Many companies face the challenge of differentiating themselves from their competition. Some companies try to do this through product or service offerings, but that does not ensure long-term success in positioning a company as a unique provider in a marketplace.
A better alternative is to become a “solutions provider.” Instead of offering individual products or services, solutions providers integrate strategies to achieve a desired goal. This integration is difficult to imitate and provides added value to customers. Being a solutions provider enables a company to build competitive advantages in the marketplace.
• Profits. It can be difficult to earn money selling standardized products (which customers view as commodities), but money can be earned with comprehensive solutions that offer added value to customers and are priced in a manner commensurate with their value.
• Customer retention. Customers often attempt to limit the number of suppliers to minimize sourcing complexity and maximize efficiency. Solutions providers often are able to intensify and expand existing business relations.
• Efficiency. The modularity of solutions enables providers to meet the individual needs of customers, while at the same time achieving optimal production costs.
Despite these advantages, not every company manages a successful transformation from product and service provider to solutions provider. This is understandable when considering that transformation requires major changes within a company.
Defining Important Terms
When describing the preconditions for this transformation, it is necessary to clearly distinguish between the terms product, service, bundle, system, and solution.
A product is a good, a physical object. A service is a physical performance that may or may not contain a supply of products. A bundle is a random product and service combination without functional character. A system is a functional product and service combination that offers added value to the customer. A solution is a customized, full-service functional system in which the majority of the value to the customer (or even all of the value) comes through the provider. It represents a risk for the provider but offers the highest added value to the customer.
It is important to note that only systems and solutions offer added value to customers. Still, a system and a solution differ greatly from one another, as the sustainable value of the solution is predominantly achieved by the provider.
Our “solution-excellence approach” focuses on four essential elements for successful transformation into a solutions provider:
• Transformation strategy. How will the transformation into solutions provider be accomplished?
• Solution design. What are the most important parameters when designing a solution?
• Market presence. Define successful market presence as a solutions provider.
• Implementation. What internal changes are necessary for transformation and sustained success?
Developing a Solution-Offer Strategy
Developing a solution-offer strategy involves definition of target group, selection of cooperation partners, and determination of timing.
Definition of target group. The target group for solutions may be different than that for a product or service. Take for example, a leading international manufacturer of heating systems based in Germany. The company segments its customers in terms of their application and maintenance skills, resulting in the following segments:
• Do it without you: Customers who request the product, not the solution.
• Do it for me: Customers who request assistance for specific problems, such as repairs.
• Do it with me: Customers who concentrate on the output of the machine and request full service and solution support.
For each segment, the company provides a specific range of services and solutions to meet the respective requirements.
Selection of cooperation partners. To minimize the complexity and costs of implementation, external cooperation partners should be considered carefully. ThyssenKrupp is one of the leading cement plant manufacturers worldwide. The company offers its customers complete turnkey solutions. Because of the high monetary risk of unexpected downtimes, ThyssenKrupp relies on highly specialized cooperation partners to maintain the plant in precisely planned “maintenance shut downs” where the complete maintenance processing is done. This can only be managed by integrating a professional network of service-oriented suppliers. In this example the company Aerzen, an application specialists in the field of conveyance and compression of gases, takes responsibility for the maintenance of the blowers and compressors in ThyssenKrupp’s plants. Such integrated cooperations are a key factor to successfully providing solutions and ensuring their benefit.
Determination of timing. The significance of timing in introducing a solution should not be underestimated. If a company is the first to bring a specific solution to market, it automatically will be recognized as a pioneer in the field. This is important for companies attempting to achieve substantial differentiation in the market. Introducing an already available solution will achieve neither desired level of differentiation nor desired market success.
Many times, companies simply wait for customers to demand solutions. A proactive approach not only creates a new market with the solution, it positions the provider as a pioneer.
Designing a Solution Offer
When developing a solution offer, a company needs to focus on share of services, increased benefit to the customer, and degree of complexity in implementation.
The main goal of a solution-offer strategy is successful differentiation from competitors. This cannot be achieved by products alone; thus, services play an essential role, especially when thinking about customized adaptations of solutions.
There are two types of increases in benefits for customers: functional-related and transaction-related. A functional-related increase in benefits is added value provided through increased efficiency and effectiveness (e.g., a customer is able to produce goods faster and/or cheaper or achieve higher quality). A transaction-related increase in benefits is added value through simplification of the procurement effort for the customer.
Generally, a solution is more complex than individual products or services. Thus, solution providers should attempt to keep internal complexity (e.g., the number of combined products and services) as low as possible to simplify the knowledge transfer between the parties concerned.
Market presence for solutions providers is determined largely by price policy, sales management, and communication.
Regarding price policy, a central task of a solutions provider is to determine the added value to the customer and how much more the customer is willing to pay.
As far as sales management is concerned, a company that wants to position itself as a successful solutions provider over the long term must have a sales team that understands the benefits solutions offer and the anticipated value of those benefits to customers. The emphasis in sales must be on value, not in the solution itself.
A solution can involve a very high degree of complexity because of the incorporation of different products and services. An effective communication policy builds trust for a solution and provider.
A solutions approach must be embedded within a company. An adjustment in focus from technology and products to customers and their needs is a decisive step in reaching the status of a solutions provider. Information-system weaknesses, whereby information (e.g., sales figures, costs) are disclosed only on a product level, must be identified and corrected. Because the solutions business is far more complex, detailed information needs to be gathered for well-funded decisions to be made.
Successful transformation into solutions provider is achieved through systematic analysis and management in four areas: transformation strategy, solution design, market presence, and implementation. Only the successful combination of each aspect can lead to desired success: the ability to introduce solution offers in a successful and sustainable manner.