CFO Series Part III: Attn Product Makers, Generating Services Revenue Doesn't Come Naturally
With products on track to collide with an intensely competitive marketplace, it makes sense for companies to hit the strategic “eject” button, looking to land in a spot where their dented margins can regain fullness. That often means turning to services to find fresh sources of revenue and profit.
But as logical as the expansion into services may seem—it often involves helping customers maximize their use of the product they’ve purchased—it also poses significant strategic challenges. The successful transition from a product-based business model to a hybrid structure requires management to rethink its strategic plan, replacing it with one that embodies an understanding that the processes and metrics that support a products-based business are not always compatible with selling services.
For example, when it comes to manufacturing a product, the role customers play is fairly constrained: They have little if any, say in the design and they may find sources of value in it that the manufacturer didn’t intend. Services, on the other hand, are frequently customized and measured by how successfully they foster customer satisfaction and loyalty. While products risk succumbing to commoditization, services can become a lasting source of differentiation, forging a unique relationship with customers—and making it more difficult for them to even consider switching suppliers.
The shift in objectives and priorities requires the finance function to reframe the company’s strategic plan, evaluating the company’s strengths—and, perhaps more importantly, addressing its weaknesses—in the context of the services-added business model. In a new survey of 163 finance executives in the U.S. and U.K., nearly half (46%) say that generating additional revenue from services will require their companies to make “substantial” changes in strategic planning. In the survey, conducted by CFO Research, in collaboration with Certinia, fewer finance executives expected substantial changes in every other area listed, including staffing (43%) and operations (42%).
For finance executives, the internal challenge is twofold: (1) selling management and employees on a new value proposition that combines products and services and (2) supplying the CEO with accurate insights into the risks and opportunities that accompany the hybrid business model. Serving as a high-level strategic advisor requires the CFO to make sure the function is skilled at analyzing Big Data, retrieving insights that will help management make informed decisions about its expansion into services.
By taking a clear-eyed view of the company’s future, finance executives are well-equipped to help drive more accurate strategic planning—making sure that the added services not only increase revenues but also enhance profitability. Their strategic guidance is key to getting the new business model moving in the right direction, and keeping it on the road to its desired destination.
For more information, download How CFOs Are Building Strategic Plans that Embrace Dynamic Change.