Monday, 18 January 2016
Creating sustainable success in a ‘solution business’ is no small feat. Suvi Nenonen and Kaj Storbacka say it needs a separate business model.
Stop selling stand-alone products and start selling solutions. This seems to be the rallying cry in many industries at the moment.
Many firms are seeking to differentiate themselves from the competition by offering broader packages to their customers by, for instance, bundling machinery and the related maintenance services into convenient one-stop-shop solutions.
The increasingly time-poor customers often find such wider solutions appealing, but creating sustainable success in solution business is not a small feat.
Solution business needs a separate business model
It is easy to understand the siren song of solutions. Moving forward in the value chain and offering more complete, integrated solutions drives top-line growth as firms will be able to make bigger deals.
Focusing on how customers use products and services helps in improving firms’ overall customer orientation – most often a much-appreciated side-effect.
And reading the business press just confirms these conclusions; for instance Fonterra’s future growth is largely expected to come from the food service business, which packages dairy products with various services into – you guessed it – solutions.
However, what is lacking from these accounts is that starting a solution business is not akin to launching a new product or service.
Solution business is almost always a separate business model that requires its own unique capabilities to succeed. For example, selling solutions is not usually the problem – it is the efficient delivery of the customised solutions.
Thus, it is very easy for one zealous salesperson to ruin the profitability of the new solution business unit unless sufficient time and effort has been spent in ensuring the repeatability and scalability of solution delivery. Sounds boring perhaps, but building mass-customised solutions from completely standardised ‘Lego bricks’ is something to strive towards.
Even after you have managed to ramp up your new solution business model, you are still – unfortunately – in the danger zone.
Based on our experience, most organisations get very excited about the initial success of their solution business and become obsessed by the ‘from-to-transformation myopia’.
If this new business unit is growing with double or triple digits, and reaching unprecedented profitability levels, surely we should move completely from product business to solution business? Unfortunately, the answer in most instances is “no”.
Very few firms can, or should, make such a total transformation. Instead, you should develop a solution business model that complements your existing product business models.
More often than not, a successful solution business relies on the scale effects, in terms of cost efficiency, that the product business creates.
The real solution business champions seem to be the ones that operate product and solution businesses in parallel: equipment business and service-level agreements; materials business and tailored applications from the raw material; components business and turn-key projects.
Banning the word ’solution’
As with most management fads, people tend to overuse the word ‘solution’ – and thus in firms interested in solution business, everything becomes a solution.
If I am thirsty, then a glass of water is a solution to my thirst. We would, however, advocate steering clear of the word solution whenever possible. Relabelling your old trusty products into solutions doesn’t add any value. Quite the contrary, it can profusely confuse your employees and customers alike.
If you in a construction business, most likely your customers are not that interested in some obscure ‘construction solutions’, they still want their buildings.
And also in your actual solution business, it pays to think what solution actually translates into in your line of business. For Fonterra, for example, it wasn’t ‘dairy solutions’ but ‘food service’, as this term actually means something for their customers. Whenever possible, call a spade a spade.
Associate Professor Suvi Nenonen and Professor Kaj Storbacka work at the University of Auckland Business School’s Graduate School of Management. They teach in the MBA programmes and their research focuses on business model innovation and market innovation. They are passionate about building bridges over the academia-practice gap.
Column in New Zealand Management
Magazine Issue: February 2016
Page Number: 24