The right service strategies for product companies

The McKinsey Quarterly -- Purchasing, 2/13/2006

* Profits from service businesses have disappointed many companies that launched them to protect or enhance products. This embedded service sector has grown rapidly, but the businesses are often barely profitable.
* One reason for the mixed returns is that companies aren't always clear about whether services are intended to grow in their own right or to protect products.
* Although executives often say they want service businesses to expand independently, they keep services captive within the structure of product businesses.
* Understanding the direction of the business and the source of competitive advantage is essential to determining the right structure for an embedded service unit.

This article includes the following exhibits:
* Exhibit 1: Growth of embedded services, 1995-2004
* Exhibit 2: Know your strategic intent and source of competitive advantage
* Exhibit 3: Designing the business around strategy and advantage

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