In the beginning companies sold products. And then they sold services. In recent years, the fashionable suggestion has been that companies sell experiences and solutions, solving the needs and aspirations of customers.
Companies, indeed, do all of these things. But increasingly, what companies sell are projects. To understand the difference, think of an athletic shoe company, such as Nike or Adidas. A focus on products means a focus on selling running shoes. A focus on experiences might mean they sell you a membership to a local running club. A focus on solutions might mean they figure out how to help you reach your goal weight. While these clearly offer more value than simply selling you a pair of shoes, they also have limitations. Selling products limits the revenues you can make from clients: Unless you are innovating and continually updating your product offering, customer attrition tends to be high,
incentivizing repurchases can be hard. Selling experiences provides intangible benefits that are hard to quantify and measure, often focusing on meeting the needs of one single customer, preventing any mass production. Selling solutions became popular in the early 2000s when customers didn’t know how to solve their problems. But today, in the internet age, people can do their own research and define the solutions for themselves.
A focus on selling projects would mean helping someone do something more specific, such as running the Boston Marathon. Nike could provide you with its traditional sports gear, but in addition it could include a training program, a dietary plan, a coach, and a monitoring system to help you achieve your dream. The project would have a clear goal (finish the marathon) and a clear start and end date.
And that is just one type of project. More so than products, the possibilities with projects are endless.
From Products to Projects at Philips
Consider the evolution of Philips. Founded in Eindhoven, in the south of The Netherlands, in 1891 by Gerard Philips and his father Frederik, it began by producing carbon-filament lamps. Its success was achieved by a culture of innovation and the speedy introduction of new products. Over more than a century of profitable existence, the range of products offered by the company has mushroomed. Today, Philips produces everything from automated external defibrillators to energy-efficient lighting for entire cities. It even applies its smart sensor technology to teeth brushing.
This profusion of products means that Philips is cash-rich, yet sales have stagnated in the last decade, and concerns about the company have been reflected in its stock price. Faced with this changing reality, Philips took a long, hard look at itself. It identified the absence of focus and lack of strategy implementation capabilities as crucial elements that needed addressing. Five years ago, with intensifying competition, the Philips board split the organization into three different companies: Consumer Health, Lighting, and Healthcare.
It then went on to launch “Accelerate,” a program aimed at accelerating growth by transforming each new independent company into a focused organization. At the heart of the changes brought about by the Accelerate program are projects.
Over the years, Philips had become an intricate, blurred matrix. Accountabilities and responsibilities were shared between products, segments, countries, regions, functions, and headquarters. It set out to simplify this convoluted and archaic organization structure.
To do so, Philips put projects center stage. Projects were identified as the best management structure to break up silos and encourage teams to work transversally (end-to-end) in the organization.
As part of this, Philips Health Tech was divided into just three divisions. Essential to making this happen was a substantial increase in the work executed through projects. The shift was from selling customers a few products every year to creating an engaged relationship over decades.
One of the biggest challenges facing Philips Health Tech is that the life expectancy of its products is becoming shorter and shorter. Soon after launch, products are copied by the competition, which means they must be priced more cheaply. Soon, they become a commodity. This removes any opportunity for steady, high margins over the long term. Philips has experienced this even with its high-end health care products. Shifting its emphasis to selling projects rather than products was a strategic response to this problem.
For example, Philips sells high-tech medical devices. In the past it sold them simply as products (and it still does). But now Philips seeks out the projects in which its products will be used. If a new health care center is being considered, Philips will seek to become a partner from the very beginning of the project, including the running and the maintenance of the new center.
Among the results of this project focus at Philips is a partnership with Westchester Medical Center Health Network aimed at improving health care for millions of patients across New York’s Hudson Valley. Through this long-term partnership Philips provides WMC Health with a comprehensive range of clinical and business consulting projects, as well as advanced medical technologies such as imaging systems, patient monitoring, telehealth, and clinical informatics solutions.
In similar long-term partnerships with Philips, hospitals have been able to significantly improve radiology volumes and cut MRI waiting times in half. These organizations are seeing a 35% reduction in technology spending while improving clinical quality.
The Project Revolution
Philips is not alone in using an increased focus on selling projects as a means of disruptive transformation. At Microsoft, the company’s entire focus has shifted to Cloud services, most of which are offered as projects. It now has around 10,000 operating projects. Airbnb, valued this year at $30 billion, recently announced that it will start selling “experiences” — small tourism projects — as a way to create new revenue streams and address the increased regulatory scrutiny in some of its bigger markets. The biopharmaceutical industry is also seeking to work with governments and other purchasers on focused treatment programs, rather than simply offering individual drugs.
Clearly, the shift to becoming a project-driven organization and selling projects rather than products or services presents sizeable challenges to corporations and their business models. Working in projects throughout my career, I have identified these as the important ones:
- Revenue streams. Revenues will be generated progressively over long periods of time, instead of right after the sale of a product. This will affect the way revenues are recognized, as well as accounting policies and the overall company valuation.
- Pricing model. New pricing models will need to be developed. It is easier to price a product, for which most of the fixed and variable costs are known, than a project, which is influenced by many external factors.
- Quality control. Delivering quality products will not be enough to meet customer expectations. Implementation and post-implementation services will also have to be of the highest possible quality to ensure that clients continue to buy projects.
- Branding and marketing. Traditional marketing has focused on short-term immediate benefits. Marketing teams will need to promote the long-term benefits of the projects sold by the organization.
- Sales force. The buyer of the project will no longer be the procurement department of an organization. Sales will be pitched to leaders of the business, so the sales force and sales skills will have to be upgraded with strategy and project management competencies.
Stop for a moment and consider what your organization is selling. Is it a project? Increasingly, the answer is clear and affirmative. If not, beware, your products might soon become part of a project sold by someone else.