Managerial E-Commerce for B2B Success

Scott Benfield, Benfield Consulting

Our research and field work in e-commerce finds an increasingly inconvenient occurrence. As B2B e-commerce grows, many companies are spending well into seven figures on software and don't have much to show for it. In short, there is a growing list of successful brick and mortar firms who can't seem to make online work, despite having a competitive suite of e-commerce software and good content. We call this a Digital Washout and it is the inability of a firm to drive online sales despite having invested significant sums in software that should give the user a competitive online experience. Digital Washouts can be partial-little incremental sales growth or full-inability to move existing customers online and no incremental sales growth.

Of Forests and Trees

Many times, the C-Suite looks at e-commerce as a means to reduce the cost of a transaction. In essence, the primary capability is giving the customer a means to order without sales assistance. We call this the "Transaction Perspective" and execs who see e-commerce as a transaction tool often build out the software suite and stick it on top of the firm like a cherry on a sundae. When this happens, it is a surety that the Digital Washout is near. Why? E-Commerce is not simply a technology but both a journey and conversion. It is the movement of the firm away from a sales and solicitation model of influencing the customer to placing the marketing mix (product, place, price, promotion, service) online with an often different supply chain strategy. Assembling the online marketing mix and structuring the supply chain so the customer can self-serve is revolutionary in most B2B firms which are sales driven. Heretofore, they've successfully grown business by the personal sales effort where the "belly-to-belly" sales call is one of the the most important activities of the firm. Ergo, sellers have some of the most highly-paid positions with the most freedom. However, many products are commodities and the customer knows function, feature, and price better than the seller. There is, most of the time, no need to see a sales person or need sales assistance for commodity purchases. The commissioned sales call is redundant and simply too expensive. It is also inconvenient; online buyers can place their orders any time of the day or night. In a recent phone conversation with a plant manager, we were told he placed his MRO orders at night, after dinner, and stretched out in his Barcalounger. It was convenient and gave him time to manage the maintenance needs of the plant with an "ever-decreasing staff."

In short, execs who don't think of e-commerce as a different way of business that requires significant change to business-as-usual, have a high probability of washout. If they remain unconvinced, over time, they will lose sales.

Managerial E-Commerce

A problem in the online success of B2B firms is the life-cycle stage of the discipline. B2B E-Commerce is still new. It wasn't until post-Recession that really good software, for B2B firms, began to flourish. And, although the field has been around for two decades, it is approximately 25% built-out and there is a long way to go to reach full-sales potential. Both software and management know-how will change substantially over the coming years.

Today, there are a growing plethora of how-to articles from software firms. This makes sense as most B2B companies still don't have a full-software suite and are waiting for the price to come down as demand grows. Hence, much of the online advice for managers of mature B2B firms finds its genesis in software. The problem with a "software" perspective for management is that it becomes its own worst enemy. Why? We find plenty of firms who leave the digital journey up to the CIO or VP of IT. When this happens, the results are. . .Washout. What is needed is research, study, and recommendations on Managerial E-Commerce, and how to change the existing firm to succeed online. Online success takes a CEO or President that understands that technology offers a fundamental change to the way business is done. Sales forces will need to change and get smaller, brick and mortar locations will become less, new channels will appear with different marketing mix needs, and value chains will become more transparent, reform, and prices will fall. CIO's were never trained or experienced in these events but successful online firms encounter them daily. CEO's who give the online strategy to the CIO or head of IT will not get the full return from their investments.

Increasingly, marketing is ending up directing the digital journey, and often after IT fails. Marketing, if staffed by knowledgeable professionals, stands a better chance of getting the firm online and growing but it needs lots of support from the C-Suite and Operations. We divide the Digital Journey into four distinct stages as depicted in Exhibit I. In the Exhibit, the stages are listed in sequential order of:

1. Software Platform for Competitive E-Commerce
2. Account Migration
3. E-Commerce Functions Completed and Acculturation of Online Growth
4. Organic Growth with E-Commerce

The stages are based on our research of successful digital journeys of leading companies who have 50% or more of their sales online and have shown organic growth in their online efforts. Many firms show initial success in Stages 1&2 where they build out a competitive e-commerce platform and migrate upwards of 20%+ of their existing sales online. However, they fail to move through Stage 3 and build out long-term functions and changes to the organization to move most of the existing sales online. When this happens, we find that accounts that previously migrated online, revert their transactions back to sales assistance or move to new suppliers with a better online experience. In short, once one starts the digital journey, there is no turning back without risk. Failure at any stage means customers will notice and have the potential to move business to a competitor or new entrant that is further developed in their online capability.

It is important to note that three of the four stages of the journey are managerial. They require the attention of management for change to existing process. We stress the managerial part of the digital journey. Why? Today, the predominance of attention is on the first stage or software build-out. This is due to the fact that, without a competitive online experience, delivered by the software, there is no online future. As online B2B sales progress, firms will need to complete Stage 1 or they won't compete. As they gain a competitive software platform, they will need to have executive involvement to complete the journey through Stage 4 where the firm secures organic growth through online efforts. Noteworthy also is the need to begin stages before the previous is complete. For instance, in Stage 1, firms should begin to migrate existing accounts online once the transaction software is integrated into the ERP and before other parts of the platform are completed. We briefly discuss the different stages in the rest of this post.

In the Beginning-The Software Suite

A competitive e-commerce experience can vary whether one is a manufacturer, distributor, dealer, etc. In B2B channels, we typically start with supply chain firms as having the most complex technology needs. This is especially true for merchant distributors, firms who buy and take title to tens of thousands of sku's. They have to provide the best of content, search, transaction management, and a host of other online features and benefits.

In B2B/C Distribution, there are approximately 6.5 Trillion dollars of sales in North America, across some 7 dozen product/market sectors. Our research in Durable Goods, those lasting 3 years or more and represent approximately half of the sector's sales, finds that a competitive e-commerce software suite includes:

• PIM or Product Information Management: The software handles all product information across the supply chain from vendor to distributor to dealer to end customer.
• Transaction software: Modern day "packaged" software that integrates with the ERP and allows the customer to order online, check order status, and manage account financials.
• Faceted Search: Search engine software that gives the customer the ability to find products, technologies, and application solutions while customizing the search to their segment, area of expertise, etc.
• Punch Out: Software that lets the customer place the e-commerce order and "punch-out" or translate the order to their ERP.
• Quotation Module: Software that gives the customer the ability to send a non-standard material list for a quote.

When these elements are present, the firm sells approx. 2.5 times more online than competitors who don't have a full software complement. The competitive software suite is only the beginning in e-commerce but it is a necessity. Without it, the online experience is "meh" and the customer will seek other suppliers. The rest of the story is how to make online work in Brick and Mortar firms inclusive of changing the culture and securing organic growth. It is also where Washout has the greatest chance of occurrence and the cause is management practice carried over from Brick and Mortar days.

Account Migration and E-Commerce Culture

Stages 2&3 differ significantly. In Stage 2, the objective is to move existing accounts online as quickly as possible. B2B e-commerce grows at 7% per year or roughly 3.5x the traditional GDP rate. Firms who don't get their software suite up and working and accounts migrated online are losing sales to the competition. This will worsen as the online percentage of all transactions grow and Millennials move into dominance of management functions. We've seen successful online migrations without a full e-commerce suite, but we rarely witness online organic growth without the full e-commerce platform.

Stage 3 or establishing an online culture is, for all intents and purposes, the most difficult. It means that employees now view online commerce as the leading engine for future growth. It also means the sales effort has been reconfigured to work in tandem with online efforts. Successful movement of the firm past Stage 2 takes the oversight and direction of the C-Suite; especially the CEO or President. Failure to understand this puts the firm at risk in the long-run. Today, we are finding that e-commerce is the domain of marketing. However, unless marketing has experience in online commerce, they probably don't have the necessary skills to manage the entirety of the experience.

The acculturation of e-commerce as a new means of business, and completion of Stage 3, is difficult for some to understand. That is, the firm must succeed online and, most-often, online sales will dominate as the predominance of B2B is commodity products. The firm will also need specialized positions including managers of digital analytics, product managers responsible for product content, vendor programs, application information, and an online marketing resource. Additionally, logistics and delivery windows will change and operations will work alongside marketing to complete a satisfactory post-sale service. Finally, the sales effort will need to change or get smaller. There's no need for customers to self-serve while the seller gets a commission on the sale; it is a misalignment of compensation in the value chain. We've done our share of field audits and find that companies who keep a full complement of sellers while encouraging customers to move online will end up pricing (read "costing") themselves out of the market.

Stage 4 is concerned with organic growth from the online efforts. Stage 4 efforts, include marketing automation, omni-channel opportunities, segment platforms, and value chain restructuring. Marketing automation is the online distribution of the marketing message to grow sales. Omni-channel opportunities involve the access to new channels from e-commerce including marketplaces. Segment platforms are thin-slices of existing segments and act like separate online businesses; Zoro Tool at www.zoro.com or Wilmar at www.wilmar.com are examples. Finally, value chain restructuring involves reworking the value chain for greater value for the customer. Examples include Sustainable Supply at www.sustainablesupply.com and Civic Solar at www.civicsolar.com.

Summation and Management Implications

B2B e-commerce revenues will exceed $1 Trillion dollars in a few years and grows at a 7% CAGR. Durable and Non-Durable good sales at the wholesale level are $6.5 Trillion in North America with several more Trillion in other sales channels including manufacturer direct. For distribution markets, we estimate approximately 60% of products are commodities and, today, 12% to 15% of sales are online, hence a 4x growth upside.

Progress, however, has been slow which is due both to a reticence to spend significant sums on software and the inability to change the existing culture and functions for e-commerce to flourish. Software for an acceptable online experience is advanced and dominates the headlines, literature, and management discussion.

Today's and tomorrow's challenge will be getting existing managers and executives, many who did not gain their experience in a digital environment, to migrate to a digital future. We call this need Managerial E-Commerce and the discipline, research, and practitioner guidelines are fledgling. The sooner case studies and best practices of successful efforts are cataloged, studied, and debated, the better the chances of a successful digital journey for the B2B firm.

Scott Benfield is a consultant for B2B distributors and manufacturers in digital and traditional marketing. His firm, Benfield Consulting, is located in Chicago and he can be reached at scott@benfieldconsulting.com or (630) 428-9311.