Solution Ratio Model - Proportioning Product And Services Against Time And Complexity
This article explores the ratio of business/op model weighting of services and products, against where they are across complexity states and time, to help you consider your operating model formation.
I’m regularly engaged in advisory support, helping and exploring companies small and large, understand their product strategy, portfolio and operating models. Through these explorations, I have noticed a common pattern surfacing around stimulating thought around the complexity of a market and customer environment, the state of operations and current vs future ratio of products and services. I created a mental model which I call a Solution Ratio Model to anchor the challenge for thought. This has helped me explore where to productise a solution, and determine the role and breadth of supporting services. Over time a business can alter or evolve the ratio as technology, market conditions and customer behaviours evolve.
To provide some examples where I have used this :
1. Where a customer is looking to develop a product operating-model in a complex space who wants to drive repeatable business, and doesn’t know if and where supporting services have a role across different time horizons.
2.When helping services/research business which has a high operational cost model based on people, encounters minimal repeatability, but were/are exploring how to become more product-like to gain solution re-use and improved ROI.
The structure of the model illustrates a comparison between the complexity of a challenge/problem/need (size, variables, unknowns, complexity of configurations etc), against the development effort (time, resources, energy to build a solution). It infers that development cost is higher the more complex the problem, and rate of increase exponentially increases. This is helpful to emphasise and surface potential diminishing returns and higher levels of risk.
Explaining The Solution Ratio Model
a. Self Service (Simple Tactical Solutions)
In this space, the problem/need is not that challenging to solve, the space is well known, and the solution can be solved relatively quick and cheap. Businesses which thrive here are closer to commodities and reap the benefits of mass production, small margins, or have marketing models at scale utilising established platforms. There are many ways to solve the problem, many tools and products available at your disposal to do so. Also there is a dimension in this space where the customer can-self serve and self-solve the problem.
This space highlights an area of the market and customer behaviour which is well known, typically more mature, has lower barriers to entry and importantly product led with minimal to no services.
Examples : Photo apps, excel templates, email clients/services, phone cases, publishing etc.
b. Product
In this space the problem/need is complex enough that customers don’t want to invest the time, or have the skills to solve the problem themselves and are actively and regularly seeking solutions. These needs are repeatable across a substantial population cohort, and often or not worth building scalable products for as there is market appeal. This is where the majority or mass products sit that we use everyday in our lives.
In this area, a products can be created and distributed to customers with little or no services support. Yes instructions and training support can be provided, but in general you don’t have to be a specialist to access the product, configure it and put it to use.
If you were to reference this model with a product lifecycle, for most businesses this could be the spot at the top of the curve, where you can reach a broader TAM and have scalability.
Examples: Smartphones, televisions, clothing, whitegoods, hotel booking platforms, smart home devices, games etc.
c. Products & Services
In this category, the solution and problem is more complex. There are products serving and solving much of the customer needs, but due to the complexity the product needs to be supported by training or professional services to integrate, train, support or setup. Products in this space have integrated or created configurable options which may need increased knowledge or some level of speciality to support and setup. Without the latter, the customer will not be able to succeed or at least succeed without challenges to setup and support.
In this space, your operating model and customer success model may measure Time To Value as a metrics, and it’s advisable to have increased levels of installation and support skills. You require your customers to skill up to some degree in order to engage your product and maximise value. You will typically have a combination of products and supporting services to enable and support the customer. This is the space for core and adjacent innovation.
It’s likely over time that the ratio of products to services favours products, where services are utilised to solve the novel and challenging edges where there are more variables to handle. This is inevitable as unknowns become knowns.
Examples : Salesforce/Oracle, Cloud services, Photoshop, Professional Services
d. Bespoke Development/Services
This category is highly complex and requires SME’s and highly skilled people to develop a solution. The solution might also be highly customised and unique to a customer. This category has many unknows which need to be explored and discovered, and customer solutions and implementations are required.
To develop solutions in this space, is higher risk and more expensive as the barriers to entry can be higher, or the limited pool of skills demand higher rates against higher risk of return. However that said, there is likely a higher yield per-customer. You will likely need to employ researchers, designers and architects to create foundational aspects to your solution. These can/will inherit and pull from sub-solutions in the market, but their combined solution will be unique. This is the space for transformational innovation.
Examples : Developing new product categories, Professional Services, R&D, Bleeding Edge Technologies etc.
Shifting from Services to Product
In many cases new businesses will start in higher categories to exploit new technologies and opportunities. When solving net new challenges, a company should expect to have more fluidity on skills, and more flexibility on ratios of products to services. As products emerge and mature, 2 things will happen:
1. Repeatable patterns will surface and tools and solutions will be developed to solve the problems/needs. As these refine they stabilise and extend their application and this evolves the solution down to the bottom left, from the top left of the diagram.
2. Companies with higher ratios of services, will start to observe more patterns for scalability and repeatability. At this point services will be vertically segmented into products, and will move the solution left and down the model.
In both these cases, it’s not inevitable that all solutions will move from d to a in the model, market conditions, customer patterns and environmental conditions may keep products with a shared services/product model. But in the majority of cases this will happen, or at the very least the ratio which shift to more productisation and a smaller ratio of services. For example, observing the evolution of cloud computing, compute and storage was once restricted to highly skilled engineers, but nowadays through products such as DropBox, iCloud and more, this has reduced the barriers to entry and become more accessible.
I hope you find value in this post, and it would be appreciated to get feedback if you have applied any of this in your work or similar models. There are many models to frame these challenges, this is just something that’s helped me recently that I wanted to share. I welcome any comments or feedback.