THREE PATHS TO GREATNESS: WHICH SERVICES STRATEGY IS RIGHT FOR YOU?

by James "Alex" Alexander, Ed.D.
In order to understand, create, and implement a services strategy that drives your organization’s success, you must first align your strategy with your company’s business strategy. An earlier article of mine, “Business Strategy--The Four Choices,” defines and describes the four business strategies. This article helps the services leader choose which one of the three services strategies is most appropriate in specific services business situations.

My research over the past twenty years confirms the criticality of getting the services strategy right. A key differentiator that separates top-performing services businesses within product companies from everybody else is their ability to better align their strategy with the mission and focus of the parent organization.* Of course, this makes perfect sense, but doing so is a constant challenge.

The repercussions of non-alignment can be quite severe, as there is nothing worse than doing things really well that shouldn’t be done in the first place! For example, maximizing utilization rates can be an important target of a mature, freestanding professional services organization, but if the appropriate strategy of the PSO is primarily that of supporting the parent company by helping to sell products, the goals may be in conflict to the overall detriment of the company. (As the quality folks say, optimizing one group [the PSO in this case] while sub-optimizing the organization.)

THE THREE SERVICES STRATEGIES
Strategic alignment means determining which of three possible strategic roles of services best supports the overall business mission. Figure 1 shows the three choices:
Figure 1
The Three Services Strategies
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Product Enablement
The purpose of the services organization implementing the product-enablement strategy is to make sure that the product works as intended. Implement the software or install the hardware right the first time and fix it fast when things break. In businesses where this strategy is appropriate, products have been, are, and will be the dominant focus of the company. The services organization may charge for some services, but in most cases the services business operates as a cost center.

Services-Led
At the other end of the spectrum is the services-led strategy. In organizations following a services-led strategy, the organization pushes the benefits of services and services-led solutions first, and then pulls along their products. The marketing message is that yes we have good products, but the reason to buy from us is our outstanding services that unlock the full potential of the product, plus add more value by the impact on your business. A robust portfolio of innovative services is the crown jewel of the organization.

Product Enhancement
Along with meeting the requirements of the product enablement strategy first described, the services organization following a product enhancement strategy is responsible for contributing profitable revenue by providing additional value-adding services that impact customer functionality, process effectiveness, and efficiency.

The product enhancement strategy is the tricky one, being betwixt and between product enablement and services-led, neither fish nor fowl. When following this services strategy, senior management wants to have its cake and eat it, too. This scenario will sound familiar to services execs implementing this strategy: On Monday you sit down in your review with the CEO, and she assures you that your primary mission is to support the company by growing services revenue, and contributing to both the top and the bottom line. So far, so good. On Tuesday you sit down with the vice president of sales, and he is emphatic about “value-pricing” (code word “deep discount”) services to help land strategic business (big deals). You lay out your best defense, but in the end you lose the discussion, as you knew you would. Bummer.

On Wednesday morning you are called into a crisis meeting and directed by the CEO (the same one you talked to on Monday) to board a bus to Boston with your best technical experts to fix the problems at Galactic Enterprises and not to come back until the customer is satisfied. Never mind that your people are committed to other projects, and, of course, it isn’t billable, it is for the “good of the company.” Yes, the organization wants (and demands) profitable growth, but whether stated or not, the prime directive is to support the product first, and then make your numbers any way you can. This is not an easy business to run!

THE THREE PHILOSOPHIES
Figure 2 shows that each services strategy requires different philosophies for success. Running a product enablement service business requires constant vigilance toward efficiency. Hence, the entire services organization is focused on keeping things lean and low cost.
Figure 2
The Three Philosophies
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Implementing a product-enhancement strategy requires a focus on effectiveness--balancing the requirements of profitable growth with the necessity of helping to sell products, on one hand, and keeping customers satisfied, on the other hand. Constant negotiations with sales and other executives are required to deliver on the duality of expectations.

Running services in a services-led organization requires emphasis on innovation, as the services component is recognized as the greatest potential value contributor to organization success. Emphasis is on the creation of unique services that differentiate the organization from the competition. Marketing and selling push services and pull along the products.

Obviously, each philosophy requires different capabilities and mindsets to optimize performance.

THE THREE PERFORMANCE LEVELS
The existing and hoped-for performance level also has an impact on the ability to implement the philosophy and execute the strategy. The three performance levels are shown in Figure 3.

Start Up is the performance level of services early in its formal organization. Services organizations at the Industry Player performance level have compatible capabilities, service offerings, delivery vehicles, and performance scores comparable to the top services organizations of top competitors. The elite group of services organizations viewed by customers and non-customers alike as “the best” are World Class performers. They are at the top of their industry and possess attributes admired (and copied) from other organizations in other industries.
Figure 3
The Three Performance Levels
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APPROPRIATE PRACTICES
As a general guideline, Core Practices applicable for most all services businesses are best suited for the Start Up performance level. Best Practices within the defined marketplace should help guide the Industry Player, and Distinguishing Practices should be the beacon of the World Class services organization, as seen in Figure 4.
Figure 4
Appropriate Practice Comparisons
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PUTTING IT ALL TOGETHER
Figure 5 puts all of these factors together. As you have seen, your chosen services strategy determines your services business philosophy, and your existing performance level tells you which type of practices are most appropriate. Hence, you can fine-tune your services organization by understanding which of the nine boxes you occupy and adjusting accordingly. As a general rule to increasing the value contribution, most all service businesses should strive to move up, and many should strive to move to the right.
Figure 5
The Nine Boxes of Services Strategy
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Figure 6 gives us an example to consider. Service Business A is a new services business within a product company that is currently following a Product Enablement Strategy and operating at a Start Up performance level (Point A on Figure. 6). Therefore, the philosophy is Efficiency (as much as is possible with a Start Up). Here are some appropriate core practices:
  • Marketing Direction: Not an issue.
  • Sales Effectiveness: Not an issue.
  • Delivery Performance: OK job of installing/implementing products, respond quickly and fix problems fast.
  • Operations Excellence: Customer acceptance, make sales happy. Standard reporting (in development) for core procedures.
  • Talent Productivity: Emphasis on product knowledge plus a “can-do” attitude.
  • Cultural Aspect: Team player--red boots and flowing cape, whatever it takes.

Marketing and selling are not issues when following a Product Enablement strategy.
Figure 6
Nine Box Example
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As this services business matures, it will probably strive to become an Industry Player still playing in a Product Enablement strategy (Point B on Figure 6). As you’ll note below, the practices (and metrics and capabilities) must transition.
  • Delivery Performance: Adopt response and time-to-fix times in line with top competitors.
  • Operations Excellence: Voice of customer satisfaction research and tracking in place. Quality mechanisms in place to track improved efficiencies. Knowledge management system in place. Putting an emphasis on self-service.
  • Talent Productivity: Segmentation of personnel based upon capabilities.
  • Cultural Aspect: Team player--red boots and flowing cape, whatever it takes. Demonstrating to executives and sales how service excellence is helping get and keep business.

Marketing and selling are still not an issue.

After several years of hard work in improving performance, the services business might achieve its goals and be operating at the Industry Player level. Once this occurs, the services business might strive to become World Class. However, if the company’s mission and focus change, then it might make sense for the services business to transition to a Product Enhancement strategy. Although many of the improvements in systems, process, and people will readily transfer over to this new approach, in reality, the services business is now a Start Up as it figures out how to best operate in deploying this new strategy. Hence, at this point in time, the services business is at Point C.

To deliver on the Product Enhancement strategy some significant changes must occur.
  • Marketing Direction: Need for dedicated services marketing, services branding, expanding services portfolio (e.g., professional services).
  • Sales Effectiveness: Need for dedicated services sellers, influence product sales to transition from free to fee, get technical talent to support sales.
  • Delivery Performance: Strive for relentless repeatability.
  • Operations Excellence: Emphasis on services contracts, renewals, reference accounts, contribution to new business.
  • Talent Productivity: Proactive role--transition selected technical talent to trusted advisors, utilization/billability balanced with account management, selling efforts.
  • Cultural Aspect: Seen by some as a direct competitor to the product side, must constantly sell the value internally and not show a threat.
  • Competitive Position: Monitor competition to ensure appropriate offerings and pricing.
  • Challenge of the Channel: Expand coverage while maintaining quality.
  • Optimal Design: Work to ensure that services structure supports the new services strategy.

Your services strategy and the performance level of your services business have major implications as to the most appropriate way to successfully lead and manage. Remember, what might be a best practice for one services business, may be a worst practice for another. So take the time to explore/study/determine/confirm your company’s mission and your current services strategy and performance level. Use this information to determine the appropriate focus and practices today while keeping a strategic eye on tomorrow.

* Alexander, James A. The State of Professional Services II: An Industry Comes of Age. December 2004. Fort Myers: Alexander Consulting/AFSMI.
James "Alex" Alexander is founder of Alexander Consulting, a management consultancy that helps product companies build brilliant service businesses. Contact him at 239-671-0740 or alex@alexanderstrategists.com.

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