GE Medical Systems (now GE Healthcare), under pressure from the government, and managed health care organisations, created Performance Solutions in 2001 to sell integrated consulting services that were packaged with imaging equipment. These solutions Silo Entertainment were priced high and intended to increase productivity, such as reducing patient backlogs. Many companies made the transition from selling products to offering solutions to stand out in increasingly competitive markets.
The plan of GE seemed to work at first. Performance Solutions enjoyed strong revenues in the beginning, partly because new contracts often included additional consulting services worth $25,000 to $50,000. The unit also had notable successes. It was able to help Stanford University Medical Center make the switch to all-digital imaging at its adult and children’s hospitals, as well as an outpatient facility. These moves resulted in millions of dollars in new revenue and significant cost savings.
However, the unit’s rapid growth began to slow down by 2005. The problem was that equipment salespeople struggled to explain the value of consulting services and so they were unable to help customers sell additional services. These reps also refused to let Performance Solutions salespeople contact customers. GE combined its consulting services and product portfolio to market the unit’s solutions. This allowed GE to create solutions that were both useful for customers whose problems could be easily solved by GE’s equipment, but less compelling for those whose requirements were only partially related to imaging products.
GE restructured the unit in order to address customer needs more effectively and better align sales organisations Silo Entertainment. The majority of solutions are now focused on consulting services, and not marketed with GE equipment. In 2006, the solutions group won new contracts worth more than $500,000,000. The company fell into a trap when it tried to avoid the dangers of commoditization. It was trying to solve customer problems, but instead of looking at them from the perspective of the customer, it was focusing on its products. In the hope that customers would appreciate the whole, it was putting together all of the products available.
I have been studying the challenges of top-and bottom-line growth in the context of commoditization for five years. I have discovered that many companies make the exact same mistakes. They believe it is important to shift from products to solutions. In fact, a survey I conducted several years ago found that more than two-thirds (or more) of senior executives cited this shift in their strategic priorities for the next decade. Their knowledge and expertise is held in organisational Silo Entertainment. They have difficulty leveraging their resources within those boundaries to provide value for customers and a service they are willing and able to pay for.
There have been some notable exceptions: Companies like GE that found ways to break down silos to meet customer needs are a few of the most noteworthy. In the late 1990s, Best Buy was almost saturated in the market by the opening of new stores and was now facing increased competition from Wal-Mart and suppliers like Dell. Although it tried various marketing strategies to stimulate growth, the company didn’t succeed until it launched a major restructuring initiative that focused on customer solutions. Best Buy’s stock prices grew by almost 30% annually between 2000 and 2005.
Jones Lang LaSalle, a commercial real estate provider, made a similar strategic shift when it was faced with serious price competition in 2001. Large customers started demanding integrated real-estate services. Corporate customers demanded the same people who built or found property to manage it. JLL responded by adopting a solution-oriented structure which helped to attract many large, highly profitable accounts.
The journey to understand customer needs and unite them was a long-term one for JLL, Best Buy, GE Healthcare and JLL. There were many setbacks and challenges along the way. To help organizations overcome existing geographic or product-based silos and to make them customer-oriented, it required continuous, systematic change. Particularly, I discovered that successful companies engage in four types of activities.
Coordination of Silo Entertainment.
Establishing processes and structures that enable employees to better focus on customers by harmonizing activities and information across units.
Encouragement of employees in all areas of the company through cultural and incentive means as well as the allocation of power to work together for the benefit of customers.
Development of Capability Silo Entertainment.
Assuring sufficient people within the company have the skills and knowledge to provide customer-focused solutions. Creating a career path for those employees.
Starbucks’s relationship-building capability has enabled the company to grow far faster than it could have on its own. Starbucks has managed to increase its market share by selling coffee and a coffeehouse experience. This is due to the fact that almost every fast-food chain sells premium coffee and Target stocks a variety of affordable coffee-makers.
These relationships can strengthen each other: When one company reduces its operations to save costs, it seeks partners to take over formerly in-house tasks. Suppliers must also expand their horizons by expanding their offerings and finding partners to assist them. Even though IBM has taken over Silo Entertainment large back-office operations, it has reduced its core operations by outsourcing activities such as repair and manufacturing to contractors like Solectron. Solectron has also acquired an IBM repair center located in the Netherlands. This allows IBM to condense even more.