Anticipate Adapt Accelerate

COVID Economics: Anticipate. Adapt. Accelerate.

As the pandemic recedes in 2021, economies will reopen. How fast they will recover is not clear. But what is clear is that the world is now different. Leaders need a playbook to navigate their organization through this critical period, the post-pandemic new normal.  Leaders must follow this playbook to anticipate what this indeterminate period will look like, use these insights to adapt their strategy, and determine how to accelerate their organization to drive success. And, the quicker they do so, the quicker they can gain competitive advantage and be positioned for profitable growth.

Anticipate: Leaders must anticipate their future business situation, even during a time of uncertainty, unknowns, and shifting landscapes. The most challenging and important component of the playbook is grappling with this uncertainty and defining the new normal. Which market trends will accelerate, which will fade away, and which will emerge? This will determine shifts in demand, changes in customer needs and buying behaviors, and how your marketplace ecosystem and value chains will evolve. In order to make confident decisions, it is critical for leaders to develop robust hypotheses of the potential new normal market scenarios and to come to a consensus on the most likely path. B2B companies that have better market insights, higher level critical thinking abilities to identify second and third order effects across their entire customer chain, and can access early market indicators that show the new normal scenario that is actually emerging, will be advantaged.

Adapt: To survive and prosper organizations must adapt to changing conditions. This is even more critical in today’s environment, as conditions are changing more rapidly than ever. This is not the time to completely rethink your strategy; it is the time to adapt it. Significant long-term uncertainty remains and moving quickly will be imperative to success. Leaders need to determine how they can best alter their existing strategy to adapt to the new normal, given how the market outlook has changed and where their business is advantaged or disadvantaged. The exception here is, of course, businesses whose markets have been fundamentally disrupted (e.g. certain portions of the hospitality industry), where a complete strategy reset is the only option. However, companies should resist performing a simple exercise of taking their existing strategy and determining which initiatives to continue or stop. Taking an outside-in market-based approach and defining a fresh set of strategic initiatives will lead to a more robust plan, limiting bias towards existing initiatives and the risk of missing new opportunities that have emerged. These strategic initiatives should address key questions such as which markets and segments to prioritize, which existing and new product and service offerings to invest in, how you should transform your business model, and who you should partner with or acquire. From there you can connect back to your existing strategy and make key decisions on which initiatives you will continue, accelerate, modify, pause, or add to your go-forward plan.

Accelerate: All of your competitors are evaluating their strategy and approach right now; you will be advantaged if you accelerate your implementation ahead of them. In this environment speed and effectiveness are more important than ever. Organizations that get ahead of understanding the new normal and alter their strategy appropriately will be advantaged.  However, to deliver results from the adapted strategy, leaders need to identify ways to accelerate success by aligning the ecosystem (competitors, channels, partners, digital players, customers) to their benefit, aligning their offering portfolio to the new normal, reaching and selling value to customers more effectively, capturing more value though effective pricing from their offerings, and putting the right people, processes, and tools in place. As it is more likely than not that investment and resources will be constrained, driving commercial excellence across the organization will be imperative.

In conclusion, there is one more “A” word: Agile. Strategy always needs to be reevaluated and refreshed, but in these times of heightened uncertainty the cycle must be shortened. Vigilant monitoring of market indicators should be put in place to anticipate the expected 2021 new normal market scenarios. Business leaders should have high level contingency strategies in place if scenarios move in an unanticipated way. As results from accelerated initiatives begin to materialize, strategic priority should be quickly shifted to those that are generating outsized returns and away from those that are underperforming. Organizations that build in these agile capabilities, along with others, will better position themselves for competitive success no matter how the new normal market situation evolves.

The first step along this journey is to anticipate – what will your new normal look like, and how will it impact your business? Understanding these changes will help you identify new opportunities, address encroaching challenges and drive future growth. In many environments, there are structural changes underway that impact your business today, such as work-from-home. Other trends, however, may not be readily apparent at this time but are likely to be impacting your business, your direct customers’ businesses, and your end customers. Furthermore, there may be trends that haven’t yet fully taken hold or are just starting to emerge that will eventually cause second or third order effects. Key questions to evaluate these macro trends and re-imagine and rethink your outlook are:

  • What trends will accelerate, fade away, or emerge?
  • How will demand and value shift?
  • How will customer needs and buying behaviors change?
  • Which new customer segments will appear?
  • How quickly will innovation be adopted?
  • How will the marketplace ecosystem (competitors, channels, partners, customers) evolve?

At Blue Canyon we have identified several major structural shifts underway during the COVID-19 pandemic that touch upon a cross section of different markets, industries and economic sectors. As you begin to anticipate your new world, we encourage you to contemplate how the following changes may impact you and your customers’ business models in the near future:

Work-on-the-Edge: The work-from-home trend is obvious – decentralize the office workforce to a distributed, safer, healthier environment. Remote work capabilities reach well beyond the traditional home office paradigm. In the off-road equipment market for example, new product launches traditionally required that a dealer travel to the end-customer’s site to guide the commissioning, training, and troubleshooting for the new equipment. Now OEMs have provided their dealers digital tools and software to create a completely virtual approach to this very important process. Other Work-on-the-Edge examples include allowing advance engineers to access cloud PaaS from distant locations, service technicians to remotely diagnose equipment in the field, and customer service reps to instantly handle customer inquiries from decentralized locations.

The Work-on-the-Edge trend is not new, but the adoption rate has been accelerated to address the COVID-19 crisis. As you reflect on this trend to anticipate your future, it is critical to determine whether this trend will have second and third order effects across your entire customer chain. Just as importantly, it will be essential to evaluate whether this trend will fade away, accelerate, or emerge in a different form. For example, in the future, production of replacement parts could shift to the edge when distributors are equipped with additive manufacturing tools and can download specifications and drawings from the cloud to locally fabricate the spare part for the nearby customer.

Asset Mix: As customer needs have shifted to address the COVID crisis, suppliers have reorganized their assets to meet these new needs. In the food industry, when consumers largely moved from away-from-home dining to in-home food consumption, suppliers were required to reallocate products among their customer segments to meet the demand shift. This major disruption created ripple effects down and up the customer chain. Distributors increased their supply of plastic bags, boxes and shipping materials for take-out restaurant customers, and packaging companies re-calibrated equipment to produce in smaller allotments enabling food suppliers to place more product onto grocery store shelves.

Asset mix examples in the healthcare industry are plentiful. Ford shifted production from manufacturing auto systems to producing ventilators. As hospitals demand for oxygen equipment increased, suppliers shifted from low volume, high mix manufacturing to 24×7 high volume production. Many other manufacturers converted operations to temporarily produce hand sanitizer gels.

Major structural shifts sometimes create unexpected outcomes as well. As reported, the COVID outbreak negatively impacted Medline, a $14B-revenue supplier of medical products. While demand for PPE products boosted sales in this low-margin, relatively smaller part of their business, canceled elective surgery procedures hurt other product lines sales which represent approximately 40% of revenue.

These examples reinforce our view that regardless of the end customers you serve, the market segments where you have presence, or the competitive position you enjoy, the new world will challenge your previous assumptions. Going forward it will be important to re-balance your outlook, assumptions and market insights to address your new normal.

Relocation & Dislocation: This trend, relocation & dislocation, comes in many flavors and is perhaps the most stunning development of all in the last year. Some markets ceased to function in a regular manner because of this trend. Furloughs and layoffs created an unexpected increased supply of talent, last mile deliveries shifted to homes instead of centralized offices, airline travel dropped while RV rentals sold out, and education moved online from the classroom. To describe the magnitude of this change, one executive recently commented “We have seen an uptick in customer orders for product lines that we didn’t anticipate, and a downturn in areas that just last January we thought would grow – this has created bottlenecks in certain factory capacity, reallocation of our sales and customer service focus, and a constant week-to-week reset of our forecast.”

This unfamiliar trend of relocation & dislocation drives complexity and uncertainty. Questions abound. No one has a crystal ball to determine if office workers will return in part or fully to commercial office buildings, if students will be on campus in 2021, or if last mile deliveries will require vehicle manufacturers to produce more class 2 delivery vans. Nevertheless, to be successful in your new normal you must thoroughly and deeply analyze how/if this trend impacts you, your direct customers, and your customers’ businesses.

Insights gained from anticipating and thoroughly evaluating your new normal are the ingredients that will help you rethink, re-imagine and reset for the future. An important tenet of this step is to adapt your strategy, not engage in a wholesale strategic makeover. While some B2B business models will require more change than others, in most businesses former fact-based, solid strategies will remain resilient through this period and will only require adjustments, modifications and enhancements. In the commercial vehicle industry, for example, OEMs and Tier 1 suppliers anticipated a downturn in new vehicle orders and developed strategies based on these lower demand levels. However, the recent increase in last mile deliveries from online buying during the stay-at-home period suggests that earlier strategic assumptions require a relook. Should this trend continue or even accelerate, leaders in this industry must alter their strategy to address the growing need for enhanced last mile delivery methods promoting the use of smaller vehicles, e-bikes, and/or drones.

A strategic update must consider how previously well-understood variables can fluctuate in the new normal. These variables include changes in expected market demand, shifts in your competitive landscape, and your current position within your marketplace ecosystem. Appreciating the degree of intensity, certainty, and speed in which these variables are changing will help you prioritize which dimensions of your strategy require reexamination.

Where to Play? New opportunities can be found with a refocus on different segments and/or new spaces that have emerged out of the shifting business-to-business landscape. For example, a supplier of power equipment which previously expected growth with oil & gas, hotels, and casino customers pivoted to focus on market segments with better growth prospects such as data centers and healthcare. In addition to targeting different market segments, you must also consider changes underway with different applications — how your customer and your customer’s customer use your products and services. Underlying trends in your marketplace that previously signaled further disruption such as electrification, automation, additive manufacturing, and others could either be delayed or accelerated in your new normal.

A relook at where to play in your new normal must answer the following related questions:

  • How should we revise our outlook?
  • What markets and segments should we prioritize?
  • Who should we partner with and/or acquire?

What to Bring to the Table? Lessons from past recoveries bode well for this period. OEMs and their suppliers, for example, should adapt their strategies to boost their aftermarket parts and services capabilities to mitigate the inevitable drop in customers’ new capital equipment investment. And, their offer and value proposition must accompany this approach. Solutions that promise near-term operating savings and efficiency based on subscriptions, leases, and minimal upfront expense will likely triumph over a large capital expenditure proposal.

As you think about altering your strategy, consider another important new macro trend —rapid adoption of digital tools. This past spring, businesses worldwide were forced to quickly deploy work-on-the-edge digital devices and software which encouraged rapid adoption of digital tools. Unlike the tried and true approaches used during past recessions noted here earlier, the magnitude of digital adoption must be recognized and intertwined into your business model touching dimensions such as how to design and engineer new advanced solutions, how to go to market, and how to service your customers.

Your new normal will likely usher in both opportunities and challenges. To successfully navigate through this period, help your customers and their customers by bringing your organization’s best to the table. To do so, make sure these related questions are answered:

  • Where are we advantaged and disadvantaged?
  • What existing and new offerings should we invest in?
  • How should we transform our business model?

What Time Frame? Change in demand expectations and the intensity and speed of market disruption underway are important indicators of how quickly you must adapt your current strategy. For example, some leaders in the residential home improvement market witnessed new customer behavior during the stay-at-home period, anticipated sustainable upcoming changes to their customers’ buying journey, and are well on their way toward altering their channel strategy to include new delivery models that enhance their customers’ experience. These leaders aim to move forward rapidly with new initiatives to take 2-3 points of share by year end 2021.

Degree and Difficulty? As the business world changes, leaders are faced with an uncomfortable ultimatum—move quickly, keep up, be agile, and stay vigilant. Even as these pressures mount, it is just as important to recognize that not all organizations have the established capabilities, best in class tools, and/or cultural cadences to meet these challenges at a fast pace. Alterations to your strategy must therefore be pragmatic. As you modify your growth strategy to harness opportunities you must also avoid risk caused by overestimating your organization’s ability and culture to grapple with change.

Sun Tzu once wrote, “In the midst of chaos, there is also opportunity.” In many or most B2B markets, 2020 has been a year where much has been turned upside down, where chaos has reigned. Supply chains have been stressed or broken, demand and value shifts have occurred and may persist, and many of the assumptions with which B2B leaders came into 2020 need to be reconsidered. If you have thought through Anticipate and Adapt, you have already reexamined assumptions and are ready to Accelerate; to drive commercial excellence and capitalize on the opportunity presented.

There are five key questions B2B leaders must answer to quickly drive success from the work they have done to Anticipate and Adapt.

  1. How do we align the ecosystem (competitors, channels, partners, customers) to our benefit?
  2. How do we position our existing and new offerings in the new normal?
  3. How do we more effectively reach and sell value to customers?
  4. How do we capture more value when monetizing our offerings?
  5. What people, processes, and tools need to be put in place to accelerate our plans?

1. How do we align the ecosystem (competitors, channels, partners, customers) to our benefit?

Presumably, the ecosystem you play in has changed, if not transformed significantly, heading into the new normal.  In what ways can your organization take advantage of this change? Are some of your competitors advantaged or disadvantaged in the new normal? Have the channels you use to go to market been disrupted? Have digital models taken over because of social distancing? Given these changes, how can you manage the ecosystem to your benefit?

A client of ours in the commercial vehicle industry has seen significant shifts in its ecosystem. New vehicle sales have collapsed, aftermarket parts and repairs have increased in importance, deliveries by commercial vehicles have shifted from long haul semi-trucks to last mile medium-duty trucks and vans, and dealers in the aftermarket have been forced to adopt remote, digital approaches for vehicle service wherever possible. Given this, our client has decided to drive its ecosystem by enabling dealers with technology to support the aftermarket parts business, with an eye towards taking advantage of this disrupted ecosystem to gain share.

2. How do we align our offering portfolio to the new normal?

As you examine your product or offering portfolio, have the value and benefits provided by each product/offering shifted? In the new normal, are some offerings more valuable to customers, while others less valuable? Do some offerings need to be altered or enhanced to meet changed customer needs? It will be important to examine your product portfolio and product management approach to optimize your set of products & service offerings for customer expectations and needs going forward.

For example, in the office supplies space, suppliers have, or will have to, reevaluate their product portfolio management given the shift to flexible, work-on-the edge workstyles. Different types of equipment and supplies (e.g. smaller printers and copiers, home wi-fi enablers, etc.) will be needed compared to what was purchased by larger, centralized office complexes in the past. Further, as offices open, different, more flexible equipment will be needed to meet social distancing needs. Product management decisions will need to be updated.

3.  How do we more effectively reach and sell value to customers?

This question encompasses 2 parts: 1) How do we more effectively reach customers? and 2) How to we more effectively sell value to customers? Considering the first part of the question, approaches to reach customers have and will shift. We have all become accustomed (perhaps begrudgingly) to video conferencing to reach customers. Approaches to engage customers have changed and will remain changed going forward. But beyond that, which customers do we want to reach? In the new normal, which customers should be our priority targets, and which should be deemphasized? Given our adapted strategy, which new normal customer segments best align with our new normal value proposition? Which customer segments are in a strong position to spend on our products & service offerings in the new normal?

The 2nd part of the question, how do we more effectively sell value to customers? forces you to consider what are the benefits that matter to your priority customer target segments in the new normal. You cannot assume that differentiating benefits from 2019 will still be differentiating benefits going forward. Value selling approaches will need to be aligned to the new normal. A new or altered value argument will need to be defined, articulated, and packaged to enable the sales team to sell successfully. As you reconsider the value argument, be sure to think through the entire customer chain. How might the needs of my customer’s customer change? For example, in the food ingredients industry, an ingredients supplier may notice that food producers, packers, and brand owners, are dealing with a demand shift. Ready-made food is no longer a primary focus, while “center-aisle” grocery products (e.g., flour, sugar, condiments, etc.) that are used for cooking at home are. Therefore, as an ingredients supplier, how can I articulate benefits and sell value based on helping my customer differentiate their products in the center aisle? Further, how can I differentiate my value argument to stress speed and efficiency in helping my customer meet this surge in demand for center-aisle products?

4.  How do we capture more value when monetizing our offerings?

Given the disruption and dislocation in many B2B markets, previous assumptions about customers’ willingness to pay will need to be reconsidered.  What may have been optimal prices set for your products and service offerings in the past may no longer be optimal in the new normal. As customer expectations and needs change, their willingness to pay for certain benefits will change. As you have evaluated your portfolio of existing and new product and service offerings and examined the differentiating benefits you are providing customers, optimizing price to maximize value capture is an important next step.

5. What people, processes, and tools need to be put in place to accelerate our plans?

Given your answers to all the questions above, what organizational changes are required to ensure successful acceleration? For example, in a changed ecosystem, do you need different or new channel programs or partnerships to align incentives in the new normal? Given decisions made regarding product strategy in the new normal, do you need to change your product management and/or new product development processes to get new or refined offerings to market more quickly, beating your competitors to the punch? Is your sales organization equipped to sell value in the new normal, and if not, are different roles, approaches, skills, and/or tools required to do so? Are upgraded digital tools and processes needed to engage customers in the new normal? Do eCommerce capabilities need to be upgraded given how customers expect to buy going forward?  When evaluating value capture and pricing, do pricing management and processes need to be revised to ensure a new pricing strategy will be adhered to? Do updated processes and tools need to be developed to drive enhanced agility to respond to the new normal?

2020 was a very challenging year for many B2B companies. It created significant disruption and dislocation in many markets and left many players in those markets disoriented. But eventually as the COVID-19 pandemic fades, players in these markets will shake off the cobwebs and begin moving forward with clarity. For a B2B executive, this is an opportunity to take the initiative and get ahead of competitors. With clarity, anticipating and adapting for the new normal will set the guidelines for acceleration. Accelerating will ensure you put commercial excellence initiatives in place to go on the offensive and get your competitors on the run. Waiting patiently at this point will allow your competitors to get the jump on you, and you may never recover. Ending with another profound Sun Tzu quote, “Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.”

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