The importance of the B2B and B2C digital technology gap
- Summary:
- McKinsey thinks there is a gap between the way B2C and B2B customers have taken up digital technology. Is the gap meaningful?
Humans are very good at making comparisons so that they can discover differences and then evaluate whether or not a difference or gap is good. Unfortunately, humans can also see gaps when there are none. To me this is part of the anchoring heuristic first discovered by Kahneman and Tversky about which I have written a few times recently.
Think of anchoring as putting a cognitive stake in the ground. Once you do this you are tethered to the stake and will only wander from it a relatively small distance due to the tether. Without the anchor you might subliminally be prone to cast a wider net. Consider the infomercial sales tactic, a “$19.95 value for only…” it keeps you from wondering if the price is too high to begin with so when they tell you the price is really $15.95, you think you’re getting a deal because you've been anchored at the higher price. The same is true when advertisers start throwing in a second gizmo for free.
I wouldn’t be writing again if I hadn’t come across this article in the McKinsey Quarterly, “Measuring B2B’s digital gap.” According to the study, business-to-business companies are running behind their business-to-consumer peers in digital adoption as measured by McKinsey’s four-part Digital Quotient assessment.
As McKinesy puts it,
Over the past three years, McKinsey has measured the Digital Quotient of approximately 200 B2C and B2B companies around the world by evaluating the 18 management practices related to digital strategy, capabilities, culture, and organization that correlate most strongly with growth and profitability.
And it goes on to say,
We have found that strong scores across management dimensions of strategy, culture, organization, and capabilities correlate strongly with higher margins and shareholder returns.
But wouldn’t you expect under almost any conditions that strategy, culture, organization, and capabilities would drive profits?
The report goes on to say that B2B companies lag B2C in these four characteristics with the implication that the business-to-business companies need to put the pedal down and catch up. But is that so? Should they be comparing two very different business models or evaluating them by the same criteria?
What’s troubling is that there is no allowance in the study for the differences between business-to-consumer and business-to-business business processes. If you are a vendor serving businesses, you know that often when another business selects your product or brand it is with the expectation that your stuff will be incorporated into their secret sauce, the way they make money. The point is that a B2B company doesn’t simply need to set up a handy and convenient reordering system. It has to become part of its customer’s success. In technology, this line of thinking is an integral part of many value propositions. In manufacturing, assemblies perform the same function.
In contrast, a B2C transaction could easily be a one-time thing, especially if the customer is simply looking for a low cost commodity item. Certainly both businesses and consumers care about cost, but a business expects a long-term commitment from its suppliers and (usually) understands the need for healthy margins to support that obligation. Also, in B2C the customer and consumer are often the same, but in B2B there can be multiple customers with specific needs and the consumer might be an assembly line with little or no say in purchase decisions.
In that context, the B2C vendor is more driven to cut costs by implementing digital technologies that place more responsibility on the customer to figure things out. In contrast, the B2B vendor might want to automate systems that support its employees with direct interfaces to the people at their client organizations so that they can still respect the relationships that drive the ongoing relationship.
But more importantly, a B2B relationship is more complicated and setting up rules and processes that govern a B2B relationship the same way a consumer oriented business runs its business is much harder. Business relationships run deep into supply chains and market forecasts, which at their best, B2C businesses seem to just skim. At some point I fully expect AI and machine learning systems to deeply penetrate the B2B world, but the rules they’ll work by are going to be more complex.
But there’s one area where there ought to be little difference between the two and it’s based on customer feedback. Subscription vendors primarily, though not entirely, in the B2C space have led the way for capturing and analyzing customer data and developing metrics to help assess how well the business is doing for its customers. Issues like churn are barely noticed by conventional vendors because they deal with one-time transactions. But B2B business is more like having a customer that subscribes for repeat orders.
So I am not dismissing the claimed gap, but I am curious about its relevance.
My take
Contrary to much of the popular rhetoric, there is a difference between B2B and B2C and I am not surprised that they are taking on digital technologies at different rates and while there might be an uptake gap, it is far from certain that this gap is important.
Digital technologies offer the opportunity to not simply disrupt business processes but to think differently about them. In that situation businesses don’t simply disrupt others or even themselves, but they literally transform what they do and how they do it.
The digital gap is a classic case of having a meta-discussion in which we anchor on the thing rather than discussing its import. Instead of looking at the quantitative adoption of new technology by business a more profitable pursuit might be to inspect the changes B2B businesses are making to their business processes—their transformations. Knowing the transformation you want directly drives decisions about which technologies you’ll use.