Thursday, December 18, 2008

Creative Destruction of the Demand Chain

By David Bradley, MarketBridge

As senior leaders in B2B companies evaluate their alternatives for competing in this time of crisis they will be confronted by a choice of merely surviving, or leveraging disruptive forces to gain advantage. Beyond cost cutting, enhancing the ability to generate sales and creating a foundation for sustainable productivity will require new “go-to-market” operating principles. This paper describes our Firm’s vision of what those new operating principles will be, the market forces that are shaping them, the gaps most companies face in achieving them, and ten practical ways to get started.

The term creative destruction has its roots in early-20th Century macroeconomics and was made popular during the business cycle shift. Based on patterns of two earlier waves of technology-enabled creative destruction in the late-1980s and 2000s that changed key business functions across industries, we are suggesting that a third wave of cross-industry functional creative destruction will occur, and that it will define new success factors for how companies achieve major productivity gains in the go-to-market functions while maintaining and improving revenue growth. The views shared here, based on nearly two decades of work with leading B2B companies across a range of industries, represent a model for companies to embrace structural and strategic change by aligning with forces already at work in the market. Our focus is on the go-to-market (GTM) functions of marketing, channel management, sales and service delivery. Our conclusions are relevant for large multi-line companies and focused category leaders alike.

Part 1 – Lessons from the Past

Over the past several decades we have experienced several major business cycles, and witnessed the decline of major industries and the advancement of new ones. Once-revered leading companies have faltered and new leaders have emerged. Much has been written about the failure of leading companies to anticipate a shift in their business models due to a discontinuity in market forces and product technologies. Harvard economist Joseph Schumpeter’s concept of creative destruction foresaw the need to aggressively transform company business models, and the term has been effectively applied in modern times by several authors. It is our intent to build on those insights.

Our premise is that, beginning with the advent of the Information Age in the mid-1980s, there have been waves of functional creative destruction that have set new standards for functional success models across industries. And further, that these waves, while enabled by advances in information technology, were triggered by business cycles and the ensuing pressure to make fundamental changes in business capabilities and cost structures.

The first wave of functional creative destruction was enabled by affordable CAD/CAM technology and coincided with the recovery from the major stock market “correction” in 1987. The TQM movement was born and the reengineering of the design and manufacturing functions spread across all product industries. Productivity gains were then fueled by the first generation of supply chain management systems and tools. The skills required to run the design and manufacturing functions changed forever.

The second wave was enabled by the Internet and coincided with the post-dot-com bubble burst in 2000. Supply chains were reinvented, manufacturing outsourcing picked up more steam, and innovative supply-chain business models ensued. Once again, the skills required to lead these functions and exploit new capabilities changed dramatically.

The third wave of functional creative destruction is already forming and shaping the effect that demand-side forces will have on business models. It is being enabled by Web 2.0 interaction capabilities and further fueled by Web 3.0 analytical advances, which are triggering a discontinuity in how buyers receive and process information, interact with sellers, and form relationships within communities. Accompanied by an ever-increasing focus on sales productivity and marketing efficacy, the current economic cycle will force people to, once and for all, stop making marginal cuts in marketing and sales headcount and adopt a new model for demand generation and relationship management. While this wave will affect consumer products and services, our focus is on B2B companies where industrial buying behaviors and distribution practices are ripe for change.

1 comment:

Steven Woods said...

Great post David, I think that the major shift in the way that prospective buyers find and consume the information they need to learn about products or services they are interested in has only begun to fundamentally change the way companies think about selling and marketing.

We, as marketers, are often still thinking about it as a "selling process" we can control rather than a "buying process" we can facilitate, and this thinking guides many of the mis-aligned activities of marketing and selling organizations today. Mass outbound campaigns and activity-based selling processes do not work in an era where buyers control their own information sources as they do more and more today.

Great post, enjoyed reading it.

Steven Woods, Eloqua