Anatomy of Service business

At least in Finland it is now a days fashionable to define yourself as service business professional - especially if you are in Tech/IT business. Managers who just yesterday preached importance of product based R&D, product based business models and product based sales competence... are now defining themselves as service business professionals - cloud application services professionals or software as a service professionals. Interesting enough these same people have no previous service business experience but magically they became professionals overnight. Wonderful!

One interesting business mindset is the arena of "after sales services" which are offered in so called after market. As the concept describes these "after services" are offered after actual sales - the big thing - large deal - has already happened and something is offered afterwards. Sounds like an after thought as well. Problem is that it is an after thought for the seller but not for the buyer. A customer who has just bought something is expecting usage & relationship value.  Long time ago Jack Welch told in his book that this mindset of after sales or after market puts services to the backseat of the car. Cannot agree more. It is like my Audi car - the big sell has already happened for Audi dealer and now I am just one of the owners who would like to experience Audi ownership and user value... but getting these so called after sales services and lousy website which promotes new models.

Another interesting mindset (hindering service business) very close to after sales services is the thought of value added services. Again as the concept states you add value to something ... to your products not primarily to your customers. Adding value = something else has the fundamental value and these services just add more flavor to it... that in the end you can sell more your products. Common stuff among box moving companies but oh man how hard it is to build real service led business models in these organizations (but interesting).

For many companies service is something what is given for free to customers (and to potential customers) to accelerate product sales. Services have in many cases actually more value to customers than products they buy but the seller has given these  value added services for free.Why this happens is because of good old manufacturing mindset - companies sell what they produce, not the value customers are actually buying from them. Eventually these same companies try to develop service business and are gray haired because of pricing - something what was given for free should now have a price. Hard to sell for customers but you call only blame yourself.

Characterizing service business from the seller's point of view - Actually value should be defined from buyer's point of view but 90 % of the businesses think sell side first so here are few ideas. Again not a comprehensive list, just a few learnings from the past.
- Price the received customer value (hard and soft benefits) not manufacturing outputs
- Identify and treat your services from the angle of "how to make my customer to be successful" not adding value to things you manufacture
- For you the moment of closing sales may be the most important. Customer receives the value in usage occasions which you can either consider and utilize with after thought services mindset or as moments when customer really benefits from the business relationship with you
- Don't sell a big deal but a long deal (which can be a big deal)
- Forget the ideas of "we are in the solutions business not in service business or vice versa". Solution and service are just words and concepts - solution need to have service components that it can be a real solution
- Owning something is less important than successfully using something
- Delivered value of service (service contract, service level agreement, service package, solution, etc.) is defined by the buyer but you manage and control the delivery
- Micro processes. Several companies define and implement different kind of process mgmt. frameworks but in many cases it is done in way too high level. Consider a five star hotel in Asia and compare it with regular hotel. Both sell the same thing, accommodation service, but it is the micro level experience processes which set them apart
- Experiencing service and service levels is universal and not tied to any industry. Lousy service experience from airliner can and will be compared to telecom operator or IT company
- CAPEX or OPEX (=leasing model) deals - don't jump from one side to another, some customers prefer mixed budgets and for some it is more beneficial to use CAPEX. You just need to decide whether those are still your cup of tea
- Internet. Internet is here to stay. It may change format or shape but basic ideas are here to stay. What ever you do in what ever business, please consider opportunities of Internet. Both outside-the-box and  inside-the-box - service business models will and have transformed because of Internet.

A few predictions where I hope to be wrong - 5 year horizon
- Majority of IT/Tech. companies will not understand aspects of service business and cannot deliver real service driven value (which could be benchmarked against non-IT businesses)
- Car industry will not offer ownership and usage value concepts (at least in Finland)
- Majority of online store owners will not utilize aspects and ideas of service business in their operating model
- Concepts of 1) value added services and 2) after sales services are alive and kicking without any indication of dying out

Best sales managers...?

To my surprise I have recently ended up having conversations and heard comments who are the best sales managers and how to manage sales... and  I have held the opinion of the minority.

We have agreed that customer centric selling is critical skill or competence (but what is means we didn't quantify). We have agreed that they need to be driven by revenue - hungry for it. More or less everything after those two we didn't agree. So what have I heard? Comments are not from single conversation.

1. Best sales people are those who have invented the product in case of start-up. Why - because they have detailed level understanding of the product and passion to tell about the product
2. Best sales people have through out understanding of the industry product has its origin
3. In general more you understand about the product better sales manager you are
4. More you have new leads more you have sales opportunities because existing customer base have already bought "the big ones" and it is just some additional minor scale opportunities to sell them more
5. In start-up environment ratio of R&D people vs. sales people should be 20:1 because you cannot afford to hire more - company exists to create products not to hire sales people
6. International sales is not a special competence because when you know the products you can sell in what ever country or region i.e. product knowledge always overruns region knowledge
7. Solutions sales is not a special competence because when you know the industry's products you call sell solutions as well
8. Managing sales based on understanding customer's decision making process and time lags in it is not that important because then you just target new customers if any delays occur
8. If one is too fluent both in oral and behavioral manner he lacks credibility

The main thing and summary here is that detailed products knowledge beats everything else. I understand and even agree if the case is about selling rocket science to rocket engineers. In most of the case situation is not this. Buyer(s) (the actual people in customer's organization) do not normally have this detailed understanding of the product or solution and do not care to have it. Either they are buying value for their business (less work, reliability, time savings, etc.) or if the product has multiple similar competing options (or lack true interest towards the product) they base their decision to price (especially professional buyers (=sourcing function)).

So what did I try to say in those conversations? Best sales managers:
- Analyze in detailed level customer's business as a home work = how do they create value and what is our potential role in value creation
- take customer's view to products they sell (solutions they sell) and think it other way around.... what customer (these people in front of me) are trying to buy = the business value
- are masters in the art of negotiation
- Listen customers and learn to use same words as the customer is using
- Avoid industry and product slang unless the customer is using it
- Defend the business benefits of the item they sell above/other than product attributes against pure price related discussion
- And because they excel in everything above their industry and detailed product understanding can be limited. What needs to learned will be learned.

Are you on my side?

Few additional thoughts on international expansion

Writing a blog has proven to be time consuming but first of all interesting - already readers from 22 different countries Finland naturally leading the pack and US coming second. International expansion seems to be the most interesting topic when over 30% of readers have chosen that text from all others. Actually I think my experiences and ideas related to business models have more insights (for example how energy industry and tech. industries have similarities) ... but it is better blog on something which resonates with the audience... so I continue my thoughts around international expansion.

Those who read the first text can easily identify that international expansion is more art of its own than industry specific competence. To me the most valuable insight in the last text was lego brick structure - How you understand your business and operating model as lego bricks. Everyone knows lego bricks how you can build, rebuild or modify the model again and again. In the last text it was just one topic but actually it is something much larger. There has even been academic research and HBR articles on modular business structure and how different companies have gained business benefits from it. Personally I have simplified it as lego bricks model what I was developing when one business I was involved did its international expansion in Northern Europe in the late 90's.

So what is this approach in a nutshell? You just simply break down your go-to-market model and offering delivery assets into pieces which can be built and transferred one by one (as lego bricks) until you have the required total shape and form in place. Precondition is that you have defined what is executed and managed in global vs. local level, identified these pieces (some would call them assets), documented required shape and form for each piece and for the end state model and have the belief structure in place that you need to avoid too large dependency on certain individuals and their skill sets.

Few examples of these potential pieces: product delivery, call center operations, customer care, customer acquisition model, key account annual care taking model, partnership management model, sales agent model, PR process, legal support model, marcom model, etc. You get the point - all of these can be built individually and at the same time they have certain role in end state country operating model which was to be established... when some one had designed the end state model with required pieces which need to function together.

Benefits: All countries talk the same business language, faster international expansion to multiple countries, less dependent on individuals, it enables best/good practice sharing, clear global vs. local responsibilities, more efficient country business reviews, more efficient and value adding global meetings or teleconferences, less required human resources in expansion phase, etc. All these benefits highlight that model is not only for newcomers of international business but also for established businesses to improve their global/international business management.

Downsides: Time required to define and document your lego bricks structure (for many idea of documentation is misleading due to all administrative quality and process development initiatives which in many cases provide no real benefit for business, at least according to my own experiences). Actually there are no other downsides and approach fits both large and small companies biggest gainer being small ones because large ones can afford more resources.

What about traditional model that you send the best man or woman to do the work and this person uses his personal skills to build the business in new territories. Problem with this model is that it is highly depending on individual skill sets, international expansion is much more slower (and time is money), people start to build their own kingdoms, no common business language between countries or regions - to me it is just old-dated model despite being the dominating one. Of course you still need these skilled people but how you use them just changes.

Another traditional approach in pure sales related international expansion is that you hire one local manager from target country, agree sales targets and hope for the best. Sometimes they deliver but how they deliver and behave you have no clear visibility. Sooner or later if the person is successful in selling there is a threat that the country or region starts to live its own kingdom life and you wish to have tools to better manage this "rebel" yet successful manager. Then it is another time to consider lego bricks approach.

Titles and managers

Interesting how the words in manager titles can have such a big difference. During my career I have met several managers having in their title "sales and marketing" only to discover that actually they are sales managers. On top of sales responsibility they manage marketing but marketing is diminished to brochures, leaflets, customer events, fairs and other marketing communication tactical tools. These managers have little competence from marketing therefore to do the actual job they have outsourced the work by hiring a marketing communications manager. Marketing has become marketing communications but is titled as marketing.

I have also met several managers whose title is marketing manager only to discover role actually covers only marketing communications. These managers have more strategic view to the marketing communications when role covers aspects of brand management... but normally only from the marketing communications view point. When discussing aspects of sales with these managers they rather quickly withdraw from the conversation indicating clearly it is not in their comfort zone. Real marketing managers have and should have sales in their comfort zone - to face and convince customers to buy.

Then we have managers whose title is sales manager - in this text these are not my in focus because their role is clear and simple as their title indicates - to sell today and tomorrow. More interesting are these various titles and definitions of marketing because in many cases actual real activities of marketing are missing. Discussions around pricing management or offering development just as examples are out of bounds with these earlier mentioned marketing managers even with the first one mentioned "sales and marketing managers".

Things get more complicated when we add to the plate partnerships development, solutions development, online services, channel mix design, customer relationship management, customer base management, experience management, etc. - all part of real marketing at least in my vocabulary. Maybe I have just misunderstood something or my definition of marketing is too much business development flavored. For too many marketing is closer to communications than business development and I must accept this fact of life.

Still one more try - anyway companies need to develop and manage things I mentioned above in an integrated manner. Whose role it is and what should be the title when titles above are reserved for operational aspects of business. Marketing business development managers (no) or just business development managers... but then marketing managers should be called as marketing communications managers.

In the end titles are just titles but words in titles and their defined meanings in the organization indicate the mindset of the company. Thank god sales is so much more simple with its definition.