10/10/13

Why the Steve Jobs Approach Pays Off

Published: September 27, 2013

Recent Research

Why the Steve Jobs Approach Pays Off

IT firms working with business-to-business clients can boost customer satisfaction and loyalty by bundling hardware, software, and services.
by Matt Palmquist

Tit le: Testing the Stev e Jobs Hy pothesis in a B2 B Context: Will a Portfolio of Hierarchically Related Technology Products Im prov e Custom er Outcom es? (free) Aut hors: Jason Kuruzov ich (Rensselaer Poly technic Institute), Shu Han (Yeshiv a Univ ersity ), Nev ena T. Koukov a (Lehigh Univ ersity ), and T. Rav ichandran (Rensselaer Poly technic Institute) Publisher: Journal of Service Research, v ol. 1 6 , no. 3 Dat e Published: August 2 01 3 During his tenure at Apple, Stev e Jobs cham pioned a product-focused strategy that com bined hardware, software, and serv ices in a bundle for custom ers. This holistic approach to the Apple suite of products is perhaps the m ost successful exam ple of div ersification into related offerings. The strategy helped Apple both dev elop an extrem ely loy al custom er base and top Fortunes list of the m ost adm ired com panies in the world for the past fiv e y ears. Now, Apples com petitors are em ploy ing sim ilar strategies. Googles recent acquisition of Motorola Mobility has been widely v iewed as a way for Google to em ploy a bundling strategy inv olv ing phones, tablets, and com puters. Oracles CEO, Larry Ellison, has articulated his com pany s new strategy as selling a lot of separate pieces that our custom ers used to buy as com ponents. Ev en Apples archriv al, Microsoft, which has traditionally dom inated the personal com puter field by concentrating on software, has now integrated across-the-board elem ents into its Surface tablet. The big question is this: Can the Stev e Jobs approach, which has prov en successful when targeting custom ers, be extended to the business-to-business context? The authors of this paper, the first to em pirically test this question, answer with an em phatic y es. The clients of IT firm s report increased lev els of satisfaction and loy alty after buy ing bundles of related products and serv ices, which translates to better ev aluations of the v endors and a higher likelihood of repeat purchases. The authors analy zed a data set of m ore than 3 6 ,000 IT v endor ratings issued by m anagers and executiv es at leading firm s ov er a four-y ear period. They focused on the relationship between the ty pe of IT products and serv ices offered together in bundles and their effect on clients satisfaction and loy alty . The participants represented com panies from a v ariety of industries, and they answered a range of questions about their experiences with the v endors. The analy sis showed that custom ers whose com pany had bought a suite of hardware, software, and serv ices were significantly m ore satisfied with their purchase than custom ers whose com pany had purchased any single piece of the technology bundle. Custom er satisfaction was lowest when buy ers obtained only serv ices, suggesting that technology assistance or consulting activ ities m ean little when not accom panied by hardware and software. Custom er satisfaction was also higher when clients bought adjacent lay ers of the technology suite, such as both
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Why the Steve Jobs Approach Pays Off

hardware and software, or both software and serv ices. Purchase of m ore widely dispersed elem ents, such as hardware and serv ices together, occurred less frequently and did not significantly boost satisfaction. This underlies how im portant it is for IT firm s to m arket their integrated suites hierarchically em phasizing to prospectiv e clients how each lay er of the stack builds on the one abov e or below it. B2 B firm s, therefore, should consider expanding their portfolios to include products or serv ices that are closely related. As the authors note, acquisitions, m ergers, and partnerships hav e long pav ed the ty pical, though arduous, route for a firm try ing to expand its products and serv ices. But the increasing m odularity of product com ponents can help firm s integrate different products and serv ices without hav ing to go through the hassle of m erging with or buy ing another com pany , especially in the IT field. Open source software sy stem s such as Linux, Moodle, and Sugar CRM, along with cloud-based hosting and deliv ery sy stem s such as Am azon Web Serv ices and Rackspace, dram atically increase the capabilities of IT v endors to deliv er IT application solutions that are scalable and highly reliable, the authors write. On the flip side, firm s inv esting in IT packages should look for opportunities to purchase all-in-one solutions. Although com panies that focus on specialized products m ay outperform their com petitors in side-by -side com parisons of specific offerings, this paper finds that buy ers will be m ore satisfied ov erall when they purchase all elem ents of an IT package. In addition, this can help com panies form stronger relationships with a sm aller group of IT prov idersan approach that has been found to boost a firm s technological capabilities in the long term . The authors recognize that there are switching costs associated with a v endors shift from offering one or a sm all num ber of products to integrating sev eral across an inclusiv e suite. But giv en the long-standing observ ation that increased satisfaction and loy alty driv e higher sales and firm perform ance, IT v endors m ay reap long-term rev enue benefits from expanding their portfolio that outweigh the additional costs they ll incur. Indeed, the latest strategies adopted by leading technology com panies appear to support these findings. Alesh Houdek of the Atlantic has argued that with the success of Apples integrated approach, and the troubles in the PC m arket, it seem s like the tim e has com e for Microsoft to stop outsourcing the m anufacture of com puters and get into the PCbuilding business itself. It could be the latest case of if y ou cant beat em , join em , but it could also signal a shift toward a wider em brace of the Stev e Jobs approach. Bot t om Line: IT firm s that offer related suites of products are rewarded with higher satisfaction and loy alty ratings from the com panies they do business with. Building on Apples holistic approach to its consum er-oriented product suites, this paper argues that business-to-business firm s can also benefit from integrating their offerings for clients.
AUTHOR PROFILE:
Matt Palmquist is a freelance journalist based in Oakland, Calif.

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