Masters of all trades19th July 2021
As digitisation, connectivity and equipment-as-a-service offerings continue to gain traction across industry, well-established business models have been overhauled and replaced by companies offering a combination of interconnecting services.
Fewer and fewer players within the industrials space would now be described simply as a “manufacturing”, “people” or “software” business. Instead, these have been replaced with “solutions providers” – companies with evolved, or at least repositioned, business models offering myriad services to reduce the burden on clients.
For example, businesses may now rent out bespoke hardware to their clients – a service that reduces the client’s Capex pressures – but the relationship does not end there, the business is not simply an equipment business. It will also offer a range of services which may include connectivity and data storage, technical support and warranty and monitoring for the product.
It isn’t hard to see why clients, investors and management teams can all benefit from this evolution. These new business models offer value-added services to customers through integrated solutions including data, services, and advisory overlays. This can be through increased efficiency, reduced risk or cost, easing of management burden or simply solving a client problem in a new way.
Creating a unique proposition or combination of services increases customer stickiness, making switching and like-for-like price benchmarking more difficult, resulting in higher margins. Growth can also be sustained by delivering a broader or fuller suite.
So, how should a business think about becoming a solution provider?
1. Opportunities should not be thought about as simply cross-selling other product and services lines – the real value is unlocked when the client is truly buying a combination of capabilities in one offering, such as propriety equipment with a monitoring service.
2. Consider how you could make improvements to your customer’s situation – a more open sales approach may be needed.
3. Include business model innovation within your strategic plan – be creative and think in the medium term. Test this rigorously against your current positions and competition.
4. Where new competencies are needed, often buying in or recruiting the skills is key. Ensure you have some enduring ownership of this investment.
5. Business model re-configuration can be costly and take time, come back to the fundamental economics and cost to serve, focus on the activities which unlock significant value with limited effort and cost incurred on our side.
Investors in the space should keep in mind that it can be difficult to get under the skin of “solutions providers” – delving into the true value delivered to clients and how they perceive the service is key. Simply offering additional capabilities is not a winning formula, businesses need to understand their value proposition and which services they are well-placed to provide.
To discuss how these topics might apply to your business, please do get in touch