Product Orientation to Solution Orientation: A Journey
Most industrial goods manufacturers and other organizations operating in B2B markets currently face testing times owing to bad economic conditions. While the economic downturn threatens the growth of a lot of these B2B businesses, other factors have also emerged that have contributed to this situation of the “perfect storm”. Increased price competition from the traditional low-labour countries, increased product quality levels from these same low cost countries, increasingly demanding customers, advances in technology and information making it easier for the customer to shop around, increased costs of raw materials, etc., have meant that B2B firms now have to look for ways to weather this storm, so that they can survive to fight another day. In these trying times, B2B organizations are increasingly focusing internally to try and refocus on their core activities/competencies and scrutinizing all the other activities that are considered as peripheral and hence do not necessarily add value to the firm[i]. While this act of introspection by a lot of B2B firms has led to an “extensive trimming” of the fat, it does not solve the fundamental problem of commoditisation and competition. In an effort to boost profit margins, companies increasingly need to supplement their products with value-added services. And as the key driver of differentiation and competitive advantage, these value-added services take on a leading role, while the core products take a supporting role. Nothing highlights this better than the recent quandary that HP found itself in. Faced with tough competition resulting in decreasing product prices and reduced margins, HP was turning its attention to provide more value-added services to their customers. More specifically with the acquisition of EDS in 2008, HP was trying to take on the likes of IBM to provide complete solutions to customers looking to outsource their non-core activities. However the decision by HP to focus on more value-added services also meant that it had to reassess its own strategy with its existing product lines and business units and one of the consequences was a proposal that HP would spin off its personal computing business, estimated to bring in around one third of the $133 billion in revenue for HP in 2011, while investing close to $12 billion in Autonomy, a UK based enterprise software firm. When considering market dynamics, HP is only the latest in a long list of companies that have realised that sustainable profitability lies in providing customized solutions rather than standard products. The move by HP highlights the dilemma faced by many organisations who have to decide whether to focus on: a) existing products/core services despite tough competition and decreasing margins or b) customer-specific solutions that might require new business models but promise profitable growth. While the move towards solutions might present itself as the best long-term option, the shift from standardized offerings like products to more customer-oriented solutions never happens overnight. A solutions-focused approach requires changing the blueprint of how a company does business. In other words, companies need to align every aspect of the business with their solution-centric strategy. A number of large enterprises such as IBM, General Electric and Rolls Royce have successfully realised this transition[ii]. However, a review of these success stories sheds light on the complex nature of the transition process from standardized offerings to more customized solutions. For instance, organisations used to selling products/core services have to be prepared to face quite some resistance, not just from their customers, but also from their own employees. Additionally, the move towards providing solutions often necessitates firms to develop new capabilities and skills, which could mean further investment of valuable resources that a company just might not...
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