Why should I move to Services?

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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.

It’s still happening

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.

Big Data: An innovation opportunity for complex services

In Gartner’s recently published Hype Cycle for Cloud Computing 2012, it predicts that Big Data will deliver transformational benefits to enterprises within 2 to 5 years, and by 2015 will enable enterprises adopting this technology to outperform competitors by 20% in every available financial metric.”

Gartner currently positions Big Data just below “the peak of inflated expectations.”

Hype cycle for cloud computing 2012

Many firms from around the world are now innovating their business models to take advantage of Big Data. However, Gartner also warns that the “transformational benefits” of Big Data will only be realised by a few enterprises: “Through 2015, more than 85% of Fortune 500 organizations will fail to effectively exploit big data for competitive advantage.”

With so much conflicting advice on how to benefit from the vast quantities of information collected about customers, suppliers and operations, it is vital to have a strategic approach. Managed correctly Big Data is a powerful resource that will drive improved services, customer awareness and productivity – but the area is rife with confusion making it easy to lose sight of the true potential.

This recent Forbes article explores further how enterprises are finding value in Big Data.

To help companies achieve the transformational benefits of Big Data, Cambridge University is holding a one-day conference on Tuesday 18 September 2012 in Cambridge, UK. At this interactive event, you will hear speakers from Caterpillar, Google, IBM, Vestas and the UK Cabinet Office explain how they are using big data for innovation.

Speakers on the day include:

  • Craig Olmstead, Job Site Solutions, Caterpillar Global Mining
  • Matt McNeill, Lead Business Solutions Head, Google Enterprise
  • Stephen Gold, Director of Marketing for Watson Solutions, IBM Software Group
  • Will Cavendish, Executive Director, UK Cabinet Office
  • Lars Christian, Vice President, Wind & Site Competence Centre, Vestas

For further information, please visit here or contact Nick Mann on T: +44 (0)1223 748263 or E: events@cambridgeservicealliance.org