Solutions Marketing: Have you Experienced the Shift from Services to Solutions?
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“Build a strong services business. That’s where the future revenue for technology companies will be”…
The Drive to Build a Services Business Technology-based companies saw the gold glittering up in the “services” hills. Build out a solid professional services capability, the advice was, and you’ll get a nice pop to your overall revenue stream. Create more assessment, installation and education services and you’ll not only grow revenue but you’ll also build stronger customer relationships.
And so the tech companies marched off to the tune of the services growth piper. Networking companies, software firms, and hardware manufacturers all looked for additional revenue growth through their services business. IBM flipped to a services-led company. Oracle gradually repositioned itself so that the majority of its revenues were coming from services. Even General Electric, the iconic product-based company that made everything from toasters to jet engines, declared that it was transforming into a services company.
Neil Rackham, the creator of SPIN Selling and considered by many to be the godfather of solutions selling, observed the dominance of services as part of the overall portfolio in most companies as recently as 5-6 years ago. He presented the following graphic during his talk at the annual ISBM conference at Penn State.
Only a small percentage of what companies were selling at that time was considered to be truly “product-only” sales. Rackham estimated that these transactions comprised only about 10% of the total sales. As a result of the opportunity that companies saw to include some services on top of their products, the vast majority of their product sales included a thin veneer of services on either the front end or back end. They were able to provide a small amount of product enablement – without having to do any or much customization – which improved customer satisfaction while also providing a kicker to their revenues. The real solutions development sales that would truly ensure that complex technology-based products would be completely enabled within the customer’s business environment were hovering at the other end of the spectrum at around 10% of total sales. These constituted the “heavy lifting” for both the sales force as well as the delivery teams, and were avoided whenever possible.The Emergence of Solutions Now fast forward to today’s business environment. The Internet continues to develop as a strong business platform, cloud computing has given companies new buying and delivery options, and the ability to collect and analyze large amounts of data has provided companies with new approaches to understanding and serving new markets and customers.
All of this has led to a shift in the product-services-solutions relationship. According to Rackham, the new paradigm is as follows:
In a relatively short period of time, the labor-based services that companies used to sell are now being delivered via the web. They are sold as if they were products, and they are delivered remotely and without human involvement.
The more delicious aspect of this evolution for solutions marketers, however, is the growth in the demand for solutions. With the continued upward spiral of technology complexity, Rackham contends that there is and will be an ever-growing need to have technology and industry experts customize and configure standard products and services to suit the unique business challenges that each individual company faces.
This graphic begs the question of “what about the highly packaged solutions that are pre-assembled, or need only simple configuration as if they were Lego blocks?” Our opinion is that these are likely to migrate to the left of Rackham’s graphic and be treated more like products.What Has Happened to Your Services Business? As always, Rackham has done a great job of stirring the technology pot and getting everyone to think about where their services and solutions businesses are going. Look at your own portfolio.
- Does the Rackham model ring true?
- Are you selling and delivering more and more of your services as if they were products?
- What have you seen in terms of the demand for solutions?
So…what is the verdict?
For IT services companies this shift is driven more by clients who are expecting value added services to their business and use this as a metric to measure the IT-service provider performance. This criteria nowadays is being used to shortlist and award large value contracts to IT-service companies. In India where there's a heavy emphasis on service business and accounts for almost 50% of GDP, customers are increasingly demanding solutions a) for lack of skilled resources for IT management and b) to have a single point of contact in a multi-vendor/multi-partner IT infrastructure environment. The need to provide solutions is coming strongly from customers in both B2B and B2C market and service and product organisations have started focusing on solutions business especially in emerging markets.
To bring a solution to market, a great cross-functional leadership is required. The major difference between product and/or services marketing and solutions marketing is that, products and/or services marketing is more traditional where in both the buyer and seller/provider of the offerings are well aware of what they are buying/receiving. However, in the ‘solutions world’ it is all about solving a critical business problem where in most of the times the client is unaware of the situation/problem. Developing solution messaging and positioning is more complex than for a product or service. Solutions require more sophisticated messaging and positioning and deeper subject matter expertise because they need to describe the value in terms of how a customer can leverage their company’s strengths to solve a business problem.
I also think that the major reason for shifting from a product/service company to a solutions company is due to a change in customer's demand. Customers wants more than a product and that's what such companies as Dell are trying to respond to. Before, Dell was approaching their clients with shiny new computers and that was it, a sale was made. However, now customers want you to help them solve their problem, and the only way for companies to do so is to first know about their customers industry, product, market and so forth. Building these new capacities require new skill sets, new capabilities, new IP. In order to attend all those differentiators, companies try to grow them organically or go towards M&A; just like what Dell did when acquiring Perrot Systems which was specialized in IT services. Furthermore, shifting to a solutions company also broadens the company's target market (vertically and horizontally). For example, Dell's shift made it go from a billion dollars worth PC industry to a trillion dollars worth IT industry. They aren't confined to one market. Thus, drastically increasing their revenues.
Solutions is definitely a concept that is causing stir in the industry nowadays and is pressuring companies to think of it twice. As Xavier mentioned above, customer demands has brought it upon the company and the risk of being left behind by your competitors or even obsolete is in the horizon. However, it is easier said than done. More than the hard changes in the organization, there are still the soft changes (ie business culture) that organizations need to worry about. Furthermore, it takes a company years to develop and sustain a solutions company. The result of which is incremental transition and even stage/gate approach of companies to solutions mastery. However, solutions company should still be mindful of the risk of turning their offering into a commodity. The benefits of repeatable solutions, pressure to deliver fast solutions and drive to cost reduction has pushed companies to treat solutions as if they were products. Although this is beneficial in the short term for the company, they will eventually lose their competitiveness. It is important to maintain the integrity of the relationship with clients and ensure that the offering, though offers a standardized framework, is still customized to meet clients needs. Through this solutions will not only be just a trend but a sustainable industry of its own.