The challenge of selling services
But as Andy Neely, director of the University of Cambridge's Cambridge Service Alliance, explains to Della Bradshaw, business education editor of the Financial Times, the transition poses problems such as reputational risk.
Gone are the days when companies just sell a product; these days it is all about the services, such as insurance, servicing and maintenance contracts. In this interview, Andy discusses some of the reasons why companies make the shift to providing services. This can be for strategic reasons, where companies have to innovate to create value; economic reasons, where the installed base represents a large customer base; and environmental reasons, where changing the business model can enable solutions to be developed that use less resources and less assets, and hence reduces the environmental impact.
Andy explains that the main focus in the Cambridge Service Alliance is the business-to-business or business-to-government sectors – where the challenge is increasingly to look at how to support products across their entire life. He discusses some of the challenges this can involve, in particular ‘risk’. One of the things seen in outcome-based contracts is that in order to sell the ‘capability’, and not just the product, there is inevitably a transfer of risk in order to guarantee the availability of that capability.
The discussion concludes with Andy identifying that not all businesses will be in a position to make this transition, and in fact some customers will demand that they don’t. However, even if organisations don’t go as far as contracting for capability or outcome, thinking about the role that services will play in the future of your competitive strategy is essential for all organisations.