Servitization Competency 104 – Scale Your As-A-Service Program
The Service Design Group has driven servitization and as-a-service transformations for mid-market and enterprise B2Bs since 2011. This work is rewarding as it unlocks new revenue streams, growth potential, and enterprise value for our clients, ultimately resulting in impactful business model transformation. Today, the case for why a B2B organization should consider and begin a servitization journey is stronger than ever before. However, as we look across industries, very few companies have started or made any significant progress towards servitization!
Scale Your as-a-Service Program
The most challenging and elusive thing to achieve is servitization at scale.
The most challenging and elusive thing to achieve is servitization at scale (which we define as getting to 50% or greater of revenue from services). Many companies struggle to get started and of those that do, most fail attempting to build something. The few that manage to build service offerings, struggle to hit their stride and create a going concern around servitization, leading to very few who are even attempting to reach scale. Regardless, what’s clear today is the servitization clock is ticking, pressure is mounting, and there is a growing sense of urgency to really transition from product-derived to service-derived revenue streams. While this is the correct strategy – and the firms who do hit a significant level of service-derived revenue are winning – we must recognize and understand the core competencies to reach servitization at scale.
In our experience, most organizations do not have the core competencies required to transition from a portfolio of services that provides a going concern and legitimate revenue contribution to the firm to a point where they are servitized at scale. If you’re trying to get your servitization program to scale, take stock of these competencies and better understand what it will take to get there!
It’s impossible to get a servitization program to scale if the organization doesn’t become service-oriented.
It’s impossible to get a servitization program or as-a-service transformation to scale if the organization doesn’t become service-oriented. This is not to be confused with a “Service-Oriented Architecture” (while important from a technology perspective, it’s somewhat irrelevant to this topic). Being service-oriented means that all functions of the firm embrace, understand and actively contribute to designing, building, launching, delivering and improving services. This means that R&D doesn’t just look at product features and material science, but they begin to understand how their research and discoveries feed new service offerings. Likewise, marketing begins to shift from framing value propositions in project terms and starts expressing and committing to the outcomes a customer can expect. Similarly, finance starts to measure and think differently. In year or in quarter revenue becomes less of the focus and everyone starts looking at recurring revenue, backlogs and signings, and renewal rates.
Another vital component of servitization at scale is embracing the inevitability of the need for continuous enhancement. This is not to be mistaken for continuous improvement? What’s the difference? It’s huge! Continuous improvement predominantly deals with identifying, understanding and eliminating customer-facing defects and internal inefficiencies. While this is important work, its ultimate output is a more frictionless, seamless service, but it’s still “the same service” as what was originally launched. That’s where continuous enhancement kicks in. Continuous enhancement is about continually expanding the value proposition of the service. Think about a consumer service like Amazon Prime. Sure, they do continuous improvement to optimize delivery logistics, but the magic is in the continuous enhancements, like adding Prime Video and Prime Music to the core service offering.
Solution selling is the deal-breaker of any servitization program reaching scale!
This is the deal-breaker of any servitization program reaching scale. Why? Because if you can’t transition your sales team from selling products to selling services and solutions, nothing else matters! Too often, we see major missteps in this category. It starts with being honest about the types of sellers and sales capabilities you currently have. If you’ve operated for years with a transactional sales model, don’t expect your sellers to make the shift overnight. Also, don’t expect that they’ll have innate solution selling skills. You will have to invest in transitioning your sales team towards solution selling, rounding out capabilities where needed. You will also have to pay special attention to incentives and quotas, ensuring that you are actually pushing your sellers towards selling the new services in favor (or at the expense of) product. If you don’t drive the change through sales, it will never happen. Your percentage of service-derived revenue vs. product revenue will stall unless you do it!
Customer Success Management
Hand-in-hand with solution selling is another often overlooked core competency – customer success management. This is not to be confused with customer service. Customer Success Management is typically a group that doesn’t exist prior to servitization but is vital to reach scale. As you sell more services, you need a team dedicated to ensuring that the service onboarding, adoption, utilization, renewals and expansions come through. Do not expect this to be something that customer service can “just do.” You need to preserve your customer service team as they’ll need to keep supporting your product issues. Customer Success Management is a whole new world that you will need to build in order to reach scale.
Measurement, Tracking and Embedded Analytics
Think about embedded analytics from day one and make a roadmap to ensure embedded analytics are a reality by the time you try to scale.
Last but not least is the classic “you can’t manage what you can’t measure” and that’s true for services! To truly hit scale with servitization and as-a-service transformation, you’ll need an A-game when it comes to measurement and tracking. Our advice is to think about embedded analytics from day one and make sure you have a roadmap in place to make those embedded analytics a reality by the time you are eyeballing scale. Because if you don’t, it will be difficult to move forward. At a minimum, you need a connected measurement, tracking, analytics and reporting system that will give you headlights and predictions into the critical KPIs of service, including average contract value, adoption rates, utilization rates, renewal rates and expansion rates.