Whenever I put up this argument to my clients in industrial business, they often wear a puzzled look. In these tough times, they are fighting how to maintain the current quarter targets. I am sure most of you are finding the going tough. Did you register double-digit growth quarter on quarter before the pandemic? Or, do you belong to the club of those with sluggish sales month after month? Unless companies are completely focused on strategy and its execution, it will be a huge task to sustain growth and profitability on a q-o-q and y-o-y basis.
Having compared many Indian companies with and without a robust system like the balanced scorecard (BSC) for executing strategy, we know for sure that the ones that are achieving success in bad times are the ones with a robust execution process.
If your product sales are lagging, don’t panic; just about every business-to-business marketer feels the slump. But not everyone is simply hanging tough with the same old strategy from boom times, and not everyone is relying on such desperate measures as layoffs, price concessions and indiscriminate spending cutbacks to survive.
Smart manufacturers are modifying strategy to emphasise the service side of their businesses. And if they do not already have a potent service component among their offerings, they are adding it. They realise that in B2B markets, service – either as a stand-alone offering or as part of a bundled offering surrounding a product – can differentiate them, combat margin squeeze and provide competitively superior value that cost-cutting rivals cannot hope to match.
Many industrial companies we have worked with have gained momentum by positioning their expertise and knowledge in the industry as a service business. For example, one of our clients generated more than 25 percent of its revenues from service business and estimates this to be the focus area for the business to triple their turnover in the next three years or so. By using the BSC at the core of their strategy focused organisation framework, they are redrawing their strategy map.
Those firms and other industry leaders recognise that business customers want problem-solving solutions, not just great product features. Those solutions are increasingly likely to include services, particularly as technology shortens the product innovation lifecycle and erodes the higher prices that innovation can command. You can no longer just throw products over the wall and expect to succeed.
Of course, business services come in all flavours and are hardly new to the marketplace. Professional services such as law and advertising, and industrial services such as carpet cleaning and waste treatment, have long existed for their own sake. Services bundled with the product offering – and unbundled for those customers who do not want them – create a competitive advantage that is tough for competitors to imitate, at least in appropriate market segments.
The service-oriented strategies do pose risks, however, particularly for manufacturers simply grafting a service enhancement on the same old offerings and product-centric strategies. The service must be flexible enough that it can be tailored precisely to the customer's perceived needs. The presentation skills of marketing, positioning and selling are critical if the strategy has to succeed with customers who, after all, have good reason to be wary: Buyers cannot probe, pose and test a service in advance because the service exists only as it is performed, using processes the customer might not understand and be able to evaluate. The customer must rely on the marketer's track record, reputation and other indirect cues about what to expect.
Also, while a manufacturer can avoid shipping defective physical products from the plant, the service – performed in real time at the customer's site – cannot be pulled back or hidden from the customer if it is bungled. And the quality of service rendered depends heavily on the expertise and customer-centric attitude of the seller's employees or agents, which is a cultural issue often foreign to traditional manufacturers. As a customer explains, for example, they expect the firm to recommend the best equipment for an application, even if it is not the firm’s. Unless the firm provides the superior product, the service staff will have to feel comfortable recommending another brand, which could be a competitor’s.
As declining markets ratchet up the pressure on marketers, differentiated offerings with palpable value enhancements increasingly become the intelligent marketer's strategic weapon of choice. Cutting back marketing spending only hands market share to those competitors who do not cut back. Layoffs – particularly the buy-outs that tend to attract your best personnel – are just as short sighted, sapping a company's long-term strength for a fleeting short-term gain. And giving up margin by cutting price and hoping to protect market share is not a strategy. At best, it is a passive, "ok, kick me" strategy and, at worst, it is suicidal.The right answer in tough times is competing smarter, with services often being the answer.