Companies are looking for practical measures that will help them grow through services and customer solutions beyond their traditional product core. In this series, Center for Services Leadership Co-Executive Director Wolfgang Ulaga takes us through a road map for building a B2B service and solution business.
You have looked at the competitive landscape, and services appear to be a growth opportunity for your firm. What next?
Wolfgang Ulaga, AT&T Professor of Services Leadership and co-executive director of the Center for Services Leadership, says that there are no shortcuts. Your first move into services should be analysis of your current service offerings and assessment of the opportunities. In their recent book, Service Strategy in Action (S2iA), Ulaga and co-author Christian Kowalkowski developed a classification framework that has helped hundreds of executives assess what services their companies already provide and how they can enrich their portfolio of service and solution offerings tomorrow. The four categories of service offerings described in the matrix of Figure 1 (above) present different growth directions on the path from a product-centric, break/fix mentality to a partnership with customers focused on outcomes.
The starting point depends on your firm, and your sweet spot could be anywhere along the way. Here is a framework for figuring it out.
Start here: Product Lifecycle Services (PLS)
PLS encompass the basic services that most suppliers must offer to their business customers. Sometimes called after-sale services, PLS include such activities as delivery of equipment or materials, calibration, installation, inspection and even repairs. They directly support the product that is sold, and the value to your customer is your promise to perform a task.
Suppliers can leverage PLS to grow services into a more robust source of profit if they can break free of a common customer perception that they are part of the purchase price. Rather than bundling PLS into the purchase price, Ulaga suggests bringing them into the open, where the customer can see and appreciate them more. Some companies have done this by developing tiers of PLS, charging more for augmented service. Or, offer PLS at a lower cost than a competitor. Using technology to standardize and automate these services will allow you to control costs, improving profitability. And by drawing attention to the real value of PLS, the supplier is deepening his relationship with the buyer.
Asset Efficiency Services (AES)
AES change the customer promise: in addition to providing the product, suppliers help customers get the most value possible out of their investments. PLS guarantee that the supplier will fix things when they break, but AES go a step further. “I can just sell you a pump, or I can help you get more productivity out of the pump by monitoring it 24/7 and stepping in with preventative maintenance,” Ulaga says. Now the supplier assumes some responsibility by proactively anticipating and addressing problems, increasing the availability of the machine.
AES require suppliers to acquire resources and expertise — in data analytics, for example. And once customers understand the benefits from AES, price negations become easier.
Process Support Services (PSS)
Companies that offer PSS and AES services are focused on their products. Those that offer PSS shift the equation, turning their attention to the process that the customer is trying to achieve when he buys the product. With PSS, the supplier is looking deeper into the customer’s operation, and the services become evaluative and consultative rather than performing a task.
Ulaga offers an example: “If you own a welding company I could sell you oxygen — that’s my product,” he says. “Or, I could ask to see how you do your welding, and figure out ways you could drive down the cost and improve the quality of the welds.”
With PSS, suppliers move closer to partnership with their customers, but they do not take responsibility for the outcome. They consult.
Process Delegation Services (PDS)
The final step in service evolution is PDS. Rather than selling clients a product used to achieve an outcome, suppliers offer the solution, freeing the customer from managing the products and processes that he would use realize the outcome himself.
Think about car manufacturing, Ulaga suggests. “I sell you paint, and you paint the cars as they come off the assembly line,” he says. That is product-focused. “Or,” he said, “I could take over your paint shop and promise to meticulously, flawlessly paint your cars.” Now the customer is not buying gallons of paint. Instead he’s paying for outcomes achieved: flawlessly coated cars.
PDS are the most complex service offerings, as they require resources and competencies developed in all three other categories.
Building your portfolio
Ulaga suggests reading the framework through the lens of your company to determine where you are and where you might be able to go.
Not every company will be ready for or want to progress to PDS. If your industry has powerful distribution channels, it may be difficult to get close enough to your customers to advance beyond PLS. The same is true if your firm’s culture is firmly grounded in your product. But you may not need to venture into all four categories and can operate profitably in only part of them.
Or, you may realize after examining the matrix of Figure 1 that you can open up new sources of profit by adding selected resources and skills, arriving at the next level.
In our next post, Ulaga will explore capturing more value through better pricing of services.