Service Revenue Generation
Over the past year, we’ve talked a lot about the emergence of B4B and the growing need for product-focused companies to become customer outcome-focused, but there is still a lot of confusion about how to accomplish this transformation. In this three part blog series, I will be outlining the key capabilities required in order to make the transition, how to identify customer outcomes, and how your company can take the plunge toward offering outcomes as part of your pricing model.
B4B, or business for business, is a mega trend happening in the technology services industry that TSIA has been closely tracking for several years. Businesses that were primarily product-focused, also referred to as Level 1 and Level 2 suppliers, are making the shift toward becoming service and outcome-based, or Level 3 and Level 4 suppliers. But what exactly is driving companies to make the significant investment and drastic change to their operation? We’ve found that the companies that are most aggressively making this shift have the following challenges in common:
All of the companies making the change have been facing flat or declining revenues and profitability. This is especially noticeable in the TSIA Service 50 index, a list of the largest global providers of technology services that we use to track industry-wide trends.
They are losing market share to startups or larger companies that have already made the shift into providing Level 3 and Level 4 offers. If these companies are going to compete, they need to follow suit and promote customer outcomes.
At the same time, as customers begin to seek out companies that help them achieve their desired outcomes, companies that don’t already offer these services are quickly being pulled in this direction by the changing demands of their customers.
In light of these findings, the message is clear: if you don’t make the jump from a level 2 to level 3 or 4, you’ll fall behind and eventually lose market share, which will affect your profitability. Making the change won’t be easy, as you’ll have to essentially change the DNA of your company in order to start building these capabilities. This will also mean temporarily suspending your focus on products and examining what your customers truly desire. Most technology companies have a high comfort level with their products, and the first reaction is to wrap new services around these products instead of making the necessary changes, but you’ll have to learn to let go of that instinct if you’re going to move forward. I call this habit “hanging onto the teddy bear”, as your products have become your sense of security for your business, but it’s okay to let go of the teddy bear. But where do we go from here? You just have to jump right in, suspend yourself temporarily from your product, and let the teddy bear go as you take the steps toward building outcome competence.
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Don’t expect to become a master of level 4 overnight. It will involve a significant change in your company’s culture, but you can easily start small by taking your current offers and positioning them against customer outcomes. Instead of referring to your services in the context of your product, talk about them in the context of the outcome they’ll help your customers achieve. It’s time to stop promoting the features of your product and services and start explaining how your offers are going to help your customers. Always be asking yourself “What’s most important to my customers?”
As you start getting more comfortable with understanding the needs and desired outcomes of your customers, you’ll soon be ready to build different offers based around those needs. By creating outcome competence, you’ll also be able to enhance your portfolio, because you’ll have a better idea of what your customers are doing with your technology and how you can continue assisting them in achieving their goals. By spending time with your customers and engaging with them, you’ll be able to fully understand how they’re using your technology, as well as identify any gaps in your current service offerings that need to be addressed.
Once you’ve had enough conversations and real-life experience to develop the confidence that you can repeatedly provide desired results time and again, it is then and ONLY then that you should even begin contemplating having an offer that is an outcome as a service. By offering Outcomes-as-a-Service, you only get paid when your customers achieve their outcome, so you’ll have to prove that you can deliver in order to be successful. You have to know exactly what it will take to help your customers achieve their goal, but until you have solid evidence that you can provide these results, you should not sell outcome services.
A pivot from products to outcomes doesn’t just happen, you need to build capabilities and invest a considerable amount of energy and conscious commitment. TSIA believes that by building these recommended capabilities, you’ll be able to develop the necessary skills to successfully make this transition.
Be sure to stay tuned for part two of this blog series, where I will introduce the concepts of value mapping, customer business challenges, and outcome-based pricing models. In the meantime, here are some questions you can start asking yourself in order to start thinking about what your customers really want:
Read other posts in the "How to Connect Your Service Offers to Business Value" series:
Post Date: January 9, 2015
Julia Stegman, is vice president of research, Service Revenue Generation, for TSIA. She has over 25 years of experience in the high-technology industry, and is responsible for driving the TSIA research agenda related to the growth of maintenance, SaaS, and managed service revenues as well as the expansion of product revenues with existing customers.
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