For many businesses especially in the business-to-consumer space, the volume of transactions is a key determinant of underlying performance. Whether it be the volume of items sold in a department store, or the number of new loans for a bank, or the number of tickets sold to passengers for an airline, but the common factor is the need for a base load of transactional activity. This is typically the bread and butter of the organisation, and managing these fundamentals underpins its success.
At the other end of the scale are typically business-to-business organisations whose offers are tailored solutions that are unique to each of their customers. Many project based businesses in engineering and consulting for example fit this model.
But transactional businesses can find themselves in the commodity trap. That is, they can do the transactional activity very well, but this may not be enough to be competitive or to maintain margins at a healthy level.
Enter the solutions business, or at least the business that places a strong emphasis on solutions to provide differentiation in the market. Many industries are experiencing a surge in activity around business solutions.
Solutions business in different industries
Take travel agencies as an example. This industry was challenged from the very early days of the internet. Over the past ten years in particular, the traditional lifeblood of the industry, namely sales of airline tickets, shifted heavily online and became commoditized. Whilst this is still very much the case, we also see a growing emphasis on more of a solutions approach. As the global economy has grown and as the cost of airline travel has fallen dramatically in real terms, key players in the industry are bundling, shaping and delivering broader based offerings or solutions to customers. For instance, specialized tours or packaged adventures are in demand. Their point of difference is in bringing the component parts together easier and cheaper than a customer can do alone, and in different configurations.
Retail is also an interesting case in point. The so-called “big box” retailers in the home improvement segment do much more than sell hammers and nails. They provide solutions to many different facets of their business. For example, they might provide an offer of how to use their products to build a whole new patio or how to landscape the garden. In other words, they are not just selling the component pieces, but they are providing a broader solution to meet a bigger customer need.
Even supermarkets have quietly ventured into this space. Whilst their business is highly transactional, some organisations have leveraged the whole recipe approach including the mix and match of beverages. In other words, the customer can participate in a broader offering than simply the same old shopping list week to week.
Banks, law firms, technology organisations and many firms in the services sector have attempted to re-shape their offers to become more solutions based. The aim is to provide customers greater value and to expand market share.
The challenge of driving harder in solutions
But why is the solutions approach not more prevalent and why don’t we hear of more widespread success stories on this front? Indeed, all organizations profess to seek differentiation in some form, and to provide even better value to their customers. Moving to more of a solutions focus makes intuitive sense and has some very obvious benefits, including customer satisfaction and loyalty.
However, it is not as simple as it sounds, and there are two significant challenges to be addressed.
Any organization is seen in the eyes if its customers as having a certain brand image and profile. There is a whole science around brand management which we will not be going into here, but suffice to say that moving into a higher value space such as broader solutions can create some real questions in the eyes of customers. Indeed, it can be confusing in their eyes.
For instance, a firm that specialises in the routine preparation of tax statements for individuals and small businesses may struggle to introduce a broader solution around say tax strategy and planning. In the eyes of its clients, its core competency is very much in the transactional business of preparing tax statements. Dealing with tax planning and strategy is a different positioning in the eyes of the customer. This shift can be achieved of course, but there are challenges in how the brand is perceived and therefore how the client base will respond.
The other factor is how the internal organization and management of the business is calibrated to accommodate both the transactional and the solutions approach. Things such as culture, performance measures and organization may well be very different.
Using the example of the tax business from above, the skills and capabilities needed to run the transaction side of the business are totally different from running the client strategy and planning side. It is very much a production line focus vs a project focus. In addition, the performance measures would be very different as well as the type of people needed to undertake the work. In other words, the organisation in this instance would need to take re-shape the way it is structured and managed.
Value to customers is a key driver of strategy. But organisations that have a strong transactional base in their business have a challenge in how they move into more of a solutions approach, and how they can really deliver that expanded value proposition to their customers. Mixing the transactions and the solutions needs some clear thinking on the right business model and how it can be achieved.