8 Steps to Scale Your Service Transformation
The Service Design Group helps mid-market and enterprise B2Bs successfully start, progress and achieve servitization, digitalization and as-a-service transformation. We’ve been doing this since 2011 and one thing is crystal clear: servitization takes work! To be successful, you need a plan of attack and a willingness to dive in, roll up your sleeves, and make it happen. While immediate and tangible impact is possible (i.e. in the first 3 months), reaching scale is much more a marathon than a sprint, anywhere from 3 – 5 years, with true scale coming in years 5 – 10. What does it take to grow and scale? How can you go from a bump in services revenue to revenue that is diversified with a significant portion of service-based revenue?
Continue to invest
It takes commitment, investment and allocation of resources to get a servitization or as-a-service transformation rolling.
It takes commitment, investment and allocation of resources to get a servitization or as-a-service transformation rolling, but to scale, the investment and commitment must continue. Too many firms make the mistake of holding a transformational journey to the same hurdle rates, ROIs, and traditional measurements placed on a product or portfolio of products. Too early in the process, they lose sight of where things are headed and what will become possible, and prematurely shut off the supply lines needed to make the service transformation happen. Don’t make this mistake. Continue to invest and look outside the walls of your firm to see what the best-of service companies are willing to do to achieve the positions of power they occupy.
Build a component architecture
To help mitigate the risk of premature divestment – and to ensure you are maximizing the return on what you have built – it is vital to adopt a micro services or component architecture mindset. Don’t look at what you’ve built as single packages, but instead as assemblies of micro-services (components) that can be assembled and combined in many ways to derive additional value. We recommend actively evaluating what you’ve built and continuously cataloging the assets in hand as a component architecture. This way, things don’t get “lost” along the way, making it easier to justify the value of what’s been produced, protect the programs moving forward and illuminate new service and solution packages that you might have overlooked.
Transfer capabilities to other units
Too often we see a failure in firms when it comes to transferring services and solutions that have been built to other business units or segments. Don’t make this mistake. Services and solutions are often highly portable if you’re willing to look at the possibilities and focus on the potential instead of the obstacles. With this mindset, you’ll likely be surprised at what you “already have” that – without major change – can be taken elsewhere in the company to kickstart additional servitization and as-a-service transformation efforts. There’s no need for each group to go it alone. Leverage what you have to scale your impact and results.
Mature and harden solution selling skills
If you’re going to truly scale servitization, you need sellers that can sell services.
This one’s important! Don’t underestimate it. If you’re going to truly scale servitization, you need sellers that can sell services. Sounds obvious, but it isn’t. Excellent product sellers may struggle significantly with selling services and solutions. The customer discussions and negotiations change. The incentive, quotas, bonus and compensation schemes change. Make sure you are actively aware of and managing the sales transformation that will be needed to maximize your service transformation well before it’s critically needed. Else, it will be too late. Start by identifying the small handful of existing sellers that are predisposed to solution selling. Get some wins under their belts and let them be the evangelists and change agents for their peers in the sales organization. And, incentivize them all to make the change. After all, true sellers should be motivated by compensation. If you want servitization, incentivize your sellers to sell services over product.
Nurture your customer success team
This one’s important, too! When you begin your servitization journey, you’re likely missing a whole business function that you will need to do servitization at scale! That function is Customer Success Management (CSM). Not to be confused with Customer Service, Customer Success Management is a dedicated function that makes sure customers successfully adopt, utilize, renew and expand their service contracts and subscriptions. CSMs (customer success managers) monitor and measure progress and proactively identify risks and move with autonomy to mitigate impacts. This is a key difference from customer service! Customer Success Management is proactive and outbound, directly tied to both you and your customers results.
Our best practice is to empower Customer Success Management with cross-selling and expansion power. While many are worried this could create friction with sales, it’s worth figuring out, as it can provide a powerful service-revenue growth engine that is much more embedded with and trusted by your customers than traditional sales.
Pick the right measures
Services require different measurements! Pay attention to adoption, utilization and renewal.
Services are not the same as products. Unlike products, which follow a predetermined lifecycle from purchase to use, repair, replenishment or replacement, services are deployed in perpetuity. They need different measurements! Particular attention should be given to leading indicators: adoption, utilization and renewal. And, if you’re in the recurring revenue game, get hyper-focused on your bookings, monthly recurring revenue and annual recurring revenue, along with your revenue backlog. Don’t let standard financial views from the product side of your business mask what the financial success of your services will be!
Master your funnel economics
Closely related to service measurements, make sure you master your funnel economics. Know exactly what it takes to attract a prospect, convert them, and retain them. Use this “funnel math” to reverse calculate how many leads you will need coming in the top of the funnel and use this to orient your marketing and advertising efforts. In an at-scale version of this, the line between marketing and sales almost disappears, with both functions more integrated and all focused on the flow and results of the funnel. And, everyone can point efforts at optimizing specific points in the funnel (e.g. win-rate) instead of the traditional time spent “estimating” what sales might come in at the end of the quarter.
Last but not least, to truly achieve servitization and as-a-service transformation at scale, you must remain restless. Being in the services game means you’re in the outcomes delivery business as well as the continuous enhancement business. Do not lose sight of the outcome you are delivering and the degree to which it still matters to your customers. Continually find ways to maximize the outcome for your customers and keep your eyes open for opportunities to add to the outcome(s) desired.