Achieving high performance by refocusing on more profitable Businessto-Business (B2B) models

How ICT companies can drive higher value in their B2B business

Traditional ICT Business-to-Business (B2B) model under pressure

Imagine the scene. You are running a major global Information and Communications Technology (ICT) company with operations in several countries and established sales channel relationships worldwide. Even though you successfully launched highly profitable service offerings to support your products and cater to the needs of your largest business customers, the pressure on your prices and margins increases. But you can drive sales through the excellent relationship your sharp salesforce has with the procurement and CIO divisions of your largest client accounts. Then comes the blow. Your largest customer outsources the IT function that uses your products and replaces your technology with a little known but significantly cheaper solution from a new competitor.

Three key pressures on B2B ICT providers

This scenario encapsulates many of the challenges facing todays global ICT companies, as corporations start to manage their IT costs far tighter and more aligned to how IT supports their core business. ICT players are seeking to adapt to these shifts at a time when they are under strong margin pressure, as a result of profit erosion fueled by three industry trends.

Trend 1: Faster technology cycles The first is a dramatic acceleration of technology cycles. Over the past two decades, the trend of shortening high-tech product lifecycles has been widely recognized. With the growing influence of changing consumer behaviors over corporate technology choices, the pace is increasing still further. At the same time, five key factors are helping to fuel this trend:  Increasing market competition, as speed to market becomes an increasingly important determinant of success.  More demanding consumers, as they seek out latest gadgets with ever-greater functionality.  L arger product portfolios for providers, as they seek to meet a wider range of evolving needs.  Enhanced R&D processes and investment, supporting smoother and faster development of new products.  Global supply chain networks, reducing the time from development to market launch. This acceleration, illustrated in Figure 1, has major impacts on the profitability of technology developments. With previous technology waves, such as desktop computing, companies had decades in which to recoup their R&D investment and reap profits. Today the available timeframe in which profits can be made is much shortermeaning companies need to bring new offerings to market faster and cash out on them more quickly. While this trend is evident across many industries, nowhere is it more pronounced than in ICT. Figure 1: An accelerating technology lifecycle

Figure 2: Market share of emerging market vendors in the mobile devices and PC markets
Mobile Devices market: 20%

15% 10% 5% 2000

PC market: 20%

Samsung

LGE HTC 2005 2010

15% 10% 5% 2006 2007

1

Acer Lenovo ASUS Tek 2008 2009 2010

Source: Gartner

1. Gartner: Cellular Terminal Manufacturer Market Shares, 1998, 2 February 1999 (Peter Richardson); Gartner: Worldwide Mobile Terminal Market Shares, 1999: Nokia Knocks the Opposition, 3 February 2000 (Bryan Prohm, Peter Richardson); Gartner: Year 2000 and Fourth Quarter Mobile Terminal Market Shares, 12 February 2001 (Bryan Prohm, Peter Richardson); Gartner: Year-End 2001, Fourth Quarter 2001 Mobile Terminal Market Share, 7 March 2002 (Bryan Prohm, Ann Liang, Carolina Milanesi, Ben Wood); Gartner: Year-End 2002, 4Q02 Mobile Terminal Market Shares, 6 March 2003 (Bryan Prohm, Ann Liang, Carolina Milanesi, Ben Wood); Gartner: Mobile Terminal Market Shares: Worldwide, 4Q03 and 2003, 8 March 2004 (Ben Wood, Carolina Milanesi, Ann Liang, Nahoko Mitsuyama, Sauk-Hun Song, Nick Ingelbrecht, Tuong Huy Nguyen, Kobita Desai); Gartner: Market Share: Mobile Terminals, Worldwide, 4Q04 and 2004, 1 March 2005 (Ben Wood, Carolina Milanesi, Ann Liang, Hugues J. De La Vergne, Nahoko Mitsuyama, Kobita Desai, Sauk-Hun Song, Tuong Huy Nguyen); Gartner: Market Share: Mobile Devices, Worldwide, 4Q06 and 2006, 1 March 2007 (Carolina Milanesi, Ann Liang, Hugues J. De La Vergne, Nahoko Mitsuyama, Tuong Huy Nguyen); Gartner: Market Share: Computing Platforms, Worldwide, 2010, 6 April 2011 (Mikako Kitagawa, Ranjit Atwal, Lillian Tay, Kanae Maita, Raphael Vasquez, Tracy Tsai) All statements in this report attributable to Gartner represent Accenture interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc.. Each Gartner publication speaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice. 2. Source: Forrester: 2012 IT Budget Planning Guide For CIOs, October 2011 3. Gartner Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide, 2010-2016, 1Q12 Update, 12 April 2012 (Vittorio DOrazio, Derry N. Finkeldey, Robert P. Anderson, Susan Cournoyer, Jeffrey Roster, Rika Narisawa, Rishi Sood, Kenneth F. Brant, Venecia K Liu, John-David Lovelock, Marianne DAquila, Anurag Gupta, Christine Arcaris, Lisa Kart) 4. Copyright IHS Global Insight, Inc. Source: Global Insights Comparative World Overview, 21 May, 2012. Neither IHS Global Insight nor its affiliates nor any other party involved in providing components of the Services warrants the accuracy of adequacy thereof, nor shall they have any liability for any errors, omission, interruptions, delays, or inadequacies therein.

2.5% Innovators Early Early Late Adopters Majority Majority 13.5% 34% 34% Time Laggards 16%

Source: Accenture Analysis

Trend 3: Corporate Enterprise IT spending declining and fragmenting Traditionally, changes in global corporate IT spending have tracked movements in GDP. However, in the wake of the recent global recession, overall global IT spending has not recovered in line with GDP growthand is projected to continue to lag behind GDP over the next few years (see Figure 3). This partly reflects budget constraints. In a recent Forrester survey of IT decision-makers, improving the efficiency of IT came out as the top corporate priority, with no mention of Enterprise IT capital expenditure2. Many organizations are cutting Enterprise IT budgets to focus on strengthening their core business. Also, while pure functionality often used to be enough to justify Enterprise IT investment, now a clear value impact is needed, supported by a robust financial business case. There is also a degree to which corporate IT spending is fragmenting between a wider range of different elements, often keenly priced and discounted. Figure 3: Indexed Global Enterprise IT Spend Growth in Relation to Real GDP Indexed Growth
140 Real GDP

Trend 2: Aggressive low-price entrants from emerging markets As recently as the 1990s, the biggest global players in the B2B ICT market were from the traditional developed markets of Europe, North America and Japan. Today, new emerging market entrants are continuing to gain market share, supported by highly competitive pricing and flexibility on margins. These entrants have come in waves. Through 2000-2010, Korean giants Samsung and LGE grew their share of the mobile market rapidly, by positioning themselves as low-cost vendors. Today, having repositioned as mid to high-end players, these providers are facing growing competition from new low-cost emerging market players such as HTC (see Figure 2). The global PC market has also seen market share migrate towards emerging-market entrants such as Acer, Asustek and Lenovo.

120 100 80 60 40 20 0 2011 Enterprise IT spend

2012

2013

2014

2015

Source: Gartner 3; IHS 4

Product offerings in B2B ICT: three distinct strategies

Accentures deep experience with B2B ICT providers confirms that there are three main ways of offering corporate ICT products and solutions. As Table 1 shows, the first approach is supplying standardized products out-of-thebox at relatively low margins; the next step up is selling customized solutions via one-off deals at medium-to-high margins; and the top-end approach is providing customers with bespoke solutions focused on delivering business outcomes, generating recurring revenue streams with high margins. These three approaches form a spectrum of strategies where the sophistication, degree of customization and margins generated rise as you move from left to right. Any position on this spectrum can be appropriate for a particular business at a given time. As well as moving between the different strategies, a company might also choose to adopt different positions in different product/service segments. Under a boxed product strategy, a company focuses on generating sales deals for standardized offerings that need little customization, or that can be configured easily by the user through embedded plug-andplay capabilities. These offerings tend to be relatively commoditized, with a focus on cost and basic functionality rather than strong branding. As the table highlights, examples might include individual networked printers, or utility-type cloud-based storage solutions. Under the customized solutions segment, the provider sells a relatively standardized product that is then closely integrated into the business customers Enterprise IT landscape. This offering might be a bundle of boxed products that the supplier then customizes to suit the customers needs. Examples here include managed printing solutions enabling the customers employees to automatically use the printer closest to their current location. The third approach, focused on selling business outcomes, is the most sophisticated and highest-margin of the three. It involves a paradigm shift, away from selling a product or service, and towards selling the business benefits that will result from it. This requires the supplier to understand the customers business needs, and to partner with the customer to share risk and rewards, by tracking and meeting business KPIs beyond traditional Enterprise IT metrics. For example, the provider might take over all the customers printing needs on an outsourced basis, and provide value through a more responsive service at lower cost. Or a storage offering might offer higher efficiency around the parameters of costs, energy usage and carbon emissions. Selling business outcomes drives higher margins and growth Historically, B2B ICT providers that focus on delivering business outcomes have achieved consistently higher margins and stronger growth rates than the industry average. The revenues and profitability generated through this approach also tend to be more sustainable over time (see Figure 4). In our view, B2B ICT providers that offer solutions focused on delivering business outcomes will be better able to shield themselves against the market pressures we highlighted earlier. This means it is in companies long-term interests to move up the stack towards higher-value offerings differentiated primarily through business outcomes rather than price. Well now examine the core capabilities that ICT suppliers need in order to migrate up the stack in this way. Figure 4: Median margin comparison between product categories (percent)
Gross Margin Median per Offering Category

40% 30% 20% 10% 2007 2008 2009 2010

Business Outcomes Custom Solutions Boxed Products

2011

EBIT Margin Median per Offering Category

40% 30% 20% 10% 2007 2008 2009 2010 Business Outcomes Custom Solutions Boxed Products 2011

Source: CapitalIQ, Inc

Table 1: Three approaches to supplying B2B ICT offerings Boxed Products Description S  tandardized, non-customized products C  an include software, service components  Little differentiation, largely commodities O  ne-time deals, usually at low margins Printers I ndividual networked printers  Customized managed printing solution R  educed overall printing costs by outsourcing printer and copier machine operations Customized Solutions  Requires customization and implementation partly driven by customer requirements  Can be an integrated combination of different boxes Business Outcomes  Often bespoke solution completely driven by customer requirements  Addressing unique and individual customer situation

Revenue/Margin Potential Selected Offerings Examples

 One-time deals at medium to high margins

 Recurring revenue streams with high margins

Storage  Standardized individual storage Customized Datacenter solution solution (HW/SW or Cloudbased solution) R  educed energy costs, reduced carbon emissions, improved RoI by improved storage efficiency

Source: Accenture Analysis

Core capabilities to support offerings based on business outcomes

Elevating the focus of B2B ICT offerings away from selling boxed products and toward business outcomes brings major implications across the business. In particular, it creates an increased need for greater understanding of their customers business and what impact their products and services can have on it; stronger and deeper customer relationships; more robust, inclusive and flexible offerings: and a strong B2B brand to underpin the new positioning and support differentiation. These requirements mean a number of specific capabilities become more relevant in selling business outcomes. In general, the differences between firms providing business outcomes compared to boxed products can be found in three dimensions.  In terms of the go-to-market model, focusing on business outcomes demands improvements in client interaction, market interaction and partnering. B2B ICT suppliers need to understand both the needs of clients, and the wider market environment for the outcomes they deliver. Also, delivering business outcomes requires a wider range of skills than that possessed by any single organization, making it imperative to partner with a wider ecosystem of complementary supplier.  In the offering model, changes are needed in product management and product development, again including an enhanced ability to work in partnerships. In areas from product design to delivery and customization, closer collaboration is required both with customers and with suppliers of complementary elements of the overall offering.  And in the operating model, new people management skills and metrics are needed to drive the business forward. KPIs focused on optimizing the speed and cost of production in a boxed product business will need to move toward measures based on meeting customer needs. Across all three dimensions, these changes reflect the cultural shift from products to solutionswhich involves shifts such as spending more time with fewer customers, and longer sales cycles to generate larger business. Four capability themes To enable these changes, a B2B ICT provider needs to drive developments in four core capabilities, as illustrated in Figure 5. As the chart shows, three of the four capabilities are market-facing, and one is internal. Well start by taking a look at the marketfacing capabilities. Figure 5: Four key core capabilities for moving successfully up the B2B ICT stack Market-facing capabilities 1 2 3 B2B Account Management B2B Partner Management B2B Marketing Internal capabilities Incentivization 4

Source: Accenture Analysis

1. B2B Account Management Boxed product providers generally push their products into the channel via distributors and/ or retailers. But shifting the focus to delivering business outcomes demands deep and direct customer relationships based on mutual trust and understanding. Best practice To build such relationships, B2B ICT players developed global account management capabilities in the 1980s and 1990s . Today, established approaches include appointing selected international account managers, who are responsible for accounts on a global basis and stationed near the customers head office; and global account managers responsible for worldwide customer sales and support, and for ensuring satisfaction. Accentures approach involves providing global client account leads for our largest clients, while clients with smaller volumes of work are managed at a regional or country level. Recommendations for incumbents In Accentures experience, established consumer device providers seeking to elevate their B2B account management capabilities to support a focus on business outcomes for customers often need to undertake the following steps:  Establish account management at a global level under global account managers.  Segment large clients by size and geography for the purposes of account management.  Create processes around formal account planning and customer insight development.  Ensure global account managers work closely with marketing and solution development. With these basics in place, successful B2B account management requires mastering four areas: strategy, organization, process and IT systems. The requirements in each area are described in the accompanying information panel.

Mastering four areas for effective B2B account management: strategy, organization, process and IT infrastructure In terms of strategy, the company needs to identify which customers qualify for account management, based on criteria including their existing and likely future revenues, and their strategic position in the industry. These decisions should be handled flexibly: some smaller accounts merit key account designation, for example if they are growing through mergers. It is important to prevent sales people from being spread too thinly, by focusing finite resources on the handful of accounts designated as key. Turning to the organization, the aim wherever possible should be to synchronize with the customer and present one face, for example by having a single global lead for global clients. Awards and knowledge should be shared among the salesforce, and the extended team should be involved in planning and execution. Organizational capacity to support key accounts should be reviewed and built within accepted cost-to-serve parameters, with account teams empowered to call on product experts for backup. From the process perspective, B2B account planning is typically an annual activity, focusing on long-term budgeting and business forecasting, with more frequent informal meetings to keep the team aligned, and to monitor the action plan and sales results. Companies should regularly take the pulse of customer expectations, and track the extent to which the services provided are meeting these. This monitoring should be supported by frequent updating of the key account power map, and the establishment of joint processes with the customer. In terms of IT Systems, use of an appropriate CRM system is key, alongside the setting-up of a common repository of account information, with integration and visibility cross-geography and cross business-unit. This will need to include customer profiles, power maps, sales data, win/ loss analyses, campaign and sales materials, and organizational charts. The sales plan should be shared among all team members, who will also share a sense of ownership and responsibility for developing the account.

2. B2B Partner Management In the B2B marketplace, effective partner management is critical not only in the sales process, but also in developing offerings. In the sales arena, a key issue is aligning incentives between the internal and partner salesforces to avoid conflicts. And in product and service development, complementary capabilities provided by partners can enable customer needs to be met much more effectively and responsively. Best practice To help drive high performance in B2B, partner management needs to focus on developing strategic partners and customer outcomes, rather than on generating transactional deals through channels. Strategic partnerships require shared expectations, objectives, roles and responsibilities. Companies should use large enterprise partnerssuch as system integrators (SIs) and independent software vendors (ISVs) as product/solution development and channel partners at the same time, especially for dealing with large enterprise customers (see Figure 6). As highlighted above, it is vital to achieve the right alignment of sales incentives between the internal and partner salesforce, to avoid situations where the two are competing for the same deals. Well return to the topic of incentives later in this paper. More generally, the business should vary the intensity of its partner usage depending on the size of the customer, and establish direct ties with the largest and most important accounts in order to own the customer relationship. A further valuable step is establishing partner incentive programs, offering benefits like training and access to solution centers. Recommendations for incumbents To implement and support these elements of best practice, an ICT vendor can set up a dedicated B2B partner management function handling both solution and channel partners. These partnerships should be established initially at C-level on a geographic leadership level, and then operationalized. It is also a good idea to establish partner marketing and collaboration programs, such as B2B partner conferences. While the partnership strategy and overall selection criteria will be controlled centrally, many partnership management activities are best handled at a regional or local level. The regional headquarters will usually negotiate legal relationships, define and track business objectives, and conduct monthly business meetings and joint account planning. Meanwhile, local subsidiaries will manage project partnering, identifying the right partners for specific product/solution and/or client projects, and getting involved in partnerled sales and projects. 3. B2B marketing Selling boxed products depends largely on traditional marketing and branding methods both above and below the line, such as brand promotion and attending trade fairs. In contrast, marketing business outcomes to B2B customers demands different positioning and campaigns, such as publishing thought leadership points-of-view, building profile and presence in B2B publications, and creating client credentials describing pilots and completed projects, and demonstrating the delivery of business results.

Figure 6: Using large enterprise partners as solution development and channel partners at the same time

 Own independent client relationship

Channel Partner  Might have other business with client  Product/solution offering complementary to firm

In large enterprise B2B business majority of partners are both channel and product/solution partners

Product/ Solution Partner

 Product/solution complementary to firm  Sometimes limited sales capabilities or reach

Source: Accenture Analysis

Best Practice To build a strong B2B brand and market positioning, B2B marketing strategy and program development need to be integrated across the companys offerings portfolio and geographies. In general, B2B marketing processes follow a closed loop principle, consisting of four iterative stages: Strategy and planning Program development Program execution Performance analysis. Marketing programs are adopted and executed locally with central support, with the results analyzed and fed back into future planning. Recommendations for incumbents Consumer-focused ICT providers looking to go B2B need to define their global B2B marketing roles and responsibilities, and reorganize these to enable pan-European and/or global B2B marketing. Closed-loop processes can be used to drive continuous improvement, supported by clearlyidentified success metrics. These steps help to lay down a solid platform for bestin-class B2B marketing, consisting of five key elements: 1.  Integration of planning and execution across geographies and product groups, with direct linkage to account plans. 2.  Marketing campaigns driven by closed loop processes that incorporate learning from data analysis. 3.  Brand and customer communications help to create a single image and consistent customer experience, with propositions built upon the brand and targeted toward each segment.

4.  Analytics represents a core skill, with systematic measurement of multiple marketing metrics linked to specific marketing efforts. 5.  Long-term and flexible pricing schemes are vital for selling business outcomes to large enterprise clients. Moving from multiple product silos to integrated bundles Picture the scene. An established ICT device provider has achieved strong sales growth to consumers and some business customers, by selling multiple products through separate silos with distinct manufacturing, sales and distribution processes. However, the company has now been approached by a major corporation that wants a bundled solution, bringing together and integrating several of its products into a coherent bundle. How does it deal with the issues this raises around pricing, margins and incentiveslet alone the delivery and integration challenges?

4. Incentivization Alongside the need to align incentives between internal and partner salesforces, moving to B2B also demands new KPIs and metrics to encourage a longer-term focus, and to reward specific behaviors that build value in B2B. Best practice The incentivization structure for B2B needs to refocus sales teams away from pure revenue targets and product silos, and toward building cross-product and cross-subsidiary coordination and sales. This demands new KPIs and incentives schemes that support this holistic view, such as focusing on share of customers wallet. It also requires proactive knowledge-building around B2B products and solutions, through market intelligence platforms and training. Recommendations for incumbents To ensure that sales teams concentrate on building long-term sustainable and profitable B2B customer relationships, companies need to introduce appropriate and consistent incentives scheme and KPIs across countries, regions and product divisions. A market intelligence platform and dedicated B2B sales training will be vital components, along with a transfer pricing mechanism to allow sales at mixed margins to multinational clients across different countries. To create a holistic incentives scheme that optimizes B2B sales, it is important to measure salesforce performance in a combination of different ways. As Figure 7 shows, total revenue is used as a performance indicator by more than 50% of B2B suppliers, accompanied by a spread of other metrics. The correct blend of metrics will help to drive market-leading B2B sales that outperform other market players in every performance measurement (see Figure 8). The ability to meet quotas and make reasonable forecasts are particular strengths of market-leading B2B salesforces. Figure 7: Top five B2B sales performance measures Figure 8: B2B sales performance by sales proficiency level B2B Sales Proficiency Level New Accounts 17% Qualitative Measures 25% Gross Profit 26% New Revenue 27% Total Revenue 54% Typical B2B Sales Force Performance % of Reps Making Quota % of Company Plan Attainment % of Actual Wins (Forecast) % of Sales Force Turnover
Source: Accenture Analysis

Basic 55% 82% 42% 28%

Competitive Market Leading 60% 86% 47% 26% 65% 90% 52% 22%

Source: Accenture Analysis based on multiple sources

Conclusion: high performance in B2B ICT demands a new model

Historically consumer-focused ICT device providers are increasingly looking to seize the huge revenue opportunities in the B2B market. But to succeed in the B2B arena, they cannot simply treat corporate customers as a new and different delivery point for their existing consumer-oriented supply chains. Instead, adopting a B2B focus brings implications for many areas of an ICT suppliers business and operating model. All of these impacts need to be identified and addressed in a coordinated and consistent way, if the revenue and margin potential of the B2B segment is to be fully realized. In approaching this opportunity, an ICT company must start by making a key decision: where does it want to position itself on the continuum from boxed products, via customized solutions, to business outcomes? While it is possible to adopt any of these positions in both B2B and B2C, experience confirms that moving up the stack delivers the highest and most sustainable returns in B2B underlining why major device providers are heading in this direction. Success on this journey demands the committed management actions and deep organizational, operational and cultural changes that we have described in this paper. Those players who execute these changes successfully today will be well-placed to become the industrys high performers of tomorrow in the fastgrowing and high-margin B2B marketplace.

Contact us
To find out more about how Accenture can help your ICT company seize the B2B opportunity, please contact: Hans Von Lewinski Enterprise Operations Lead +44 (0) 207 844 3636 Artur Meinzolt +44 203 335 1983

About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 249,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.

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