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At the same time, managers find that the established definitions of their markets no longer apply – new challenges lurk everywhere. The networking of previously unconnected devices with online data sources – the Internet of Things – has dissolved traditional industry boundaries. Take the health care sector as an example: suddenly, technology firms with their apps and fitness bands have entered their industry, using the data leveraged from their customers to develop completely new business models. Even the old classification of companies that sell to business customers (B2B), and those that deliver to end customers (B2C) is becoming blurred – suddenly we see the term B2B2C. Even an industrial company like Alcoa might now like to know what the end customer does with its aluminum.

Naturally, as digital pushes through, the frequency of channel conflicts that need to be managed increases. The accumulated data needs to be professionally analyzed, which requires new talent in the company. The result of all these factors is increased pressure on management.

Innovations Arise at Industry Boundaries

Previously, the business world was transparent: everyone knew who their competitors were, and surprises from outside the industry were rare. This fine sense of certainty has gone; digitization has made transgressions easy. For example, Amazon with its Amazon Web Services (AWS) is now the world’s leading provider of cloud services. Microsoft and IBM, which might have been expected to occupy this position as the top dogs in the IT industry, are positioned on the next rung down by some distance – they never reckoned with this competitor. Originally, Amazon had only intended to better utilize the capacities of its huge data centers. In the meantime, IT companies yet again find themselves wrangling with another intruder: General Electric (GE), whose subsidiary Predix offers a cloud-based platform for analyzing data sent from industrial machines – a cornerstone of Industry 4.0 applications.

Even traditional machinery manufacturers are now crossing industrial boundaries. John Deere, for example, one of the giants in agricultural machinery and tractor manufacturing, offers software and data-based services. These services process highly detailed weather forecasts with data on soil conditions, the specific properties of the seed used, and a wide range of additional information to provide recommendations to farmers to help them increase their yields. It also helps save fuel, reduce repair cycles, and ensure optimum use of the vehicle fleet. Sensors installed in the vehicles send on-site data to the Deere data center, and farmers can access their information via the MyJohnDeere.com platform or view it on their smartphone or tablet via the Mobile Farm Manager app.

The chemicals group Monsanto is pushing into the agricultural world from a different direction. In 2012, the seed specialist bought Precision Planting, a manufacturer of hardware and software, whose products help farmers during sowing to optimize seed depth, distances, and conditions to ensure the best roots. It’s the same customer base as Monsanto’s core business and the same value proposition – more yield in the field – and yet a completely different technical approach. Monsanto has harmoniously expanded its business model, while at the same time breaking down industry boundaries.

Blurring Boundaries between B2B and B2C: B2B Becomes B2B2C

Previously, these worlds were strictly separated. When addressing end consumers, the pitch focused on emotion, enjoyment, and, above all, simplicity: the choice had to be made simple for consumers. Business customers, on the other hand, wanted to know the details; they demanded facts and rationality.

This distinction, however, is now obsolete due to digitization. Once business clients experienced how easy orders were with Amazon or Google as private consumers, how simple it was to search for products, and how quickly items could be delivered, they naturally transferred these expectations to the B2B segment. Why should an order for machine spare parts be more complicated than ordering a book from Amazon? Why does the delivery take weeks instead of one day? Why is the manual written in technical jargon and not simple to understand? Why is the supplier’s website so difficult to search? And why doesn’t the supplier respond immediately to a complaint?

And it’s not just customer relationships in the B2B segment that are increasingly mirroring those in the consumer sector. Thanks to digitization, many B2B providers are expanding their business model and also addressing end customers: B2B2C. Take Craftzilla as an example: the Indian e-commerce platform connects small-scale home decor manufacturers and artisans, who previously sold their products through specialty retailers, directly to the end customers. Craftzilla doesn’t hold any inventory – the company connects sellers with customers and takes a commission from sales made on its website.

Fitness band manufacturer Fitbit applies the B2B2C concept by establishing company fitness programs with companies like BP and Adobe to promote employee health: the contract partner is the company – B2B – and the employees are the consumers – B2B2C. Panasonic and Allianz also collaborate in the same manner to make houses and apartments more secure. Panasonic installs its monitoring and control systems at the customer’s home, while Allianz Global Assistance, a subsidiary service provider of Allianz, is alerted in the event of a serious incident so that emergency services are dispatched.

Managing Channel Conflicts

Digitization is revolutionizing customer contact, and not just in the end consumer segment. New rules also apply in B2B, often based on the B2C model. German heating system manufacturers, for example, previously marketed their products primarily via the installers. Companies such as Buderus, Viessmann, Vaillant, Wolf, and Junkers all cultivated their heating installers, who in turn brought in customers.

A Berlin-based start-up, Thermondo, however, disrupted this model by creating a platform to connect the various decentralized service and installation teams that supply customers with heating systems across Germany. The portal was founded in 2012. As early as 2015, the company was achieving an annual growth rate of 864 percent. A customer searching the portal can choose from numerous brands, and is given a tailored fixed price that includes installation. Thermondo even gives advice on applying for funding.

Manufacturers and tradespeople now have a problem: their old business model is under threat. The problem sounds familiar – think back to the Compaq example. And just like in the Compaq case, the problem doesn’t simply go away. An approach now needs to be developed governing how, for example, heating system manufacturers, installers, Thermondo, and the other market players work together in the new ecosystem. What is needed is omnichannel management.

Software and Analytics Competencies Becoming Increasingly Important

“Data is the new oil” is a popular saying. Data forms the raw material for any digitization initiative. According to a McKinsey study, in 2015 international flows of data contributed more to global economic growth than classic trading of goods. Companies receive or procure huge amounts of data that can be translated into large sums of money with smart analytics.

Thus, online retailers like Amazon or Overstock use dynamic pricing systems that allow them to make second-specific price adjustments for the several million items in their ranges. To this end, they constantly retrieve information about competitors’ prices, and process this along with data about current sales promotions. Using time series and big data analyses, they then calculate new inverse demand curves for all their items in hourly cycles.

The Battle for Digital Talent

Although digitization opens up countless opportunities, large companies with a traditional structure and strong division of labor from production through to sales find it difficult to grasp them. The fact that they don’t have enough digital talent on board and therefore have to compete in the labor market for the scarce resources of new IT and software experts is just part of the problem. Even if these companies already had such talent, they could not achieve much as an isolated department. There needs to be a basic understanding throughout management of the possibilities and limitations of digitization.

This includes the observation that nothing is to be gained with classic departmental thinking, and that cross-functional teams need to take control of projects. Whoever wants to win the battle for digital talent needs to start here. This is particularly difficult for traditional companies: after all, specialization and a strong division of labor were for a long time considered factors of success.