Will Your Culture Support a Transformation to a Service Business Model?

Companies are looking for practical measures that will help them grow through services and customer solutions beyond their traditional product core. In this series, Center for Services Leadership Co-Executive Director Wolfgang Ulaga takes us through a road map for building a B2B service and solution business. See Part One

Will Your Culture Support a Transformation to a Service Business Model? 

Products companies have seen the services light. Outside pressures such as falling prices and shrinking margins are causing firms to look for new streams of profit, and services offer attractive opportunities. Big data, for example, is making new offerings like remote monitoring of equipment possible. Whole industries are reshaping in response to the new logic of service. From a strategic perspective, why not push ahead?

Not so fast, says Dr. Wolfgang Ulaga, AT&T Professor of Services Leadership, co-executive director of the Center for Services Leadership and author of a recent book: Service Strategy in Action (S2iA). “On paper it makes sense,” he says, “but product firms that neglect to assess culture often struggle to implement services, and sometimes abandon the effort.” A company can burn a lot of energy trying to move forward with services if its culture is product-centric, because culture underpins the organization. Ulaga and his co-author, Christian Kowalkowski, identify six misconceptions that are hurdles to transitioning from a product-centric to a service-savvy culture. Here are the hurdles, and the signs that you still need to jump over them:

1. A product-centric mindset — Your marketing efforts focus on things that come in boxes. Your accounting system is designed for physical resources. R&D works on solutions that are objects. You compensate your sales team based on boxes moved.
2. An absence of deep customer insights — You are using a distributer network, and those channels – not you — have the close and valuable relationships with your customers.
3. A lack of understanding and using the co-creation concept. You still think value is created in your factory and you can’t see how customers can partner with you to co-create a service product.
4. The right rules are factory rules — You are uncomfortable with the new rules of service production that upset traditional factory values like standardization and quality control.
5. It’s all about CAPEX — You are focused on capital expenditures and selling customers equipment, rather than helping them solve operational challenges.
6. Working through channels — You have built a strong channel network, and you don’t want to think that it may be necessary to assume more control over channels – even owning them outright.

Making the move to services, then, is a process that starts with the culture at the very core of your business. Changing culture is never easy, and understanding that fact improves a company’s chances of transforming their product-centered culture to service-focused culture, Ulaga says. Four stages mark the way. Not every company starts at the same point, so it’s useful to figure out where your firm is on the map, and what actions and initiatives will be required to move to the next step.

Step one: The Service Desert – Many firms are what Ulaga calls services-myopic. They are aware of service, but they see it as an after-sale add-on. Maybe they provide parts or repair. This is a narrow focus view that obscures opportunities that could result in double digit revenue growth.

Step Two: The Dark Tunnel – A company ramps up investment in service, but results are slow. It’s a “bitter pill,” Ulaga says, experienced by many companies going through this transition.  Decision-makers must understand that a critical mass of services is needed before reaping benefits. A short-term focus can lead to sacrificing long-term growth.

Step Three: Promising Light – In this stage, companies that seized service opportunities early on are experiencing some quick wins. Some firms emerge into this stage without even going through the dark tunnel. When it happens, welcome revenues turn up, and the proponents of the services transition have powerful evidence to persuade others across the organization.

Bright Landscape – This is the destination! The company has devoted sufficient resources and people top its cultural transformation, and the new service business is a source of profit and growth.

In the next post, we will discuss how to build a services portfolio.