Deep Dive: The coming B2B revolution
Can you think beyond disruption and disintermediation to move toward a more collaborative future for your business community?
In this edition, I start to work on something that has bothered me for a very long time. Most of my work is for real-world companies in traditional value chains across many B2B industries. Every company I know is pressured to modernize their business, most often by digitally transforming or aligning their people and culture with social shifts. They are head-down, working hard, and making progress. But they are dismissed by futurists with a worldview that the future belongs to the mighty few that are entirely new. Existing companies are termed “incumbents” or “legacy businesses,” with the implication that they will go the way of the dinosaurs. I refuse to accept this premise, but I have found little inspiration and far less process to turn the tide. So, in this edition, I call for a B2B revolution and begin to look for a theory of evolution for encouraging and guiding progress. A long journey lies ahead, but this is my contribution offered as a first step in the right direction.
Thinking beyond disruption and disintermediation
Ten years from now, we will look back and recognize a radical transformation of B2B. Change will come from outside disruption and inside innovation across the entire B2B community. Today, the B2B community consists of contractors, dealers, distributors, educators, influencers, investors, manufacturers, platforms, professional associations, purchasing groups, service vendors, thought leaders, technology vendors, trade associations, and more. Community members will evolve, emerge, dominate, decline, compete, and collaborate. Change is happening now and will accelerate. The B2B revolution is coming, and it's going to be a wild ride.
Disruption and disintermediation are the dominating theories for driving change in the B2B marketplace and its channels. Disruption is about innovation from the outside. Marketplaces and platforms seek advantage by eliminating customer frustrations and inefficient services. Disintermediation is about manufacturers creating direct end-customer relationships and selling around indirect channel partners. Both are powerful forces of change built on a backbone of exponential returns achievable through big data and analytics, artificial intelligence, machine learning, digital marketing and sales automation, and other digital technologies.
Although disruption and disintermediation are powerful tools for eliminating excess activities and costs, they come up short as theories for developing foresight for how new and traditional B2B players will coexist in a future market system. Disruptors and disintermediators will undoubtedly capture market share and margins from traditional B2B companies, perhaps putting many out of business, but they will not eliminate all conventional players. Traditional B2B companies will respond to the challenge, morph their business models, and create differentiated customer experiences. New platforms, technology innovators, and data aggregators will emerge. They may work collaboratively with traditional players, allowing them to leverage data and technology to compete in defensible niches—or, possibly, revitalize and preserve the traditional value chain. The future of B2B is uncertain, but it is likely to remain a complicated, dynamic, and uncontrollable landscape, as it always has been.
Toward an actionable theory of B2B innovation
Overwhelmed by digital transformation and struggling to keep up with social change, the many leaders at incumbent B2B companies are hyper-focused on near-term investments, playing catch up as they build digital confidence and react to shifting workforce expectations. These leaders have failed to envision the possibility of radical change, but they know it will happen. In my research, I have found that leaders take comfort that change occurs as a gradual evolution, although they know that generational shifts seem to happen overnight when the pieces fall in place. Amazon Business was launched in 2015 and grew to be ranked as the third-largest distributor by 2019 based on estimated total revenue.
Looking for actionable theories, I have found inspiration in evolutionary analyses of financial markets, organizations, and biological systems, all based on the idea that when forces of change impact complex ecosystems, they self-organize. The B2B community is undoubtedly a complex ecosystem, and its many players act to achieve predictable outcomes around competitiveness and financial returns. In this worldview, companies work in their interest as digital-age technologies and socioeconomic trends enable new possibilities for competitive advantage. Confidence grows as they master digital technologies, react to social evolution, and understand how to redeploy financial and human capital in readiness or evolving business models.
As confidence grows, new strategies and actions follow, including creating new alliances. As one example, the traditional partnership between manufacturers and distributors is very product-centric; the two entities collaborate around taking products to market, adding value, and allocating available margins. As businesses transition to an algorithmic economy based on analytics, artificial intelligence, and connectedness, new partnerships and new alliances will form around sources and uses of data. Data utilization is likely to be a dominant theme defining how the B2B ecosystem self-organizes. Other themes that will influence how self-organization unfolds may include government actions around privacy and antitrust concerns; investment priorities of venture capitalists, private equity firms, and ESG (environmental, social, and corporate governance) activists; and actions precipitated by the demands of powerful mega customers.
Digging into data as a reorganizing theme
Talking with leaders at manufacturing and distribution firms, technology vendors, and startup marketplaces, I have found a strong consensus that B2B supply chains and marketplaces will “run on data.” That is, the power of analytics and artificial intelligence will force changes to achieve optimal efficiencies, enable new products and services, and create revolutionary customer and user experiences. The power of data is taken as faith, although there is doubt about how the change will occur. Digging in, I have unearthed three viewpoints. None is enough to predict how data will shape the future of B2B, but they provide a starting point nonetheless:
Data as benchmarking. Transformative power shifts are achieved by collecting data from manufacturer, distributor, and customer information systems in an online, accessible platform. Incumbent businesses in many verticals and lines of trade have a longstanding and massive thirst for benchmarking data as a tool for driving efficiencies and staying within reach of competitors. But benchmarking has a downside—by benchmarking against presumed good/better/best operational metrics, B2B companies set strategies and initiatives that are primarily about locking in the current business model and doubling down on investments that do not have any possible breakout innovations.
Data for the algorithmic economy. In part, this is about an integrated and collaborative supply chain that runs on data. Retail futurists have a handle on what this means for B2C, and I've started to dig into those perspectives in my recent newsletter, Retail has Foresight. Why not B2B?. For distribution, this could lead to a supply chain that balances hyper-efficiency with the current call for buffer stocks to manage risks during a crisis. But it is also about leveraging data to identify new products and new service opportunities.
Data as connectedness. This is about collecting customer data created by the products they use to run their operations. In the most significant sense, it’s about the Internet of Things, with sensors embedded in products or added in the aftermarket by distributors and other players. In some verticals, data aggregators are emerging to collect data from equipment and combine it with data from other sources, including weather, energy utilization, traffic patterns, and so on. This data opportunity is very much about enabling new business models for distributors, as is the data for the algorithmic economy frame.
Ideas for innovating B2B
The B2B community creates value for customers every day and has a remarkable effect on how we all live our lives and do our work. But the B2B community can and must do more. Through competition and collaboration, innovative B2B companies can help transform our society and economy for the digital age. As the B2B ecosystem self-organizes, a tidal wave of change will wash over all players. Thoughtful companies will survive by creating foresight, developing capabilities, and putting contingency plans in place. Two ideas for working toward a theory of evolution that goes beyond disruption and innovation include:
Imagine a new revolutionary purpose for B2B. Today, the B2B community exists to develop and deliver products and services that help business customers run their operations and take their goods to market. That mission will remain, but reading tea leaves, B2B's future existence may be more about social responsibility: enabling the human condition as more of life and work is done in the virtual world enabled by artificial intelligence; playing a role in great power competitions that are more about innovation and productivity than military deterrence and conflict; transitioning to non-carbon energy infrastructure and economy; enabling living wages and collapsing the wealth gap; thriving through a continuous wave of global crisis (like today's COVID-19 pandemic); transporting civilization to the moon and Mars; or any one of a multitude of future realities that are merely glimmers of ideas today.
Imagine new revolutionary B2B alliances. Consider the long list of B2B community members above that includes contractors, dealers, distributors, educators, influencers, investors, manufacturers, platforms, professional associations, purchasing groups, service vendors, thought leaders, technology vendors, and trade associations. Then expand the list by brainstorming to identify other institutions and organizations outside of B2B that might include governments, utilities, non-governmental organizations, content creators and influencers, artists, publishers and media companies, and more. Looking at the whole list, identify possible powershifts—alliances that change how business is done by repurposing and leveraging assets, capabilities, customer relationships, and so on. Put a team on it and run a contest to see who can create the most plausible, currently unheard of, game-changing alliances.
Join the journey
Every revolution starts with a spark, and this newsletter edition is perhaps the first of many that will explore how B2B will evolve as a complex, self-organizing ecosystem. My goal is to offer a theory of business evolution that is more powerful than disruption and disintermediation—and actionable by every real-world business from SMBs to global enterprises. It's a start and the beginning of a journey. I look forward to your comments, feedback, and suggestions. Don't be a stranger. If you like, reach out directly at mark.dancer@n4bi.com.