From Product to Service: Analyzing a New Business Model, presented by Michael Sperger, Director of Market Intelligence, SAP
Michael asked if the audience could spot the service aspect of a plane.
(Microsoft clip art)
No, not delivering the fuel or moving the plane. GE engines are “sold” as part of a package. The engine is leased and GE takes responsibility for maintenance. The Service Level Agreement (SLA) says that GE will solve problems within two hours or swap out the engine. Another example is Netflicks. These are examples of the old expression for selling services: “Sell holes, not drills.”
Why this trend? Services decline less in downturns
Five competitive risks exist in this transition:
- Determining the pricing and value propositions
- Sales force transition
Different mix of Hunter (type of salesperson good at closing new accounts) vs. Gatherer (salesperson good at maintaining existing accounts) sales styles may be appropriate. Plus, the change in corporate model will cause some sales people to leave. Sales can not price right in service model. Sales compensation should change to depend on the life of contract and profitability
- Operations/delivery issues
“The Checklist Manifesto,” a best seller by surgeon Atul Gawante on using check lists to handle the complexity of modern life, suggests an approach to get people to use checklists in hospitals. Train low level staff first and then ask others to participate. A bottoms-up implementation plan may work better than a tops-down one.
- Differentiating service
Customers are more locked-in with a service model. This works great for incumbent, but terrible for competitors. Try closing a small piece of work to prove yourself and get to know each other.
In addition, if you are a manufacturing company moving to a service model, you may start to compete against your distributors.
Three tools for doing CI in a Product-to-Service transition are:
- Competitor profitability analysis
- Organizational model transformation
- Tactical program design