In all sorts of industries, companies that traditionally have made and sold stand-alone products are changing their strategies. They are creating high-value solutions by integrating various products and services—even merging the supplier’s and the customer’s operations—to solve a complete customer problem. IBM, for example, takes this approach when it builds and runs the entire infrastructure of a business-to-business e-marketplace for the chemical industry.
Solutions are proving lucrative for many companies, even as the profitability and growth of their products have come under pressure. In the case of IBM, $38 billion of its revenue—43 percent of the total—now comes from the solutions-related businesses it has developed since the early 1990s. The market rewards this growth generously, seeing it as durable shareholder value built upon hard-to-copy capabilities, light capital investment, and customization that resists commoditization. Thus IBM improved its market-to-book ratio by 600 percent between 1990 and 1999.1
Getting it right
But it is mighty hard to get solutions right, and many companies fall far short in the attempt. Throughout the 1990s, Xerox promoted itself as a "documents solutions" company but struggled to execute successfully in making the transition. Hewlett-Packard wrestled with three attempts over a decade to integrate its...