A few years ago, whilst working for an OEM in the telecoms industry, I was tasked to develop an added value service portfolio that wrapped around the company’s core products. Our business driver behind this strategy was very simple. If you need £1m revenue per year to keep the factory lights on, then you need to sell £1m of product each year. At the start of each year the meter resets and the battle starts all over again. You are reliant on new product sales and as we know, so many things can happen to derail even the most carefully crafted sales plans. Our strategy was simply, remove that dependancy by introducing services that delivered a new regular monthly or quarterly revenue stream over a specific fixed contract term.
Today, it is becoming increasingly challenging for a business, in any industry sector, to rely solely on selling boxes. We continue to live in uncertain economic times, where there is no “business as usual”. For business survival, I believe there is a clear need to build services in to your company’s portfolio. Then you start the year with a visible revenue stream.
Wow, as I write this, it sounds so simple. Just launch new service ideas and increase your revenue. As a well known Meerkat in the UK would say – simples.
But hold on a minute. There are a number of other compelling reasons why moving to services could be the right strategy for your specific business and these include:
- Obsolescence of old services: you need to create new services to replace old ones that no longer appeal to customers.
- Commoditisation of services: if your customers have lost their sense of value due to bad pricing practices, services can be repositioned and re-launched with a new pricing regime and greater margins. Many modern managers seem to believe that the commoditisation of products and services is inevitable. It isn’t. You can learn to turn a commodity into a value proposition with healthy margins.
- The desire to take advantage of new opportunities: you may spot a gap in a market and seek to take advantage of the opportunity.
- Increased competition: services may be created to copy or stay ahead of your competitors’ offers.
- Spare capacity: services may be launched to use up your spare capacity due to troughs in demand.
- Seasonal effects: some services are subject to seasonal changes in demand so new ones might be created to compensate.
- Risk reduction: new services are launched to balance a portfolio reliant on one service.
A strategic move to services requires a significant investment and creating the business case can feel daunting but the rewards are also there.
Four years ago I was talking to a friend who worked in Ericsson. During the 1990’s he had been very influential in helping that Swedish giant to re-calibrate its business more towards services. I was talking to him about the initiative by Philips lighting to move in a similar direction. He was surprised. “Is that still happening? Isn’t the move away from pure manufacturing old news?”
Well it isn’t. In developing economies, the service sector is of increasing importance. The Chinese government, for example, announced a little while ago that it wanted to increase the percentage of its economy which is services to 50%. It backed this with a range of policy initiatives. There seems to be a number of forces prompting this. As economies become richer people start to spend more on services (like education, health and leisure). This prompts a boom in their service sector. But there are other specific issues. In China, for example, labour costs are increasing and some manufactures are choosing cheaper labour markets. So policymakers are trying to create wealth from new markets.
It’s also still happening in the West. Business leaders and investment analysts have learnt the narrative about moving away from a pure emphasis on manufacturing. They have seen successful strategies to adopt a more service orientation in organisations like IBM and GE. So, some surprisingly well known companies are adopting a move into services in response to the terrible economic outlook. Some in the West see this as a way of stimulating growth and opening up new revenue streams.
So it is still happening. Yet, there is still a dearth of really good reference material and help on this important transition. But that’s another story.
This week the Cambridge Service Alliance announced a one-day conference on Tuesday 1 October 2013, as part of Cambridge Service Week 2013. It will be held at the Moller Centre, Cambridge, and will focus on how companies can successfully make the shift to solutions.
This one-day conference will explore the following themes:
- What are the barriers involved in making the shift to solutions, and how can they be overcome?
- What lessons can be learnt from different ecosystems
- How to successfully make the shift to solutions
The event will provide unique insights from leading service providers and academic institutions and offers a valuable opportunity to hear the latest developments in service thinking. It will showcase new research from the Cambridge Service Alliance, the global alliance of leading companies and universities established to develop new understanding and approaches to complex service provision.
More details will be available soon, but in the meantime, to find out more and register your interest, please visit: www.cambridgeservicealliance.org/events/serviceweek2013. You can download a flyer for this event here.
If you are still unconvinced, here are five reasons why you should not miss the Cambridge Service Alliance conference on successfully making the shift…
- This will be a unique opportunity to share practical experience and knowledge about successfully making the shift to solutions.
- You will learn how international industry leaders (in diverse sectors) have helped their organisations make the radical transformation of shifting to solutions.
- Speakers will focus on system-wide (ecosystem level) changes as well as the specific changes in their own firm. Only when the entire ecosystem shifts can the transition to solutions be achieved.
- You will hear from world-leading researchers, who have been studying the shift to solutions in multiple firms and learn the secrets of how to make a successful transition.
- You will be able to network with senior peers in other organisations, making the shift to solutions. Learn from each other and share experiences in an open and informative environment.