SS

The third problem is ‘value capture’. Plan s are not well suited to provide the ongoing insight needed to maintain a value capture capability . Value capture is that portion of value creation that a provider gets to keep. While strategy is hard, the underlying logic is simple: there are only two ways one service provider can outperform another – either get customers to pay more for a service or provide the service at a lower cost . To accomplish either requires being different – how else to justify charging more or using fewer resource s? So while a service provider may create value through distinctiveness, it may not be able to keep any of it. Moreover, the conditions for capturing value do not last indefinitely. Take the case of a labour arbitrage strategy: service providers decrease labour costs by making use of less expensive off-shore personnel. Early adopters made great gains because, for a while, the services they offered were priced lower than any competing alternative. But as more and more service providers made use of off-shore resources, the cost of services was lowered for everyone. This was great for customers but bad for providers – this distinctiveness dissipated. Value was created for customers but service providers were not able to keep any of it.

Strategic failure is often linked to contradictory issues like these. For an IT executive to be a strategist means not just holding opposing views but having the ability to synthesize them. They include the ability to react and predict, adapt and plan. In fact, high performing service providers are skilled in blending frames of reference when crafting service strategy.

Service providers must meet objective s defined in terms of their customers’ business outcomes while subject to a system of constraints. By understanding the trade-offs involved in its strategic choices, such as services to offer or markets to serve, an organization can better serve customers and outperform its competitors. The goal of a service strategy can be summed up as superior performance versus competing alternatives .

A high-performance service strategy, therefore, is one that enables a service provider to consistently outperform competing alternatives over time, across business cycles, industry disruptions and changes in leadership. It comprises both the ability to succeed today and positioning for the future.

What distinguishes high-performing service providers is the manner in which they construct and maintain superior performance . While many providers compete on the basis of a single point of differentiation, the competitive essence is almost always achieved through the balance, alignment and renewal of three building blocks: market focus and position, distinctive capabilities and performance anatomy (Figure 3.24).

Service providers seeking to improve are most apt to encounter problems when they favour one building block to the exclusion of the others. For example, an external provider (Type III) may overemphasize the importance of scale – an over-reliance on advantage through market focus and position at the expense of distinctive capabilities. In other words, why does scale matter to the customer? Or a shared services (Type II) provider may overemphasize the importance of low cost – an over-reliance on advantage through distinctive capabilities at the expense of performance anatomy . That is, an inability to execute despite the cost advantage.

Service provider s are also at risk when they fail to refresh and renew the building blocks – for example, by continuing to rely on capabilities that are no longer distinctive, or by resting on the laurels of a once successful strategy long after it has lost its relevance. For example, an internal provider (Type I) may continue to rely on customer know-how while its customer seeks lower cost structures. High-performance service providers continually balance, align and renew the building blocks.

Figure 3.24 Building blocks of a high performance service strategy (based on Accenture research and analysis)

The three building blocks of high performance service providers:

Market focus and position – The spotlight is on optimal scale within a market space . A market space is defined by a set of outcomes that customers desire, which can be supported through one or more services. This is the ‘where and how to compete’ aspects of a service strategy . High-performance service providers – even Type I and II providers – have remarkable clarity when it comes to setting this strategic direction. They understand the dynamics of their market space, and the customers within, better than their competing alternatives, and manage through appropriate strategies. Such strategies allow the provider to build and manage valuable Service Portfolio s, achieve optimal scale, exploit positioning advantages in the value network , and identify and possibly enter alternative market spaces or serve new customers.

Distinctive capabilities – The spotlight is on creating and exploiting a set of distinctive, hard-to-replicate capabilities that deliver a promised customer experience. This is about understanding the critical interplay between resource s, capabilities, value creation and value capture. To create value, a service provider develops a formula for doing business that successfully translates a big idea regarding customer needs into a distinctive and cost-effective set of connected capabilities and resources to satisfy those needs.19 This ability is sometimes referred to as ‘differentiation on the outside and simplification on the inside’.

To be a high-performance service provider, be clear about what capabilities really contribute to enhancing customer outcomes. Understand the need to build distinctive capabilities that are demonstrably better and, in the short term, difficult to replicate by competing alternatives. This includes mastering technical capabilities and excelling at innovation, as well as lower cost structures and customer know-how. Take for example, the Type I service provider who, after years of outsourcing , decided to in-source its application -hosting services. By incorporating virtualization and dynamic provisioning technologies, the provider created speed and cost structures no outsourcer could match – precisely the same distinctive capabilities that prompted the provider to outsource in the first place.

Performance anatomy – The spotlight is on creating cultural and organizational characteristics that move service providers toward their goal of out-executing competing alternatives. Performance anatomy comprises a set of organizational world views that are measurable and actionable by organizational leadership. Example views include:

 Service s are a strategic asset

 Workforce productivity is a key execution differentiator

 Performance measurement is highly selective in its focus and metric s

 Continual improvement and renewal are real and permanent necessities.

3.5.1.1 Government and non-profit organizations

Government and non-profit organizations appear to operate in environment s unaffected by the pressures of competition and markets. The ethics of social-sector services are about helping people, not beating them. But strategic competition is not at odds with a social-sector’s sense of mission. Government and non-profit organizations must also operate under limited and constrained resource s and capabilities. Stakeholder s and customers demand as much social return as possible for money invested. Eventually, these constituents will consider competing alternatives.