Aspiring business servicers have much to learn from construction markets.

Irrespective of market volatility in construction and trades, the trend towards combined services in construction is unmistakable. Businesses aspiring to sell services can learn a lot from it.

The trend is so clear that the American Institute of Architects (AIA) has had to devise dozens of new names to reflect new types of companies that play in construction, just in the last decade. Consider now-common acronyms DBO (design-build-operate), DBOM (design-build-operate-maintain), BOT (build-operate-transfer), and the richly complex DBBw/CM (design-bid-build with construction management). AIA’s working definitions for project delivery were rewritten in 2004 and again in 2007 to stay in step with new ways of getting construction work done. Moreover, given that as much as half of today’s ongoing construction work contains some sort of combined services, economic facts show that the old ways of building are just that: old ways.

Such is the fluidity of a true services business: it’s slippery like a fresh watermelon seed between the thumb and forefinger. And sometimes it can be hard to hold down.

Service businesses often zip in and out of markets and roles quickly, often seamlessly and sometimes very well. A marketing agency, for example, can jump from layout for print, to web, to search engine optimization to lead generation in a blink. It’s why a maker of industrial process equipment like Rockwell Automation can at the same time offer software programming, and automation systems and design, and claim to be in energy consulting. An energy service contractor (ESCO) can seem to jump from audits to upgrades to financing to outsourcing in an instant.

But making a long term commitment to winning in services is more than just being able to offer many things. It starts with a cogent vision that stitches together things that matter now into something better to realize both scale and greater value delivery. When this happens, then the service company begins to matter in much larger ways. The process is about true innovation, but unlike product innovation, service innovation seems to start and never end, it happens quickly, even on-the-fly, and it seems to go in many directions all at once. And it’s not as simple as finding a so-called core competency and building out. It’s better thought of as understanding a complete process, its sequence and steps, and how they are related, and then making it better by reshuffling and linking and unlinking steps when it makes sense.

For example, when a company in construction starts from either the design, build or operate principle and successfully adds other work in the sequence to its offer, it is because both the company and its customers agree that the act of combining those principles has benefits, either in lower costs, increased speed, lower risk or better quality or many or all the above. The fact is, good services companies (measured on growth and profits) are good partly because they understand both the costs and risks of specialization and the core skills and value of the specialists, and they manage and deliver both effectively and it leads them to new opportunity.

For example, lets look at IBM’s now famously successful transformation from a computer hardware manufacture to a global IT services company.

IBM’s financials and its merger and acquisition history over fifteen years shows a deliberate shift to services. But how much was from buying in and how much was from weaving a new quilt?

IBM embarked on a series of coordinated and catalyzing events: the shedding of production businesses alongside the purchase of discrete service businesses. At the same time, there is evidence that they worked hard to stitch them together to offer something more. The effort was executed, undoubtedly, by co-mingled teams tasked with getting the most out of the bought service assets. For example, while they sold equipment brands like Lexmark and Thinkpad, they bought software and database technologies and experts in companies in CMS, ERP, and records management. And then they stitched together CMS, ERP and records management technologies into an offer of software and expertise that can talk and act as if one. Customers agreed, but pushed the idea one step further, selecting IBM not just for a software technology or tool, but as a team of well-rounded experts that could connect discrete systems or focus on a specific challenge. So lately, IBM’s focus has been on breaking down its big company culture into smaller, more effective entrepreneurial bits.

IBM has been deliberate -- staying the course during the transition, losing money for a time on services, and then adapting. Theirs was a massive task: morphing a balance sheet heavy on production operations to one heavy with top talent. Consider that with ThinkPad, they profited from economies of scale, but with the “smart city” they profit from economies of skill.

Many companies don’t have the luxury of reinvesting as long as IBM did. Can investor impatience or smaller R&D budgets be offset if a company aspires to grow in services but doesn’t have the luxury of time?

For this, it’s important to look again at the construction market where finite, even shrinking demand, and finite talent even today, reveal that the best services companies are best defined not just as the most comprehensive, but as the most agile. They are able to play when and where there is demand. Indeed, the acronyms DBO and DBBw/CM are best seen as a way of describing the agility that is required to succeed in a service business. Instead of stumbling into agility as with IBM, these firms sometimes build it into their model.

Said one construction contractor that we interviewed last month: “When we listen, we hear customers demanding more and getting better overall value every day. If we don’t offer design, we can’t promise a better construction event. If we don’t offer operations, we can’t promise that the product will perform as well or as long as the customer desires. If our design and operations offers aren’t better than the market, we’re not a build contractor anymore. At the same time that it’s all linked, we have to be able to prove that any one element can stand alone at any time. We call it ‘smart services’ Again, it starts with listening. That tells us what, when, where and why. Then every project can be tailor made.”

Taking a lesson from a market in transition, businesses that aspire to sell services should consider that:

1.) The service portfolio matters. It doesn’t add value to attempt to link tasks that aren’t related, but there may be much to be gained when related tasks are linked. It would be like IBM trying to bundle plumbing with database design. The teams couldn’t talk, the training wouldn’t apply, and the customers would be confused. But all-things IT sounds cogent; both operationally and to the customer. It’s a good starting point for a long conversation and relationship.

2.) Bundling for the sake of it doesn’t add value. Knowing when, why and where to integrate services is how value is created, and being able to explain how and why is the key to service growth. For example, modern integrated construction companies show their customers why their design offer augments their build offer, and why together they sum to make them better candidate to provide the services to operate. At the same time, they might simply offer a better design.

3.) Trust, reputation and listening are critical. The decision to buy services of any kind requires a leap of faith. It can seem riskier as the project and the service content grows. How will you show your customer that your integrated and your discrete offers are better? How will you create transparency to support that promise? (Leaders do it with open forums and open information systems, but that is for another article.)

4.) Service integration should always leverage finite resources. If this doesn’t happen, then the effort to combine them is waste too. Said another way, the underlying rationale for service integration should always be to meet goals precisely with a perfect allocation of resources. It’s not just a response to market volatility, it’s a better way of doing business.

---

Download this blog in PDF.