Innovation is key for any company’s growth and success. Enhancing current offerings while developing new ones is how businesses maintain a competitive edge.
With just a slight shift from product to service, many companies can generate net-new growth
By and large, “innovation” = product innovation and, unsurprisingly, companies that design, manufacture and sell products tend to focus innovation efforts EXCLUSIVELY on product improvements. There’s nothing wrong with this approach… unless you become blind to the wealth of opportunities that lie outside the product box.
An often untapped innovation space is service innovation. With just a slight shift from product to service, many companies can extend the leverage and impact of their existing industry expertise and capabilities to vastly expand market share and generate net-new growth.
Don’t believe growth through services is possible? Read on to see how Adobe, Apple, Caterpillar and Xerox – all historically product-based companies – utilized service innovation to expand offerings, grow market share, increase revenue and even turn themselves around.
Adobe
Upon announcement of its as-a-service strategy, Adobe’s stock dropped 6%. Since then, it has risen 2,160%.
Adobe is a great example of growth through service innovation. Being an already established leader in the software industry with its suite of creative tools (Photoshop, InDesign, Illustrator, etc.), Adobe saw an opportunity to vantage transform from selling software product licenses to software as-a-service. Upon initial announcement of this strategy in 2011, their stock price dropped 6%. Since then, it has risen 2,160%. Adobe’s shift from from product-derived to service-derived revenues clearly paid off!
Apple
In the most recent quarter, Apple saw service revenue rise to $17.49 billion from $13.16 billion a year ago
Apple, often viewed as “the product design company” increasingly looks to services for growth, with a subtle shift in its “main stage” events happening a few years ago (with more announcements about services than new products!). Why? Because it was seeing a plateau in product sales growth. Rather than only innovating in product, Apple chose to look elsewhere for growth and went all in on services. Now, services such as iCloud, Apple Music, and The App Store allow Apple to further monetize its massive user base. In the most recent quarter, Apple saw revenue for its services unit rise to $17.49 billion from $13.16 billion a year ago, exceeding expectations by over $1 billion. $4 billion in services revenue growth sounds pretty attractive!
Caterpillar
CAT’s transition to services started as far back as 1975
The growth through services story isn’t just a software and tech story. Consider Caterpillar, the construction and heavy equipment company. When we look at them, we see another story of growth through services. CAT’s transition to services started as far back as 1975, when it launched CAT PLUS, an initiative that equipped dealers with the tools to offer aftermarket services. Next, CAT expanded to offer short-term equipment use, allowing customers to use CAT products “on demand” (from just an hour to a whole day). They also ramped up financing services, advanced services, technical services and lab services. Today, CAT’s myriad of services is almost too much to follow, but includes IoT (internet of things) capabilities to track fleets and crunch usage data to optimize productivity and lifetime of use.
Xerox
Many experts view this key shift to as-a-service as a move that saved the company
Our final example of growth through services is a more extreme version of growth: grow or go out of business! In the early 2000s, Xerox were in the midst of turmoil as new technologies shrunk the market around them. The new CEO at the time, Ursula Burns, decided the company needed to diversify in order to grow. Xerox partnered with Affiliated Computer Services (ACS), and began to offer printing and copying capabilities as-a-service. Many experts view this key shift to as-a-service as a move that saved the company from decay and drove ultimately drove Xerox’s market cap up to $500 billion.
Take Away
Regardless of the industry you are in, there is always space for growth through services
Regardless of the industry you are in, there is always space for growth through services. Some common options include: 1) capturing value you already give away for free by formalizing your capabilities as services; 2) creating new service offerings to bundle with your existing products; or 3) flipping a product to an as-a-service business model. In all cases, one thing is certain, the service innovation effort will generate growth.
