Saturday, May 27, 2017

Transformation to a service company

Industrial companies are considering ambitions to re-position themselves towards service companies. We live in a service economy, thus the direction is evident. Consumers having great service experiences in e.g. retail, banking, and entertainment start having bigger expectations towards business interactions as well. A big consideration is profitability – how a service generates more value than a product, which may have attractive margins – but even bigger consideration may be how to maintain customer loyalty and remain competitive – since customer needs evolve.

An industrial transformation towards a service company will most likely not be a fast turnaround, but depending on the industry, customer base and scope of business a gradual change. From engineering towards technology provider, from integrated solutions towards services provider. There are a number of elements to be considered a part of this transformation.  

Ø  How do customer requirements change?

o   Customers understand increasing opportunities of online, data and analytics. Learning from consumer services, they expect a smooth customer service in various channels. Customer needs may shift from single transactions towards efficiency improvements, performance guarantees and consultancy. Some customers still want individual products, but delivery or installation requirements may change, and they may be willing to pay for them.

Ø  What is a positioning that provides a competitive edge?

o   Once the company understands its customers business requirements, it is time to decide what positioning to take. How to differentiate from competition? How to not just respond to customers basic requirements, but help them improve their operations, and even help them grow. Price, value, service, speed, sustainability, safety, peace of mind?

Ø  How to develop the footprint?

o   A company may own a number of locations ranging from offices, production or service facilities and research and development. Based on the positioning, what are the key factors? What are the operations that support company positioning and increase profitability in the long term and require more investments? Instead of own production, would joint ventures, partnerships, or leasing make sense?

Ø  What competence shift is needed?

o   A transformation towards a service company requires new kind of competences. These are wider set of various competences. Engineering and technology skills will be complemented by powerful supply management, partnerhsips, integration capabilities, business planning and advisory skills. Customer understanding is prerequisite for a successful service company.

Ø  What kind of offering sells?

o   What does the company sell? What is in the catalogue that transforms into money? What responds to customer needs and how can the portfolio be planned that it is modular and meaningful for volume and value selling? A company needs solutions that can be commercialized and promoted to its customers, not only tailor made upon request, which may become too expensive.

Ø  Importance of company culture and internal communications?

o   What are the employee processes, measures and rewarding systems that support the transformation? Is induction for newcomers still in own facilities or would it be time to get the employees closer to customers business? How to reward for value creation?

o   In cultural context, it is never too much to emphasise importance of internal communications. Employees need and deserve to know about the company´s vision and business, and be able to discuss and contribute to it. Next to customers, employees know best of the customer business.

Recommended article European Journal of Innovation Management Volume 7 · Number 3 · 2004 · pp. 218-228