Deep Dive: Radical metrics
Is incremental measurement essential for the revolution of business-to-business markets?
In this edition, I expand on the idea that the coming B2B revolution is about the radical reinvention of every business model in the B2B ecosystem, starting with customer business models and working back to reinventing manufacturer and distributor innovations. I propose that this radical reinvention begins with a simple premise and a far-from-revolutionary method: By committing to help customers modernize their business models and by measuring progress through a modified Net Promoter Score methodology, B2B innovators can kickstart a process that will reinvent the entire B2B ecosystem. Radical change is possible, and perhaps inevitable, and it begins with accepting a decidedly non-radical mantra: What gets measured gets managed.
Toward a virtuous cycle for radical change
Every business is challenged to reinvent itself in the digital age to take advantage of transformative digital capabilities, including data, analytics, artificial intelligence, automation, digital marketing, and more. Every manufacturer and distributor I know seeks to master these technologies for competitive advantage, measuring success in operational efficiencies, marketing, sales productivity, and differentiated customer experiences. This is all well and good, but it misses a vast and radical opportunity. Every customer is attempting the same transformation and, like manufacturers and distributors, is struggling with uncertainty. Instead of focusing solely on modernizing their own businesses, B2B companies have a window of opportunity to help customers find their future.
Helping customers find their future is a tough challenge because it is not about understanding customer needs, but rather about discovering customer opportunities. It is about innovating the customer’s business, then working backwards to innovate your own. That’s a kind of two-step innovation. Success requires foresight for customers they may not have for themselves. In Innovate to Dominate, I recommended Christensen’s jobs to be done framework (also discussed in my earlier newsletter edition here) as a method for exploring why customers might hire your company to advantage their business. In my experience, application of this method sometimes leads to stand-alone, game-changing innovation opportunities, but not often. The most frequent outcome is a gradual alignment of the supplier’s culture, processes, products, and services with customer opportunities. In reality, this is a more powerful outcome because it leads to a sustainable partnership. Innovation happens slowly and then quickly, meaning that even the most game-changing innovations are the result of a continuous process of trial-and-error ideation and small, incremental gains.
The implication for suppliers, distributors, and manufacturers is that a commitment to helping customers innovate their business model is a commitment to disciplined and sustained effort over the long haul. And that fact, more than any other, leads to the importance of measuring the impact of innovations because what gets measured gets managed—by the customers and by the supplier. Mutual recognition of incremental value opens the door to continuous innovation. Measurement radicalizes the relationship from one defined as supplier and customer, to one that is about mutuality, collaboration, and partnership. Over time, it’s about boldly going where neither party has gone before. (For another imaginative application of the measured/managed mantra, take a look at this Harvard Business Review article, ESG Impact Is Hard to Measure — But It’s Not Impossible.”)
To progress, build trust
Measuring the impact of innovating the customer’s business model means collecting data in the customer’s business systems. For a vendor, this is a hard row to hoe. It requires that customers open their proprietary platforms. Collecting data from a smart product sold to customers or monitoring data associated with services provided for customers are close approximations. Still, they are not direct observations of gains created in a customer’s business.
Accessing customer data requires trust, and building trust takes time. I recommend a simple but powerful first step: Ask customers if your business has created value for their business and create a virtuous cycle of effort and reward. That is, work to create value, ask customers if you did create value, refine your work, and ask again. Over time, customers will unlock their data systems or provide access to their people for direct, sustained observations. Then the process can be upgraded to measure created value using the customer’s data in a continuous and sustained manner. Confirmation of created value, combined with data that measures that value, will lead to sustained, incremental gains and high-impact innovations over time.
Don’t promote, create!
All of this requires hard work and new measurement metrics, but the good news is that a popular approach for measuring customer experiences can be modified for measuring created value. In Distribution Leans In: Stories of Resiliency and Innovation, I suggest adapting the Net Promoter Score metric for use as a Net Creator Score. The following is an adaptation of that approach for all B2 companies, not just distributors:
The Net Promoter Score (NPS) is a powerful tool and widely adopted for measuring customer satisfaction based on asking customers a simple question: “How likely is it that you would recommend our company (or products or services) to a friend or colleague?” Customers answer by responding on a scale, usually from zero to 10. Customers that respond with a score of 9 or 10 are deemed “promoters.” Customers that respond with a score between 0 and 6 are deemed “detractors.” Respondents in the middle are referred to as “passives,” and their responses are discarded. A company’s NPS is created by calculating the difference between promoters and detractors to determine a positive or negative rating and magnitude. There are complications, but NPS has become a ubiquitous tool for measuring customer satisfaction and enabling comparisons with other companies or benchmarks against standards.
Borrowing on the simplicity, usefulness, and very wide acceptance of the NPS metric and methodology, I recommend that B2B innovators adopt a Net Creator Score (NCS) index built around an equally simple question: “To what extent has ACME (a B2B Company) created value for your business through new products or services? Customers that rate a B2B company’s created value at 9 or 10 may be termed “advantaged” as they benefit from the B2B company’s innovations. Customers that rate a B2B company’s created value from 0 to 6 could be referred to as “indifferents,” because new value was not created, or perhaps, not noticed. Results from customers in the middle would be discarded as “fence sitters.” Comparing results from advantaged and indifferents would determine a positive or negative NCS rating and magnitude. Positive results make a B2B company a Net Creator.
Context is essential, and I encourage B2B companies to measure their NCS across a wide range and a large number of customers and then look for differences by customer segments, demographics, applications, markets, business models, and so on. NCS scores can also be measured by the type of innovation implemented by a manufacturer or distributor and variables that might include required investments, game-changing potential, data/AI/automation, and more. Much work is needed to establish NCS as a standard practice for B2B innovators. Still, I expect that the initial findings, however imprecise or inconsistent, will yield extremely valuable insights for ongoing innovation initiatives and investments.
Ideas for innovating B2B
Creating the most powerful innovations in a customer’s business requires deconstructing and reassembling the traditional paradigms about the existing B2B value chain. This is because the current value chain is a partnership between manufacturers and distributors that work collaboratively to serve customers while optimizing their own results. But the theme of this newsletter edition is that the most potent B2B innovations will flow from helping customers modernize their business model and letting those innovations redefine what it means to be a B2B company. Essentially, by innovating customer business models, manufacturers and distributors will modernize, and perhaps reinvent, their own.
Two previous newsletter editions point to new paradigms for achieving radical reinvention of every business model in the B2B value chain:
Will the future of work reinvent B2B as customers reinvent their workforce? As customers radically reform to work around projects, not processes, they will staff efforts with work teams that include workers that are not their employees. B2B innovators may embrace this approach as they create value for customers by helping them innovate their business models.
Can new data collaborations revitalize the value chain and spark a B2B revolution? In the near future, the value chain will run on data. This future requires that manufacturers and distributors reimagine their partnership away from adding value to products and toward creating value through shared data. Again, B2B innovators may champion this new paradigm as they create value for customers by helping them innovate their business models.
Join the journey
As far as I know, no B2B company is currently using a Net Creator Score methodology for any purpose, let alone creating a virtuous cycle for radical innovations. I would welcome the opportunity to explore how the ideas and suggestions in this edition might be implemented to achieve this end. Please feel free to provide your thoughts or experiences in the comment section below or reach out to me directly to kickstart progress at mark.dancer@n4bi.com.