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Service-led strategy 101
Service-led innovation has been at the heart of how the best organisations innovate for many years.
I’ve written and spoken about service-led strategy before but it’s long overdue a simple explanation and an overview of why it’s the best way to build modern businesses fit for the digital economy.
What is service-led strategy?
Service-led strategy is a modern approach to business strategy that helps companies leave legacy behind to become future-ready – it’s a process of regenerative business innovation.
It can equip established companies of any size, in any sector, with the mindset, tools, processes and services to address current business challenges, uncover and realise untapped potential, and capitalise on new commercial opportunities.
It is a future-focused approach that is progressive, positive and empowering for leaders who want their organisation to become something new.
How does it work?
The basic concept of service-led strategy is very simple: in the digital economy, the longer something remains largely the same the more vulnerable it becomes to disruption and rapid, uncontrollable decline. Successful modern organisations must systematically regenerate themselves, constantly building both new and reimagined services to replace the old.
Service-led strategy enables this process of systematic regeneration. It directly addresses key flaws in conventional strategy models that were designed for a previous era of business by placing emphasis on growth through continuous regeneration.
By focusing on a company’s futurestate, this approach embeds a company-wide language for innovation and adaptation built on purpose, vision and principles. It focuses strategic activities (and investment) on forward-looking initiatives and engages the massive untapped potential of both current team members and future customers.
Why it’s important.
It addresses a series of key underlying issues that businesses face today, including our top six:
Trying to build competitive advantage by defending or sustaining a market position is becoming a more suicidal approach to business every day.
The digital economy has progressively accelerated the pace of change in, and fluidity of, every market segment, everywhere.
New technologies, business models and human behaviours present a constant opportunity for new competition to emerge.
The perception of value in many marketplaces has shifted radically, undermining the viability of many traditional, established business models: customers simply do not value the same things as they did in the past, and future customers will likewise be attracted to new areas of value.
Historic analysis and current operational performance not only have decreasing relevance to future business potential but can be misleading and destructive.
Established companies frequently sit on assets — both tangible and intangible — with untapped, high-value potential that are unrecognised or undervalued.
The principles it’s built on.
Service-led strategy is built on a set of core principles that define why it is a radical departure from traditional business strategy. Again, here’s our top six:
Principle 1: Outside-in.
Organisational change should be driven from the outside-in, with the central operating model adapting constantly to support successful new customer-facing services.
Principle 2: Purpose-led.
Modern organisations need a clearly defined competitive domain — determined by organisational purpose — to define where they have the greatest potential to innovate.
Principle 3: Customer-value-centred.
Customer insight should be at the heart of every new initiative: each innovation must be built on high potential customer value and is taken forward when customer appetite can be proven.
Principle 4: Progressive.
Every strategic initiative is a forward-looking step, focused on opening up new market opportunities with the potential for positive new growth and/or reinvention of legacy services.
Principle 5: Digital-first.
A digital-first approach is essential for every modern innovation initiative, irrespective of how ‘digital’ the initial idea behind it is — because no matter what it is, it will operate in the digital economy.
Principle 6: Tangible.
Digital-age success is driven by tangible innovations; doing new things in-market with services that open up new revenue streams, unlock new markets, attract new customers.
How does it differ from traditional approaches?
Service-led strategy is an almost complete reversal of the traditional top-down approaches, focusing on delivering continuous, market-driven regeneration. There are too many advantages to list here, so here are some of the most important:
It does not attempt to ‘fix’ the current organisation on paper. Instead it focuses on unlocking the organisation’s future potential via innovations that project the company towards its futurestate and away from its legacy. No-one should be digitising their past in the modern world.
It requires minimal initial change to the company’s core operating model since, by definition, those changes should be driven by the success of the new services that will be the outcome of the process.
It negates many of the traditional barriers to strategic change. It not only delivers meaningful results much faster, it costs far less to achieve them and its progressive nature is far less risky to implement: you never bet the farm.
It’s a design-led approach that delivers tangible, practical outputs and real outcomes quickly rather than a set of processes and frameworks that need further work to turn them into something useful.
It builds organisational confidence quickly by removing abstract processes, focusing on visual representations that build common understanding and bring thinking to life quickly.
It scales down the strategy problem. This is a critical factor in why it works so well. Broad, top-down organisational strategy is simply too complex a problem to tackle at once and everything gets too woolly as a result: by the time it comes to fruition (ignoring that it never does) the market has moved on.
It’s inclusive: leaders, staff, customers… all key stakeholders are involved in the process, and, critically, remain so.
It plays to each organisation’s individuality, identifying and building on its strongest assets in the right way for that specific organisation. Service-led strategy is built from the organisation’s purpose, vision and values, and a vision of the futurestate opportunity – not from generic frameworks and operating models.
Most of all, it helps to adapt the organisation’s mindset rapidly but progressively, enabling leaders of change to drive progress faster and more confidently.
I could go on all day, so I’ll stop there.
Who can benefit from it?
Literally any organisation can benefit from a service-led approach: it’s simply an approach to strategy that is designed to help established businesses become strong digital businesses quickly.
It works best when the business has determined that it needs to change as a reaction to adverse performance or because it’s doing well and wants to keep growing.
Pressing needs for change include the need to counter new competitive threats, adapt to regulatory changes, move on from ageing services, or reverse a decline in customer revenue.
Equally, a desire to capitalise on new customer segments, benefit from new technologies, move into new markets, or simply identify new ways to accelerate growth are good reasons at the more opportunistic end of the scale.
Mid-market and smaller companies can use it to really accelerate their growth and, due to their (relatively) simpler operations, can often make progress in transforming the whole company quickly.
In large companies — those notoriously difficult to turn supertankers — scaling down the strategic problem and not trying to solve everything in one go makes it a powerful approach to enabling progressive, market-driven innovation and accelerating broader corporate change.
The new normal.
Whether they operate in a traditional or modern industry, every organisation today has to operate within the rules of the digital economy. The new normal is constant change, so successful modern companies must become powerful enablers of service innovation, constantly evolving both the services they provide their customers and the operating business behind them.
Conventional business strategy is simply not built on this principle of constant change. It creates a type of company — and a mindset about the future — that is simply not born of the digital age. It’s still built on conventional principles of how companies can maximise their future value.
Conventional thinking will not shape the future of any company. For leaders who want to transform their company into a strong digital business, service-led strategy can enable them to maximise the value of their future-focused investments, minimise their reliance on historic business lines, and protect themselves against catastrophic disruption.