Successful service development in a product-focused environment.

1. Same same
but different
Successful service development in a
product-focused environment

2. Having emphasized the importance of services in
strategy statements for quite some years now, most
large Scandinavian industrial firms have realized
they also need a more structured approach to service
development. In most cases, a corporate staff function
is created with an objective to define and productify
a portfolio of service concepts. The output of this
work, like service portfolio descriptions found on
corporate websites and in marketing brochures, often
look great and appealing. In some cases, these service
development efforts can also show undisputable
success in terms of growth in service sales.
Still, our analysis indicates that industrial firms face
some challenges as they try to turn services into
products. Unlike a physical product, a service can be
provided without any official “service product” being
developed and launched. At the start of an initiative,
the willingness and ability of front-end units to offer
services often vary greatly, and those who do tend
to use their own local approaches. Therefore, the
objectives set for the central service productification
efforts often include increased proactivity in service
sales, improved efficiency in delivery, harmonized
global service levels, higher customer satisfaction
and faster build-up of capabilities to offer services
worldwide.
Based on our experience from a large number of
Scandinavian manufacturing firms, it is questionable
if these goals are being met so far. The central
development function is often frustrated with the slow
adoption rate, and its lack of mandate to implement a
global service portfolio. Front-end units, on the other
hand, can be frustrated with what they perceive as
“corporate clerks” far away from the front-line reality,
adding limited value to their local business.
Four fundamental questions for
service development
Even if results so far are limited, there is nothing
wrong with having high ambitions for service
development. Numerous customer satisfaction surveys
point towards the large and growing importance
of services for the total customer experience and
supplier brand perception. For many premium product
suppliers, managing services professionally on a global
scale will soon become a “must-have” to secure and
defend a consistent, premium brand experience. On
top of that, there is often a large business potential out
there to capture in value-added services.
Normally the issue is not related to ambitions; it is
rather how to approach service development in an
environment that has been fine-tuned for physical
products since decades. Our study findings reveal
some common challenges in this process. We
conclude that service managers should reflect on
four fundamental questions for service development,
using one guiding mindset: “Do just like you do with
products - only different”.
Successful service development in a product-
focused environment
Managing services professionally
on a global scale will soon be a
“must-have” to secure and defend
a consistent, premium brand
experience
Use one guiding mindset to answer
the four fundamental questions: “Do
just like you do with products — only
different”
Services are becoming increasingly important for Scandinavian product manufacturers, triggering a
need for them to productify also their services. While these intangible products need investment and
professional management just like physical ones, there are some clear differences that have to be
addressed to succeed. Keeping these differences in mind when answering four fundamental questions
will significantly improve the return on service development efforts.

3. Fundamental question 1: What to
develop?
Right mix of outputs
In companies accustomed to physical products, the
definition of an intangible service product may cause
confusion. Over the years, we have seen service
development processes resulting in nothing more
than a simple marketing brochure or a two-page
delivery manual. Such “quick-and-dirty” efforts
may be enough to support people who are already
actively working with the service in the desired
way, but it is rarely enough to reach the objectives
of global consistency in service quality or increased
proactiveness in service sales.
However, considerable improvements have been made
and we no longer view the quantity of deliverables
as the main problem in service development. The
challenge today lies rather in the nature and quality
of output from the process. Based on our learnings,
we would like to broaden the perspective of process
outputs along two dimensions:
1. What the service is: We still see a very strong
focus on defining service products as activities
(what-we-do / delivery) rather than results
(what-customer-gets / business).
2. How the organization should be enabled:
We see a tendency to rely heavily on procedures,
tools and software applications to support sales
and delivery. In other words, development focus
is to provide intelligence through systems (hard
deliverables from the development process) rather
than through the development and empowerment
of individuals (soft deliverables)
In the matrix below, we have identified four categories
of industrial services, for which we argue that the
focus of development output should be different. All
service products will need some type of deliverable
from each category, but the mix will be different.
In this framework, services suited for the “traditional”
focus of development described above will fall into
category 1. For example, when equipment OEMs face
third-party competition on basic repair services, the
only way to compete may be to utilize economies of
scale on a single operation level. A specialized OEM
service engineer, supported by lean processes and
special tools, can perform a certain repair far more
efficiently than a small local generalist, which might
off-set the higher labor cost of the OEM staff.
However, most services developed today are not
this well-defined, competitive and repetitive. For
many service products, the ability to communicate
the customer value, before as well as after delivery,
can be the only difference between success and
failure. Compare to the trend in complex industrial
product sales, where sales people are being taught
to shift focus from selling Features to selling Benefits.
For true intangible services, which may not have
any real “features” to sell, there is simply no option.
Consequently, even more efforts must be put into
the development process to secure the right sales
approach.
WHAT THE SERVICE IS
HOWTOENABLE
Delivery
“What we do”
Business
“What customer
gets”
Hard
Soft
Tools
Methods
Processes
People
Competence
Motivation
1 2
43
For true intangible services, which
may not have any real “features” to
sell, there is simply no alternative to
a benefit-oriented sales approach

4. Sometimes the development “object” is not supposed
to be sold at all. Just like with physical products, you
can develop components and modules that should
be configured into service products and solutions
based on the customer need. In such cases, one needs
to clearly separate the development effort for the
“component object”, focusing on what-we-do / delivery,
and the one for the “solution sales object”, focusing
on how to configure sales of this component together
with others.
For some services, “hard” sales material such as
value calculation tools, contract templates and pricing
wizards are keys to success (category 2 services). This
is where customer value will be built and argued based
on specific needs and where standardized delivery
processes exist, e.g. custom-made service solutions
in well defined areas, like operations or maintenance
outsourcing.
Some more advanced services are less suited for
codification into manuals; they are rather dependent
on the intelligence and judgment of highly
experienced individuals. Services such as process
advisory and engineering design typically fall into
this category. Heterogeneous and complex customer
needs, paired with low price sensitivity, create room
for investments in people. Development funds should
be geared towards developing new subject matter
expertise, promoting close collaboration between
peers globally and finding ways to off-load bottleneck
experts in delivery, in order to increase the business
potential (category 3 services).
Complex performance contracts, with a high degree
of risk-and-reward sharing, require sales people
possessing a very broad range of skills, including
deep customer insight and high trust, advanced
risk assessment and creative pricing skills. These
capabilities will always contain a large element of
individual judgment that cannot be turned into
wizards or decision tools. As with the advisory
services, key to success is in this area to develop the
individual expertise and share experiences efficiently
around the globe, but in this case focus is on the sales
rather than the delivery process (category 4 services).
For each service to be developed, the development
manager should first reflect on which category the
service belongs to, and then distribute effort and
outputs accordingly.
Fundamental question 2: How to
develop?
Iterative process with extensive customer
involvement
A structured development process and dedicated
investment funds benefit services just like physical
products. However, the service development process
is much less sequential, and the borders between
development, launch and operations are blurred.
Furthermore, a service concept and prototype is easy
to test with a customer very early in a development
process. This is a big advantage in comparison to
physical products, where significant investment in
prototypes must be made before business validations.
Some more advanced services are
less suited for codification into
manuals; they are rather dependent
on the intelligence and judgment of
highly experienced individuals

5. We recommend a structured approach where process
iterations are integrated from the start. Most large
product companies use a standardized process for
development projects, which is most often relevant
and convenient to adopt also for services, as
terminology is already well-known in the organization.
The process normally consists of a pre-phase to create
a Development Plan, and then some development
phases like Concept Definition, Pre-development, Validation
and Final Development. In comparison with physical
R&D, the initial Development Plan is more crucial for
services development, for two reasons:
This is where a solid business case must be made,
including how the business case will be validated
with customers. The validation is performed
primarily to ensure that the service is sellable, other
aspects have limited impact on the business case.
This is where the mix of outputs from the process
should be configured, as explained above. The
resource distribution must be clarified and assigned
among the four categories.
Iterations in the process are linked to strict gate
decisions. If, for example, the business case should not
meet expectations in the Concept Definition phase, the
Development Plan should be revisited and remade.
Fundamental question 3: Where to
develop?
Close to customers
Just like product R&D, service development should
be located where you can gain access to the best
knowledge. For services, these locations are likely to
be found at the front lines rather than at the head
office.
In order to attract the best talent, product R&D
units are most often located either at Head Office,
a large production site or close to leading academic
research. They are often geographically concentrated,
to leverage the required investments in physical assets.
In contrast, the location of service development
units should be guided by other principles. Naturally,
design of services closely tied to physical products,
like installation and basic maintenance, clearly
benefits from being close to the product development
counterpart. Design for Service is a concept in product
development which is still in its infancy, and which
requires a deep involvement from service experts early
in the product development process.
In most cases, however, a service cannot be designed
nor executed based only on the technical product
knowledge. The key location aspect to consider then
is not access to leading technology know-how, but to
leading customer know-how. As we point out above,
customer involvement in service development is
important, and learning-by-doing is a natural part of
the innovation process.
For services that are application-specific, or where
a certain customer segment is clearly leading the
way, the global service development center should
be located close to leading industry expertise. For
example, customers in the automotive industry are
known to be very demanding and proactively push
responsibility and risk to their suppliers. The rules
and conditions of this game are often dictated by
the powerful counterparts, so the attractiveness
in taking on these contracts in themselves can be
questioned. As few suppliers can afford to step away
from the large automotive segment altogether, the
trick is to transfer the lessons learned from this very
demanding environment to more attractive segments
and customers. To achieve this, a global service R&D
perspective is required and the customer sites are to
be viewed as laboratories.
The general argument for physical co-location is
weaker for services than for physical products, since
development seldom requires complex infrastructure.
For many services, the key aspect
to consider is not access to leading
technology know-how, but to leading
customer know-how

6. However, the rules for attracting the best people are
the same. One needs to build a dynamic and creative
environment, with a strong team of peers sharing
the service values and mindset. As part of a relatively
small unit embedded in a large company with a
product-oriented heritage, service scientists may have
a larger need to be co-located, to feel the necessary
collegial affinity and inspiration.
Fundamental question 4: How to
control and upgrade the service
product?
Control the essentials
The deployment and continuous management of
service products are associated with some specific
challenges, which need to be considered already at the
development stage, especially since the process is
iterative and launch is not a discrete point in time, as
with physical products.
The environment for implementing global service
management in Scandinavian multinationals is
much influenced by the firms’ cultural heritage. In
general, they globalised their business using a highly
decentralized governance model, leaving a large
degree of freedom to local management. There is no
reason to question this approach, as it was arguably
one of the main reasons why Swedish multinationals
managed to grow faster internationally than e.g. their
American or Japanese competitors. In recent years,
considerable efforts have been made to harmonize
also front-end activities, but still any initiative that
can be seen as intrusion of the local decision making
territory will not come easy.
Against this backdrop, we can reflect on some
fundamentals needed to control a business. First,
you need transparency of the quantities sold and
delivered, e.g. revenues, costs, hours spent, class
participants or whatever the relevant unit is for
a certain service. Secondly, you need a feedback
loop to track the quality of what has been delivered.
Finally, you need sufficient funds and mandate to
continuously enforce the desired improvement of the
offering, based on that feedback.
Even if you sometimes hear physical product
managers complain about deficiencies in all three of
the above areas, their life is usually quite comfortable
compared to that of a service manager. Product
managers can easily define new products and allocate
both revenues and costs to them in ERP-systems.
From the warranty claims process, they get relevant
feedback about the quality of products delivered. If
they need to change or upgrade the product, there are
funds available and they “only” need to put a request
to the development department.
None of these conditions are given for service
products. For instance, obtaining reliable figures
on the service volumes delivered often requires
substantial manual work, especially if the service is not
a profit unit in itself. Many ERP-systems are poorly
designed for services, and the discipline in allocating
the right revenues or costs to the right services is often
limited.
Tracking the quality of services delivered is even
harder. Customer satisfaction, of course, is the prime
measure of service quality, but there are obvious
practical limitations to continuous collection of such
data on a global scale. Therefore, there is a need to
monitor also the “technical” aspects of service quality,
similar to those inspected before delivery of a physical
product. Is the service performed according to the
standards defined in the process? Are the deliverables
There is a need to monitor also the
“technical” aspects of service quality,
similar to those inspected before
delivery of a physical product

7. presented to the customer in a professional way? If we
believe that the developed service concept is based
on the best available knowledge and practices, then
adherence to the concept should be a reasonable proxy
measure for customer satisfaction. Local differences
in customer demand and preferences should be
accounted for and built into the service products
through modularization, etc. (just like you would
with a physical product). Building these capabilities
for global quality assurance of services requires active
participation and buy-in from local units from the
start.
Upgrades and continuous improvements of a service
product pose similar challenges for a service product
manager. Most services are sold and delivered locally,
leaving little room for a central unit to implement
changes on its own. Besides the battle to receive
investment funds at all, service managers would
have to negotiate with all relevant front-end units to
secure adoption of changes to a service concept. Since
most of the “production capacity” resides in local
units, any new or improved service will require some
investments also by them.
In this context, the service development manager
should consider two important control aspects already
in the development phase:
Define early how to measure volumes, receive
feedback and define improvements, to ensure
explicit value adding deliverables from the
development process.
Promote the service agenda. A substantial part of
the development work is actually “internal sales” in
preparation for deployment, and should be viewed
as such. If you can help local units to see a business
potential in services with their customers that may
not be obvious in the daily work, and to understand
the need for a unified global approach, you lay
a good foundation for successful deployment of
service products.
Longer term, service managers must find the right
balance in the global governance model for services.
A highly centralized model fits poorly with the very
nature of qualified professional services. The other
end of the governance spectrum, where any central
function dealing with front-end activities is viewed
only as a support unit, offering tools and templates to
front-end units from which they can pick and choose
at their own discretion, is equally mismatched with
ambitions to provide consistent, world-class services
globally. Scandinavian firms may be closer to the latter
end today, but we do not prescribe any single right
model for the future. The balance between central
and local must be configured for each company and
situation.
Service development should be inspired by traditional
product development – but be aware of the differences!
Jonas Strömgård and Bo Johannisson

8. XLENT Strategy
Regeringsgatan 67, SE-111 56 Stockholm
Tel: +46 8 519 510 00, Fax: +46 8 519 511 50
E-post: info@xlent.se, www.xlent.se
XLENT Strategy is a leading actor in the Nordic market for management consulting services,
specialized in customer insight based strategy and business development.
XLENT Strategy has extensive industry experience from: telecom & media,
banking & insurance, manufacturing, utilities, retail and transport.