Businesses must innovate to survive. The development of new and improved products and services is required to ensure revenue and value generation in changing economic and market conditions, customer satisfaction and loyalty, new customer acquisition, the resistance of competitive pressures, and that the challenge of disruption can be met head on.
Boston Consulting Group (BCG) conducted a global survey of nearly 1,600 senior executives and found that innovation is at the top of their priority list; 72 percent of those surveyed consider innovation to be a “top three strategic priority”.1 At the heart of this data is the concern within many organizations that they do not innovate well, particularly acute amongst business-to-business (B2B) focussed companies, who traditionally face greater challenges when innovating than their business-to-consumer (B2C) counterparts.
That’s not to say that innovation is easy for B2C focussed businesses, there are many common issues when it comes to innovation – it’s hard work and risk is required, which means that the risk-aversion and low tolerance for failure prevalent in many organizations can be an issue. However, the nature of B2B businesses and their customer relationships means they often face greater challenges than their B2C counterparts in a number of areas when looking to innovate:
- Traditional mind-set – this can impact in two ways; firstly, B2B markets are generally slower moving than B2C markets and steady but perceptible change can sometimes go ignored; secondly, the elevation of key customer relationships above all else. The latter is of course important, B2B customers are usually higher value than B2C customers, with a significant proportion of revenue concentrated amongst a few. Churn can be costly, however it becomes almost inevitable without innovation.
- No strategic alignment – the traditional mind-set means that it’s not always clear where innovation fits with a company’s strategic priorities, without linking innovation to strategic priorities all efforts can look ambiguous.
- Lack of end-user understanding – the value chain for B2B is much longer and the sales process complicated, with decision makers and purchasers often different individuals to end-users. This distance from the customer and the benefits they seek can hide opportunities and new ideas and hinder innovation efforts.
- Technology focused innovation – B2B innovation can often be driven by R&D priorities lead by engineers and scientists; ignoring service, business model, supplier and customer innovation makes it very difficult to be successful.
These challenges are significant, and getting bigger as B2B products and services become more complex, sales cycles get longer, and digital and technological disruption becomes increasingly frequent. However, there are solutions which can help to drive innovation efforts and increase success rates:
- Make innovation a clear priority – align innovation with business priorities. Mapping innovation processes to business strategy ensures they are consistent with a company’s goals. Create an innovation team, highlight their purpose to the whole organization and explain the need for change, i.e. shifting market conditions, support them with time, attention and access, focusing on the most critical areas.
- Drive culture change to focus on innovation – this is easier said than done and has to start from the top with Senior Management. Employees should feel empowered by the culture of innovation and see the opportunity to contribute.
- Put the customer at the centre – taking an outside-in approach to innovation, putting the customer at the centre of the process, and designing products and services which focus on the benefits they seek, greatly heightens the chances of successful innovation. However, it is equally important that customers ideas being adopted, even good ones, are aligned with company strategy and brand strength.
- Identify those customers who provide a window to the future – there are businesses in every market who operate at the leading-edge of adoption, demonstrating a heightened passion for the category, and influencing the behaviour of their peers. Identifying these businesses and use them as a guide to what the market will be looking for in the future.
- Build marketing into the innovation process – marketing can take B2B innovation beyond a technology and engineering focus, supporting concept development and helping to create a strong value proposition, ensuring that the end-product provides the benefits the market and your customer seek.
- Understand adoption levers – business decision making is increasingly complex, with multiple parties involved (some of who have conflicting priorities), a critical part of the innovation process is testing to ensure that a product or service provide the benefits necessary to find approval at all stages of this process. This means acknowledging the needs of those who define the required specification, hold the budget, and make purchase decisions regarding your product and service, in addition to end-users.
- Open innovation – collaboration with competitors and suppliers is much more common in B2C than B2B, but where it has occurred it is often the case that by sharing everyone wins.
No one is saying B2B innovation is easy, and the larger the organization the more difficult it becomes. However innovation is critical for survival, for fighting off the competition, and for resisting disruption, and it offers genuine value when executed successfully.