Digital disruption has the potential to overturn incumbents and reshape markets faster than perhaps any force in history. Yet fully 43% of companies either do not acknowledge the risk, or have not addressed it sufficiently. Nearly a third are taking a “wait and see” approach, in hopes of emulating successful competitors.
This is the finding of an extensive worldwide study conducted by the Global Center for Digital Business Transformation (DBT Center), an IMD and Cisco initiative. The Center surveyed 941 business leaders around the world in 12 industries. The results of its survey surfaced several troubling findings about the potential for disruption, and incumbents’ readiness to adapt.
Survey respondents believe an average of roughly four of today’s top 10 incumbents (in terms of market share) in each industry will be displaced by digital disruption in the next five years. Despite these dire ramifications, digital disruption is not seen as worthy of board-level attention in about 45% of companies (on average across industries). Only 25% describe their approach to digital disruption as proactive—willing to disrupt themselves to compete.
Digital business transformation is a business’s attempt to adopt and deploy digital technologies and business models to improve performance quantifiably. The first step of this journey is to grasp the need for change—an imperative driven by the inevitability of digital disruption. Digital disruptors are commonly seen in consumer technology and fintech. Amazon has long since ceased being just a retailer and now offers cloud computing services to virtually every sector.
But what about B2B companies whose businesses are not directly technology based? Michael Wade, director of the DBT Center argues that midmarket B2B companies are beginning to awaken to the threat and are taking proactive steps to put their companies on a digital footing. He cites three cases where midmarket firms responded to market changes.
Apparel maker Hummel began selling to online retailers in 2005. At around the same time traditional brick-and-mortar retailers also were building an online presence. Each side of the business was siloed, which led to inconsistent and confusing brand statements for the company’s clothing. Basically, Hummel lost control of its brand strategy. To get it back, the company came up with a digital strategy to drive customers to its own website, but at the same time, to de-emphasize direct B2C selling by building a shop-in-a-shop concept for its wholesale and retail customers. To do this, the company hired a chief digital officer who reported directly to the CEO.
B2B customers needed to be convinced of the benefits of Hummel moving to a unified, omnichannel brand strategy managed by Hummel themselves. Clear advantages needed to be demonstrated in terms of increased revenue. Hummel focused heavily on support for B2B partners through improving their e-commerce platform and providing in-house, online brand-backup for retailers. They also introduced initiatives and innovations to enhance the physical in-store experience for customers such as the ‘virtual wall’, holograms and direct access to the whole Hummel catalog through mobile and fixed devices. The entire initiative was driven by a unified annual sales and marketing calendar which the B2B customers participated in creating.
The proof of a carefully planned and executed digital transformation strategy can be seen through a number of key metrics, as well as in the company results. Total sales went from $170 million in 2010 to $240 million in 2014. Online sales grew from 5% to 21% of revenue and website visits jumped 0.22 million to 1.25 million.
Tetra Pak offers much more than just packaging equipment for liquid food products. It also provides a range of processing and packaging technologies for use with a broad array of products, from ice cream and cheese to fruit, vegetables and pet food. The company supplies complete systems for processing, packaging and distribution, designed to optimize the use of resources.
Because they have few direct competitors, the company was slow to create a digital platform. Several years ago, Chinese competitors began placing barcodes on their packages both to track products and to help with quality control. Tetra Pak responded by coding its packages as well, but went one further by placing sensors on the packaging machines it sold. This required a major change in its manufacturing process, but it resulted in achieving greater mastery of how its machines performed owing to use of analytics. The company was able to anticipate when its machines were likely to go down, allowing Tetra Pak to intervene and permit its food company customers to limit downtime, a big advantage it didn’t have before. The digital transformation was conducted by a group of interdisciplinary teams that collectively reported to the CEO.
As a midsized elevator company competing against industry giants like Otis, Schindler and ThyssenKrupp, Kone decided that forming a technology partnership with IBM would provide a leg up on gaining data. Elevators weren’t being replaced by digital products, but improving the experience was something the company thought it could do. This involved using analytics and developing apps to improve the experience.
Most buildings don’t have any idea how many people use their elevators or times of day when it is used most often. Having an app that can “summon” an elevator at busy times was seen as useful. Kone uses artificial intelligence to learn and forecast a building’s traffic flows. When traffic intensity changes, the control system assesses the changing traffic patterns and alters its optimization routines accordingly. During lighter traffic periods, passenger waiting times or elevator energy consumption can be optimized, while during heavy traffic periods the elevator handling capacity is increased.
Wade says the message for B2B companies is “don’t wait for a competitor to generate new offerings. A digital competitor always enters when you least expect it.” Only 31% of companies are actively developing a counter digital strategy or willing to disrupt themselves. Don’t wait for the anvil to drop on you, he argues.
Questions Wade thinks CEOs of B2B companies should ask themselves:
Which capabilities are required to increase cost value, experience value, or platform value for customers?
How can we combine capabilities to magnify the value our customers receive?
To what degree do we possess these capabilities today?
To what degree do competitors—both traditional foes and “over-the-top” players—possess these capabilities?
If the landscape shifts dramatically due to digital disruption, how quickly can we adapt?
Are our people, processes and technology agile enough?
How do we increase the agility of our organization to ensure we can fend off (or capitalize on) new disruptions?