The question of how to grow profitably is high on the strategic agenda of most companies, yet only few are able to realise it. In today’s world, many businesses are struggling to maintain their existing revenue and profit margins, let alone achieve ambitious growth rates. But there are also many exceptions!
Given that significant variations appear in the growth strategies companies choose and the role services play within this strategy, Noventum set out to answer the following two questions:
1. What are today and tomorrow’s key drivers for profitable growth?
2. What role do services play in respect to growth?
The research comprised of in-depth interviews and a survey conducted amongst board members, service managers and directors, primarily from B2B product-orientated companies across a wide distribution of industry sectors and company turnovers.
It was quite clear that companies exhibiting higher growth rates saw ‘services’ as one of their strategic solutions to achieving growth and not as a challenge in its own right.
We found that these companies tended to exhibit 4 key capabilities:
1. Deployed a wide portfolio of growth strategies
In order to outperform competitors on revenue growth and margins, companies should pursue a broad portfolio of growth strategies and not just the traditional few of (1) Product growth in mature markets; (2) Product growth in emerging markets; (3) Product Related Services. When these 3 strategies are broadened by Advanced Services focused on solving company’s business problems, or improving a customer’s processes, revenue growth was generally above 11%. In addition these companies were more likely to achieve gross margins across the whole business of greater than 40%.
2. Innovate for customer value
Key to growth and profit margins is a focus on innovation in order to optimise customer value. Successful companies do this by employing multiple tools to glean customer insights and maintain a balanced portfolio between incremental and ‘game changing’ innovations.
3. Demonstrate Organisational Agility
We defined agility as the capability, dedication and culture to rapidly innovate on a continuous basis. The companies that achieve high growth are innovative in nature which leads to change. But all this change creates internal friction and conflict . Hence successful high growth companies develop a culture that can move and change rapidly giving the oganisation an agility to adapt to new ideas
4. Strategic alignment between service- and corporate strategies
Companies need to develop a clear long-term vision as to how to develop their service business, ensuring each step delivers a tangible and credible contribution to the overall performance of the company. Focusing on the overall value of service for the company will secure corporate commitment and thereby further enable (service) business success.
The bottom line: Advanced services are a key differentiator in driving companywide revenue growth.
If you are interested in understanding more about how advanced services differentiate the winners from the losers, you can down load a summary of the research finding using this link. Or if you would like to participate in our follow up research, you can join Noventum’s Service Innovation Programme on LinkedIn. When people subscribe they will receive our newsletter including the events updates such as the Servitisation conference in May at Aston Business School.
I will be presenting the research findings at this event, as well as at the Service Management Expo at the ExCeL in June.