Navigating innovation in B2B manufacturing is essential for transforming services into strategic business lines. Adopting tailored methodologies for...
Launching new advanced services is innovating your business model. This requires internal momentum to monetise these services and data-driven solutions.Watch video
This article is the 5th and last of my series in which I cover 4 critical steps which make the difference between success and failure in monetising services:
- Solve bigger customer problems to monetise services and data
- Articulate the value you offer
- Remove obstacles for clients to use your new offerings
- Build internal momentum for monetisation
Read my introduction to this topic in Why it is important to monetise services.
Developing new data-driven solutions and services is all about extending the existing business model, which leads to different challenges than many other initiatives and programs in a business. Recognising this in advance will help you understand the challenges and best strategies.
In the previous articles of this series, I have described critical success factors for monetising service and data, like “Solve Bigger Customer Problems”, “Better Articulate the Value” and “Remove Obstacle for Clients to Use your new Offerings”.
In the end, this all has to be achieved by people and teams in your organisation, who collaborate to innovate, to change and transform the business model.
I will first describe common mistakes many companies make, which prevent them to have fluid and energising change and move beyond business-as-usual. This holds them back in monetising services and data, which is critical to thrive in today’s disruptive world.
Many companies, including manufacturers, do not have a clear picture of where the industry is heading and where their business is heading. It is unclear for their employees what needs to be developed and why.
More specific, for many employees it is not clear why the new services and data-driven solutions are that valuable to clients, how it would fit in their overall core business and why it should be paid for by clients. Often, the indicated direction even suggests the opposite: the core value for clients is the equipment or technology and the added value of services and data-driven solutions are explicitly considered as (free) features to support the product sales.
Just imagine how a hypothetical mission statement “… being the world’s leading manufacturer of construction equipment” does not support the idea of monetising advanced services and data-driven solutions.
People in manufacturing often are biased towards products, equipment and technology. They have a too limited view on;
- customer problems beyond the functional requirements for the products and equipment
- how other actors in the industry are developing advanced data-capabilities which could become competitive with the current position of a manufacturer
- how new technology can be applied to develop new value propositions, solutions and operating models
This limited view will hinder product, marketing and innovation managers to develop successful new services and data-driven solutions. Too often we see that the new services and solutions do not really solve an important customer problem and hardly differentiate from services and solutions competitors are offering as well.
It will also prevent colleagues in sales and delivery to understand and support the launch and monetisation of new services and solutions. There is no compelling context.
Top-down P&L thinking
Too often, we see that developing and launching innovations like new advanced services and data-driven solutions stagnate because of the decision-making habits in an organisation. Typically, we see one or more of the following:
- The strategic intent from senior leadership is unclear and hardly based on a well-developed shared concern. It does not give a clear indication of services and solutions to develop, nor of the strategic priorities and objectives. Employees are not really enticed to take action and make the change happen.
- The strategies and plans are more short-term plans which emphasise short term financial objectives, leading to two different scenarios;
- Financial objectives do not articulate the need for services and data-driven solutions nor specify which portion of these objectives should come from services and data-driven solutions. On the contrary, financial objectives lead employees to focus on daily operations and to stay away from developing and launching the new services and data-driven solutions.
- Or, in case the financial objectives do assign financial objectives for (new) services and data-driven solutions, the qualitative objectives and strategic priorities how to arrive at those financial goals are not described well enough. The result is a lack of initiatives and progress or a lack of alignment of the different initiatives.
- Top-down strategies from senior leadership are so specific and instructive, that they actually dismiss other employees to take ownership of the plans and adjust plans and local strategies when needed.
Paralysis by control
Top-down control mechanisms used since the last decades are a huge obstacle for fluid and energising change in an organisation and therefore hinder initiatives like monetising services and data. More specifically, we often see the following patterns:
- Internal conflict of interest for the product sales teams. Because they are often incentivised on sales volume, it does not make sense for them to sell complicated service contracts. It hardly affects their commission, does consume a lot of time and may even put their product sales deals at risk. Instead, it is actually beneficial for them to please their clients by offering discounted or free services.
In case there is a separate service sales team, there are often internal arguments on who owns the client and what is the best plan forward with each client.
Worst case, this even leads to having different faces towards the clients, leaving them confused with a bad customer experience.
- Too strict control mechanisms create an unsafe environment in which employees show defensive and risk-avoiding behaviour. Instead of trying, learning and persisting, they rather become complacent and resistant to monetise new services and data-driven solutions. Typical signs are:
- Pointing fingers to other teams to take action.
- Referring to other companies who have tried and failed.
- Stating that the new services and solutions are not core business.
- Mentioning that clients have not asked for these solutions and don’t want to pay for them.
Weak Innovation Practices
Not all innovations and changes are the same. They differ in complexity, risk, unpredictability and time window. Therefore, different challenges and pitfalls are required, from early exploration and ideation up to launching and scaling up.
Most manufacturers maintain a very limited scope on what to innovate and have too little variety of innovation strategies and methods they apply. As a result, the more radical innovations drop off the table or fail.
- They do not manage natural biases in their choices and decision-making
By nature, we as human being are biased in our opinions and decisions in various ways:
- The familiarity-bias; we assume that what we hear or read repeatedly, is true.
- The confirming-evidence-bias; we tend to automatically filter information we get. We amplify information which proves what we already believe and we ignore information which contradicts our beliefs.
- Status-quo-bias; we tend to confirm and defend the status quo if there are no compelling reasons to change.
- The sunk-cost-bias; we tend to continue our endeavours once we have invested a lot, trying to make up for these investments, even though the chances for success are very low.
- They are one-sided in their initiatives and ideas.
Every person and company has a primary or dominant focus, like product, commercial or operational excellence. This often leads to a narrow focus on innovations resulting in a higher risk of failure because they:
- Only do what most competitors do as well (commodity trap).
- Are too easy for competitors to recognise, understand and copy.
- Miss crucial elements to really have a significant impact on solving the clients’ problems.
- They avoid radical innovations.
Most business leaders and innovation teams are not aware of the different types of innovations, the different challenges related to each and the different strategies and approaches required.
By consequence, more radical and longer term innovations:
- tend to compete against short term initiatives and drop off the table.
- get stuck in old-school-thinking and business-as-usual.
- stagnate because the existing organisation and clients do not see the value (yet).
Some practical solutions
Many things come into play when you try to increase momentum for monetising (new) services and data and to avoid creating obstacles and resistance. In general, the more adaptive and fluid the change in your organisation, the easier a specific innovation of service and data will be.
We have seen that leading manufacturers have adopted 5 Momentum Habits which set them apart from the rest. These Momentum Habits define how they lead operations and innovation. In the next paragraphs I will describe these 5 Momentum Habits in relation to monetising services and data.
Leading companies have a transformative vision and mission on where the business will be heading, what needs to be changed and developed and why that is important considering the changes in the industry. This is a quite holistic picture to which all stakeholders and entities in the business can relate to and get direction on how they should develop themselves, their teams, their departments and their business units.
It provides an outside-in picture on how the business is and will be relevant to certain industries and customers. It explicitly points out how the business will add value to clients and which type of client-solutions and services are required.
Now imagine how the following mission statement will catalyse the development and implementation of new services and data-driven solutions: “Our purpose is to enable healthcare providers to increase value by empowering them on their journey towards expanding precision medicine, transforming care delivery, and improving patient experience, all enabled by digitising healthcare”. Don’t you think this is much more compelling and transformative than the bad-practice example I mentioned earlier in this article?
The innovative and forward moving companies have more variability and diversity in their innovation strategies and organisation, which lead to richer and better initiatives and help to escape from business-as-usual.
There are 3 main areas in which diversity is critical to pursue: innovation strategies, innovation pathways and team composition.
- The leading and innovative companies follow a variety of innovation strategies and approaches at the same time and maintain a diverse portfolio of innovations. Based on this insight, we developed the Hybrid Innovation Matrix. This is a pretty broad topic, check out my article How to organise for servitization
In short, you can achieve the same by ensuring you have a few innovation initiatives in each quadrant of this Hybrid Innovation Matrix:
- “Adaptive and Incremental Improvements” is all about continuously optimising the performance of existing products, services and operations in small steps. The challenges are predominantly in engaging everyone to continuously improve in small steps and collaborate when the improvements cross borders of departments or teams.
- “Pushing Frontiers” is about bigger innovations within the common business logic. The challenge is to;
- avoid a too dominant influence of a few domains and stakeholders
- avoid too much political discussions and decision-making
- ensure key-stakeholders are well informed about the new subjects by the experts
- “Reconfiguring and Extending the Business model” involves a combination of entering new markets, applying new technologies, encountering new competitors and facing new political actors. These are new aspects, different from common and dominant business logic in a business or industry. The main challenge is to widen a peripheral vision escaping from the established dominant business logic every industry and company has.
- “Co-evolution of new solutions and markets” is about the radically new emerging solutions. Here, we see many different solutions and ideas popping up, while it is still unclear which of the competing alternatives will emerge and become the dominant solution. The challenge is to be in a potentially emerging domain in time, in a position to influence the developments and to recognise if and when certain new solutions become dominant.
- 14 innovation pathways
There are quite a few pathways to innovate for growth, much more than developing new products or services and advancing marketing and sales.
The picture below gives an impression of which domains to think of. Innovation teams can cover these pathways during brainstorming, during research and to check how to enrich their innovation ideas. Ideally every innovation ideas covers 3 or more pathways simultaneously.
I will soon dedicate an article on this framework.
- Diverse teams for operations and innovation
It is well-known that teams with more diversity in cultural background, personality, mindset and experience have better dynamics in their teams. They are less complacent, ask more critical questions, do not take the obvious answers for granted and have healthier discussion and decisions.
Leading companies with a high momentum for continuous innovation and change, empower all teams and individuals to continuously explore for new insights, threats and opportunities, within and beyond business-as-usual. This enables them to be more open to new initiatives and change and develop better ideas.
Here I want to focus on two phases of innovating your services and data-driven solutions: the development phase (including ideation, selection and design) and the implementation phase.
For design purpose
Often, the new services and data-driven solutions which are required to thrive in today’s disruptive world, differ significantly from current business logic, mind-set and operations in your business. Even though anyone in the organisation could raise great ideas, it is crucial that the development of the new services and solutions are done by dedicated teams with the right expertise and focus.
They need to ensure they are open-minded and unbounded by current (and old) business logic and pathways. In terms of discovery, this means they should:
- Talk with other stakeholders in client organisation than your organisation normally speaks with, for example the CFO, CEO, VP Innovation, commercial leaders, etcetera
- Build a new expert-network outside the organisation, outside the current network of partners, suppliers and clients and outside the existing network of academic experts and consultants
- Talk with them about major trends, visions of the future industry, key challenges and strategies of different actors in your industry and the adjacent industries instead of current technology, products and service.
Sharing the new insights with stakeholders will help to change perspectives and business logic within the innovation teams and the rest of the organisation.
For implementation purpose
Once the new solutions and services have been designed and developed to a scalable offering, they probably need to be embedded in the existing organisation. Now the risks of resistance of complacency may come into play.
The more developed the mindsets and habits are on “digital” and change, the more fluid the implementation and change will be. This can be promoted massively by strong discovery habits, like:
- Involve key players in the operating organisation well in advance of the launch of new services and data-driven solutions, for example by having an ongoing dialogue on the shared concern and discussing the alternatives to solve this concern. This can be done through frequent conversations and by including them in the extended innovation teams.
- Have everyone involved in discovery activities which do not require too much special expertise and dedication, for example by having colleagues;
- Exchange insights from their day-to-day conversations with clients, suppliers and partners
- Join events with customers where you discuss trends, visions, needs and how they see your added value
- Join conferences within your own industry and even other industries
- Share new insights and learning points from the expert teams, painting the picture of what is going on in the outside world, how this may impact your business and how this will or could be addressed.
The leading companies have a more distributed ownership and power for decision-making. More decisions are based on experiments when circumstances are uncertain.
In line with the mission, vision and direction their leadership have a clear strategic intent on:
- The result-objectives; overall growth aspirations as well as how new services and data-driven solutions should contribute.
- Strategic objectives on which offerings and capabilities need to be developed.
Next, they have a clear (top-down) strategy which articulates crucial choices of how to achieve these objectives in a few phases. This should provide a common roadmap on which offerings to develop, how to sell them, to whom, by whom, how to organise marketing, sales and delivery and which obstacles to overcome. This strategy should address all stakeholders (including R&D, marketing, product-sales, service sales and service delivery) who have direct influence on implementation and success.
The top-down strategy still leaves a lot open on how exactly to achieve the objectives. Local teams are invited and empowered to develop their local roadmap and strategy and to take full ownership of the local development, learning, capability development and execution. This will allow them to mitigate local strengths, weaknesses, opportunities, threats and market circumstances.
With a constructive and forward dialogue between individuals, teams and departments, issues are solved in a fundamental and sustainable manner, hence building capabilities to perform. For monetising service and data, this means that:
- Ideally, services and data-driven solutions are being sold at point of sale (when equipment is sold). Maybe not the full blown package, but at least the entry level offering. This entry level offering will be first step of the customer journey growing to the higher value offerings.
Commission structure of sales people needs to be designed in such a way that it promotes the right focus and behaviour.
I have seen quite a few examples where equipment sales people were far more successful in selling service contracts once the commission they would receive was tied to the sales of a service contract. For example: no commission if no service contract. Or only 70% of the commission if no service contract
- The different teams need to have a constructive and forward looking mindset and have the confidence and safe environment to learn and develop new skills necessary to monetise the new services and data-driven solutions. After all, selling these require specific skills and background which are not the same as those required for selling the products and maintenance services.
- Different teams in your organisation need to be “in the same boat” without conflicts of interest which are caused by contradicting incentive schemes for different individuals and teams. That is why more and more companies are aligning their targets and incentive schemes, in which common and shared objectives prevail above individual targets.
- Full transparency in key performance indicators on progress and results is required so all stakeholders have the necessary insights to be able to take ownership and accountability and intervene when and where needed.
Montising new services and data-driven solutions is all about executing an innovation.
The leading manufacturers which are ahead of the game have built momentum for continuous and easy change from the inside, moving beyond “business-as-usual”. Their teams are passionate and eager to perform, learn, pursue opportunities. So instead of resisting new ways of thinking about customer challenges, customer value and their business, they focus on customers and pursue the opportunities to increase value.
If you are facing some challenges in monetising new services and data-driven solutions, I would recommend:
- Download our Scorecard Monetise your Services and Data
- Use this together with your team to assess how you try to monetise
- Take action on the conclusions
If we think it is about pushing the launch of new services and solutions through top-down commitment, we have missed the point.
It is all about empowering and enabling all teams in our organisations to embrace the change, drive the innovations and take ownership of the progress and results.
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