Clayton Christensen, Tony Ulwick, and others have written extensively about innovating using the Jobs To Be Done (JTBD) theory. The basic idea of JTBD is that everyone at work and everywhere else is working to achieve one or more important outcomes. For example:
- At work, we are trying to increase revenue or reduce costs.
- At home, we are trying to keep the house clean or not run out of food.
Innovation occurs when someone comes up with a solution that allows us to achieve an outcome in a better way (e.g., cheaper, faster, easier) and with a low enough price to make the purchase attractive.
Fortunately, we can apply the same theory to service revenue growth by understanding the customer’s costs associated with owning and using your company’s products. Let me explain.
I recently saw a neat graphic identifying many costs associated with owning and using a tech product consisting of both hardware and software. It could be manufacturing equipment, test equipment, transportation equipment, or almost anything that a B2B customer will use to run its own business. Here is the graphic:
Costs above the waterline are associated with selecting, purchasing, and installing the equipment. Costs below the waterline are the so-called hidden costs. They represent the customer’s out of pocket costs associated with using the equipment for the rest of its’ useful life. These costs have to be budgeted and managed and are the opportunities for you to grow revenue while making life easier and less stressful for your customers.
Some of the items identified in the graphic are already included in many comprehensive service contracts. These costs include:
- Maintenance costs
- Software costs
- Training costs
- Supply support costs
The challenge is to find a way to bundle the other costs into your support contract. The benefits for the customer are:
- Costs are predictable – easy to budget
- Less P.O.’s – reduce overhead
- No hassle – anything goes wrong they call you
- Peace of mind – they no longer worry about these items
Here are a few “other” costs that can be added to a comprehensive contract:
- Test and support equipment – analytical instrument companies sell sample preparation equipment at the time of sale to make life easier for the customer and to increase their margin.
- Retirement and disposal costs – if your customer decommissions equipment (yours or competitor) and has you install a new piece of your equipment, and then you can add the cost of safely removing and disposing of the old equipment. You can do a better job protecting the environment than almost anyone else because you do it often.
- Technical data costs – many businesses sell products that generate data, which the customer has to do something with before it is useful. What if you offered a custom service of taking the raw data, processing it, and inserting the results into a report that the end user needs to do her job? For example, if your customer use your product to perform final inspection of a product and then transfers the data to a “shipping data sheet” then you can automatically create the data sheet. Saves time and eliminates errors.
- Some businesses even provide operations people to run the equipment and can even install it in their own facility if it is not actually inserted in a production line.
- This list is far from complete. Many industries have special jobs that the equipment owner is obligated to perform. In the Life Sciences industry, software must undergo an annual Validation and Verification. In the transportation industry, equipment must undergo periodic safety, and sometimes emissions, inspections. Hospitals require that the manufacturer certify biomed technicians, who repair and maintain equipment.
If you bundle many of these items into a service, you are entering the world of PaaS – Product as a Service. Both businesses in the transaction agree on volume and piece price costs and you take over all aspects of using the equipment as a direct supplier. This approach is becoming very popular in many industries like aircraft and automobile production.
Changing to PaaS is not trivial and the decision to move ahead must gain widespread buy-in across your company. However, some of the less risky services can be handled without much hesitation.
As always, tread carefully but boldly! The future is not for the timid nor the rash but it is for the pragmatic leader.