Service Line Diversification

post # 108 — June 15, 2006 — a Strategy post

Scott Nicholls, of CourtClerk.net wrote in with the following question:

You argue in your article Strategy Means Saying No that companies should choose a positioning, a point of differentiation, and beware of diffusing their focus. However, there is a phenomenon I call “collapsing service placement”. As an example, FedEx innovated and differentiated with tracking services in the early 1990s, but by the late 1990s many companies offered it and it was no longer a differentiator.

We sell data. The data is public information regarding individuals who have received a speeding ticket or face other legal action. As new competitors, who lack any new differentiators of their own, enter the marketplace, there is increasing price competition.

So, it seems to me that constant service line innovation is required if my company is to be “the premier provider of direct mail marketing services for attorneys.” The question becomes: how many / which ancillary services do you need to develop to support your position as the market leader?

For example, are the following logical service line extensions in support of an overall strategy or are they the wanderings of a vagabond company?

Provide graphic services to help customer differentiate their direct mail product;

Provide on-site training for customers to use the services;

Provide CRM software for real-time campaign tracking;

Provide Call-Center to help customer handle the volume of calls generated from the direct mail letters

It’s possible that, in the extreme case, we end up giving the core data away and people pay for our ancillary services! Not that I’m advocating this, but I think the progression is certainly possible.

Here’s my question: What processes should a company implement to determine if the creation of an ancillary service in support of its strategy is appropriate?

Scott, you have helped me clarify an important point. When I said we have to learn to say “No” that absolutely does not mean that we can stay where we are and never change.

Other business writers (especially Hagel and Brown , with their book on “Dynamic Specialization”) have taught us that without innovations, organizations die, but without a focus they are uncompetitive.

What’s needed is both a solid, focused core, with, at the fringes, much studied, entrepreneurial experimentation. (Yes, I know “studied” and “entrepreneurial” sound like two different things, but you need both.)

But that still doesn’t mean you say “Yes” to every opportunity that comes along. Some of the opportunities will be milking your asset, not building it. There’s a difference between uncontrolled pursuit of all new business, and the thoughtful examination of new opportunites.

The key to successful innovation is allocating a sufficiently large percentage of your time and resources in well-planned experiments. This doesn’t mean try a lot of things with a little effort. Just as your question suggests, it means having a mentality that asks – given my strengths and enthusiasms, and given the clients’ possibly unmet needs – what’s the next thing to try, and how can we invest in a small scale experiment that tells us if there’s a real opportunity there?

The mentality I am describing still requires discipline and focus – saying “no” to things that serve only as distractions.

So, how do you decide which are the right diversifications? I would apply the three tests that I included in my article It’s Not How Good You Are, It’s How Much You Want It. The three tests are:

a) Does this stuff turn us on sufficiently – could we get really excited about it?

b) Can we do something new and special with this – can we make a contribution?

c) Will customers and clients really pay for this?

Find something that meets all three tests and you have a winner!

OK, everybody else. Let’s help Scott. What do YOU think should be the criteria and process by which he decides how to extend his business?