“Industry is traditionally involved in the product manufacturing business. This can present a challenge since product-oriented activities can only get you to a certain position in the market. Switching over to the solution business lets you look at the customer lifecycle instead of one-off product acquisitions. Producing a new type of value is something industrial actors – as well as the consumer business – are also looking into. What is needed is not only services that support current business activities, but also services that provide new business opportunities. The latter can’t be achieved without an innovative mindset or an understanding of market changes and future scenarios,” says Risto Nykänen, Business Consultant at Vincit.
The engineering company KONE is a great example of how a global solution business can be built around a tangible product, the elevator.
“A product can be sold only once, but services can be sold time and time again. Take maintenance and lifecycle services for instance,” Nykänen explains.
“When a company shifts from products over to solutions, it needs to have an extensive understanding of the customer’s business, processes and operational environment. It must also know how to carry out service integration in a network of operators,” says Jan Landén, CEO of Bonsky Digital.
“Imagine a chemical industry company whose chemicals are used by the process industry for cleaning and hygiene purposes. The company is planning to move from products to solutions. What they need to be able to do is integrate their cleaning systems into the customer’s production line, supply the customer with the right amounts of cleaning chemicals and also to provide the operation and maintenance service together with the system supplier and possible maintenance partners. Not only that, but all this should be sold to the customer at a competitive rate, charging X dollars per unit produced, for example,” Landén continues.
Biggest challenges to entering the market
Starting a new business normally has two sides to it: the technical side and the market side. The technical side is usually covered – all appropriate specifications are in place and the company knows how to create a product or service. Challenges only arise when entering the market: how can you convince someone to buy your service for the first time when they will realize its value only after the purchase?
“The biggest challenge is to sell services that have nothing to do with your previous business. First, you need to create a new service concept and then make it appear reliable, which can be done through cooperation, by teaming up with other actors or competitors, for instance. Finally, after you’ve won the market over, you need to differentiate the service brand and sell it to your target group,” Nykänen explains.
Customer satisfaction surveys do not equal customer understanding
Product companies sometimes have a hard time understanding the importance of customer relations in the solution business.
“When there’s no common ground, companies sometimes lack any understanding of the customer’s business. Going through the customer satisfaction surveys once a year gives no indication of the extent of the customer relationship or understanding. If a company doesn’t have a close relationship with the customer, the change from a product-centered operator to a service-oriented one may prove challenging,” Nykänen says.
Servitization requires new operating models and new ways of thinking – for instance, companies need to be ready to accept that services can also cannibalize their current product business. When it comes to operating models, service design promotes the use of Agile and Lean processes. Agile design adds to the in-depth understanding of customers and encourages organizations to understand the motives behind the customer’s actions as well as their need for certain types of services. The work is carried out and developed in collaboration with the customer or end user.
“Just the thought of engaging the customer or continuously developing a service may seem foreign to some. But that’s the difference between services and products,” Landén says and continues: “In the end it’s all about interaction: companies need to experience the customer’s world in its entirety and invest time in the customer. The customer’s voice needs to be heard in all mutual dealings and while developing the service – development work is never done.”
The trick of turning Agile
“Instead of dedicating a whole year for careful planning, why not try out different concepts that are first quickly created together with the customer, then revised based on feedback, tested in use and further developed through iteration,” Nykänen describes the process.
“Some thought should also be given to architecture to see how it enables future business models,” Landén adds.
Consider the following to become more Agile and to develop your competitive edge:
1. It all starts with a vision and a strategy: Consider where you’re headed and what services you need to get there. Do they support your current business or create entirely new business opportunities?
2. You need start somewhere: The world is your oyster, but you can’t have it all in one go. Concentrate on your most important business challenge and consult professionals who have experienced a business transformation.
3. Test, inquire and engage: Apply Agile methods. Find out what the needs of your business and customer/user are and create a concept for testing.
4. Inspire: Share the results with your work community, tell them what you did and how you succeeded. Apply the same operating model from one project to the next for a more Agile future.
Feedback or questions? Contact Vincit's industry experts
, SVP, Strategy & Partnerships, (480) 438-7450
, VP of Business Development, (949) 241-1151