Businesses, at their core, are formed to make money by identifying and meeting market and customer needs. A product approach – while historically effective and still the most predominant logic – now leads to a race to the bottom, making differentiation nearly impossible and commoditization almost inevitable.
In today’s operating environment, growth is stymied by over competition and investments go towards incremental innovation with a “sure bet” ROI. This desire for “certainty” causes many companies to miss opportunities to generate significant growth by looking beyond the world of products.
Instead of focusing on operations and efficiencies, service innovation looks to create complete solutions from the capabilities a firm already possesses
Service innovations and complete solutions, on the other hand, offer various avenues for company growth that are well outside the box. In fact, companies around the world are starting to understand the importance of diverse offerings that provide complete solutions and generate recurring revenue. Good news! It’s early days and the competitive landscape is still ripe with opportunities.
Servitization, the process of converting from solely product offerings to product/service pairings or purely service offerings can spur growth in a variety of ways. Instead of focusing on operations and efficiencies, service innovation looks to create complete solutions from the capabilities a firm already possesses. The key is adopting a service mindset – or service design approach – focused on customer outcomes, value capture, and revenue generation. The service design approach has the ability to grow revenue, expand existing market share, and penetrate new markets.
Grow Revenue Through Servitization
With the right service design approach, revenue growth becomes the bread and butter of servitization activities. You can add new service offerings to complement existing products or by create entirely new offerings and new to world complete solutions. Better yet, the recurring revenue that is possible guarantees long term profitability and opens up new ways to interact with customers. This “virtuous cycle” further enhances the potential for growth.
Expand Market Share Through Servitization
To expand existing market share, companies have the option to couple products with services to extend contract length and value. Customers are set in their ways when it comes to purely products. Oftentimes the status quo or “the way it is” has been created from years and years of operations, and all parties assume “that’s that.” This mindset hinders possibilities. Product/service pairings can break the cycle and make your offering more compelling without having to decrease fall into commoditization and price cuts.
Penetrate New Markets Through Servitization
If your product meets a certain need, it’s likely there are nearby opportunities that still fall in your domain of expertise waiting for you to capture
Similarly, product/service packages can be used to expand into adjacent markets. What better way to compete with products than by offering an outcome? Customers are increasingly likely to seek out complete solutions in order to have less on their plate. If your product meets a certain need, it’s likely there are nearby opportunities that still fall in your domain of expertise waiting for you to capture value.
The steps you take to achieve these goals are best plotted using a service design approach. Figuring out which products and capabilities to combine and which new services to offer is the nuance of service innovation and requires a certain set of skills and expertise and isn’t “easy work” but it’s worth the effort in the end.
