By focusing on the right digital practices, B2B companies—currently trailing B2C companies in digital transformation—can create long-term value. Here are six areas where digital leaders excel.
Far from standing on the sidelines, B2B companies have embraced the digital revolution. Most are outpacing consumer companies in digitizing back-office workflows and resource planning and in modernizing their existing IT architectures. But those efforts have tended to focus on internal cost and process efficiencies and less on innovating around sales and the customer experience—and that’s where the real growth is.
Digitization has made providing consistent, high-quality customer interactions a competitive differentiator, no matter the channel. B2B companies need to adjust accordingly. Right now, however, selling models remain firmly planted in the offline world. Company websites, though rich in product descriptions, are often little more than digital brochures that fail to provide an easy way for customers to buy. And while sales teams are working harder to navigate deals that stretch longer and involve multiple influencers and buyers, they often lack (or are unable to apply) the analytics needed to manage the sale profitably, understand who the real decision makers are, and what sorts of outreach might prove persuasive.
It’s not going to get any easier. B2B players must contend with shrinking product shelf lives, greater price transparency, and a changing cost basis on the one hand while simultaneously growing the capabilities needed to create consumer-like experiences on the other, with personalized service and hassle-free purchasing across platforms and devices. Nontraditional players like Amazon Business and Alibaba are already cashing in on this trend by providing business buyers with simple and convenient digital marketplaces.
So what to do? Our research is clear: by investing in a targeted set of digital capabilities and approaches, B2B companies can improve their financial performance—and not just by a percentage point or two. Rather, the B2B companies that master these areas are generating 8 percent more shareholder returns and a revenue compound annual growth rate (CAGR) that is five times greater than the rest of the field.
The digital practices that drive high performance
Over the last three years, McKinsey & Company has measured the Digital Quotient® (DQ™) of approximately 200 B2C and B2B companies around the world by evaluating 18 management practices related to digital strategy, capabilities, culture, and organization that correlate most strongly with growth and profitability.
The study shows that B2B companies trail consumer companies in terms of their overall digital maturity: the average DQ score for the 50 B2B companies in our study was 28, compared with 35 for consumer companies (Exhibit 1). While that might not be surprising—B2B companies, after all, generally contend with a more complex environment, longer deal cycles, lengthy RFP processes, the involvement of many vendors, decision makers, and influencers—comparing the scores of B2B and B2C companies was helpful in order to reveal and better understand those areas where B2B companies could most profitably improve.
Moving up the digital curve matters because B2B digital leaders turn in stronger financial performance. Top-quartile B2B players generate 3.5 percent more revenue and are 15 percent more profitable than the rest of the B2B field (Exhibit 2).
Our research shows that six digital practices have an outsize impact on performance. These are the areas in which digital leaders excel and where B2B companies can do better.
1. Commitment to digital at a strategic level
Outperforming companies create digital strategies that are designed to make and shape markets, and they back those efforts with the necessary resources. At most B2B companies, however, digital strategy is a sideshow. Initiatives are less likely to be anchored in customer needs and often falter from insufficient investment. Only 10 percent of the B2B companies in our survey, for instance, said that digital was a top investment priority. When held off to the side, digital strategies often splinter into smaller initiatives that are too diffuse to gain momentum and too limited in scope to make a material difference. As a result, top-quartile B2Bs across sectors have an average DQ of 44, compared with 50 for consumer companies.
But some B2B companies are breaking that mold and embracing an “all in” digital strategy. Knowing it needed to make significant changes to compete as a modern digital business, for example, GE made an audacious move, investing more than $1 billion to create a new market around the Industrial Internet. To make its digital strategy the de facto way of operating, GE consolidated each business unit under a chief digital officer. CDOs report to the CEO of the business unit (who in turn reports to the CEO of GE Digital) and have final say on platform investments. GE also went on an ambitious hiring spree, bringing in thousands of new software engineers, user-experience experts, and data scientists to acquire needed skillsets and embed the right innovation mind-set.1 1. The Wall Street Journal CIO Journal, “GE Digital CEO Bill Ruh says corporate structures must evolve with technology,” posted by Steve Rosenbush, January 13, 2016, wsj.com.
Strategic shifts like that are hard. They require gaining management consensus around a shared vision, challenging time-honored institutional truths, and learning new skills and practices on the fly, but it can make a huge difference. GE’s ambitious technology platform now generates $5 billion in revenue and the company estimates that business will triple to $15 billion by 2020.2 2. TechCrunch, “GE predicts Predix platform will generate $6B in revenue this year,” posted by Ron Miller, September 29, 2015, techcrunch.com.
2. Creation of consistent experiences online and off
B2B buyers who interact with multiple channels, such as field sales, online web stores, and so on, spend more than those who only purchase from a single channel. Taking advantage of that fact takes strong cross-channel integration. But even though the average B2B customer now uses six different channels over the course of their decision-making journey, many B2B companies struggle with disjointed selling models that make it hard for customers to move smoothly from face-to-face interactions to the online environment (see “Do you really understand how your business customers buy?”). Mobile especially has changed the way B2B decision-makers interact. More than 90 percent of B2B buyers use a mobile device at least once during the decision process,3 3. Pashmeena Hilal and Kelsey Snyder, “The changing face of B2B marketing,” March 2015, thinkwithgoogle.com. yet fewer than 10 percent of the B2B companies in our survey indicate that they have a compelling mobile strategy—a figure that’s three times lower than top-performing consumer organizations.
B2B leaders are doing things differently. At the Netherlands-based bank ING, for instance, corporate clients have a single point of access to real-time account overviews, customized reporting, and the ability to execute payment and hedging transactions wherever they are in the world.4 4. ing.world, “ING’s multichannel approach: anytime, anywhere,” interview with Nick Jue, Quarter 3, 2014, ingworld.ing.com. To make that happen, the bank had to overhaul its customer-data processes and make it possible for information to be updated across all channels automatically. Now customer-service personnel, marketers, and account managers can track where a customer is in his or her decision-making journey and respond with tailored offers and advice. In the first year after launching its omnichannel strategy for retail and corporate clients, ING grew profit by 23 percent, increase