“Pulling” Products with Services: Six Best Practices for S-Business
Using a Services-Driven Strategy to Drive Exceptional Performance
by James A. Alexander, Ed.D.
Smart executives in product companies have known for a long time the revenue and profit contribution of a solid services organization. Not only do strong services complement and add value to the product, they contribute directly to growth and margin targets.
A global research project that I completed for AFSM International* confirms this reality. Executives and managers from 370 companies in 29 countries shows that, today, services have average gross margins that are more than 50 percent higher than products, and the current annual growth rate of services is more than double that of products, with a significant acceleration planned within two years. In consideration of continuing pressures on product profit margins, the future for services looks very bright indeed.
However, a select group of organizations has broken the code when it comes to yielding the power of services to drive exceptional performance. This same research study revealed that top performing .s-businesses. (organizations that push services to pull products) are averaging 61 percent average gross margins and 30 percent annual growth rate for their services offerings. These elite services-focused, services-measured, and indeed, services-driven organizations are dramatically delivering new streams of revenue and increased profitability by creating and selling what customers are demanding.more and better services. I would challenge all readers to compare the performance metrics of their organization against these benchmarks.maybe a new business approach is in order.
A core differentiator between top-performing s-businesses and the rest of the pack is their attitude toward services at the strategic level. In fact, the a fore-mentioned research project found that there were six best practices separating these two groups. Think about whether your organization implements each practice as you read through the listing.
S-Business Strategy: Six Best Practices
1. The overall strategy is based on .pushing services. and .pulling products” With rare exceptions, customers see no difference between the product offerings of the top suppliers in any market space. What they value most are the services that maintain product uptime, enhance an application, or (better yet) drive business performance. The smart companies sell the value of these services and then drag the product along with the services sale.
2. The top management team includes individuals with services management experience. Let.s face it, product folks think (and act) differently than services people . different ways of viewing the business, different ways to measure success, different ways of marketing, selling, and so on. If you are going to be services-driven, there needs to be services horsepower on the bridge to help chart a new business heading.
3. A strategic services plan is in place. The operative word here is .strategic” Services must be an integral part of the overall business plan and not just a few paragraphs in the operations section.
4. The services organization(s) sets its own financial targets. To truly unleash its potential, services must be set up as distinct profit centers responsible (and accountable) for setting and meeting financial objectives.
5. Services are not organized by geography. In reality, services organizations that organize geographically are implementing a .worst practice” Top performing services businesses organize by industry, or even better, they organize by account.
6. Services are integrated. Again, the key here is taking the customer.s perspective. They prefer one-stop shopping, or at least dealing with organizations that focus on selling and delivering in a hassle-free way. To do this means aligning and packaging different services offerings and sometimes services businesses. For those organizations attempting to offer .total solutions, this means that the professional services group, product support services team, and the product function must all work together to promote, sell, and deliver one complete package to the customer.
Using services to drive business provides the opportunity for exceptional performance. Why not start today?
* AFSM International is the global, nonprofit association for the services industry. For more information, go to www.afsmi.org.
Jim Alexander is a partner with Alexander Consulting. He can be reached at [email protected].
This article originally appeared in Line 56 (www.line56.com) on Tuesday, June 03, 2003.
