In 2023, we saw an accelerated shift of market trends that affirms the need for B2B professional services firms to form a digital strategy to compete.
The Vecteris 2024 Benchmarking Survey sheds light on the transformative journey of productization, revealing how organizations are adapting to these market trends and internal aspirations to redefine their strategies. Here we will provide a preview of some of our key findings.
1. The Drive Towards Productization: Balancing Innovation with Customer Expectations
The push towards productization is being driven externally by a need to keep pace with advancements in AI and other technologies, while simultaneously meeting the evolving expectations of customers. When asked for their top market factors driving productization, both AI & Other Technologies and Changing Customer Expectations were selected by 51% of respondents as the tying biggest factor. This dual focus underscores a broader industry movement towards leveraging innovative technologies with a keen eye for how they enhance customer experiences.
When looking at internal motivations for productization, the quest for recurring revenue and improved gross margins are the top goals for productization, with 57% of respondents selecting recurring revenue, and 53% selecting gross margins as one of their top three reasons. However, our findings support that a more holistic approach is yielding significant benefits. 75% of organizations that set their productization goal to increase company valuation achieved or exceeded that goal, versus 59% and 56% who set recurring revenue and gross margins as their goals. Focusing on how productization impacts overall valuations likely increases the chance for success because it enables teams flexibility to find the most effective ways to make an impact beyond a single product.
2. Navigating The Productization Journey: Strategically Overcoming Challenges
Organizations embarking on the productization journey encounter many obstacles due to the significant transformation it represents for B2B services organizations. Foremost among these are "moving faster with product development and launch," "setting the right sales strategy," and "reducing the amount of customization."
Accelerating product development and launch is a critical hurdle for 79% of organizations, emphasizing the need for agility and rapid innovation in today’s fast-paced market. Crafting the right sales strategy, cited by 74%, underscores the complexity of aligning product offerings with market demands and customer expectations. Meanwhile, reducing customization, a challenge for 70% of respondents, highlights the delicate balance companies must achieve between supporting existing clients and establishing new scalable, standardized products. These challenges are not just obstacles but opportunities for organizations to refine their approaches, innovate, and emerge as leaders in the journey toward successful productization.
3. The Path to Success: Speed to Market and Beyond
Our survey highlights that speed to market is not only the most challenging aspect of productization, it is also the most significant determinant of success in productization efforts. Organizations that reported exceeding their productization goals were, notably, 33% more likely to begin earning revenue on newly launched products within a year of initial ideation. This emphasis on speed underscores the competitive advantage of moving quickly in today's market. Although we have written about the importance of speed previously, this survey affirms that there are no other factors more important to exceeding productization goals.
Based on the results of the survey, organizations appear to be setting their productization strategy to take these challenges head-on. The most frequently selected current productization strategy, at 77% of organizations, is to Standardize and Tech-Enable Delivery of Services. We believe this enables organizations to move quickly. This strategy offers the greatest speed to market because by serving existing customers and not introducing too much new technology, organizations can more quickly launch a new productized service that can be sold by existing sales teams while still helping the organization reduce the level of custom services.
But most organizations are not content with sticking to this strategy, with that strategy dropping to just 40% of respondents selecting it as a future strategy. On the other hand, there's a marked shift where 68% of respondents indicate their future strategy includes developing products that complement existing services vs just 38% as a current strategy. This evolution from standardization to innovation signifies a significant change as organizations look to the future and their ambition grows, aiming for broader market impact and customer engagement.
4. Towards the Future of Productization: Investment, Maturity, and Specialization
To realize their ambitious goals, organizations are investing significantly in productization, with 81% planning to maintain or increase their budgets in 2024. These investments are most focused on product development (average of 35% of budgets), and product management (average of 28% of budgets). We also know that organizations are investing in dedicated sales roles as they continue to mature.
This strategic investment is a clear indicator of the confidence organizations have in the potential of productization to drive growth and innovation. As companies become more mature in their productization efforts, the emphasis on dedicated teams and roles highlights the importance of specialization in achieving long-term success.
Embracing Productization for Competitive Advantage
The Vecteris 2024 Benchmarking Survey underscores the importance of productization in the B2B services sector. As we look towards a future where productization is a key driver of value and competitiveness, the journey is both challenging and promising. By balancing the drive for technological innovation with customer expectations, navigating the challenges with strategic foresight, and focusing on speed to market, organizations can unlock new avenues for growth and differentiation.
The comprehensive insights from our survey provide further details for organizations at every stage of their productization journey, offering a glimpse into the strategies that will define the next era of B2B services.
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