Introduction
As you adopt technology in your service business, there are two fundamental routes to choose from:
- Optimizing for efficiency: This means implementing technology to deliver your standard outcomes quicker and with less cost
- Optimizing for outcomes. You choose and implement technology that enhances your deliverables and the outcomes for clients, thus expanding your service offering and potentially increasing client satisfaction.
In this article, I will outline the pros and cons of both approaches, when to choose which, how to implement it, and how to blend them together in real life.
Efficiency Focus
Before the crazy advancements that large language models brought to AI, specifically generative AI, using technology for efficiency was the most common use of technology in service.
Service businesses would look at recurring processes and determine how they can use software and technology to cut manual, repetitive work that doesn’t add value for clients. Instead, they would replace it with automation and software.
Efficiency in service business comes in many shapes and forms, all of which automation and technology can contribute to.
- Decreasing human labor in delivering your service.
- increase the speed of delivering your service.
- Increase reliability and quality of your service.
The automation effort could span the whole delivery process or just individual tasks within the process.
Also, clients will typically not know or see that technology is being used in delivery.
Optimizing for efficiency mainly aims at enhancing the profitability and stability of your service.
Benefits of optimizing for efficiency:
- Ability to increase margins: If you spend less time and resources delivering your service, you free up margins. You can then use these margins to either generate more profit or reduce your prices.
- More meaningful work: If you let technology handle repetitive and mundane tasks, your team can focus on client interactions and other high-value tasks. This will increase employee satisfaction.
- More reliability in delivery: A largely automated service produces more reliable results in a more predictable time frame. Therefore, you’ll have more clarity on what to promise your clients and how to manage expectations.
- Ability to service more clients without adding headcount: If you can deliver the same results in less time and with less resources used, you can serve more clients without increasing headcount.
Downsides of optimizing for efficiency
- Lack of offer innovation: When you optimize for efficiency, you’ll have to freeze your way of doing things and your outcomes, as it is hard to optimize an ever-changing process.
- Internal focus: When optimizing for efficiency, it’s easy to get lost in an internal view, neglecting what your clients might want or how they experience the service. Doing that for a long time is problematic because it shifts your focus energy away from satisfying clients towards optimizing your internal resources.
- Neglecting outcomes: When optimizing for efficiency, it’s easy to stop thinking about how to leverage tech for improving outcomes for your clients.
- Limitations: Only works for highly standardizable services which are typically more low-cost and have smaller margins.
- Requires process stability: When working with large accounts like enterprise clients, they’ll typically demand customization of your service. Unless you manage to automate modular parts of your service delivery, this customization will likely be a problem for your efficiency optimization efforts.
Outcomes Focus
When you focus on outcomes while using your technology, you have an outcomes focus. That typically means that you are trying to produce better results for your clients. Contrary to efficiency focus, your view on technology and its impact is more on the outside (which is your clients) instead of the insides (which is your efficiency). Examples for an outcomes-focused use of technology can be:- Enhancing your deliverables with new components that you generate by using technology, such as AI
- Improving existing deliverables through use of technology.
- Creating new deliverables that your clients can get elsewhere using technology.
Benefits of an Outcomes Focus
- Focus on your client experience: An outcomes focus clearly prioritizes your client experience over your internal operations.
- Ability to innovate: When you’re continuously focusing on producing better outcomes, you’ll be in innovation mode all the time. This will help to maintain or generate an edge in the market.
- Ability to quickly translate client requests into new products or services: With a mindset of using technology to improve outcomes, you can quickly react to shifting demands from your clients or recurring requests for additional pieces of service that you might encounter.
Downsides of an Outcome Focus
- When you are constantly in innovation mode, it is very hard to build stable operations. Even with AI or technology carrying the largest part of the workload of new outcomes, you’ll still have a hard time optimizing for efficiency.
- It’s easy to get lost in a “what can we do next” mentality instead of focusing on perfecting the value you’re already providing to your clients.
- Increased cost: You’ll have to continuously reinvest good parts of your margins to generate new features, products, services, and outcomes which will eat up parts of your margins.
The right mix – Know what you’re building
Having explored both options, which one is right for you? The first important step to answer that question is to understand what you’re building. In reality, most tech and able service businesses will focus on a blend between the two, and it’s critical you determine what the right mix is.When to choose what?
The question of “what to focus on” largely depends on who you are servicing and what your offer is.When to focus on efficiency?
- You target the low end of the market and provide a low-cost offer.
- There’s high demand for a highly repeatable offer that you have.
- Clients typically don’t require customization of your service.
- Economies of scale favor you executing more of what you do.
- You have healthy unit economics even in manual delivery.
- You see an opportunity to automate a delivery process of an established service or product in the market by using automation.
When to focus on outcomes
- There is dramatic competition in the market for any standardized offering.
- You work with larger accounts and have healthy margins on those.
- Your industry is driven by innovation more than it is by units of delivery.
- You see a clear market gap in a deliverable many clients ask for but that’s not yet available.
- You have strong client relationships that allow you to test new offers with existing clients. Clients ideally can accept that you are Innovating and that they serve as better testers for your service.
How to blend them together?
There are different ways to blend efficiency and outcomes focus in your tech-enabled service.
Pure efficiency or outcome
A strong positioning can result from a clear focus on either efficiency or outcome. If you don’t blend the two at all, but instead focus relentlessly on driving down cost to deliver, you can create a significant impact for your business bottom line that can translate into better pricing or higher margins for yourself.
On the flip side, if you focus solely on innovation, you can position yourself as a market leader in your field and thus attract higher-paying clients that will fuel your future innovation and profitability.
Many successful service businesses I know have that very clear focus. The reason it can be so successful is that it’s unambiguous. When you’re clear what you’re optimizing for, thus decisions on what to do and what to prioritize become very easy. Also, it helps to give your company a clearly understandable value proposition.
Sequential focus – from innovation to efficiency
Many companies who are by nature focused on outcomes blend outcomes and efficiency focus sequentially. That means that you would first start innovating. Once you have a solution that works and creates fantastic new results for your clients, then you would look into making that solution more efficient.
You will run through these cycles again and again, innovating and then driving cost to deliver down.
Parallel focus – core and new services
If you have a core business but are trying to extend your service offering to other products, you might choose parallel focus.
This means driving cost to deliver down for your core services that are established and recurring, and at the same time innovating on service and offer expansion.
This is difficult to pull off and will require different resources for both tech streams, efficiency and innovation.
Toolkit for optimizing for efficiency
Here are some tactics to implement a tech-driven optimization for efficiency.
Start with workflow
When optimizing for efficiency, take your existing workflow as a starting point. Map all the steps your team takes to deliver the service. And then prioritize the steps that have the biggest impact on your workload.
Put these workflow steps in sequence and start developing solutions for them.
Monitor workload decrease through tech
As you develop your technology, meticulously track workload on workflow steps. Over time, you want to see the cost to deliver on each workflow step go down.
Plan for testing and implementation
As you develop and launch new features, make sure you have a good system in place to test these features. Also, there should be a structural way of releasing new features for the team and making sure they’re being adopted by your team.
Establish a constant feedback loop
It’s important that your delivery team syncs up with the people integrating or building your tech. This should happen on a regular basis to ensure that changing workflow requirements are being accounted for and to monitor improvements and issues with tech already in place.
I have a product roadmap
Regardless of whether you’re using tools that you build in-house, work with contractors to implement tech, or have someone in your team implement off-the-shelf tools, you should track all these initiatives in a roadmap.
This will help maintain clarity over what’s going to be delivered when and make estimates around a potential workload decrease in the future.
Also consider efficiency of your tech
In the setup where you’re optimizing for efficiency, it might not always make sense to spend hundreds of thousands of dollars on a tech solution.
In that regard, always go for the most simple solution that’s available to you. There will be many cases of the shell software. Windows is likely to be more cost-efficient than in-house development.
In-house development should only be considered if by no means you can build your current workflow step in an existing tool. In many cases, adjusting your workflow to be able to execute it with an off-the-shelf tool is more efficient than building or customizing software to fit your exact process.
Toolkit for optimizing for outcomes
Start with your clients in mind
When optimizing for outcomes, it’s very important to not get lost in what’s technically possible. Instead, all innovation should be driven by solving a client’s problem.
Be very clear about the value proposition of what you are building and how it makes your clients’ life better.
The same is true for optimizing for outcomes of existing offers. Ask yourself the question: Is this new outcome really moving the needle for the client, and do they perceive it as such?
Adopt a start-up-like approach to tech
When focusing on outcomes, you have to operate your tech and product build up like a startup:
- Work towards an MVP to quickly test the hypothesis of this new or improved outcome being valuable to clients.
- Operate in sprints and release features or offer components quickly and often. This will protect you from building in isolation for too long, just to find out that your new and improved outcome doesn’t find demand.
- Have a product roadmap so you have a clear game plan on what you’re building when.
Implement feedback cycles to collect client feedback
Have regular sessions with the delivery team and sales to collect feedback from clients on whether or not they value your new offers. Also make client input the core input factor of your product roadmap alongside your own intuition.
Conclusion
Whether you optimize for efficiency or innovation and outcomes, it’s important you understand what exactly you’re building. The starting point for all of this is your strategic positioning that will determine whether or not low cost or innovation drives your business success. Once you have clarity on your priorities, implement the right systems to drive tech adoption in your service business.