, there is value in incumbency. Incumbents have long-standing, valued customer relationships. Incumbents have established revenues and profit-generating companies. Incumbents have hills to climb and rivers to cross before they can lead market-wide change through impact systems, but they have already earned the trust of customers and communities. And trust is perhaps the most crucial asset for leadership.

Join the journey

Siegel’s book, The Brains and Brawn Company: How leading organizations blend the best of digital and physical, is not yet on bookshelves, virtual or real-world. But you can find out more about its content and where to buy it here. I’ve placed my order, and after digging in, I will share more ideas for B2B innovators in future editions. In the meantime, don’t be a stranger. Share your thoughts in the comments section below. If you prefer, reach out directly at mark.dancer@n4bi.com.