It’s interesting to talk with leaders from companies along the continuum of innovating around service and to reflect on the wide range of progress and approach. Some, in the earlier stages, are working to determine how to bring service into the forefront their businesses – they may be struggling with alignment on the value and potential service truly brings and focused on things like increasing contract attach rates or expanding aftermarket revenue. Others, more mature in service innovation, have not only found ways to innovate within their service offerings and delivery, but to transform the business model of service – introducing outcomes-based or as-a-Service offerings.

Regardless of where one lies on this continuum, there’s a shared reality – forward progress can’t be made without taking some risk. There’s always risk in trying something new; in doing something different. When it comes to service innovation, there’s an argument to be made that the more risk you are willing to take, the greater the opportunity for reward. This is evidenced by companies that have taken the leap to evolve the service business model significantly and are reaping the rewards.

How much risk a company takes depends on a variety of factors, including the capacity and ambition for change, alignment on the vision for service, and the willingness to adopt a new business model. Progress also necessitates a company and its leaders take an honest, realistic view of where they are currently and what the potential is. Often, I talk with leaders who would identify as further along this innovation continuum than they truly are; they are finding new ways to sell the existing value proposition versus creating any new value or fundamentally changing the customer relationship – but perceive themselves as having truly transformed.

While there isn’t anything inherently wrong with a more incremental than disruptive approach, it’s important to be able to accurately assess your current state in order to envision the full potential for your future. Only from that view can you determine how much risk you’re willing to take to innovate further.

The Initial Leap

Reflecting on this topic calls to mind some of the wisdom I’ve gathered from leaders in businesses who have embraced the discomfort of risk in order to see what opportunity lies beyond the status quo. The first of those is Dave Mackerness, Director at Kaer, a Singapore-based business that transitioned to a Cooling-as-a-Service model. “There was no one we could look to, to understand is this going to be successful or not. So, we did all of our legacy work that we had done for 70 years in cooling and then we added this as a service and got a few customers on board. Throughout year five we actually did all of our legacy business products and the As-a-Service offering as well and then looked NPS, which was much higher for our Cooling-as-a-Service customers,” he says.

With this data in hand, along with data to support the impact on sustainability this model had, Kaer decided to go all-in on its Cooling-as-a-Service offering and stop its legacy business. “When you're talking about an As-a-Service businesses, it's different investment of dollars and providers then get nervous around ROI. The problem is you cannot look at it this way. You have to understand your business risk and your customers’ risk and you cannot mitigate your own risk by putting on your customers contract clauses and penalties that you bake into the business model or essentially tying them down into things or locking them into things to secure your revenue,” Dave explains. “Those two things really kill the business model. When Netflix came around they said to me ‘Dave, give me 10 dollars a month I'll give you all you want,’ and I said ‘I'll do it, 10 bucks a month.’ If they had said to me ‘Dave, it's 10 bucks a month but, you have to sign a 10 year contract and you have to pay me in advance for the first year and to terminate the contract you have to pay me a penalty of six years’ worth of revenue,’ I would've said ‘No, but thanks very much.’ You have to stay true to the business model. It's not easy, and there is a lot of business risk involved, but you can take it a step at a time, and you can learn from other industries.”

Alec Anderson, Managing Director at Koolmill, a company that has disrupted the rice milling industry not only with its machinery but with offering it As-a-Service, knew risk was essential to his endeavor. “The risk is there; there's always risk. Things will go wrong. The question is how do you deal with that risk? It’s important to focus on value creation. How can you create value? How can you capture a share of that value? And if that means redesigning the machine so that they can have a longer life with more service, and I think the world is moving away from the disposable, buy it, scrap it, get another one. If you can design machinery that has a longer life, and it can be upgraded through its life, I think there's great value there,” says Alec. “We work in a very, very conservative industry, and I would say our challenge right now is not a technical challenge. It's really a culture or mindset. It's changing the perceptions and how people think.”

Alastair Winner, Partner and Co-Founder at Mossrake Group, has a history of working within companies that have introduced new service business models and, in his current role, works with businesses looking to do the same. On this concept of risk, he says, “When you sell a customer a product, the accountability and the risk for the value that product creates immediately transfers to the customer. In this model, there is an onus on the service provider to deliver that value. This means they're likely to have to make some sort of upfront investment in technology and they're going to have to think about putting capacity ahead of demand, especially if they're able to provide some level of flexibility to the customer. So the customer is not making an upfront investment, but the service provider is. That's a risk,” he explains.

“Then they've got to think about all of the lifecycle activities to sustain the service and deliver the outcome over the contractual period, which could be up to 10 years. When you think about all of the updates and changes and recalibrations and replacements that have to go on over that period, you've really got to be thinking about what does that look like and costing it accordingly,” says Alastair. “The benefits for the service provider are they get a long-term annuity stream with almost certainly a higher rate of return. Over that contractual period, they're going to get service on everything over a very long time and they're going to end up with a very loyal customer.”

You can listen to each of these interviews in their entirety to gain additional perspective from Dave, Alec, and Alastair and each of their journeys. How much risk has your organization taken, and how has it paid off? I’d love to hear from you!