Imagine you run a marketing consulting firm. The firm has a market intelligence database and data analysis methodology that it uses as part of its highly customized consulting engagements. It’s pretty lucrative.
But you are finding that it’s hard to grow. The problem is the firm can only grow revenue as fast as it can add and train staff (especially if you want to maintain the quality of service you are known for in the industry). Adding people is slow and expensive.
But, your firm could grow its revenue and improve its profit margin by offering that database and data analysis as a “product” for companies to subscribe to and access through a self-service portal. You could package the database and data analysis methodology into a product to be sold alongside the less scalable customized service of your consultants’ time.
This is not a hypothetical example. This is a company we recently worked with to help productize their services and productization is an increasingly popular strategy for many business services firms (consulting firms, agencies, other professional services).
What do we mean by product? For Vecteris clients, a product is a scalable, often tech-enabled, tool or program that can be standardized, packaged and sold. Just like a tube of toothpaste that you might buy at a store, a product has a name, a predefined set of features and benefits, and a set price. For example, content (e.g., research report, book), an event (e.g., training course, conference), software that automates a process or algorithm, or a unique data set.
It helps to understand the different flavors of productization available to business services firms. Here is a simple framework that I developed to map out how an organization that provides customized services could evolve to also provide scalable products:
As an organization moves from customized services in the lower left, to products-as-a-service in the upper right, the use of technology tends to increase (the X axis) as do the benefits (the Y axis). For example, improved gross margins, better revenue visibility, and increased company valuation.
Consider this data point:
"Consultancies, law firms, ad agencies, and other professional services firms struggle to nudge their gross margins above 40% as they achieve scale. Contrast that with product companies like Google and Adobe, which don’t have to deal with the same cost structure and which enjoy gross margins of 60% to 90%." -Mohanbir Sawhney (HBR, September 2016)
It is important to note that organizations do not have to move through each phase, but many organizations do follow this progression.
Defining the Product Innovation Ladder Phases
Starting in the lower left, customized services are human-resource intensive, knowledge-led services. Customized services can be lucrative but they are hard to scale because it requires additional people to serve additional clients. It’s very “hands-on” and key-person dependent. The consultant or partner or principal or account director tends to be what clients are buying.
The next rung, productized services, are human-resource intensive but they are standardized so that all customers receive the same experience at the same price. The service is broken down into its core components, which are sold as a defined package of services, such as the marketing example above. Productized services still require additional people to scale, but should require fewer both to sell and to deliver.
For example, WP Curve (later bought by GoDaddy) productized WordPress consulting by offering a package of website building or website fixing services. Instead of working one-on-one with a consultant to build or repair a company’s website, customers buy the package of services they need (at a fixed price) and the WP Curve team goes off to build or repair the site on their own.
The next move up the Product Innovation Ladder is to products. Here, organizations move away from offering human-powered services to products that don’t require humans to deliver the value. The list of potential products here is almost endless but common ones that our clients develop are books, asynchronous training courses, data files or syndicated research reports.
For example, one of our clients, lean strategy consulting firm The Garage Group (TGG), recently launched a series of syndicated reports. They noticed that many clients were commissioning market research on similar topics. TGG decided to create syndicated research reports that could be used by multiple companies, reducing the cost and research time for their clients.
At the top of the Product Innovation Ladder is products-as-a-service. This is where a product is delivered on an ongoing basis, through a model such as a subscription.Using the industry trends report example, instead of the customer buying just one report, a customer pays a subscription fee to access a series of reports or supplemental data to complement the reports. The service is the ongoing supply of information to the customer and the product is the standardized information itself. Many services firms are developing subscription-based technology platforms that are designed to be consumed alongside their traditional consulting services.
For example, Accenture’s AIP+ service blends traditional consulting with a collection of artificial intelligence (AI) technologies. AIP+ is a cloud-based platform through which Accenture’s clients can install AI tools and applications from a network of partner vendors, effectively offering “AI as a service.” By partnering with technology vendors, Accenture benefits from being able to offer AI as a service without having to invest in the engineering resources to develop those technologies in-house. Similarly, Accenture’s technology partners gain access to new clients and markets without having to sell their services themselves.
Are You Ready for Productization?
Before pursuing a productization strategy, I highly recommend assessing your organization's product innovation and launch capabilities by taking our Product Innovation Maturity Diagnostic. Our Product Innovation Maturity Diagnostic will help you better understand your team's product innovation strengths and weaknesses and identify the capabilities you’ll need to successfully pursue a productization strategy. Feel free to reach out to explore how Vecteris can help you identify your productization opportunities and next steps.
Note: This is an update on one of our earlier blogs. You’ll see some of the same ideas there, but we’ve expanded on them in this blog. That said, we shared some strategies about how you might approach productization that you might find useful to consider. Read more here.