|
Faced with intense competition, firms in diverse industries such as information technology and financial services are attempting to differentiate themselves by offering customer solutions1. Disturbingly, however, a recent survey of Fortune 1000 firms reports that about 50% of solution providers realise only modest benefits, while 25% actually lose money2. With this background in mind, Prof. Kapil R Tuli and his collaborators at Emory University (Dr. Ajay Kohli and Dr. Sundar Bharadwaj) set out to develop insights into the challenges underlying a firm’s ability to provide solutions to customers. They conducted in-depth interviews with 49 managers in 25 customer firms, 55 managers in 29 supplier firms, and 2 focus group discussions with 21 managers in 19 firms.
Their extensive field research reveals several important findings:
First, whereas suppliers have a product-centric view of customer solutions, customers have a relational process view of solutions. Most suppliers (73%) think of a solution as a customised and integrated bundle of goods and services. In contrast, the majority of customers think of a solution as a set of customer-supplier relational processes, all aimed at meeting a customer’s business needs. These processes include: (i) Customer requirements definition (76%), (ii) Customisation and integration of goods and/or services (86%), (iii) Deployment (86%), and (iv) Post-deployment customer support (92%). Unfortunately, suppliers either ignore these processes or pay inadequate attention to them.
By taking into account all four processes, suppliers can assess the costs of providing solutions more completely and factor these costs into the pricing of solutions. Indeed, the poor profits earned to date by solution suppliers may be due to their myopic view of solutions as just integrated and customised bundles. Such a view likely leads suppliers to ignore or underemphasise the additional costs of defining requirements, deploying components and providing post-deployment support.
Second, solution effectiveness—that is, the degree to which a solution meets a customer's requirements—depends not only on supplier efforts but also on customer efforts. Specifically, the following key points emerge:
1. Supplier managers who are experts in the customer's domain are the ones in charge of providing solutions. In other words, expertise should be coupled with power to get the job done.
2. Supplier employee incentives across functions and business units need to be aligned to provide solutions. This ensures employees across multiple business units and different functions have an incentive to provide an effective solution to a customer.
3. Solutions development processes with multiple customers need to be documented and shared across functions and business units. This allows supplier employees to leverage best practices, unique methods, and the lessons of prior experiences to provide effective solutions. In addition, it facilitates coordination of activities across functions and business units, because what gets documented gets implemented.
4. Rules and regulations governing the provision of solutions to customers are well articulated and made available to employees across functions and business units involved in providing solutions. This ensures that everyone involved in providing solutions to customers is on the same page, and execution is not hindered due to ambiguity of roles and responsibilities between business units and functions.
5. Employees such as sales and customer service personnel should not be frequently changed from one customer to another. The more time these employees spend with customers, the more they get to know the customers' businesses, and build relationships with key customer employees. Customer knowledge and relationships are invaluable in trying to provide customised answers for unique and complex customer problems.
6. In addition to suppliers, customers must also be willing to take responsibility for the performance of a solution. Specifically, customers need to be adaptive to suppliers, as well as to provide them with political and operations counselling. Indeed, customers that interact closely with suppliers in this manner are more likely to appreciate the value delivered and the costs incurred by suppliers. Such customers are less likely to demand bundling discounts, a problem frequently encountered by solution providers. For these reasons, suppliers may want to avoid doing business with customers that are not adaptive, and those who are unlikely to "educate" suppliers about their internal politics and operations. The solutions implemented by suppliers for such customers are likely to be ineffective, which among other things are likely to hurt suppliers' reputations in the marketplace.
1. A recent report by Sharma, Deven, Chuck Lucier, and Richard Molloy (2002), "From Solutions to Symbiosis: Blending with Your Customers", Strategy and Business, 27 (2), finds that almost 63% of Fortune 100 firms offer solutions to their clients.
2. See a recent report by Stanley, Jennifer E., and Philip J. Wojcik, (2005), "Better B2B Selling", in McKinsey Quarterly (3). |
