Thursday, November 12, 2009

Why Product Companies Can’t Build Solutions - Reason #1

I’m working on my umpteenth “transition the organization from being product led to solution focused…” project. In today’s market environment, I imagine other organizations are pursuing this strategy as a way to improve margins, increase sales, etc.

The challenges facing companies that venture down this path are fairly consistent and complex…and certainly not easily described or solved in a post. With that said, I thought it might be helpful to describe how organizations get themselves into this situation and share some ideas on how to get moving in the right direction.

“Solutions” typically evolve in two ways at product oriented organizations, none of which are strategic.

  • Internally - Someone in the product group or sales organization notices a trend - if a customer buys one product they most likely will buy another related one (if this, then that).

  • Externally - Customers force the organization to integrate products and/or services (something Lou Gerstner took note of when he was at Amex that eventually led to the greater focus on services when he came to IBM).

The company then realizes (usually late) that this can lead to premium pricing and higher margins, increased share of wallet and customer loyalty, etc., and thus the journey begins. The problem is that they over estimate the ease of scaling solutions because:

  • The last mile - no one trains the sales force, or the sales force doesn’t have the skill set, and/or no one has figured out how to comp on selling a “solution”…I’ve seen the last one a dozen times. 

  • The solution is TOO customized – really good solutions are typically highly customized, you build the “solution” with the customer.  The challenge then becomes finding another customer and/or group of customers that looks like that one.  As a result, you can’t scale the solution. Put your hand up if you’re heard that one before.

So what do you do about it? The scenarios I described are symtematic of the “dipping the toe” approach to solution development. To successfully transition the first thing has to happen is that the company must make the COMMITTMENT.

It sounds easy but this is where most organization fall down. You will not be successful if you only “half ass” it. Building real solutions that scale requires time, investment, a new group/organization and probably new people. Understand why companies fail now?

How are some thoughts on how to do it right

I've commonly seen two successful approaches to starting the transition. The first is internally focused and involves evolving the product group. Best-in-class organizations that have made this journey start by adding or creating an “application” group.  This is commonly seen in the Hi-Tech industry.

This group begins collecting market data on customer trends looking for broad based technology, competitive or usage trends. The goal is anticipate and understand how the company’s portfolio of products and services can and/or will be used when applied to certain situations (use cases).  This then begins the solution development process.

The upside to this approach is that the products typically “snap together” seamlessly and are easy to install. The downside is that they sometimes miss the mark with customers because products get over engineered and lose sight of customer needs.

The other approach is to evolve from external side and develop a segment marketing group.  In organizations that can’t, or won’t, evolve their product organizations, I have helped companies build a segment marketing group that integrates products into market aligned solution sets.

The group is aligned to unique customer segments and uses customer research, feedback from the sales channels, etc. to develop solutions based on the specific needs of that segment. This approach is commonly seen in the financial services and communication industries. 

The upside of this approach is that solutions developed at the segment level have very compelling value propositions because of the tight alignment with customer needs. The downside is the solutions don’t always live up to the hype.

Whatever path your organization takes is a step in the right direction. It shows that the organization is committed...but it is also only a starting point.

More detail on how to complete the journey in future posts.