Create a Top-performing Services Business

Go from business-as-usual to business-as-exceptional

(part one of two)

by James A. Alexander, Ed.D.

This article was originally published by AFSM International in 2005 as part of the white paper, S-Business: Defining Today’s Technology Services Business, an update of the 2001 white paper, S-Business: Defining the Services Industry.

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Should you transition to s-business? Are you ready to cross the chasm from product-centered to services-led? What are the steps to successfully transitioning from business-as-usual to business-as-exceptional — a top-performing s-business?

The marvelous opportunity

My latest research¹ demonstrates that this transition to services-led s-businesses is in full swing, as 46 percent of the 157 survey respondents (all from product companies) stated their organization’s senior management felt that building professional services was a business priority. Wow! Since professional services are the lead element of solutions and the driver of s-business, this is quite remarkable. Furthermore, this same study shows that services (professional services plus break-fix services) now account for over 44 percent of total revenues (up five percent in the last two years) and are growing at an annual rate almost double that of products (16 percent vs. nine percent). The services potential looks awesome.

Cold, hard reality

Not so fast …. The troubling truth of the matter is that about three out of four major change efforts fail to achieve and sustain the desired objectives. My own experience in advising organizations confirms this, and your personal experiences probably do as well. Think back over the last few years during times when you experienced the launching of initiatives such as total quality, process improvement or balanced scorecard. How many of these efforts have brought about the lasting value intended at the time of announcement?

Obstacles to change

Shortly, I will introduce the best practices of s-business change implementation. However, before discussing what to do, it is important to ponder what not to do. Ten common obstacles that occur time and again when organizations (and the people who compose them) attempt to do things differently are outlined in Figure 1 (Ulrich, 1997).

Recognize any of these? I don’t believe further elaboration is required. Needless to say, all must be recognized, and steps must be put in place to deal with each of them. However, in addition to these 10 obstacles, some special challenges in transitioning to an s-business must be considered before embarking on the journey of change.

Special challenges of S-change

As already noted, big-time change (making major improvements in organization performance) is tough. Yet, making the transition to s-business is often on a more difficult order of magnitude. Two factors drive this: The first factor is the extreme difference between the two types of products of traditional businesses and s-businesses. First of all, in most cases, the goods produced by traditional organizations easily can be seen, felt and described. However, the products of s-businesses (services and professional services) are intangible. Evert Gummesson probably said it the most eloquently, “Services are something that can be bought and sold but can’t be dropped on your foot.” The challenge of dealing with the added complexity of intangibility alone raises the bar. In addition, some other major differences between the two types of products, as shown in Figure 2, are worth noting.

These distinctions have a fundamental impact on how one produces, markets, sells, delivers, services and measures the performance of s-business products and the success of the s-business itself. What may have worked extremely well in managing a traditional goods-based organization will be ineffective in the world of s-business. Hence, different characteristics and competencies in people must be sought, different management support systems created and different metrics evaluated to reward performance and guide the enterprise. All of this is further complicated because, in most cases, s-businesses still produce and sell the goods of their former existence. This is a significant management challenge.

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The second factor compounding the difficulty of the s-business transition deals with organization culture. Whether it be a management consultancy, a bank, a software producer or a heavy machine manufacturer, the principles and practices of total quality or process improvement ring true — people can readily relate to a strong element of common sense built into these models. Who can be against quality? Who would not want to eliminate waste? And though it is difficult, people inside the organization at all levels can accept the tenets of the proposed new way of doing things over time. Furthermore, with some modifications to the management system, the organization eventually can integrate these types of initiatives into the culture.

But this is not so with s-business. Culture abhors attempts to change it and will do whatever it can to maintain the status quo. S-business is a full frontal attack on the existing culture, and the defensive mechanisms of the organization will resist any way they can. The fundamental problem is that, in most cases, the people running the show got there by being exceptionally good at making, marketing, selling, delivering and servicing goods. Goods are their expertise, and this expertise got them promoted. Their past successes (built around goods) helped create, develop and nurture the culture — a culture that lives, breathes and reinforces goods-related success while shunning other alternatives to business.

In this setting, services were regarded as necessary evils tolerated because they were a requirement in supporting goods. Service was traditionally a cost center, and services were things negotiated and often given away either to make a sale or to keep a customer happy. S-business requires a serious flip-flop in thinking. Services now must be viewed as the principal products of the organization, the true value-adders, the potential differentiators in the marketplace and the keys to profitable revenue. Executives now must view goods as customers have for a long time — as commodities that take a secondary role in a total solutions package. This is not an easy transition to make, as it flies directly in the face of the tried and true.

So the truth of the matter is that the very things that made you successful yesterday are the same things that hinder your success today. Bringing about this s-business mindshift is a leadership challenge of the highest order.

Watch for the next issue of PSJ. Part two will feature Jim Alexander’s Implementing Services Change, 10 steps to a successful transition.

1. Alexander, James A. 2004. The state of professional services II: An industry comes of age. Alexander Consulting, LLP and AFSM International.

Jim Alexander is founder of Alexander Consulting, LLP, a management consultancy that helps product companies create and implement professional services strategies. Alexander is also AFSMI’s vice president of professional services, where he researches, writes and speaks on the critical business issues and trends in the services industry. In addition, he is the U.S. Department of Commerce’s e-business subject-matter expert for President Bush’s Inter-American E-Business Fellowship program and the services pundit for the IBM Global Services 2003 Headlights Program. A services industry thought leader, he has published dozens of articles, white papers, research studies and books, his latest being S-Business: Reinventing the Services Organization (co-authored by Mark Hordes). He may be reached at (239)283-7400 or alex@alexanderconsultingsbiz.com.