This week on the Friday 15, Andy & Brian talk about the advantages and disadvantages of B2B organizations taking a cost-centered approach to investment.

While there are certainly benefits of focusing on cost (risk reduction, for example), when we polled our community 83% said that a cost-focused approach negatively impacted competitiveness.

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Brian Beck: Welcome to the Friday 15 with Master B2B. Your home and community for B2B e-commerce executives throughout the galaxy. Right Andy? Brian Beck here with Andy Hoar for our weekly Friday 15. We try to do these things in 15 minutes and it never happens. Welcome to Friday. We’ve got a ja- packed and fun topic we’re talking about today. But before we get into that, let’s do our breaking news. Awesome. So Andy, do you see this? This is a story in MDM talking about the manufacturing PMI hitting its lowest mark in 15 months. The PMI is a measure of performance of the industrial health of the industrial economy. It’s widely regarded as a good metric for this. And the article really talked about demand. So just a quote from it here, “demand remains subdued as companies continue to show an unwillingness to invest in capital and inventory due to concerns about federal monetary policy, inflation, things of that nature.” And this article hit right before the election. And so it went on to say, basically, it almost doesn’t matter who gets elected here in the United States. This is an indication of where the economy is. And there’s concerns about monetary policy from, at the time, both partiese. So I think it’s just another indication that the core of the economy is soft. And they talk a lot about manufacturing. Any thoughts or reaction here, Andy?

Andy Hoar: I’m giving it up on trying to predict where the economy is going to go. I mean, I feel like we’re living the joke about economists predicting 12 of the last 10 recessions. It’s like nobody knows what the hell is going on. The Fed – one minute, it’s lower interest rates, then next month they’re holding interest rates. We added 300,000 jobs then in the next minute, it’s 20,000 and then revising the numbers later. I don’t believe any of this stuff anymore because for predictions sake, I believe the numbers in the present are largely accurate. But we have this vacillating up and down… And I think what you’re seeing here, if I had to theorize, is that purchasing managers, when they don’t have visibility, they freeze like everybody else does. I think what this is. It’s not that they’re negative about the future. They just don’t know.

Brian: At least now there’s some sort of clarity in the government and the US, and I think that’ll help. And it actually plays really well into our discussion today. Our topic today is – Is an excessive focus on cost limiting digital innovation in B2B? For a long time, Andy, B2B companies have taken a really, really conservative approach to investments, particularly large investments and particularly digital investments. There are benefits of a cost-based model when you think about decision-making. And should a company focus its decision-making around costs and efficiency? So we define this, of course, going to the new authority on everything, ChatGPT. This is what chat GPT says this is. “Cost-focused decision-making is a strategic approach in business that emphasizes minimizing expenses and optimizing resource allocation as primary goals. In this approach, decisions are primarily based on reducing operational costs, enhancing cost efficiency and ensuring that spending aligns strictly with budgetary constraints.” It’s very data-focused, and we’re using data to determine areas where we can get more out of the organization. In some ways, PE (private equity) follows this model where they look to maximize the efficiency of the assets they’ve invested in. And we’ve talked to tons of people who are on the other side of this and they’re like, “Hey, so we just got bought by aPE firm.” And they’re hearing – lock it down, fix this, maybe replace that part of it, but we’re not going to upgrade anything because they’re hoping to whip it into shape with the existing technology and then just sell it to somebody else. So I wanted to know as we were putting this together, we tried to understand how many companies are kind of using this cost-focused approach in B2B. We found this interesting statistic from Forrester Research. It says, “Only 35% of B2B firms prioritize customer experience, meaning that the remainder still operate with a more conventional cost-focused mindset or a mixed approach.” So this implies that two-thirds of companies are using a cost-centered decision-making model for managing their business. It does have advantages. It drives operational efficiency. Resource Optimization, it optimizes there. Maximizes profit. It reduces risks, right? ,It prepares a company for a down economy or a softness. It creates higher productivity and it simplifies budgeting. I simplifies financial planning. There are truly some significant advantages here to this cost approach. Andy, do you see any others or any others?

Andy: I think this is all true, but we like to analogize things on Friday 15. This strikes me a lot as if you were a basketball or football team that focused heavily on defense. This isn’t trying to prevent the other team from scoring. And, boy, you could argue people say defense leads to offense, defense wins championships. That’s all true. But you have to score, too, right? You can’t just score and have really efficient defense and win zero-zero. So that feels like the issue, and to translate it back into the business thing, you can’t save your way into prosperity. You have to generate revenue. There has to be some offense here. And I think that’s probably what the next slide is about, right?

Brian: There are drawbacks. And we found this study by a company called Galileo. And a quote from it says, “Cost-centered companies often prioritize short-term cost savings over investments in innovation, research, and development. This approach can hinder a company’s ability to introduce new products and services, respond to market changes, or adapt or adopt new technologies, which ultimately may reduce its competitiveness.” We decided to ask our audience, Andy, on LinkedIn what they thought of this issue. And check this out. We asked this question on LinkedIn. “Does a conservative cost-focused approach prevent B2B companies from making long-term investments in important digital tools?” 83% of our audience said, “Yes, it does.” So, clearly, there’s a material impact here. And how does this come to life? In the B2B e-commerce world – this is a study from logik.io. It came out just very recently a couple months ago. 60% of B2B websites deliver a quote, “a generally negative experience.” So, this is turning into bad experience. In some ways you could make the connection here where companies aren’t investing what they should be. And we know this anecdotally, Andy, in talking to leaders in our space about where you have historically been constrained in terms of your ability to execute and deliver a great digital experience. But this is going to translate to other channels as well. The sales team, effectiveness of the organization, these digital tools, and perhaps the biggest one is that I think of when it comes to this as PIM and data. You heard this just yesterday from one of the practitioners we were talking to, Andy, that they’ve had a hard time justifying the ROI for investing in a PIM. And not just the PIM, but the data-cleanliness and getting that product data ready for a PIM. This is a long-term foundational investment you have to make. And if you don’t make it, it shows up in your website experience, in your ability to syndicate data, in your ability to sell your products, even for your sales force, your customer service team, your inside, outside sales, it happens. What do you think?

Andy: It’s like the old joke about the man with a hammer only sees nails. And not to get too philosophical here, but this is one of the issues. When you see the business as about minimizing costs, then everything is defined as a cost. And so when you were talking about the data thing, what I kept coming to my mind is how many people we talk to have said, they see data as something to be managed, cost-contained, risk-reduced, etc. When, in fact, I often argue, and I think you would agree, that data is what separates companies. The one thing that’s unique to every company is its own data. That’s it. Everything else can be built, borrowed, bought, or stolen. People, technologies, etc. But the data is really what separates one company from the other. And so why in the world would you see that as something that has to be cost-contained? I’m not saying just spend freely on it, but this is the mindset shift that needs to take place. And there’s no better example of companies that really understand the value of investment than in the tech world. And we’ve seen this double standard. We’re talking beforehand about this. Amazon. Remember back in the day when Amazon was competing against retailers and Wall Street kept cutting them slack saying, well, yeah, they lost money this year, but we believe in the company. Well, what they had to do eventually because there was so much complaining and the retailer said, look, this is not fair. We have to live by one standard. They get to go by another standard. What we’ll do is we’ll do investment cycles. One year we invest, the next year we read through awards and then just alternate years. And what happened to their stock in those years? The years when they invested and their costs were higher and their profit went down, their stock took a hit. And then the following year, no other change to the business. Other than they just didn’t invest as much, their profitability went up and guess what happened to their stock? Their stock went up. And so Amazon, I thought was sitting around playing games going fine. This year we’re stocking going up next year. We’ll go up. Would I do anything different except that we have investment cycles? So I would agree that many of these companies were treated unfairly. That’s true. And the technology companies get a pass on this. But maybe there’s a lesson to be learned here. The technology companies have to invest because if they don’t, they disappear. And so maybe the B2B companies need to think a little bit more like technology companies. I’m not saying become technology companies, but think more like it. And think about investment cycles because you can’t just spend your whole existence trying to save money and reduce risk to the point where you’ve got old technologies that don’t work and things finally fall apart and then the business is over.

Brian: Continuing the Amazon analogy, when Bezos founded the company, he talked about becoming the earth’s most customer centric company. And that’s really what the flip side of this is focusing on – the customer experience. And could this be a better path? And certainly it has been for Amazon. Here’s some data from McKinsey that I’m sharing – companies that focus on customer satisfaction can see revenue boosts of up to 10 to 15 percent compared to the competitors who do not prioritize customer experience and prioritize other things like costs. Just just the foundational elements that you need to succeed on a marketplace companies are having a hard time investing in those. Maybe the tide is turning here a bit… In our own research, Andy, we found in our State of B2B e-Commerce report this year 83% of B2B organizations were planning to spend more money on digital in 2024. So budget maybe is opening up at least based on our survey of our executives.

Andy: During the pandemic, everybody who was doing any business, B2C or B2B, was forced to really invest in these tools because they needed to change the way the business operates. So suddenly they started thinking a little bit differently because of this massive exogenous event called the pandemic. Maybe that mindset should be more permanent.

Brian: Yeah, we don’t want another global pandemic to move things along. But what’s interesting about this too in the same research, Andy, we found that the investment has to be more focused on ROI than ever. Compared to three years ago, the time frame in which I need to show an ROI on B2B e-commerce has what? 60 plus percent, 65 percent said it’s sped up. So does this put executives in a position where they need to invest in things that show a quick ROI and they’re going to direct their attention to those things versus making foundational investments in things like data or new e-commerce platforms or ERP upgrade – things that are more foundational for the business that might take 10 years to pay back.

Andy: This is the old mindset creeping back in though. I know stories about people who had this where they invested during the pandemic, they saw tremendous benefits with customer experience, etc. They even have online metrics and even the cross-channel metrics to show this. But some CFOs are thinking, well, we’ve got to go back to the old way of thinking, the pre-pandemic way of thinking. We have to have a very specific ROI around this. I’m like, do you apply this ROI to other marketing dollars spend? Do you know how much each one of those trade show dollars was worth? Do you know how much every one of those catalog dollars was worth? Do you do this with every TV commercial? Yet suddenly, all of a sudden, there’s ROI on this. I think part of the reason why is because there was such a massive investment in digital. They were catching up and now the CFO sees a big line item and they’re like, not to demonize CFOs, but they’re thinking, oh, we’ve got to slow this down. No, maybe you need to speed it up actually. Maybe you need to think differently about your metrics because I’ve heard this complaint many times from digital executives when they go into meetings, the CEOs, we track this down to the penny. It’s like, well, I can get pretty close, but those guys can’t track it down to the thousand dollars. You’re going to hold me to a different standard and the problem is, I don’t have a problem with double standards except that if you’re hurting the business because you’re holding these guys in digital to a different standard and you’re hurting the business as a result. That’s a big mistake.

Brian: Well, we just, we heard this last week. We had Dan from Zest Dental on. Dan Stepchew. He was talking about this in the marketing realm and how they’re dealing with all these privacy laws now changing. They can’t track the results of some of their marketing spend on places like Facebook and Google. And he can’t justify investments in marketing.

Andy: So what does that mean? So the answer isn’t okay, let’s find another way to measure this stuff or let’s maybe take some qualified leap of faith based on a model. No, it’s shut it down. We can’t measure any of this stuff in other ways. We’re still going to keep doing that. Why don’t we shut that down too?

Brian: Well, it’s been successful for years, Andy. It’s been successful for the last 100 years.

Andy: And businesses never change, right? Blockbuster really was right. Circuit City really was right.

Brian: Anyone want to buy some Sears stock?

Andy: So we feel like we have to call what we see here, which is this double standard hurts businesses and this old way of thinking doesn’t work. Not to say just spend freely without measuring this stuff, but you have to recognize that you’re living in a different world. And in a different world, you have to have different KPIs, different metrics and a different mindset.