More than 70% of the working population is involved in services and associated sectors, and increasingly firms are adopting this as a route to create value.
The move has significant implications for HR because, while popular, a switch to services is not always straightforward. There are five key challenges that HR will have to address:
The culture of the company needs to change. There has to be a new service mind-set and staff must be encouraged to embrace the new change. But tensions can and do arise. The product team might worry that if the service group successfully extends the life of a product by more careful servicing, the knock-on effect will be that the product group's long term prospects will suffer. Quite simply, their concern is that they won't be able to sell as much because customers don't need to buy replacement products. But there is a counter argument, that by offering services, the business develops stronger and deeper relationships with customers and enables new product opportunities to emerge.
Shifting to a service culture
Celebrate services, not products. The company must fully recognise the culture-shift involved in moving into services. Giving services an equal status is not easy and will require significant and sustained leadership and educational effort. HRs must prepare themselves for this because they will, rightly, be at the centre of much of this change.
Working across organisational boundaries
All the skills and capabilities required will not be available in-house and companies will need to partner with other organisations. For example, the core strengths in a manufacturing firm might be engineering and technical capability. But these are not the skills that will be required for the service side of the business.
Aligning metrics and incentives
Services often involve multiple organisations working together and measurements and incentives will have to be aligned within and across organisations. Too often measures and incentives are designed within the boundaries of a single organisation, but with services, if you have to collaborate across organisational boundaries you have to align the incentives and metrics as well.
Focusing on outcomes
Much stronger focus on outcomes will be needed. Our experience with companies embarking on this change is that they need to identify and concentrate on the outcomes their customers are looking for. Very often customers may not need or want to own a product. They just want the service it delivers. Companies must develop skills to sell the benefits of outcomes and then manage their delivery.
Outcome-based contracts can extend over many years. It's no longer just a question of making the equipment and handing it over to the customer. Instead the company retains responsibility for ensuring the equipment works over an extended period. Long-term contracts can make it more exposed. Instead of a one-off transaction, a partnership starts to develop, and staff will need to be aware of this and be comfortable with it.
Staff will have to be kept informed of the changes, and any issues brewing between the product and service groups will need to be handled carefully and effectively. Staff training might also be needed to encourage closer relationships with customers.
Professor Andy Neely is director of the Cambridge Service Alliance