The US service sector continues to show steady if moderate revenue growth while other sectors of the economy remain relatively flat. Of course, it depends on how you measure growth and what you measure it against – some economists say growth is actually shrinking when they compare the it to other historical periods. But notice that interesting difference in how these two analysts look at change – revenue growth (bottom line) versus expansion in business activity and new orders (top line). It is more than a difference between the glass “half-full” or “half-empty.” If service companies are making more revenue on less business activity and orders, they are doing something better and different. They are making more money on less total income… Is there something they are doing we’re not?

Is Software the “Secret Sauce” of Service Companies Offerings?

Service Companies

You’re probably aware of the somewhat worn argument that Software as a Service (SaaS) companies are really just software companies. Afterall, most don’t have any service staff, boots-on-the-ground, like real professional services. They innovate new offerings in software, sometimes without ever hearing a single request from a client.  Sure, many have used the Lean Startup Methodology and many will continue to use Lean Product Development long after they have pasted their“startup” stage. But – does their methodology-driven customer interaction actually put them in a same class as a clinic providing medical services? Or the accounting firm, managing billing and books for that same medical clinic?  Or the technical services that manage the sophisticated medical equipment in that clinic and many others across a region? Perhaps not, but – does the clinic handle patient records, appointments, doctor schedules, service records, and supply replenishment in paper ledgers? Does the accounting firm process insurance billing for the clinic against paper records of services provided (You’ve seen coded medical service listings from one procedure right? Think pages of entries…)? Does the technical service team manage 100’s of pieces of critical medical equipment across a territory that might span several states with a trained technical crew, spare parts and regular maintenance schedules using clipboards and hand-written logbooks?

Ah… No. And that is just one, simple vertical example in an industry that spans 1oo’s if not 1000’s.

Increasingly, no matter how you define it – services depend on software and service companies are becoming at least software-driven organizations, if not actual software companies whose revenues depend primarily on the reliable custom applications that embody their core business models. Take that poster child of the new economy – Uber. On the surface, they are a very competitive taxi service that is disrupting their industry. But what do they actually own and do? They don’t own their cars. Their drivers are contractors, not employees (at least for the moment). Their software runs on cloud computing provided by Amazon. Their driver and passenger mapping is handed by Google Maps APIs. Their cell phone text-messaging runs on Twilio, and their email service for receipts and service records is handed by SendGrid. Their payments are handled by Braintree. So, instead of focusing on the mundane services of scheduling drivers, routing taxi’s to customers and managing payments, their service group can focus on customer experience, optimizing pricing and innovating new services and applications that could eventually eliminate at least some of their drivers. Uber has shed everything that is “non-essential” and “non-core” and that couldn’t be handled by another service better and cheaper – so they could focus like a laser on the issues that are important to customers – service when they need it, at their fingertips on their mobile phones – from summoning a car, providing their destination, payment and service feedback.

For traditional service providers in the taxi industry, and now sectors of the cargo delivery industry, Uber’s deliberate, continuous innovation has been unnerving. But for the service industry in general, it should be a very important lesson. There should be no question software is driving disruption in the service industry. It is increasing both service satisfaction with customers (stickiness) and bottom-line revenue for the service providers that leverage it wisely. Not just in a few, isolated cases of well-funded competitors – across all services large and small.

Change is Hard!

What we’re discussing is nothing less than “digital transformation” (DX) and if it is looked at as one big, “boil-the-oceans” project it is a scary proposition for any service organization, large or niche, new or well-established. Thinking of the Uber example – even with advanced knowledge of what was coming after them, could traditional taxi companies change fast enough to avoid being run over by this new threat? How different are they today from the cab companies of 10, 20, or 30 years ago? Nevermind the transition from paper maps and memorized street grids to cellphone apps. How much have their core services really changed over the decades? Are they agile enough to make up the ground between them and the new software driven-services like Uber and Lyft? It is a difficult proposition for them to consider.

Change is never easy. Credit: OakleyOriginals

Digital transformation isn’t just an exercise of simply tacking applications onto your existing services. It is a great opportunity, if it makes your business able to be more of a Lean and agile organization; able to innovate incrementally and continuously in the face of the competition. Instead of trying to solve every problem in one big, never-ending project – agile tells us to innovate incrementally, realizing return-on-investment (ROI) for every increment we complete and to adjust our focus in area where our outcomes do not reach their goals. The ROI is realized sooner and positive change builds on itself, leveraging positive change and bringing the organization along with it. And taking the Uber example, it means reconsidering what is really core to your business, the services your customers actually “have-to-have” and the new services they would need if you could deliver them. It probably isn’t something you know right off the top of your head. It means testing changes and validating ideas with actual, paying customers. It takes time and effort. But – you have to start somewhere if you are going to remain ahead of others in your field, who are already considering many of the same issues.

But Today, Change is Absolutely Necessary

There has never been more evidence that software-driven, agile services are the leaders of the industry. If this thought is already on your mind; on your list of things to work on – where are you starting? If you are not primarily a digitally-based organization, how will you make the transition? Is that really what you want to do if your services themselves are knowledge-driven (like those doctors in our example of a medical clinic) rather than digital? Again, focus on your core is an important mantra in planning your digital transformation.

So there we are – at cross-roads in the problem. If you are a not a digitally-based service organization, if you understand the idea of shedding parts of your business that are non-core; how do you make the transition without adding another whole arm of your business to develop software and implement the new tools and innovations you really need? It is a lot to take on but the reality is, it is a movement that cannot be ignored. And, as service companies who have navigated (and continue the effort) the change, it is a problem organizations should take on incrementally, evolving as they go. Going back to “focus on your core,” what do you need to take control of to maintain your business position and what parts of the transition can you manage while a partner provides their expertise to the work? Making that decision is a critical turning point in the discussion.

Refuse to Fail

Every business that is successful in the competitive, global marketplace of today’s world, knows this mantra. Recognizing strategic advantage and making the changes necessary to take advantage of opportunities is a key skill of agile organizations. Scio Consulting wants you to succeed. Developing software and managing IT for service companies is our core market.  To help you make the jump, we’ve pulled together the concepts, tips, best practices and inspiration that have driven the transformation of service businesses (many of whom are our clients) into an exclusive 4-part series, “Refuse to Fail” and the first, free installment is available for you to download now. If you would like to take advantage of this informative series please join us by signing up here. We would really like you to be a part of this critical, competitive movement.