B2B – 3 REASONS WHY DIGITAL DISRUPTION IS KILLING YOUR BUSINESS

DIGITAL DISRUPTION & DISINTERMEDIATION IN B2B BUSINESSES   In this blog, I will discuss the threat of digital disruption and disintermediation for traditional ‘business to business’ (B2B) operating models. Whilst as consumers our day to day lives are impacted by new channels for consuming or buying products and services, the mindset does not seem to have …

DIGITAL DISRUPTION & DISINTERMEDIATION IN B2B BUSINESSES

 

In this blog, I will discuss the threat of digital disruption and disintermediation for traditional ‘business to business’ (B2B) operating models.

Whilst as consumers our day to day lives are impacted by new channels for consuming or buying products and services, the mindset does not seem to have translated to a significant amount of businesses that operate as part of an extended B2B supply chain.

Complacency is leaving a large number of businesses vulnerable, thinking that it will not impact them, as they believe their current route to market, brand strength, product quality, cost base and high market entry costs will shelter them from any serious threat.

Analysis shows us this is not the case. The average tenure of a company in the Fortune 500 fifty years ago was 75 years. Today it is less than 15 years and declining all the time.

 

1) YOU HAVE A TRADITIONAL AND NOT A DIGITAL BUSINESS MINDSET

So how do you develop a digital mindset as a business leader?

Forrester Research definition of how to become a digital business is summed up in the two paragraphs below:

“Digital businesses continuously exploit digital technologies to both create new sources of value for customers and increase operational agility in service of customers’

‘This is a fundamental shift for most firms. It’s more than just bolting on an app or a new website to your existing operating model. It demands a complete rethink of how you engage with your customers and how you deliver value to them”

Far too often the technology/digital strategy is an afterthought or seen as an add-on to the overall business strategy. But it shouldn’t be!

Being digital is about how you can re-think your business operating model to delight your customers and increase operational efficiency with technology running through the plan as the golden thread that brings it all together. New entrants into markets are re-thinking the business model and using new technology as competitive advantage.

 

2) YOU THINK DIGITAL IS ALL ABOUT THE CUSTOMER INTERFACE (WRONG)

 

When you start your journey of looking at becoming a digital business, do not focus only on the customer interface. Technology must be adopted to increase operational efficiency across the end to end supply chain of your business (End to End). Often the automation of back office processes can lead to enhanced customer experiences, through improved communication systems, operational planning, shorter delivery windows and designing out non-value adding activities.

 

3) NOT RECOGNISING DIGITALLY DRIVEN DISINTERMEDIATION IN YOUR SECTOR

What really drives disruption within traditional B2B operating models? It is not the addition of a fancy website with a good SEO strategy (though it may help). The threat comes from your competitors, when their supply chain is delayered, or in simplistic terms they have changed their business model by “cutting out the middlemen”.

This is not a new concept. Walmart have done this to good effect in the UK, procuring produce direct from growers rather than from an importer, meaning they could take out a layer of margin and cost and pass the benefit to the customer thus enabling them to reduce prices in a highly competitive and price sensitive market.

Trying to compete on price alone with competitors in the same sector that have undergone a disintermediation strategy will ultimately lead to sales price erosion, margin loss and perhaps extinction.

The key aspect of the internet in disintermediation is that it has a wider customer reach; therefore businesses scaling up can do so quicker than those that have the traditional operating model and routes to market.

There are three coherent strategies that the traditional company can adopt, and will alter depending upon a number of internal and external factors, but the battleground is for the customer interface:

Full Stack approach

Own the entire vertical supply chain; companies such as Tesla are trying this approach. It keeps profit within the business but is harder to scale and build. This will be difficult to achieve for the typical SME within a B2B supply chain.

Own the interface

The thin transactional layer that sits between the supplier (where the cost is) and the customer (where the money is). This approach is highly scalable but difficult to assimilate from a traditional B2B model, with a very different skill set required.

Hybrid

Depending upon where you are within the supply chain, you may need to address your route to market. The traditional distribution of product and services through bricks and mortar establishments alone will not suffice; therefore reviewing (and potentially pivoting) your route to market is a significant paradigm shift. Especially given that your proposed ‘new’ business model may compete with your traditional customer base. But as more and more business moves online with a simplified supply chain, short lead times and prices that can be compared in seconds through comparison websites, the traditional market is likely to be heading into terminal decline.

 

 

 

This blog was written by Peter Dent as part of his research studying with the Academy of Digital Business Leaders (www.theadbl.com)

 

 

References

http://www.forbes.com/sites/stevedenning/2011/11/19/peggy-noonan-on-steve-jobs-and-why-big-companies-die/

https://greatb2bmarketing.com/digital-marketing/digital-disruption-disintermediation-key-drivers-b2b-companies/

http://techcrunch.com/2015/03/03/in-the-age-of-disintermediation-the-battle-is-all-for-the-customer-interface/#.7qphyk:8CJp

http://darrenhardy.success.com/2015/07/6-ways-to-disrupt/

https://en.wikipedia.org/wiki/Disintermediation

https://www.forrester.com/Digitize+Your+Business+Strategy/fulltext/-/E-RES115755

This blog was written by Peter Dent as part of his research studying with the Academy of Digital Business Leaders (www.theadbl.com)

For further updates on when my next blog will be available please follow me on twitter @denty73 or connect with me on https://uk.linkedin.com/in/peterdent

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