Monday, 1 December 2008
Taking the leap from making to serving
When Guangdong officials gathered for a closed-door meeting last month, a provincial think-tank told them they needed to cut red tape and overhaul the province’s industrial structure if they were to take the next step to development and survive the economic crisis.
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Taking the leap from making to serving
Samantha Kierath
1 December 2008
When Guangdong officials gathered for a closed-door meeting last month, a provincial think-tank told them they needed to cut red tape and overhaul the province’s industrial structure if they were to take the next step to development and survive the economic crisis.
The idea was to encourage five of the province’s cities to focus on their own economic specialties, moving away from the decades-old sole emphasis on manufacturing to value-added sectors such as financial services and logistics.
It is a formidable challenge, and if the municipal administrations did not have enough advisers to draw on, they would do well to consider reading Laurie Young’s From Products to Services - Insights and experience from companies which have embraced the service economy.
As Young readily points out, services already represent a sizeable chunk of the mainland economy, with pre-meltdown economic expansion coming from three major areas: wholesale, retail and catering; transport and telecommunications; and real estate and associated building services.
But, with the country shedding 15 million manufacturing jobs since 1995, it is only logical for many mainlanders to be looking to the service sector for growth.
In the book, Young looks at the structural and strategic changes various companies, particularly technology firms, have had to make to complete the transition from manufacturer to service provider.
The transformation demanded a complete rethink of the companies’ finances, marketing, sales and management, so much so that some firms decided there was more value to be gained from persisting with product creation.
The change in business focus from product to service has been taking place across sectors for decades and can be driven by factors including market maturity, competitors and the lure of bigger profits through repeat custom.
The shift, though, is usually radical and risky, and executives have to take time out from the usual instant decision-making to look at the overall mission. Leaders have to identify which factors are pushing up service demand, research whether customers would be willing to pay for new packaged services and whether the company can really cope with a monumental makeover. But many don’t, and the operations founder once competition sets in.
One of the best examples in the book is how French tyre company Michelin sought to head off the creeping commoditisation of tyre purchasing by developing its Michelin Fleet Solutions, a system in which the company owned and serviced the tyres and the customer paid per kilometre. The service cut administration and increased efficiency for customers and gave Michelin an ongoing relationship with their client. The idea had a long pedigree, was carefully managed and had a champion at the top of the organisation.
Young says the service sector is on the rise but not necessarily replacing manufacturing. Rather, manufacturing is “like agriculture before it, set on a trend of producing more while employing fewer people”. The book goes step by step through the questions businesspeople need to ask themselves if they are looking at moving out of making and into serving.
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