Marketing the work of engineers: technology as a service

In this insightful article, Laurie Young examines a paradox: why, in a world where added value services increasingly dominate, and where some of the largest and most successful companies are technology companies, is the marketing of technology services so underdeveloped – particularly in the B2B sector?

Much has been written about the marketing of consumer products, hospitality services, financial services and professional services. Very little, though, has been said about marketers who routinely deal with the work of engineers. Yet they include some of the largest and most famous businesses in the world: IBM, BT, Shell, Fujitsu, Ericsson, Michelin, Virgin, Nokia and HP.

It may be that so much of their work is business-to-business markets – a discipline neglected by so many marketers. Or it may be because marketing has had so little political weight in these organisations.

The marketing of some technology companies has been erratic, inconsistent and depressingly tactical. Now, with the advent of significant new concepts such as 'cloud computing' and radical changes in the engineering of some utilities, its best brains and leading firms are turning their attention to services.

It seems that the marketing of services that are based on a technical infrastructure is about to become as important and sophisticated as, say, consumer products.

WHO ARE THEY AND WHAT DO THEY DO?

These companies provide a service to buyers, based on a network of technology. The most aggressive members of the category are computer service companies that have made great noise about their move into more service-based business over the past two decades. It also includes the utilities and even embraces consultancies whose advice depends on advanced knowledge of technology.

They all exist to provide service to customers by exploiting an 'installed base' or infrastructure of technology. That service may be conceptual (like consultancy) or may provide specific support to a set of physical products (like maintenance).

In most, a 'core service' (which risks becoming a commodity) runs on the network platform, and 'added value' services are built on that core service.

COMMON CHARACTERISTICS

These businesses have a number of characteristics in common which affect their approach to market. They influence the agenda and decision-making processes of top management and, as a result, create a group of businesses with a similar culture and set of challenges.

A technology infrastructure: at their heart is a 'platform', which is constructed from some form of technology (such as a computer network or a piped utility). This heritage was once a major innovation allowing a new industry to develop and to distribute a basic, 'core' service.

A network: items flow through technical highways which are fundamental to their customers' service experiences.

An engineering culture: organisations tend to take top management from the most important function, usually reflecting the core competence of their business.

In these service organisations the dominant discipline has, historically, been technical. They tend to be run by engineers who create common attitudes and set the agenda throughout their organisations.

Logistics: unlike professional or financial services, those with a technical infrastructure comprise physical components. So they depend on an efficient method of managing and distributing physical components – an important competence in the successful management of a competitive, network-based service.

Fundamental changes in the core technology: they periodically face a fundamental change in the core technology upon which their entire service is provided. Television companies, for example, are upgrading from analogue transmission to digital, and telecommunications companies are upgrading their 'local loop' to broadband-based on optical fibre.

Each involves a major policy decision and a vast change project. It involves decisions about capital investment, human resource, project management and customer education.

Safety: it is a simple fact that, in many of these businesses, it is possible for either employees or customers to be injured, or even die, as a result of neglect. As a result, people at all levels of the organisation must give careful attention to operating practices.

This makes attention to processes and procedures unavoidable, affecting the culture of the whole organisation. It can make people rulebound and secretive.

Intimacy with defence organisations: a large number of these businesses have involvement with their government's defence and security services. This makes unique demands upon them. There are likely to be, for instance, specially vetted employees reporting through a separate management line to dedicated senior executives. This does not necessarily imply anything sinister or corrupt. It does, though, affect the culture and style of the company.

Managing capital investment: the management of capital investment is a major consideration and focus of the leaders of these businesses. Senior management must set aside a proportion of earnings to invest in the development of the network. As a result, the judicious use of capital to keep pace with the needs of infrastructure development and the cost of capital are critical success factors.

Facing a new commercial environment: many of these organisations have experienced a radical change to their business (such as privatisation). This caused a fundamental change in the philosophy of senior management and in the way companies were run.

Over the past few decades, the market began to dictate their priorities and many have reached for sales and marketing techniques for the very first time.

Managing the corporate brand: the name and image of these service organisations often have associations which do not suit their aspirations. Large computer manufacturers, such as HP and IBM, found that they had to develop a reputation for service that was different to their previous image, in order to compete effectively in the new computer market.

Maintaining network access: access to the network upon which these services are based is a fundamental requirement of the service. If it is not correctly priced, planned and managed neither the core service, different versions of the service to different customers, nor added value services can be provided.

Making the core service relevant: their heritage is grounded in the supply of a commodity service based upon a general technology.

So it is difficult for them to think of ways to make that technology more relevant to different groups of customers. Often it is left to new entrants or challengers in a market to do this as they evolve their competitive strategy – as sir Richard Branson's Virgin group has done numerous times.

MARKETING AND ENGINEERS

In 1850, Lord Rothschild said: 'There are three ways of losing your money: women, gambling and engineers. The first two are pleasanter, but the last is more certain.'

This is not only because, in his age, a number of ventures failed due to lack of acquired learning; nor was it because science was seen as new and adventurous as well as exploratory and risky. As an experienced and shrewd financier, he also knew, as others learnt to their cost over the centuries, that engineering and technology progression tends to be incremental, carefully building on the back of other work by thousands of nameless technicians.

This leads to an attitude of precision, care, repetition and calculation, reflected in large technology businesses. Yet it can also lead to the destruction of value.

This technical heritage means that there is a preponderance of people who prefer to have precise, measurable options to problems and opportunities; and these attitudes mean that technology organisations tend to be risk adverse and slow to change.

They also tend to be slow to accept new ideas into the infrastructure of the organisation and suspicious of the value of creativity, originality and individuality – particularly where this stems from intuition and not obvious logic.

New business ideas often have to go through a period of secretive 'skunk-works' or be proven by others in their industry before they reach critical mass and are accepted into the organisation as a whole.

Similar difficulties occur when technology firms turn to service. When they create a service it is normally crafted with precision and care. It is likely to reflect latest thinking, to comprise well-considered, internally focused processes and to involve modern tools or technology.

It is just as likely, though, to look exactly the same as competitors' offers and to be priced using a 'cost plus' approach.

As a result the maintenance service of IBM has been, in the past, substantially the same as that of HP; or the 'managed service support' of BT similar to that of Orange; while the electricity, gas or water services of different utilities have been exactly the same as their peers.

The technology industries have, to date, routinely failed to produce real value propositions which entice people to pay more for these core and added value services than they probably should.

They are the complete opposite of the luxury goods industry which uses heritage, sex, design, distribution and celebrity to create aching desire for bits of leather and fragrant water, imbued with a mystique by names such as Gucci and Chanel.

The IT industry invests huge sums in science and research. Many have their own state-of-the-art laboratories and sponsor doctoral programmes in universities across the world.

It will announce new breakthroughs and excite the world with dreams of 'life-transforming' technologies such as did, each in their day, broadband, cellular telephony and digital TV. They then market and sell their offer through worldwide distribution systems founded on the belief that everyone is changing very fast and wants everything cheaply.

They discount and throw away the value of their precious scientific advances because of the logical and systematic approaches that got them there in the first place.

CREATING A DEAD FROG

Creating a service inside a technology firm has been a little like high school biology. Students are shown a frog, which jumps and croaks. They are taught about its physiology and evolution. They are then shown how to slap it down and dissect it. They can see how the tendons interconnect and where all the internal organs are. Yet, once they are finished, they are left with a dead frog.

CASE STUDY: AN INTERNATIONAL NETWORK

Interoute is a fast-growing international, communications network which offers business-class voice and data services at an economy price. Its products and services include bandwidth, virtual private networks, high-speed internet access and transit, managed hosting, communications services and media streaming. Founded in 2003 and privately owned, it has 55,OOOkm of fibre and eight data centres and 32 colocation centres.

It operates in 29 countries and 100 cities. The firm's service was, initially, as a niche player in the international telecommunications market. The fact that it has customers that are serious players in that market (Sprint, BT, AT&T, Deutsche Telecom and China Telecom) demonstrates the quality of its service, technology and reputation.

It started as a basic 'bearer' network offering network capacity to other suppliers. This it regarded as a 'wholesale' business because other telecommunication suppliers bought extra network capacity. Yet, although it was successful and respected, the leadership of the firm were dissatisfied with remaining a commodity infrastructure service. They set a ten-year strategy to reposition the services of the firm. They started offering 'DIY' technology to telecommunications experts but have climbed through 'colocation' and 'hosting' to 'application management'. The long-term vision of the firm is to be a player in the emerging 'cloud computing' marketplace, where computing applications will be provided as services which are remotely sourced in internationally hosted data centres.

In order to do this, the company had to learn the skill of crafting its core service to different customers to improve perceived value.

The company has deliberately set out to move from a colocation centres generic infrastructure service to a higher value, tailored communications service. It identified buyers in individual companies who were either chief finance officers or chief technology officers. It then worked through the products, features and benefits that would appeal to each person in each organisation and tailored its offer to each company.

The results were dramatic. Between 2004 and 2009 there was a compound average growth rate of 67% and it reached operational profitability.

Over the same period, the percentage of its customers who were 'corporate' grew from 8% to 51%.

The company has penetrated the corporate sector very effectively by reconfiguring its basic core service to different corporate buyers. It has customers in the public sector (eg the European Union), financial services (ING and Morgan Stanley), Services (Hilton, Yahoo), retail (WE and Chopard) and manufacturing (Ford and Siemens).

Time and again, technicians inside some of the most famous technology firms do exactly the same thing with technology-based services.

They examine the offer of others and use detailed processes to specify the features of the proposed service. They know exactly how it will work and what customers will receive. Yet, when it is launched, it is a dead frog, lifeless and valueless, over which customers haggle about price and moan about tiny errors.

REAL PERCEIVED VALUE

Yet a growing number of leading technology firms are now showing how important it is to engineer real magic into value propositions. Steve Jobs, of Apple, is probably the most famous modern example of the application of design and insight to create real value from technology.

Users of the Apple Mac computer tend to be loyal enthusiasts who laud its ability to process information 'as if it's designed for a human being'.

This desire to create innovative and enticing technology-based products gave Apple a difficult and chequered history until it launched the iPod and iPhone. The industry had been talking for many years about one device to integrate computing, mobile telephony and email.

There had been several PDAs designed and launched with mixed success. But it was the (at the time) radical design and innovative approach that made this product so sexy and appealing. Shops were mobbed for it and Apple became a byword for innovation.

POWERFUL MARKET FORCES

A number of relentless and powerful market forces are now causing the leaders of this vast industry to think seriously about the positioning of technology-based services, perhaps for the first time. 'Cloud computing', for example, means that the world will buy processing power in a radically different way.

It will affect products, services, risk, customer contracts and security. It will, though, revolutionise supply and demand, requiring entirely different mechanisms to create perceived value.

The leaders of the computer industry are taking it very seriously. IBM, for example, is just completing a two-decade-long repositioning while others are lining up huge investment into new offers, new marketing programmes and acquisitions.

For technology service businesses, the transformation of a commodity (their core service) into a proposition which offers different versions of perceived value to different customer groups is one of the most profound and profitable things they can do; and it is a marketing task at the very highest level.

Expect their most senior leaders to reach for marketing skills in systematic and remarkable ways as these changes play out among them.

ABOUT THE AUTHOR

Laurie Young [email protected]