Over the past few decades, business-to-business (B2B) companies have been facing intensifying pressure to make a change in their offering, shifting from a traditional focus on products and components (with the possible addition of services such as guarantees and assistance) to solutions. This new solution-centric focus translates into hybrid offerings integrated with products and services co-designed by suppliers and customers. Spurred on by inspiring success stories of solutions strategies embraced by big players such as IBM, Rolls Royce, and Xerox, many companies have started realizing that there is enormous potential inherent to business models based on solutions development. And they’ve begun the process of reconfiguring their supply chain relationships.
Yet along with various strategic efforts culminating in market success, a number of players have come up against a number of challenges in deploying solutions-based business models instead. Ultimately, they’ve turned to strategic revision paths which they called ‘deservitization,’ with the aim of moving the company back toward more traditional business models linked to physical products and/or components. In light of all this, one of the aspects that business marketing studies have concentrated on recently is understanding what factors can facilitate/obstruct the development of sustainable, solution-centric business models.
Initially, this research centered on the role of company resources. In fact, a number of studies attempted to demonstrate that companies which are successful in solutions development have a different stock of skills and resources compared to companies involved in less lucrative initiatives. However, it quickly became apparent that skills alone could not clearly differentiate between success and failure in solutions development, because even companies with abundant assets and competencies weren’t able to build sustainable models. Essentially, resources are a necessary – but not sufficient – ingredient for implementing solutions-based strategies.
The main explanation here is that a solutions-based strategy is a highly relational one that can only be rolled out over the medium to long term. This means it’s not so much which resources a company has on hand or how many there are, but rather if and how they are put to use to realize the strategy in question. In other words, for business models based on relationships to work, the supplier and the customer must be constantly aligned on objectives and incentives that lead them to engage in a collaborative way to realize the potentialities of the solutions. Without this constant, demanding work of governance, even if companies might have the potential to successfully develop a collaborative, solutions-based business model, they would rather continue to behave in such a way as to maximize their own interests instead. This renders the strategic solutions-based trajectory ineffective, and the ensuring risk is that the company will quickly abandon it altogether.
A recent research stream has emerged that explores the role of relational determinants of success in strategies linked to solutions. I recently contributed to this very stream with a study that identifies the principal relational tensions that afflict companies that intend to embark on a solutions-based business path, and the possible governance mechanisms that must be introduced to ease these tensions, which undermine solutions development.
Specifically, my study underscores the fact that the main problems in the sustainable development of solution-centric models are relational in nature. These involve protecting against opportunistic behaviors by the counterparty, or moves that are advantageous for competitors; and coordinating objectives and sharing knowledge to face uncertainty. The companies that are successful in solutions development clearly identify these relational problems and deal with them by using a combination of governance tools that are both formal (contracts) and informal (solidarity, flexibility). This approach allows them to delimit risks, create a collaborate climate, exchange knowledge effectively, and adapt to unexpected contingencies.
The central role of governance has been taken to the extreme in recent years, as we’ve seen the Covid-19 emergency force companies to continue these complex relationships remotely. This does not always allow for the rich, complex interactions that solutions-based strategies require. In addition, recent global events such as wars, tensions over raw materials, and technological disruptions (see the car manufacturing industry) are further complicating efforts to maintain the delicate relational ‘fabric’ which is fundamental for solutions-based business models.
So, we can sum up current knowledge on the solution-centric phenomenon by saying this: it is a business model with extraordinary potential, but not insignificant relational complexity, which companies must constantly contend with. Change in some scenarios that we are experiencing today may make solutions-based models even more central and strategic, but at the same time more sensitive to less-than-optimal management of relevant aspects of governance.