Transitioning from a Services Company to a Product Company

Services and Product based companies and their business strategies is a much discussed topic in any management class. However, there is not enough justice done to the topic of pivoting a Service Company to a Product Company and vice versa. This change requires a paradigm shift in how a business is planned &  operated and require transformational changes ranging from re-defining business strategy, the organisational right-structure, relevant infrastructure and policies, and most importantly, the required mind-set as how the new business / teams operate throughout the Product Life Cycles, especially the go to market strategies.

This is a fundamental shift and the first step is a change in the strategy. A services company typically sells intangible goods which is the skill of its people. Customer Relationship Management forms the centric part and service-based-solutions are built and delivered to meet the specific client needs.

A product company, on the other hand, spends a significant amount of time in ideating the market need to solve a problem in a unique way and building a standardised product which will be widely distributed to the target markets  and beyond. The offering  follows a typical Product Cycle of introduction-growth-maturity-decline. A product company’s forte lies in the market research, innovation, development, production, and mass distribution of its product. There is generally a clearly defined specifications, features, performance and value outputs that a product can deliver for individual clients.

This major change in the outlook of a company requires full commitment and the teams need to be re-organised and repurposed or new talent needs to be hired. The radical change can only be effected if implemented in a top-down approach. There are examples where despite having a great product, it did not gain traction because of lack of alignment within the organisation and the key people did not have enough clarity on how to bring about the change.

A successful transformation from a service centric business into a Product Company requires a solid change in how all the departments function within the company. A services based company’s sales force is many times localised and specialised within the parameters of region/geography, technology offered, and client base, since service companies often specialise in their niche expertise. This is because they need to have a thorough understanding of the client’s business they cater to so that they can provide solutions and add value to the client. On the contrary, the sales force for product companies is working with a fairly standardised offering. Apart from the in-depth knowledge of the product they are selling, they also need to be equipped with a deep understanding of its application areas and target markets.

The deepest ramifications are perhaps to the operations and structure of development teams within the company. Service based companies have deep technical expertise pertaining to the client’s business which they cater to and they build custom tailor-made solutions depending on the client needs. There is no requirement to conduct market research or identify necessities and solutions for service companies as the clients already define the problem and the expected solution. This development process is quite different in product development. A typical product development lifecycle starts from market research, product conceptualisation, design and prototyping, and then moves on to development, testing, and deployment. Often there is some level of post sales maintenance and support involved. The services company would need to setup specific organisational silos responsible for each of these functions because, failure at any stage comes at high development cost in terms of time delays and resources.

The pre-market and post-market strategies is an entirely different ball game as well, which service companies typically do not have to deal with. The pre-market strategy requires tedious and thorough market research to identify problems and market needs and map them to the company’s development strengths. This analysis factors in everything from gauging customer perception and experience (UI, UX), economic impact such as margin, scalability, development overheads to marketing impact of the brand image, product perception, and viability. Service companies skip these steps and focus solely on how they can add more value to the current client business. The post market strategy deals with required support and maintenance, marketing and promotion, and future releases and improvements. Such companies typically have defined engagements with the client and upon delivering the promised solutions transition and move to the next engagement.

Thus, a very robust organisational structure needs to be implemented when a company moves from a service-based offering to a product-based offering. Often times it might be necessary to hire employees or managers who have experience in managing product development life cycles to ensure that the company can hit the ground running. There are well-researched frameworks that can be leveraged for ensuring product success. Most times service companies fail to adapt and continue to operate in their existing work culture which leads to inefficiencies in development.

When a company pivots and reinvents its market approach it requires strong leadership and full commitment in adapting/changing and aligning all the work streams to a product-centric orientation. The entire fabric of the company from the management and developers to HR, sales force, and support teams need to be realigned for an effective transformation.