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Solutions To Growth Challenges
In recent years, “solutions” has become among the most popular one-word strategy summaries. Many firms, finding little headroom for growth with their 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). “Solution” is the most frequent descriptor by which such firms describe that expanded offering to their customers and prospects.
Too often, however, the basis of a solutions strategy is ill-founded. By now, everyone has heard that a solution first requires a problem. Many firms are willing to use their own problem – namely a lack of growth opportunities – to rationalize their focus on solutions. Even the most loyal customers are unlikely to applaud an artificial packaged solutions offering just because a supplier offers it, unless it comes with a meaningful price concession.
So the first element of a sound solutions strategy must be that it solves an important problem facing the customer. It typically requires a significant investment on the part of a supplier to identify and implement a CoDestiny relationship within which a solutions offer will be accepted. Among the multiple challenges associated with the task of building a CoDestiny relationship, three stand out.
First is the need to understand your customer and its business environment, perhaps even better than they understand themselves. The most significant solutions success stories are ones that involved a supplier seeing a new and different way of doing things. In a sense, those success stories involve a supplier that brought a solution to a problem (or opportunity) that customers didn’t know that they had – but recognized when it was brought to their attention. The litmus test of whether your solutions concept will be recognized and accepted is whether it creates previously undetected opportunities for value creation for your customer. If it does, it has the potential for acceptance.
The second challenge is convincing your customer that you are able to deliver the value promised by the solutions concept. Meeting this requires that a customer be willing to trust the supplier with an expanded set of responsibilities, sometimes taking on roles and assignments that had either been done in-house or through other suppliers. Not only must the supplier have proven its ability to deliver results in the past, but it must also show that it has put into place the foundations from which the customer can be confident about their ability to deliver in an expanded role. This is particularly true if the expanded role involves new competencies not showcased in the previous interactions between the two organizations.
The third challenge can best be explained by analogy to the chemist’s definition of a solution, which emphasizes a homogeneous mixture of multiple elements that is in fact different than the ingredients of which it is made – for example, in the way that salt water is different from the fresh water and salt that are mixed together to create it. The best solutions offerings are ones in which the components are meaningfully connected and blended, as otherwise the solution is merely a bundle, eventually open to cherry-picking by competitors and purchasing executives. Getting beyond bundling again suggests the need to see a new and better way of doing things, requiring strong innovation skills and an ability to think about the basis of value creation for customers.
One organization in the building systems industry had a very strong position with its equipment products, and looked to expand into life-cycle services associated with maintenance and repair, an offering that had been provided by independent contractors without any real connection to this equipment manufacturer. It revisited is product strategy, and identified ways in which it could incorporate monitoring capabilities into the equipment that would both signal exactly what maintenance was needed and also shift some instances of corrective maintenance to a less-disruptive and less-costly preventive mode. This solutions offer thus 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.
Another firm in the packaging industry recognized that its personal care industry customers bought both primary and secondary packaging, the former largely oriented towards product usage and the latter focused on presentation on retailers’ shelves. This firm’s design team developed a strategy by which the merchandising challenges could be met by an evolved version of the primary packaging, thereby eliminating the need for secondary packaging entirely. The benefits in terms of cost savings to their customers were clear, and allowed this firm to become the sole packaging supplier with this expanded and integrated offering. Incidentally, a key challenge that this firm had to overcome was that of convincing its customers that it could provide the competencies associated with merchandising and shelf display, an example of the second challenge discussed earlier.
In both of these examples, the solution brought to customers not only created value, but did so in a way that went far beyond simply bundling the products and services that the customers had previously bought. In fact, in both instances, it was the integration inherent in the solution that created the value that attracted the customers to the concept.
While all three of the challenges associated with solutions strategies are daunting, there are very good reasons for considering solutions strategies. In business after business, the total spending by a customer in some project context dwarfs the spending on any single product or service associated with that project. Sometimes the difference in the total spending has been multiple orders of magnitude larger than the spending on even the most significant single product. If a solutions strategy can move a firm from a narrow product or service niche to a position of relevance for much or all of the overall customer spend, that can lead to a major success story.
In addition, it is frequently the case that the migration to a solutions offering allows a supplier to escape from the process of commoditization – a situation that many manufacturers have faced as global competitors become increasingly able to deliver similar-quality products at lower and lower prices. Complementary services may be the element of many projects that can’t suffer the same fate, and a solutions strategy that brings higher value to the customer can protect the legacy product base and allow expansion in adjacent service contributions.
But despite all those positive incentives, electing a solutions strategy should only be done when there is confidence that the three challenges described above can be overcome. Those firms whose solutions strategy addresses these challenges will be those that delight their customers and reward their shareholders as a result.
Author: George F. Brown, Jr.