Customer Leadership through a Solutions approach? As growth in global industrial markets now is rapidly slowing down, Nordic manufacturing firms will soon need to revisit their approaches to dif-ferentiation and positioning. The long-term outlook for competing on Price or Product Leadership to reach profitability is gloomy at best. More and more are aiming for the third position – Customer Leadership, to create unique customer value and a sustainable advantage. The ideas of customer orientation are by no means new in themselves, yet only in recent years have manufacturing firms made serious efforts to put them into practice, and started to view the position as a strategy. Bu-siness Units are increasingly defined by customer application rather than technology; coordinating roles – like Key Account Managers – have been strengthened, and heavy investments have been made in front-end sup-port systems, like Customer Rela-tionship Management (CRM).

The shift in strategic focus is trigge-red not only by the threat from low-cost product competitors, but also by shifting customer demands. Custo-mers are getting bigger, tougher, and smarter. For many industrial firms, the customer relations-hip is changing, whether they like it or not. Custo-mers expect suppliers not just to sell products, but to solve problems for them, customize, integrate, and support them in realizing the value of the pro-ducts sold. Nevertheless, still expecting them to be competitive on product price!

Facing the risk of giving premium service at com-modity prices, companies have dressed up their

wanted Customer Leadership positioning in phrases like ”Integrated Solutions”, ”Value Added Servi-ces”, ”Performance Partner”, ”Optimizing custo-mers’ processes”, ”Customer integration”, and so on*. Above all, the word Solutions seems to have returned into fashion. Selling solutions tailored to solve a specific customer problem should – at least in theory – make differentiation easier and enable you to capitalize on your expertise. The strategy certainly seems to make sense, so where’s the problem?

As with many things, concepts and theory is one thing, practical implementation is quite another. Having followed dozens of Nordic manufacturing firms at close range over many years, we conclude that the overall return on efforts in the Solutions area so far is questionable. Companies’ ability to turn complex product sales into differentiating, profitable solutions is still limited. Too often, they are caught defenseless by tightly controlled custo-mer tender processes, where professional buyers

Dispelling the Four Myths of SolutionsOpportunities in Complex Industrial Sales

* Sample of official mission and strategy statements of large Nordic manufacturing firms.

unbundle offerings and drive suppliers into price wars. In one case we worked with, we found a very strong negative relationship between the share of services and external products in a contract on one hand, and the contract margin on the other. This is of course quite contrary to the whole Solutions idea. The increased scope of supply seems to serve customers’ objectives to consolidate spend and leverage discounts more than suppliers’ wish to dif-ferentiate and earn higher margins.

Dispelling the mythsSo, why these poor results? Well, it is hardly due to lack of effort - numerous initiatives have been launched around the “Solutions Selling” theme over the last decade. However, in our view, companies are lured by the Myths of Solutions and severely underestimate the complexities involved in this type of advanced industrial sales. Specifically, they lack a common understanding of the concept; they fail to implement the required change in their sales approach; they do not invest in intangibles and they keep old metrics for a new type of business.

Myth 1 “A solution is any customized bundle of our products”The first myth relates to the blurry definition of what constitutes a solution. When scratching the polished surface of some companies’ alleged Solutions busi-

nesses, we have found everything from single products (that happened to fit a

certain application) to standardized service contracts without a single product involved. In some compa-nies, this confusion has reached a level where the term solution has

become almost unusable internally due to the internal strife that has be-

come associated with it in recent years

There is no easy off-the-shelf definition that is 100% valid for all industries. However, we would argue that the most important aspect that distin-guishes a Solution from other complex sales is the 180 degree shift in perspective - from the product to the customer. In our work, we generally use the fol-lowing criteria for a sale to qualify as a Solution:

It is offered proactively and the sales process starts out from deep insights about the individual customer’s business

It is defined and priced in terms of business value for the customer. In the ideal case, the supplier also assumes responsibility for realizing the value

It integrates own and external products with unique and consistently performed services, so the value of the whole becomes greater than the sum of the parts

The focus on business value and integration makes it hard or impossible for the customer to unbundle the solution

Each company must of course find its own twist to the definition. The point is that it must be shared and well understood by all stakeholders – salespeople and senior leadership alike.

In many cases, confusion around the concept is me-rely a symptom of unclear ambitions from top mana-gement. Any management textbook would suggest

you perform solid analyses of customer value prefe-rences, resulting in an actionable customer segmen-tation model. Our experience shows that many companies fail to do this homework, and therefore lack insight into the conditions for a Solutions ap-proach in different parts of their business. If firms applied the strategy basics more systematically, the clarity of scope and profile of the Solutions initiati-ves would certainly increase.

Myth 2 “Selling solutions isn’t that different from the complex selling we have always been doing”The second myth implies that firms can implement Solutions sales approaches simply by adding a new layer in the sales organization (“Key Accounts”) or, even worse, a bolt-on product area among others in the portfolio (“Solution Products”). This kind of thinking isolates the phenomenon and the responsi-bility, and creates all sorts of internal barriers for the business approach to succeed.

Structural changes must be accompanied by a reversal of the sales process. In the traditional

Make the buzzwords make sense!

product sales model, the starting point of the sales process is the matching of customer needs with the supplier’s products. The focal sales activities are to find prospects with a certain need, to develop rela-tionships with prospects, and to take orders for the desired products or services at an acceptable price. In contrast, successful solution selling requires a fundamentally different approach, as is clear from our proposed definition above. The sales process must be supported by tools to systematically collect customer insights and translate these into clear and valuable business propositions. Though we live in the era of advanced CRM systems, the insight firms have about their individual customers is still often limited to contact details and purchase history. This is hardly the ideal foundation for approaching custo-mers as problem solvers!

The process also needs to be populated with the right people. Starting out from the indivi-dual customer’s business problems and addressing them at “arm’s length” to ones products is a major challenge for any sales-

man. Most firms we have worked with are aware that true Solutions selling requires a very delicate combi-nation of business, technical and managerial skills - a combination that usually comes in short supply in industrial firms. Moreover, the few people that fit the bill have often left the frontline and hold management positions. However, despite this insight, most make the mistake of moving existing product sales people into Solutions, without heavy investment in develo-ping new skills and “de-learning” the old mindset. The result is often the emperor’s new clothes – diffe-rent name, same approach, only higher costs.

Myth 3 “Solutions are always unique and cannot be replicated”Quite a few industrial firms can sell the odd So-lution contract here or there, even with our strict definition above. However, not many have managed to run a profitable Solutions business over time. One key to efficient sales and delivery of Solutions is professional management of knowledge and ser-vices. A Solution may be unique by definition, but it should be made up by clearly defined products and services. Furthermore, once created, many parts of a Solution can and should be replicated and reused. The processes of Service Development and Knowledge Management are therefore essential for a Solutions business.

Manage the intangibles!

Reverse the sales process and invest in customer insights

In this area, industrial firms suffer from a heritage where the only knowledge that mattered for success was the technical product knowledge, which is rela-tively easy to standardize, document and distribute. The need to leverage customer service activities and share customer knowledge was limited. As a result, firms still tend to “re-invent the wheel” for each new Solution contract, both in sales and delivery. No wonder many Solutions businesses have difficul-ties reaching acceptable margins!

Many industrial companies manage Services, espe-cially knowledge-based ones, largely ad-hoc and locally. Just imagine McDonald’s running its Servi-ces operations like many manufacturing firms treat their customer services! Customers could receive anything from an outstanding gourmet experience

to a no-frills, self-service deal, depending on where, when and from whom they buy the service. This is hardly compatible with professional Solutions ap-

proach. In a Solutions business, the service com-ponent is just as important as the products, and it must consequently be managed with the same level of consistency and professionalism. Myth 4 “The Solutions business should play by the same rules as the product business”As we have shown, Solutions are fundamentally different in character to products. Naturally, a Solutions business will find it hard to survive in an organization where all performance metrics that matter are designed for a product business. Yet we see companies launch Solutions campaigns and set up Solution-like structures, without making any changes to how they measure businesses and reward people.

First of all, the focus in a Solutions business should shift from the product to the customer. Metrics like Customer Share, Customer Profitability, Customer Satisfaction, etc. must take precedence over the traditional product-oriented metrics when evaluating the business. Individuals who are incentivized based

on the fulfillment of various product sales quotas are unlikely to adopt the right mindset for Solutions.

Moreover, a Solutions approach will require new po-licies and attitudes, e.g. in the areas of headcount and risk. Both sales and delivery are more people-intense than in a product business, jeopardizing the key met-rics of head-count and labor productivity. The element of risk-reward sharing which is common in Solutions contracts is likely to conflict with policies set up for a risk-avert product business.

Finally, launching a Solutions business is a long-term, strategic commitment and nothing for the

faint-hearted! Very few Solutions businesses will reach decent profitability until a critical mass of experience and scale has been achieved. The first

contracts can be compared to field tests for produc-ts – they should be treated as R&D more than sales. However, in companies who are used to evaluating

the success of new products within a few months after launch, patience is often limited. To add insult to the CFOs injury, many Solutions contracts are cash negative in the initial stages. Not surprisingly, the new business runs the risk of getting killed while it is still in its infancy.

The prescription: Re-double the efforts, or re-evaluate the ambition?Though the four myths are widespread, there are some companies that have managed to avoid the hidden barriers while transforming themselves into Solutions oriented businesses. However, very few – if any - have made the transition without substan-tial turmoil and pain.

We firmly believe Customer Leadership will be the only sustainable source of differentiation for most Nordic manufacturing firms. However, we also know Solutions is not the only path to get there. Lots of advanced customer collaboration, part-nership, integration, etc., can take place within a business model that is still product-centric, and very successfully so. Yet, it is not a Solutions business and should not be confused with one. Crossing the chasm to Solutions is a different matter, as we have tried to illustrate.

We do not prescribe Solutions for everyone, and not for all parts of anyone’s business, but we want firms to make more informed decisions and take the full consequences of them. Rather than re-double their efforts based on false myths, some firms would be better off re-evaluating their ambition in the area. For others, a more aggressive and focused effort may finally turn Solutions into a real weapon in the quest for Customer Leadership.

XLENT Strategy Regeringsgatan 67, SE-111 56 StockholmPhone: +46 8 519 510 00, Fax: +46 8 519 511 50E-mail: info@xlent.se, www.xlent.se

Bo Johannisson, Jonas Strömgård and Pär ThomssonThe authors are members of the Manufacturing Practice of XLENT Strategy, a leading Nordic strategy consulting firm. Visit us at www.xlent.com/strategy

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