The Problem with a Solutions Business Model

You have probably heard of the phrase “jumping the shark”. This phrase goes back to an infamous episode of the 1970s sitcom called “Happy Days” when the producers, faced with declining popularity, tried to revive the show by getting the Fonz to jump over a shark on water skis. In the corporate world, there are many ways to jump the shark when faced with business problems. Hiring a star CEO, restructuring or making an acquisition can all be shark jumps but I’m currently thinking that there is a unrecognized form of jumping called a ‘total solutions’ strategy.

I’ve been talking to several companies about strategy over the past six weeks and nearly all of them were flirting with idea of becoming a ‘solutions’ business. This is seductive because it holds the promise of cross-selling more products and services, as well as greater pricing power and the reduced chance of your buyer deserting you for another supplier. So far so good, so what’s the problem. Well, the problem is that this strategy is really hard to execute. When I give presentations, I like to use a lot of examples of different companies and their websites are a convenient way of picking up key facts and figures. I haven’t turned this into a large-scale study but I strongly suspect that there is a correlation between the mentioning of the word “solutions’ on the corporate website, and the destruction of shareholder value. I have about five examples from Australian top-200 companies and I suspect there are many more.

Some businesses might be able to become integrated solutions providers, but many don’t. Why is the promise of a solutions business such a trap for so many executives? I’ve come up with a few reasons why this might be the case. You might be a able to think of a few more.

‘Solutions’ aren’t a substitute for good old-fashioned strategy
I’ve been looking at a ‘total lifting solutions’ crane hire business that is now trading below its asset value. This company offers every crane you can think of from little ‘cherry pickers’ to massive crawler project cranes. The problem is that the smaller end of the business is subject to very few barriers to competition (every undegrad business student can tell you about Porter’s 5-forces). There is no point being a solutions business if half of it makes you a price taker. “You cannae change the laws of strategy” with a buzzword.

‘Solutions’ become a mandate for diversification and acquisitions
As a test of my solutions and share performance hypothesis, I looked at the website of the worst performing stock in my share portfolio. To my horror, the front page mentions total solutions in the marine engineering industry. Where the company seems to have gone wrong is taking on more business units to become a ‘one stop shop’ (another phrase that should put fear in the hearts of shareholders). The issue then becomes a classic case of corporate indigestion. Too many businesses across several product and service lines and the challenges of actually integrating all of these and getting people in the company to know ‘who does what’ becomes too hard to overcome.

‘Solutions’ become an obstacle to clear thinking
Like the Dilbert cartoon, it is sometimes hard to see what is actually meant by solutions. Everything is a solution. A glass of water is a solution to being thirsty and a haircut is a solution for long hair. Thinking about strategy and business models is hard work and ambiguous words like ‘solutions’ become an obstacle to clear thinking.

I might be being a bit harsh, but I think there is a real problem here. Next time you hear someone use the ‘s’ word, be very careful.

Please note: I reserve the right to delete comments that are offensive or off-topic.

4 thoughts on “The Problem with a Solutions Business Model

  1. Nice one John, priceless Dilbert!

    Blurring of distinctions is what I see. Of course it’s all very tempting because the market only gets bigger when you diversify, and your vision and mission blurs along with it. Of course no company’s going to replace his mission statement with “We sell just about anything” but in reality that is what it is

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