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Give up on the thought that
you’re just selling products says
Prof Lynette Ryals
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SI [big interview]
So you think you
just sell products?
Blurring the definitions between products and
services can give sales organisations the edge, says
Prof Lynette Ryals of Cranfield University.
words | Paul Myles
pictures | Sonja Horsman
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N
ever before has the academic world been working closer
with industry in finding new ways to move forward in a
continually challenging economic landscape.
Commerce needs to explore new ways and methods to stay
ahead in an ever increasingly global market where competition
has become ever more intense as emerging economics begin
exploiting their own local advantages to undercut the West’s
traditional manufacturing and service industries.
Yet, argues Lynette Ryals, professor of strategic studies and
account management at Cranfield University, there are ways to
level the playing field with exciting new approaches to selling
customers solutions.
At the end of last year, she co-authored with the eminent
sales industry thinker Professor Neil Rackham a white paper
entitled Sales Implications of Servitization offering one particular
approach to regaining the competitive edge in sales.
SI caught up with Ryals on campus to get an in-depth explanation
of the concept of servitisation.
Ryals told us: “One of the things I’m particularly interested in
at the moment is the notion of servitisation, which is where
companies that had the mind-set about selling products are now
adding a service offering and putting together a package.
“To put this in context, my own research area is entirely B2B
and certainly in major sales there is a strong trend towards
consultative selling, solution selling and resolving a customer’s
problem or issue but, very often, the mechanism for doing that is
to wrap additional services around the products.
“The reason that this is happening is to do with the
international and global competition that we are seeing right now
and the realisation that there is always someone who can make it
cheaper in China, the Philippines or one other of the emerging
markets. If that’s the case, then you don’t want to go down the
route of competing on price, unless you are the lowest cost
producer. That model worked before markets became more
open and global – now the competition to be the lowest priced
producer is really quite tough for western organisations. So we
are seeing this shift towards servitisation, of the added value
services.”
Ryals said some big industrial players have already adopted
the concept and are reaping the rewards with bulging order
books.
She said: “Probably the best example of this in the B2B sector
is Rolls-Royce and their total-care offering with a wrap-around
maintenance package, monitoring, tracking and advice, which is a
whole group of services that is wrapped around the core that is
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the engine supply. The mental shift there was from ‘we’re selling
aircraft engines’ to ‘we’re keeping planes in the air’. It’s that move
from the product-based issue to considering how to address
what are the customer’s main issues in the service we provide.
“Trend Control Systems is another very interesting example
where they are selling monitoring control boxes but what they
are doing now is wrapping around that, for their major clients,
the monitoring, data collection, data analysis and remote
servicing of units, those sorts of added value packages. That’s all
about helping customers to become more productive in their
own businesses.”
But Ryals pointed out that the special relationship with a
customer can also have huge benefits for the supplier, which can
often see its own offering improved through servitisation.
She explained: “Back with Rolls-Royce they have a flight
operations officer who uses engine monitoring data collected to
advise pilots how to fly more economically, so that then feeds
back in as additional value for the customer. Also, from RollsRoyce’s point of view, they can also use that data to improve
aircraft engine design to make them not only more economical
but also safer.
“So these ideas of wrapping the services around have payoffs for both customers and suppliers.”
But taking to a whole new sales relationship methodology is
not as simple as it may seem and Ryals warns that sales
organisations will have to adopt a more radical mental approach
to how they sell and the efforts they put into creating and
maintaining customer relations.
She told SI: “I think the process we have to go through is to
start with culture change. Certainly, with many of the companies
that I’ve seen doing this, they also do it through an evolutionary
process often working with customers particularly closely and
that puts them into a different kind of relationship with their
customers.
“It’s not a zero-sum game, where ‘I win, you lose’, it’s much
more about how can we work more closely to improve the
performance of both organisations? Very like a partnership deal
with a focus not just on business as usual but on changing the way
that we do business. A nice example of this would be Unipart’s
technology and logistics and the way that they work with Sky –
Sky is a major customer for them and what they are doing is
providing added value services around inbound logistics,
checking products and recycling. These are all kinds of added
value services and their whole relationship with Sky has changed
and they are actually now generating more revenues and savings
and managing the business processes across the boundaries
between the organisations and gaining efficiencies for both
parties.
“An interesting part of this model is the way that they do it
using gain-share pricing so the two businesses sit down together
on a very regular basis and they discuss what has been gained,
what should be attributed to each party and they share the
benefits.
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One of the things I’m
particularly interested in at
the moment is the notion of
servitisation, which is where
companies that had the
mind-set about selling
products are now adding a
service offering and putting
together a package.
“I think this is a particularly sophisticated and advanced
model but it points to a changing notion of the B2B relationship.
In the past, we’ve been labouring under the idea that it’s been
about conflict where we’ve seen negotiating and working
together in terms of conflict and conflict management and we’ve
thought about it in terms of the zero-sum game and about power.
A lot of that is still prevalent in business relationships but we
are now seeing the signs of a different way of working that is
Prof Lynette Ryals_Layout 1 02/08/2013 12:18 Page 5
SI [big interview]
much more about collaboration and equitable relationships and
interesting developments around trust and different forms of
contracts. Contracts don’t have to be a legal thing, they can be a
relational thing.
“That is the picture of where we are going and the
competitive landscape is going to be much more around these
added value services. We will see more of the ‘law of the
disappearing middle’ and we’ll see the bigger players winning
and moving into the high end and there will still be players in the
low cost end of the market but can you be in the middle
anymore? There will be a big question over whether that
position will be sustainable.”
Ryals recognises that this cultural change will present some
real challenges to traditionally minded organisations that might
be reluctant in
abandoning a
‘proven
formula’. Yet,
not to
embrace this
sea-change in
customer
relationships
could,
eventually,
consign an
organisation
unable to
address
change to the
history
books.
Ryals added: “I
think the idea of moving towards a more service-based model is
something we are going to see much more. There is a
consequence of this that I am very interested in.
“It starts from a culture change and you have to see things from
the customer’s point of view. That comes with other things you
have to do over time such as openness – gain-share pricing
doesn’t work unless you’re prepared to be open because both
sides need to make a profit. So there are a number of things
along these lines that we can see developing in this journey. It
takes somebody thinking a little out-of-the-box to achieve this,
someone saying, ‘OK, we’ve always done it this way but that
doesn’t mean it’s the right way to do it’.
But she said the process is not all ‘stick’ because several
companies have seen a very tangible ‘carrot’ when applying the
principles of servitisation.
“Instead of the zero-sum game, it needs to become a
positive-sum game where both parties can gain and both
organisations become strong, learning more. Again, with RollsRoyce, the fact that they now have so much data they can feed it
back to improving their own products. Even on a basic level, this
could improve on things like a breakthrough way of thinking and
what we might see happening in future is that, while in the past
we’ve seen innovation come from within organisations, I wonder
if we’ll see more innovation happening jointly between
organisations at the boundary where they cross over.
“Hopefully, we’ll find people just asking a simple question like
‘we keep a finished goods stock and they keep and inbound
stock so why are we doubling up?’ Or ‘why do our products keep
breaking or why does a certain problem keep arising?’ It’s that
ability to have that innovation breakthrough.
“One of the firms I work with is Addleshaw Goddard, a law
firm, and they have a very interesting approach and have a very
good system of managing relationships with customers. They are
now running joint diversity seminars because it is important for
some of their customers to have more diversity among senior
managers. These are shared interests and not a conflict situation
approach and that is not like a normal buyer-seller relationship, it
is more like a partnership.”
And Ryals warns that the edge a sophisticated western
organisation has, using the method, is not likely to remain
unchallenged for long as emerging countries begin to see the
advantages it can provide.
She said: “It is typically the case that emerging markets tend
to start with raw materials production, then go into basic
products which you can see many parts of Africa, and then going
into more complex products to start moving towards services and
you can see that happening in China, for example. So the
servitisation model, for the moment, can give the western
organisations something of and advantage.
“However, there are examples of companies in emerging
markets who are providing added value services and that signals
to us that it is something that customers increasingly want.”
Yet, just as her research into servitisation had come to a close, the
process has led to a fresh aspect of sales that Ryals is working on
for her next white paper focused on the ‘cost of selling’.
Ryals explained: “The servitisation trend is very interesting and
linked to that, or in parallel, there is something we have to think
about which is the whole notion of the cost of sales.
“Where we are, in western economies, there is the situation
where the cost of the direct sales force is increasing. I can just
about remember as a kid there being the ‘man from the Pru’
[Prudential insurance] collecting the premiums and now, of
course, the sales process is much more about car, laptop,
software, mobile phone, iPad, etc., and plus the people costs are
higher. You add to that the notion of developing complex
products and solutions and you are now looking at a sales cycle
that is longer because you are selling something that is bigger
and more complex.
“In turn, you are looking at relationships that require more
input on the supplier side and the cost of the people is going up,
especially with team-based selling with more people involved in
the sale. So, all of these things put together, mean that the cost of
making a sale is actually increasing.
“A lot of the companies that I work with are talking about
sales cycles that, instead of being a few months, could be 12 or
24 months. It’s a major, major deal and you’re not going to sign a
partnership agreement in the same time that you would have
secured a straight-forward product sale.
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One of the firms I work
with is Addleshaw
Goddard, a law firm, and
they have a very
interesting approach and
have a very good system
of managing
relationships with
customers. They are now
running joint diversity
seminars because it is
important for some of
their customers to have
more diversity among
senior managers. These
are shared interests and
not a conflict situation
approach and that is not
like a normal buyerseller relationship, it is
more like a partnership.”
“That sets up a new challenge for suppliers, which is that they
have to think about the ‘sale’ as an investment. So you have a
number of sales opportunities but, arguably, you cannot chase all
of them. That is the next area we want to research and we are
doing some work on this already around looking at this notion of
how do you select the sales opportunities you are going to
pursue?”
Ryals said sales organisations will have to increasingly view
any pitching campaign as a long-term investment and assess the
process as they would when buying shares in companies with a
good potential return.
She said: “At the moment, a lot of even very good companies
don’t really know how much it costs them to put together a major
tender. I think what we will see is more of a focus on how much it
is costing to bid and when are the times we should withdraw?
Because not all business is good business and this is true of
certain customers and certain markets where you don’t always
want 100% of the market. It might also be true within a customer
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relationship where you may not always want 100% of that
customer’s business.
“This will be a big shift for salespeople because they are
trained to go after every opportunity and I think this shift in
emphasis will be about you are the relationship manager so one
of your roles is not just to find the next opportunity but to
evaluate that opportunity and ask ‘is this one we want to go after
or is it one where we should be saying to the customer we could
help facilitate this for you elsewhere?’ That’s the idea of asking if
you want 100% or are there bits of the business that are more
attractive and the notion of quality rather than quantity in that
market share.”
Some companies have already adopted this approach as
detailed in SI’s interview with Simon Purchon of Babcock
International (P25, September 2012), where the business
development director outlined the exhaustive research process
employed into potential customers for its offering.
Ryals said: “I think that is going to become best practice
because it’s quite clear that where organisations are in these
major, lengthy sales processes it’s costing them often hundreds of
thousands of pounds just to get to the point of tendering. So, if
your chances of winning a tender are one-in-10 and it’s costing
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£800,000 each time you’ve got to make a £8M investment to get
one order and that’s an awful lot of cost to make up with profits. I
do think we are going to be seeing more organisations
developing methods for filtering the sales opportunities.
“Myself and Neil Rackham have proposed a particular
method for doing this and that will be the next part of the
research to work with companies to test it out and actually to see
what companies are already doing.”
Ryals said sellers will have to assess the chances of both
success and adequate returns on investment before entering into
any future extended sales tender process.
“What we’re saying is that we think we’ll see more
organisations saying two things: ‘Can we win this?’ and ‘Do we
want this?’,” she explained. “Because you can imagine having
opportunities that you really wanted to win but you had a very
low chance. Then conversely, you might have opportunities that
you had a high chance of winning but were unlikely to make any
money on or, worse, even lose money on.
“So you can imagine those situations and you should be
asking, ‘why don’t we just walk away?’ Yet if you have a high
chance of winning and want to win the opportunity then you
have to over-resource the tenders.
“I think what we are proposing is that we should think of
these opportunities, whether they are new or existing clients, as
an investment portfolio. One with different opportunities that
you could be spending you time on and we are going to need to
become more selective about this process. Otherwise our cost of
sales is going to become so high that we’re going to be
uncompetitive because of being tied up and bidding on lots of
things where we lose partly because of the costs and partly
because there is a real reputational risk.
“If I repeatedly bid for things and repeatedly don’t get them,
at some point someone will think there’s a very good reason for
that!
“We know a small number of organisations that are looking
into this area and the idea of managing the process is something
that we will start to see happening.”
But the ‘auditing’ of a tender will not be confined to the pre-sale
process, insisted Ryals.
She said: “I think this is where you will see an axis of
information in an audit way. It may not just be pre-sale
assessments but, during these extended 24-month sales cycles, I
can imagine companies reviewing every six-months or so about
where the opportunity was going – if we increased our chances
of winning, what we thought about the desirability of it? This
happens as you get more information the further you get through
the sales process and this situation I definitely think will work.”
She said that organisations will have to combine sophisticated
data collection on customers with tracking of their social media to
ensure the sales pitch is an agile and proactive as possible.
Ryals explained: “But the other bit of this is I don’t think this is
possible to achieve unless you have a pretty good CRM system
because you need the customer information in this process and I
genuinely believe there is an emerging nexus that is about
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Ryals expects to see this ‘predictive’ approach to selling
escalating with the increasing dependency of people on a life
within social media.
She concluded: “It’s easy to imagine that if you had a
customer that, up until now, has bought one product line and
then you are finding that they are Tweeting about attending a
conference on something completely different. You would not
get that information from your CRM but you would from social
media.
“The idea of being able to predict a customer’s wants, even
before they know it themselves, is very powerful. It is like
marketing discussing what is junk mail? Junk mail is only junk mail
because it’s not relevant to you at the moment but if it hits the
mat just at the time it does become relevant, then suddenly it
becomes a rather useful piece of information.
“There are some powerful tools in data analytics that are
enabling us to predict the kinds of things customers might be
interested in. I think that consumer companies are further ahead
than B2B on this.”
i
S
managing key accounts and major relationships and having the
CRM system and the third piece to fit into that will be external
data. With the CRM you typically pick up a lot of stuff that is
behavioural, about your customer’s current habits and purchasing
practices and you can buy in data sets but the third overlap will
be social media.
“I am starting to think about how do we measure attitudes,
affinities and future intentions of customers? I suspect we are not
going to be able to do that through a CRM system, which is,
largely, backward looking. It can’t do that unless the future is like
the past. Where customers are changing their ideas, changing
culture, starting new interests, starting to introduce new products
and services themselves, I think you are more likely to hear about
all this through social media. We will see these three areas of
client/customer management, the CRM and social media starting
to overlap and the best practice companies will be doing all
three. Managing their customer relationships proactively,
particularly the more important ones, collecting and analysing
customer data that will allow them to co-ordinate insight that is
firm and looking at what those customers are engaging with in
social media and what they are saying and the places they are
going.”