Insights for B2B Hidden Champions

The B2B Midmarket Must Hurry

Inflation, the war in Eastern Europe, the energy crisis, and supply chain problems - companies are facing multiple crises right now. For many CEOs, the question now is how to ensure the long-term viability of their companies in the post-cold war world. In our "B2B Insights for the Hidden Champions" series, we show how digitalization pays off in terms of cost reduction and profitability in times like these.

In recent months, the industry has been exposed to more volatile conditions than it has seen in a long time. Skill shortages, tighter supply chain conditions, and a full-blown energy crisis are challenging mid-market B2B executives. Post-Covid, all signs point to a "great consolidation" that is not only about realizing savings potential, but also about challenging established structures. In a survey of 1,000 German midmarket companies, only one in ten CEOs surveyed expects business figures to improve, while half expect them to worsen by 2023(1).

Digitalization and automation offer great opportunities for stabilization, especially for midsize companies. This is because the level of digitalization is still significantly lower than at capital market-oriented companies - to the detriment of profitability. Companies with an above-average EBIT margin, for example, have a level of digital maturity that is up to 26 percent higher.(2)

During Covid, many companies were forced to push digital marketing and sales at all costs. According to a survey of Austrian SMEs, CEOs consider the importance of digital to be growing, but the implementation and scalability of digital initiatives still pose significant challenges for companies. For example, while the proliferation of e-commerce platforms has grown rapidly in recent years, it has often failed to make a serious impact on customers. (3)

Unfulfilled Expectations and Unsatisfactory Experiences in B2B purchasing

Digitalization has come a long way, but it hasn't always translated into great customer experiences. And we're not talking about hype topics like blockchain, metaverse and AI, we're talking about the core business of the mid-market. B2B buyers on digital channels are often dissatisfied with online sourcing and find it more complicated than traditional channels. The expectation of private buying has long been prevalent in B2B, and mid-market companies have a lot of catching up to do.

Studies show that shoppers will turn to a competitor for a comparable offer when their current partner's digital channel no longer meets their needs. However, increased choice, globalization, and digital comparison shopping also create the risk of a loyalty crisis. B2B vendors are therefore well advised to emphasize their unique position and invest in digital sales (9).

The fast and efficient processing of customer requests, the use of automation and an operationally excellent online presence increase customer satisfaction in the long term.

One reason for these unmet expectations often lies in the technology itself. Nearly all decision-makers (92%) in B2B companies have identified challenges with their technology stack and say that technology is the biggest barrier to digital sales. As companies move closer to meeting these changing expectations, a number of challenges lie ahead. (10) Consider whether you are a profit center or a cost center?

Changing operational demands on the organization

"It's only when the tide goes out that you see who's been swimming naked all along," financial legend Warren Buffet once said.

This seemingly perpetual state of geopolitical and macroeconomic shock is testing the resilience of organizations, but it is undoubtedly creating opportunities. Growing concerns are prompting CEOs to make their companies more resilient and to focus on optimization and restructuring. Highly digitized companies are significantly more likely to use digitization to increase revenue (80 percent) and reduce costs (49 percent) than low-digitized companies (11).

Achieving an optimal B2B experience requires a deep transformation that spans the entire front office: from marketing to commerce to sales and service. Companies would be wise to sharpen their understanding of their customers' pain points and recognize that this requires not only digital transformation, but a change in the entire organization. Ideally, this change in work culture is reflected in a customer-centric operating model, cross-functional teams, integrated processes, and modern technology.

Accordingly, the goal should be to align the organization across the board with the needs of the customer - optimizing individual journeys will not lead to success. Data management and technology are particularly important in this context because they are the catalysts for this adaptability.

The fact that B2B business models are more complex than B2C also makes the necessary adaptations more multifaceted. In addition to a larger number of decision makers and longer sales cycles, products are often more customized and require optimal interaction across the sales organization.

All of these new conditions have an impact on how Hidden Champions think and act to meet changing buying expectations and organizational requirements. We have summarized here the area of tension in which they operate:

Changing Expectations of the B2B Buyer

1. B2B Consumerization: This refers to the use of customer-centric technology as a digital interface to the B2B customer. We see opportunities for companies to service the buying experience. This can be done by building enterprise marketplaces, customer portals, and self-service solutions, but also by using digital experience platforms that combine cross-channel functions from marketing, sales, service, and content management.

2. Omni-channel journey: B2B buyers demand a consistent customer experience across the entire customer contact journey-from awareness to sales to service and beyond, in both the physical and digital worlds. Coordinated communication across channels at each stage of the buying journey means activating relevant brand and product messages regardless of the touchpoint the user is at. With an integrated view and data-driven optimization and activation along a marketing funnel, untapped potential can be unlocked. Digital experiences are becoming increasingly important in the media mix; in particular, information gathering is shifting to digital channels, such as professional social media platforms like LinkedIn, and can also be driven by SEO and SEA.

3. Customer-centric experience: B2B buyers expect advertising, offers, content and communications to be tailored and personalized to their individual sourcing needs. Achieving this requires a deeper understanding of customer motivations and an enhanced user experience. This requires customer-centric product development that can incorporate customer feedback. Data-driven optimization also leads to continuous improvement and enables personalized journeys. The product journey is especially important in B2B. Due to the abundance of features and customization options, special attention must be paid to the discoverability of products.

4. Digitally integrated services: B2B value chains can be very different. Tailored digital service solutions are therefore required for purchasing, planning, consulting and training processes, for example in the form of configurators (CPQ) and specially designed digital services, so that upselling potential can also be exploited. Supply Chain Collaboration enables an integrated approach to the procurement process for different roles. In addition to the individual functionalities, expectations regarding the look and feel are constantly increasing. While SAP-like interfaces are no longer accepted, intuitive experiences are in demand, replacing, for example, trade shows in their role as branding.

Changing operational demands on the organization

1. Rethinking sales: We see a need for action in the use of data-driven interfaces and the integration of digital and traditional B2B sales. Digital prospecting and automated lead management are particularly important. Digital tools and automated processes can be used to target prospects, generate leads, and qualify them. The connection between online and offline is also crucial. If a customer looks at a product or datasheet without buying it, this should trigger an action in sales. Another form of targeted acquisition is account-based marketing, which uses personalized messages to target customers. What unites all of these efforts is the need to make more effective use of marketing and sales budgets. Attention should also be paid to end-2-end funnel analysis, which uses data analytics to evaluate the effectiveness of efforts and assess ROI.

2. Technology-enabled employee experience: The key aspect is to attract young talent and reduce the shortage of skilled workers by better marketing the company. Employer branding is used to target potential employees. However, the employee experience can also be improved on a technological level, for example through the use of automation and generative AI, which should ensure that employees have more time for demanding activities.

3. New technology and data architecture: The focus is on making the digital system landscape more agile to replace monolithic systems and unlock value from data. Systems from different vendors are combined in a best-of-breed approach. Composable commerce and headless architecture enable a setup in which individual components can be used independently in different environments. This includes modern data management, because in the B2B sector in particular, buyers expect product, price, inventory, delivery and customer data to be correct across all touchpoints.

4. Synergy instead of silos: A customer-centric B2B operating model for marketing and sales requires data-driven networking of the entire front office (marketing, sales, commerce, and service) for integrated control and optimization of the entire customer journey. In addition to the systemic level, processes are optimized using MarTech to ensure a seamless and personalized customer journey across all touchpoints. The introduction of a Marketing Center of Excellence aims to standardize processes across sales regions and country organizations and to further develop the organization in the area of knowledge transfer.

While the winners of the crisis can invest their profits in new digital growth, others must question their existing structures against the backdrop of digitization in order to realize cost potentials. In our series "Insights for the Hidden Champions in B2B", we will explore these topics in greater depth over the coming months and highlight concrete potential for pragmatic implementation. Decide for yourself what conclusions you want to draw for your company in terms of customer experience, operating model and digital maturity.

Editor: Nadine Rigele

Sources:

• (1) https://www.manager-magazin.de/unternehmen/mittelstand-so-pessimistisch-wie-seit-der-finanzkrise-nicht-a-a8ee38b0-08d4-49a8-a1d4-69e091c6c4a6

• (2) KPMG - "Digitalization Index 2023

• (3) EY - "Digital Transformation in Austrian SMEs

• (4) https://www.gartner.com/en/newsroom/press-releases/2022-06-22-gartner-sales-survey-finbds-b2b-buyers-prefer-ordering-paying-through--digital-commerce

• (5) https://www.pymnts.com/news/b2b-payments/2022/74-pct-of-millennial-b2b-buyers-have-switched-vendors-for-better-consumer-like-experience/

• (6) https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/how-b2b-sales-have-changed-during-covid-19

• (7) https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/omnichannel-in-b2b-sales-the-new-normal-in-a-year-that-has-been-anything-but

• (8) https://hub.kpmg.de/hubfs/LandingPages-PDF/Studie_Digitalisierungsindex_2023_BF_sec.pdf

• (9) Lünedonk Study 2020

• (10) Harvard Business Review: Digital Transformation Refocused: New Goals Demand New Strategies (2022)

• (11) KPMG - Digitalization Index 2023