We’ve noted several instances in our research and consulting practices where providers’ behavior reminds me of an old Mac Davis song. The lyrics proclaim that he no longer has a girlfriend but he never gets lonesome because he treasures his own company and that it’s hard for him to be humble because he’s perfect in every way. It is remarkable how self-confident service providers become when they have the dominant market share in their space. They become so enamored of their position that they don’t notice their clients start to resent them.
Sure, there is much to admire about these providers. They have had great growth, enjoy great profitability and clients invite them to do important things in transformational ways that they could only have dreamed about a few years ago. Thus, borrowing from the song, they think they’re perfect in every way. This leads to unintentionally expressing a level of arrogance.
The arrogance is displayed as the account team talking about their company instead of the client’s business. And account teams start trying to shape the solution or services and dictate to the client. They tell the client, “We’ve got a great idea; you should do this.” Clients resent this provider behavior.
Clients prefer account teams with this kind of approach: “Oh, you have a problem over here. We’ll help you with that.”
These service providers have also invested a lot of money in innovation. But we recently conducted a study on innovation investments across a wide variety of providers and found that very little of this money was rewarded in terms of the provider’s growth or profitability. So what went wrong?
Clients don’t want factory-centric service delivery
In analyzing these situations of arrogance and low return on innovation investments, we note that they share a common foundation: the provider bases its solutioning and delivery approach on centralized “factory” control. Historically providers demonstrated they had a good service factory, and clients put into their provider’s factory the work appropriate for the factory.
The factories include centralized innovation centers where providers pick up ideas from clients, refine them and then take them out to other clients. The problem with this approach is that the provider develops the ideas in a vacuum and then believes that they fit the entire industry. The provider believes it is cleverer than clients. But the ideas don’t fit other clients well enough. So it’s very high risk, and our study shows it’s proving to be spectacularly unsuccessful.
Today’s customers look to do things differently and want to invert the factory model to shift the power of running the factory to the client account. But this is very difficult for providers to do; it takes a long time, imposes a different listening culture and the providers don’t give up control easily. In addition, there must be clear accountability in place to hold the client responsible for the resources provided and accountable for the provider’s profitability.
Another way for providers to deal with this situation is to eliminate the central innovation center and start innovating out in the clients’ locations. In this model, the provider is positioned much closer to reality, listening to and responding to client needs and extending that into innovation efforts rather than making big bets from a centralized position.
This model requires having more of the provider’s people at the client’s site. And they must be empowered to make decisions about where to invest, make pricing decisions and make quality decisions, rather than going back to the factory head and solutioning decisions. So it’s much easier for the client to do business with the provider, and the provider can react quickly and flexibly to client needs.
Our observation is that providers that adopt this approach and place empowered account teams at the client’s location not only eliminate the resentment of clients but also have the added benefit of rapid growth. Where services are structured so that the account team must go back to the central factory for solutioning decisions and permissions, the provider will struggle to grow.