The Risks and Benefits of Selling Solutions

Selling solutions instead of products can do a lot of good for a company.

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In this Nov. 18, 2010 file photo, a magnifying glass is used to illustrate an excerpt from the Top Internet Service Google Maps.

If a process to reach a desired goal is relatively complex, then any simplification to the process provides value. In "Highlights from Group Commerce's First Annual #ThinkCommerce Summit," Lisa quoted Clear Channel Chief Executive Officer Robert Pittman, who said, "The consumer is always concerned with brand and convenience, even over quality. Those issues don't change." People left the conventional oven for the microwave; the landline for the mobile phone.

Consumers willingly pay for tools to make their lives easier. Simplification is a value. Firms are responding by not only providing tools to simplify processes, they aim to provide complete solutions, to eliminate the process altogether. In doing so, firms assume the risk of the process and collect a premium for their services.

Bestselling author and Tuck School of Business professor Sydney Finkelstein points out:

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The solution v. tool debate is analogous to whether you want to 'solve a customer's problem' or you want to sell them the 'best product' directed toward that problem. … Take IBM. Rather than sell technology, they sell solutions: Combinations of hardware, software, systems and consulting. In this respect, the debate is not a new one.

General Electric has also shifted to selling solutions. Instead of offering only water purification equipment, it now sells treated water by the gallon. The shift is better for the company because when a desalination unit is purchased outright, the customer is responsible for using it properly. Any number of issues can arise and engineers must be available to troubleshoot potential problems.

Alternatively, by internalizing the water treatment process altogether, GE bears the cost of design, operation and troubleshooting. Risk of unit failure is completely removed for the customer, who now only has to pay one price. Effectively, GE can keep the customer focused on what really matters: His need for treated water. And GE can focus on meeting this need or face terms of violating a contract.

United States Military Academy Research Fellow, Stephen Bates says:

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By reducing complexity, we reduce operational risk, and thus create a better experience as articulated in the 1998 HBR Article "Welcome to the Experience Economy" by Joseph Pine and James Gilmore. Customers must consider what premium they are willing to pay to guarantee a certain level of service or capability v. procuring best-of-breed product(s).

Additionally, these shifts from selling products to delivering services or capability also affect two financial statements. No longer do firms need to amortize depreciating assets on their balance sheets. Rather, such services are considered operating expenses on the income statement, and lead to greater transparencies on valuations.

The problem is that it's not easy to convince customers to focus on the end goal, especially those who deeply involve themselves in the process of reaching the goal. Customers do not always see their risks disappear. In fact, sometimes they see this shift in arrangement as taking on more risk.

We do not like to give up control. The idea of being out of control is frightening and when we think of it as such, we tend to choose what we know -- the familiar status quo. However, when a game-changing solution presents itself, early adopters and trendsetters gladly let go of their control without even realizing it.

Scott used to drive with maps of New England, the Mid-Atlantics and the Midwest to get from his home in Maine to his college in Michigan. He would study the route before getting in the car, and again at each break in the trip to ensure he knew what to expect. Today, Scott gets in his car, types in the address and lets Google do the rest. Google controls his every turn, every ETA revision and even re-routes him when he makes a wrong turn. He places significant trust in Google Maps to get him to his destination.

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Great. Until the iOs 6 update, which wiped out Google Maps in Scott's iPhone and replaced it with Apple Maps.He learned quickly just how much control he had given up, finding himself misled and lost instead of safe, happy and on-time.

Scott has since reinvested his trust in Google's ability to deliver the solution it promises: Reliable navigation with minimal effort. If Google started sending him to dead-end New Hampshire dirt roads like Apple Maps did, he'd pick up his map and compass in a heartbeat.

During a GE leadership conference this summer, Scott asked Chairman Jeff Immelt how the company should think about developing and marketing solutions. Immelt answered that management needs to rely on domain expertise, pointing out that customers are much more willing to trust GE with a gas turbine rather than something less familiar.

Additionally, selecting the right kind of customer is crucial since the entire market may not be ready. Immelt commented, "Our sophisticated customers are ready for this kind of solution. We need to get better at determining the right customers to move forward with in this area."

Beyond following Immelt's guidance to offer the right solution for the right customer, it is critical for the company to make good on its promises. As demonstrated by the Apple Maps incident, GE must ensure absolute customer confidence in its ability to deliver. And Apple should double check any plans to send updates to our Google self-driving car in 10 years.

Scott Keenan is a second-year MBA student at the Tuck School of Business at Dartmouth College. After graduating Tuck in 2014, Scott will work as a consultant for the Boston Consulting Group in Washington D.C.

Lisa Chau is the founder of Alpha Vert, a private consultancy focused on social media and cross–platform marketing. Previously, she spent five years working for her alma mater Dartmouth College, as assistant director of alumni affairs and assistant director of PR for the Tuck School of Business. She has also taught at MIT, and guest lectured MBA and undergraduate courses in e-business strategy at Baruch College and The New School.

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