By: Philip Dover, Babson College, and Julie Schwartz, ITSMA1
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“A solution is a combination of products and services with intellectual capital, focused on a particular customer problem and driving measurable business value.” – ITSMA’s Solutions Council
Is building better solutions a key part of your company’s plans to grow revenue?
In a recent study, 85 percent of technology organizations felt that their solutions business would be either “extremely important” or “very important” to the future of their company. In the same study, nearly two-thirds of the 133 sampled companies noted that they were generating at least 40 percent of revenue from solutions. A driver of this trend is the belief that sales of solutions win better margins than the sales of increasingly commoditized products, while also generating longer and more lucrative customer contracts.
For a number of years, we have conducted extensive research—in conjunction with ITSMA , a services marketing organization—within B2B companies to initially understand the nature of this solutions phenomena, and then to explore the variables necessary to distinguish between successful and unsuccessful solutions players.
One result of this work has been the development of a Solutions Road Map, a five-phase process that takes companies from a solution’s starting point through, in some cases, to eventual solutions mastery. Described below, it provides a practical framework for managers either considering entering into the solutions’ sphere or for those already struggling with a solutions initiative.
Figure 1. Solutions Road Map
Source: ITSMA, 2009
Level 1: Opportunistic Solutions
The journey to deep solutions expertise often begins with the growth of isolated, opportunistic solutions deals. The deals are generally driven by customers seeking more business value from providers or by providers seeking refuge from increasing competition in existing product and services markets and the limited opportunities for discrete new offerings.
Providers begin to see solutions as an opportunity for higher incremental revenue, profit, and share of wallet from new and established customers. At this point, there is no consistent development and delivery. Solutions are designed in an ad hoc fashion in response to opportunities emerging within clients and prospective customers.
Level 2: Solutions Repeatability
After seeing success with the implementation of individual solutions, the organization begins to look at ways to consolidate and reuse the solutions IP generated by these projects. Experimentation with solutions often begins when a pilot group forms to integrate products and/or services, along with the glue of added intellectual capital, into solutions that serve more than one end-user. Senior management recognizes the need to develop a coherent solutions strategy for the organization, but cross-organization cooperation is limited and solutions mostly leverage existing internal capabilities rather than developing new skills or working with outside partners.
After multiple experimental pilots prove successful and there is potential to create replicable solutions, organizations typically begin to determine ways to evolve processes for building a solutions business on a broader scale. However, change management becomes a major issue at this point. For a solutions strategy to scale successfully, a significantly larger portion of the organization must become regular contributors to the solutions design and delivery process. The company must consider a sizable investment in change management procedures to convince senior executives and line managers that solutions are a viable alternative to existing product or service-driven strategies.
Level 3: Coordinated Planning
Organizational commitment to a solutions strategy grows with the establishment of a permanent group to foster the development of solutions (a Solutions Council, an SBU dedicated to solutions, etc.), to encourage cross-organizational and cross-functional cooperation, and to build alliances with outside providers to contribute components to integrated solutions. Marketing takes on a larger strategic role in the solutions process by providing in-depth customer research and carefully targeted programs to strengthen key customer relationships.
However, many solutions are still targeted horizontally, serving broad needs across large customer segments and industry verticals, with limited ability to customize them to a particular customer. Nevertheless, coordinated planning and widely applicable solutions development and delivery processes begin to emerge, driven by the requirement for solutions to become repeatable and scalable. Such processes are seen as an important step in attaining significant new revenue and improved profitability over ad hoc solutions.
Level 4: Process Excellence
Formal, structured processes emerge for cross-organizational cooperation and collaboration with external partners in solutions development. Marketing takes a critical role in solutions design by creating strong value propositions founded on carefully crafted needs-based segmentation and by forging close customer relationships with senior management in key account companies.
Similarly, the solutions team (including both inside and outside personnel) emphasize repeatability through mass customization of an originally unique solutions idea at a particular segment level. Often, this involves shifting from largely horizontal solutions (e.g., a generic CRM solution that can be used across industries) to more vertical applications (CRM programs tailored, say, to the banking industry).
Level 5: Solutions Mastery
The solutions process now becomes institutionalized within the organization. The search for solutions is embedded within the R&D activities of the company which, in turn, forges a strong partnership with market analysis/research aimed at gaining a “deep” knowledge of the complex problems/needs of existing and potential customers. Products and services are developed, in part, with eventual solutions in mind, using standard operational interfaces that enable them to be assembled into solutions with minimal effort and expense.
Practical issues for making decisions and taking action
We urge some caution in interpreting the Solutions Road Map. It might appear that the recommended end state of the road map—solutions mastery—calls for the organization to convert itself entirely to a solutions focus. This is not the case as most companies will wish to retain some element of stand-alone product and service production and sales, no matter how successful their solutions businesses become.
The question then becomes: “Is it possible to be adept at developing and delivering solutions in an organization not entirely devoted to a solutions strategy?” Establishing clear strategic goals will allow identification of where the organization is on the solutions continuum. At the same time, the application of the appropriate levers of change—organizational design (e.g., independent Solutions P&L; cross-functional Solutions Council), marketing activities (focused emphasis on segmentation and positioning), portfolio management (design of delivery process; selecting effective strategic partners; identifying long-term metrics, etc.), sales and sales enablement (adjusted training and compensation schemes), culture and behavior (e.g., need for senior “solutions champion") —should permit adoption of effective solutions policy whatever the level of institutional commitment to the practice.
The trend toward more complex integrated solutions projects is being driven by the incorporation of new technologies and multivendor approaches that have expanded the number and range of physical components and services that need to be integrated. Early solutions movers are finding a vital source of competitive advantage in their growing ability to rapidly convert the learning gained on previous projects into reusable components that can simplify the process of integration.
Yet, the challenge of moving into the solutions space should not be underestimated (see Davies et al., 2006). Changing the mindsets of thousands of employees who have grown up with a narrow vision of traditional products and services is perhaps the biggest barrier of all. For many companies, the journey to build a solutions business may seem altogether too complex and too time committing. But, customers, shareholders, and markets are pushing them in that direction. The market leaders will be those who follow a clear road map to solutions success through improved profitability and enhanced business continuity.
Indeed, we can see the development of a solutions culture as both a catalyst for change—allowing senior management to think not only of efficiently meeting customers’ current problems but of imaginatively visualizing future needs—and as a stimulus for an entrepreneurial approach to problem solving by encouraging outside-the-box thinking on client concerns and solution formation. This should dispel the myth that solutions are “a marketing ploy to get customers to buy more services and products!”
Davies, A, Brady, T, and Hobday, M, “Charting a Path Toward Integrated Solutions,” MIT Sloan Management Review, Spring, 2006, pp. 39–48.
Leavitt, R, “Transforming Marketing for the Solutions World,” ITSMA Update, May, 2005.
Schwartz, J, and Hurley, S, “Anatomy of a Solutions Marketer,”ITSMA/Solutions Insight Online Survey, February, 2012.
Tuli, K.R, Kohli, A.K, and Bharadwaj, S.G, “Rethinking Customer Solutions: From Product Bundles to Relational Processes,” Journal of Marketing, Vol. 71, July, 2007
1Information Technology Service Marketing Association (ITSMA) provides market research, education and advisory guidance on marketing topics to leading IT companies. More details can be found at www.ITSMA.com.
Philip A. Dover teaches Strategy and Marketing topics at Babson’s Executive Education (BEE) and courses on Strategic Market Planning in the MBA program. At BEE, he has recently led custom Executive Education programs on strategic market management and corporate entrepreneurship issues for major clients such as Waters, EMD Serono and Dräger. His preferred approach to working with such clients is to build a collaborative relationship, based on deep knowledge of company needs, a willingness to highly customize pedagogical materials, and a strong preference for action-based learning.
Senior Vice President, Research and Thought Leadership
Julie Schwartz oversees ITSMA's thought leadership development and custom research. She has authored numerous reports and articles on services trends, marketing, branding, and sales topics, and is a frequent speaker at industry events. Julie earned her Bachelor of Science degree from the University of Pennsylvania and her Master of Science in Management from the MIT Sloan School of Management.