Leadership & General Management

Servitization needs top caliber leadership: How to secure it

In industrial product companies a career in service, primarily understood as after sales service or some enhancement thereof, has not usually been associated with a path to the very top of the organization. Service has traditionally been defined as a support activity which does not provide sufficient exposure to the main revenue generating system of the company (technology and functions around the product) nor to its central strategy. In turn this means that it is difficult to persuade ambitious, talented managers (high flyers) to make a career in service.

But for product companies planning service driven transformation (servitization), a crucial issue is to marshal sufficient resources, in particular management and human resources, of the right caliber for the job. Often new service strategies have very ambitious targets, calling, for example, for a doubling or trebling of business volumes in relatively short time periods. And right now servitizing companies need to deal not only with transformation challenges, but also find ways to get to grips with technological disruption, which, of itself, changes the nature of the service business and its competitive environment, just as it is being built up.

It is obvious then that managers asked to deliver on that degree of ambition and complexity need strong capabilities, experience and leadership skills which cannot always be sourced from within the existing service organizations. And companies frequently fail to realize the potential of servitization initiatives because they underestimate the degree of the capabilities upgrade they need to undertake. It may also be one reason for the “service paradox”, the well documented phenomenon of declining profits with increasing service volumes, eventhough services, in particular after sales services, are regularly purported to be more profitable than products.

While a problem may be easy to diagnose, it is often more difficult to solve. During a servitization initiative the service business goes from being a side (support) business, as it is internally perceived, towards becoming mainstream. Depending on how far the company moves along the product-service continuum the service business may even become a main business, one of the prime revenue and profit drivers, changing the way the company identifies itself and, therefore, also internal power structures.

This process is naturally not without friction, as there are bound to be tensions and resistance from stakeholders (e.g. managers of product units and others) who don’t agree with or buy into the new strategy. In fact there might also be some form of collective resistance, as the company’s self-perception and emphasis shift from developing and making products (hard traits: engineering/manufacturing) to softer traits such as customer experience or business models where product centricity gives way to outcomes (especially if this is understood as a signal of lessening importance of those who represent the product and therefore of a change in internal power structures and informal hierarchies*). In addition it will be necessary to bring in substantial new resources, reorganize the existing service business and forge what emerges into a coherent organization with a compelling strategy, execution plan and well performing delivery system.

To maximize the chances of success the company needs to appoint (a) strong leader(s) to spearhead the effort.  However for the chosen manager this is a risky proposition. At the time of appointment the service business is still fairly embryonic and unstructured, so this manager is diving into the unknown. She has to deal with tension and resistance from peers and must put herself at odds with the prevailing corporate self-perception orthodoxy. If sponsoring decision makers pushing servitization are not sufficiently credible** then the chosen manager may not perceive the new appointment as sufficiently attractive regardless of lip service paid to it.

So here are a few pointers on how to make a successful appointment:

  • Choose a maverick insider to lead the new business, someone who can both challenge orthodoxy, but also build bridges and alliances within the organization, knows how it works and understand its informal networks and power structures well. This person will likely be from the second ranks for the appointment to be attractive enough.
  • Commit bindingly sufficient resources and support
  • Provide  visible signals that the service business is considered mainstream and that it provides a path to the top just as much as any other. This will cascade down the new service organization and help to attract talent
  • Create an organizational structure that elevates the new business and provides it with line authority without however fueling strong or permanent resistance by, for example, reducing product units’ relevant profit pools and influence over their products (e.g. product support). It should here be noted that service sits rather awkwardly in a vertical “product line = business unit” organization. It cuts across the product lines at whatever level that may be, depending on a company’s size and business / product scope. Ways need to be found to overcome this problem and the responsibility falls to the manager or CEO supervising both products and services

*The solution to this of course it to get product people to understand that servitization is not a zero sum game for the company and the main benefit comes from growing the total business. Product units need to be involved in service business design, not only for buy-in, but also to ensure that product support meets requirements and expectations and cost levels and profit and cost allocations are agreed.

**lack of credibility may arise for all sorts of reasons, including lack of staying power by sponsoring decision makers, insufficient commitment, or lack of consensus about the strategy.

 

Titos Anastassacos is Managing Partner at Si2 Partners, a consultancy helping clients leverage services to win in industrial markets

 

If you are a Service professional (manager, practitioner, consultant or academic) in an industrial setting join our group Service in Industry on Linkedin

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