Last week there was a comment on my entry Dell Hits the Services Chasm:
Interesting observations about Dell. Could you elaborate further on the mantra of ‘aligning service strategy to the overall company strategy’. What examples have you seen where companies have failed due to a mis-alignment?
There are multiple examples of companies that have misaligned their services strategy. Several company examples are included in Bridging the Services Chasm: Aligning Product Strategy to Maximize Product Success (Professional Services Press, Sep 2009). Before commenting on other classic examples of misalignment, let’s discuss the four factors that drive services strategy.
Four Factors that Determine Services Strategy
There are four driving forces that impact what services strategy is appropriate for a product company:
- Market Requirements: Some markets require more services for a product to be successful. For example, enterprises will not adopt complex technology unless there are services available to implement and integrate the technology to achieve the business benefits. In addition, extremely mature product marketplaces may use value added services as a deciding factor when choosing between relatively similar product offerings.
- Product Maturity: Immature, or emerging product technologies are typically more service intensive. Customers require implementation, integration, and customization to understand how the new technology will truly be leveraged in a business environment.
- Partner Ecosystem Maturity: If there is a mature partner ecosystem that can implement, integrate, and support a product technology, the product company can step back from those responsibilities.
- Financial Expectations: If product revenues and margins are under duress, the desire to define and deploy new services is greater.
Putting these four factors together, lets turn back to Dell. Dell faces a mature product marketplace so they do not need services to drive the adoption of bleeding edge technology. However, the enterprise marketplace expects services to cost effectively deploy PCs, servers, and storage. There is a mature partner ecosystem that can provide these services, but the trump card is financial expectations. Dell is looking for new sources of revenue and margin. So, two factors support Dell not increasing its services capabilities (product maturity and partner ecosystem maturity) but two factors support Dell increasing its services capabilities (market requirements and financial expectations). This dichotomy contributes to Dells thrashing in the services chasm. If Dell feels there will be new product markets that will emerge and provide new sources of revenue and margin, Dell will keep services to a minimum. Otherwise, Dell better be aggressively building out their service capabilities.
Dell is clearly not the first product company to face this services strategy conundrum. Another company that faced mixed signals on these four parameters was Siebel. Here is an excerpt from Bridging the Services Chasm where I discuss their thrashing:
Companies can thrash in this chasm for years. In essence, companies are lingering in the middle phases of the disruption-to-demise life cycle. During one quarter, a push to pursue service opportunities may be the focus. Six months later, there will be renewed hope that the next release will reinvigorate lagging product sales. For a study in this thrashing behavior, recall the antics of Siebel Systems as discussed in the Chapter 1. A review of the press releases associated with Siebel Systems, the once high-flying enterprise software provider that was bought by Oracle in 2005, shows a company deeply mired in the services chasm. With the economic downturn of 2001, Siebel experienced a dramatic decrease in product license sales. From total revenues of $2 billion in 2001, the company had shrunk to almost half that size by 2004. How should a company respond to this type of abrupt slowing in its legacy market? Should Siebel have developed new product or platform offerings to reinvigorate product sales (change market), or should Siebel have focused on adding higher value services to its existing and substantial installed base (change mix)? There are pros and cons to either strategy. What is not sustainable is to thrash between strategies. Table 7-1 documents the news headlines that clearly signal the indecision being exhibited by the company during its final year.
Siebel provides the perfect example of a company clearly caught in the services chasm, which is naturally created when a product market matures. However, it is not always so crystal clear when a company is actually in the chasm. The next section will provide some tactics for helping to identify when product companies are being sucked into this precarious place.
In essence, Siebel faced a mature product market that had a mature partner ecosystem. Siebel was unclear if future growth would come from owning more of the service activities in this mature market or jumping on a new product technology curve (software as a service). Ultimately, Oracle took advantage of this thrashing and put the company out of their misery.
Who else has been stuck in the services chasm? Novell when they purchased systems integrator Cambridge Technology Partners. Silicon Graphics just prior to going bankrupt the first time. Xerox, also just prior to collapsing. Sun Microsystems, just prior to being consumed by Oracle. The list, unfortunately, is quite long from the lens that I view the technology marketplace through. My belief, however, is that product companies like Dell will become much more adept at effectively navigating through this services chasm. It will be the defining skill set of successful product companies in the years to come.