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Every Road Will Get You Nowhere
In the past several years, second only to a renewed focus on emerging markets, “developing a solutions offer” has become a key element of the strategies of many manufacturing and distribution businesses. Such firms, finding little headroom for growth with its current business model, look to move into a larger available market space by expanding their offering to include more products (typically adjacent ones) and services (typically complementing and/or connecting those products). “Solutions offer” is the descriptor by which such firms describe that expanded offering to its customers and prospects.
One equipment manufacturer that served the electric utility industry had a very strong position with new construction projects and looked to expand into maintenance and repair of facilities, competing with in-house teams and local contractors. Taking a long-term perspective, this firm revisited its product strategy to incorporate an aftermarket business model, identifying ways in which it could link its equipment sales to an ongoing repair parts and service relationship. Thus, the firm’s solutions offer an integrated product and service elements in a meaningful way, one that yielded value for customers and differentiated the combined offering from the individual elements included within it.
Creating a solutions offer is a challenge, one that brings to mind a comment made by former Secretary of State Henry Kissinger, “If you do not know where you are going, every road will get you nowhere.” The first element of a sound solutions offer must be that it solves an important problem facing the customer targeted by the offer. A winning solutions offer must address the goals of the targeted customer organizations. But the challenge goes beyond that. Often, the supplier must understand the needs of its customer even better than they understand themselves. After all, if the value creation opportunity associated with the solutions offer was obvious, the customer would have either implemented it themselves or put out a request for proposal (RFP) to attract a supplier capable of doing so. In my experience, the most significant solutions success stories are ones that involved a supplier seeing a new and different way of doing things, presenting the customer with a better way to get where they are going.
Taking Kissinger’s quote a step further, it is also true that if you don’t know how your customer is planning to get to their destination, you’re not going to connect with them. In working with a variety of firms in developing solutions competencies, sharp distinctions have emerged in the perspectives that customers have about supplier contributions that involve solutions offers.
Some customers are clearly solution buyers. These organizations are open to ideas from a supplier that can offer a complete, tested, and proven package. They are willing to outsource some responsibilities to a supplier, as long as that supplier can demonstrate its ability to deliver on the promise inherent in the solutions offer. In such situations, the supplier’s challenge is not only associated with identifying the opportunity to develop a value-creating solutions offer, but also that of creating the business model and delivery competencies necessary to translate the concept into reality in support of customers.
Other customer organizations, often in the same industry, view themselves as solutions builders. These organizations have an inherent skepticism about buying a packaged solution, preferring to construct it themselves, drawing upon what they view as best-of-breed “ingredient” offerings by various suppliers associated with the elements of the solution. For reasons that are sometimes good or bad, such organizations resist solutions offers from suppliers and in a few instances, develop a hostile perspective to the supplier’s “ingredients”, thinking they have been tailored to the solutions offer rather than optimized individually.
The development of a solutions offer can allow a supplier to escape from the process of commoditization – a situation that many manufacturers and distributors have faced as global competitors become increasingly able to deliver similar-quality products at lower prices. Complementary services may help other firms to avoid the same fate and a solutions offer that brings higher value to the customer can protect the legacy product base and allow expansion in adjacent service contributions. Despite all those positive incentives, developing a solutions offer should only become a core element of strategy when there is clarity that the solutions offer can help a customer get where they are trying to go and does so in a way that is consistent with the way the customer plans to get there. Those firms whose solutions offer matches up along both dimensions will be those that delight its customers and reward its shareholders as a result.
Author: George F. Brown, Jr.