Scaling a Service Business: Lessons Learned from IBM
Increasingly companies that have originally been focused solely on products are shifting their focus towards services and the combination of their products with services in order to countervail the commoditization of their products. In this process of “servitization of products” businesses see themselves confronted with the challenge of scaling their service operations to maintain growth and profitability.
IBM is a great example of a corporation that has successfully shifted from a hardware business that was faced with price erosion and increased competition towards a service business. In 2007 revenues from service business represented more than 55% of IBMs revenues compared to 32% in 1997, in the same time-span hardware revenue declined from 47% to 21% (see Annual Report 1997 and Annual Report 2007).
This shift was not without problems as the Financial Times article “Big blueprint for IBM services” shows.
At the same time, Big Blue was facing a problem experienced by many services businesses that rely on a heavy element of direct interaction with customers. The more that sales increased, the more people it had to recruit, in a linear progression that would ultimately have been unsustainable.
In order to overcome these challenges, IBM approached this from three perspectives:
Standardization
In effect, IBM set out to standardize the way it “manufactures” services, so that exactly the same processes determined how an assignment was carried out in Egypt as in the Philippines. “The real scale comes out of doing the work in a codified way,” says Mr Daniels. “The key breakthrough was to ask ‘How do you do the work at the lowest-level components?’”
Technology
The technology IBM has applied to services comes in two parts. One involves raising productivity by automating some repetitious work. Turning repeatable processes into software that can be used widely in similar assignments has played to an IBM strength, since it is the world’s second biggest software company, after Microsoft.
The second technology development holds the greatest promise for the future, says Mr Daniels. It involves inventing new ways to solve customers’ problems, by applying the sort of deep computing skills that have long lain at the heart of IBM’s business.
Anthropology
[…] the services research arm employs anthropologists and other social scientists to investigate how to make services engagements more effective.
Overall, in spite of the increasing use of technology, Mr Morris says of services: “It is fundamentally a human enterprise.”
How does this impact your customer experience?
Designing a service that provides a remarkable experience is one thing, consistently delivering this service with the expected quality is even more important. Businesses that ignore the service delivery aspect will see themselves confronted with the problem that their services – as remarkable as they might have been on a small scale – simply don’t hold up when they need to be rolled out on a larger scale.
And if you cannot consistently deliver a service, all your efforts to create interactions that lead to remarkable experience will have been to no avail.
Read the full Financial Times article “Big blueprint for IBM services”.
