Pivoting from Services to Products
Since ABM’s origin in 1909 with one mop-wielding janitor, the facility services company has offered its U.S. and U.K. clients a wide range of cleaning, engineering, parking, landscaping, and electrical services. It’s traditionally a lower-margin business, very often dependent on the price of labor. But during the COVID-19 pandemic, ABM experimented with offering a productized service for the first time. That experiment has led to a massive shift in its growth strategy. Says Chief Strategy and Transformation Officer Josh Feinberg: “The faster we can convert to solutions, the better. We are retraining clients to think of us as a professional solutions partner.”
ABM launched two new products during the pandemic—EnhancedClean™ and EnhancedFacility™—which it sold alongside its existing cleaning and mechanical services. Developed through a panel of infectious disease and industrial hygiene experts, EnhancedClean™ upgrades the traditional cleaning approach while EnhancedFacility™ improves overall indoor air quality and reduces the spread of pathogens. By putting services together, branding it, and selling the package as value-add solutions, ABM is seeing significantly higher margins and customer satisfaction. “It was through this innovation that we retained work with clients by delivering services in a way that best met their evolving needs, which led to record earnings through COVID,” CEO Scott Salmirs says
Armed with that data, ABM is now diving fully into productized solutions. Since the onset of COVID, the company has now launched multiple new services that go alongside building management, such as a data-enabled smart parking management system, a service for electric vehicle charging, and several others. Turning individual services into a solution-based program leads to happier and stickier clients.
“We realized the massive opportunities that lay on the other side of digging into innovation,” Salmirs says. “It's a way to take our services and creatively package them into a solution broader than just deploying any singular offering. It’s an approach that allows our clients to see more of our full-continuum ‘forest’ through the ‘tree’ of any one particular service.”
New Services to Existing Customers
The leadership of Terminix, a pest control company now owned by Rentokil Initial, met in July 2021 for a growth summit. Although Terminix offered four core products (pest, termite, mosquito, and wildlife exclusion/home services), technicians—who visited customers roughly once a quarter—were averaging only 1.2 products sold per household. “Our technicians pull up to a customer’s house, ready to protect their home. They do their job—inspecting the home and completing the contracted service. They don’t sell,” said Joy Wald, chief transformation officer of Terminix.
Wald, who was then the CIO, and the rest of the team decided to create a “Trusted Advisor” program, in which technicians—none of whom were trained as salespeople—were encouraged to advise customers about other services to protect their most valued asset: their home. To help the technicians with the transition, Wald and her team compared their role to that of dentists. “The dentist cleans your teeth, inspects your teeth, and advises you on anything else you may need done,” she said. Terminix built out an automated interface to make it easy for technicians to add needed services. It also financially incentivized technicians.
In May 2022, Terminix’s Trusted Advisor program rolled out to a pilot market. Almost immediately, the results were off the charts; leads went up 400%. As Terminix started scaling the program, the Trusted Advisor program contributed to nearly doubling the organic growth rate in Q2. Said Wald, “It’s about finding that simplistic view of looking at your organization and unlocking that potential. In our case, we created and enabled close to 6,000 salespeople.”
Partnership for Innovation
“We’re only as good as what we can generate next in terms of innovation for our consumers and the category,” said Michael Pellegrino, president and chief growth officer at Sargento Foods, a cheese and snacks provider. Sargento CEO Louie Gentine has challenged the team to generate at least 15% of their three-year trailing revenue from innovation. While they haven’t hit the target every year, they’ve come close—even through the pandemic.
When COVID hit, Sargento did not stop innovating, even as consumer eating patterns shifted dramatically to at-home consumption. It did, however, look to innovate in new ways, including partnerships—thanks to an opportunity with Mondelez International, the maker of Ritz Crackers and other snacks. Why not work together on ideas that leverage the best-known cheese and cracker brands in the industry? Both teams immediately saw huge untapped potential in the market. Their first new product, Sargento Balanced Breaks Cheese and Crackers, launched in early 2021 and was immediately successful, doubling Year One sales estimates. It’s now on track to more than double again in Year Two. In 2022, Sargento received its third Breakthrough Innovation Award in the last eight years from NielsenIQ BASES.
Looking ahead, Pellegrino said, “We are very open to other partnerships as long as they fit with our company culture and our philosophy around innovation and brand building. There’s a lot more in the works you’ll hear about soon.” With the partnerships approach now in place, Sargento has reached its 15% three-year trailing revenue from innovation goal in 2021 and 2022.
Says Pellegrino: “What I love about our CEO is he never says to stop innovating if we fail. He’ll say, ‘What did we learn? What are we going to do differently, and when can we get the next one up and running?’ I think that’s why we’ve been able to beat the industry average overall and continue to have a healthy pipeline for future growth.”
Doubling Down on M&A
PHOENIX Group, the largest European player in the pharmaceutical distribution, retail, and services sector, was founded in 1994 with the objective of consolidating the highly fragmented market. With interest rates soaring and competitors exiting, it might make sense to shift gears. But the company is carrying on with its focused M&A strategy. “We have a history of acquisitions. The process of acquiring and integrating companies is part of the genetics of our company,” said Roland Schütz, chief information officer of PHOENIX Group. On November 1, 2022, PHOENIX Group closed on the largest acquisition in company history: buying parts of McKesson Europe.
The core business of PHOENIX Group is a vital part of the health care industry and has recently been recognized as critical infrastructure, so this environment holds some appeal, said Marko Grünewald, director of corporate development and mergers and acquisitions. “We are very clearly focused,” he said, describing the company’s concentration on market entries and consolidation opportunities for the core business, as well as adjacent businesses such as IT solutions for pharmacies and value-added services. “We have a dedicated scorecard for each transaction to ensure a compelling strategic fit, attractive financial key performance indicators, and a strong business rationale.”
The Digitization of Home Services
Home services provider Neighborly began with a single brand, green-fielded a few more, then embarked on an acquisitions journey. Today, it is the world’s largest home services company, comprised of more than 30 home services brands globally with $3.7 billion in systemwide sales. Eight years ago, the leadership team decided to invest in a digital marketplace that houses all of its brands under one umbrella. The company has spent $30 million over the last four years on digital transformation—a strategy shift that endured through the pandemic and is now bearing fruit. Said Mike Bidwell, Neighborly’s CEO: “We are doing this because we should. It will leverage existing brands, tools, and systems to provide accelerated growth opportunities for our franchise owners while providing homeowners with a better solution.”
Neighborly’s goal is to create a “consumer hub for home services” similar to Amazon’s for products, via a common digital platform. The idea: Just as easily as you can order a product on Amazon, you can now book home services you need through Neighborly’s digital marketplace. “We're introducing Neighborly as a hub for home services where homeowners will find our premium specialty service brands,” Roger Chacko, Neighborly’s chief strategy and marketing officer, emphasized.
Neighborly began piloting the approach in the U.S. state of Alabama in 2019. In the beginning, at the national level, the rate at which a customer used multiple Neighborly brands was just a few percentage points. Today, it’s in the double digits in several pilot markets. “We have seen good progress in cross-sell patterns across brands,” Chacko said, noting that multi-brand customers are significantly more valuable than single-brand customers.
The company’s unique identity means there’s no playbook. “The capabilities of each service brand as perceived by the consumer are very nuanced. How do you remain true to the uniqueness of each brand's identity, yet deliver synergy? There has been a constant learning curve,” Chacko said. But that curve has not changed in tougher economic times: “It’s an evolution. The focus is making the digital platform more and more relevant to the needs of the consumer and creating personalized surprise and delight elements,” Chacko added.
Talent as a Growth Engine
At agriculture machinery company AGCO, acquisition is used as a lever to bring in scarce talent. Said Seth Crawford, SVP and general manager of precision ag and digital: “In numerous cases, we’ve gone out and bought the business outright. Because when you can pick up a company with say, 25 engineers at once, that shortens your talent acquisition timeline in a hurry. And we’ve done that in multiple scenarios over the last year.”
Some of these companies happen to be located near universities—which means they can also serve as recruiting centers for students. One American outpost is on the campus of North Dakota State University, and AGCO is also opening small offices connected to innovation centers at Arizona State and the University of Illinois. Said Crawford, “We have similar efforts in Europe and in South America. Instead of asking the students that are graduating to come to our site, we’re basically taking our presence to them and creating a career path for them locally where they can come in during their student time, have some internships, get a feel for what it’s like working with us, and then turn that into a full-time position and a long-term career.”
Customer Satisfaction as a Growth Engine
The devastating impact of COVID-19 on the cruise business allowed Norwegian Cruise Line to conduct an unplanned experiment: What would customer satisfaction look like if you had 50% of the passengers traveling with 80% of the crew? The unsurprising answer was that it went up. But more than that, it led to an increase in customers booking additional cruises. Harry Sommer, president and CEO of Norwegian Cruise Line, said, “In normal times, no one would’ve said ‘Let’s add more crew’ … because you’re so focused on the expenses and the quarterly earnings results. But this forced us into an experiment that showed a higher guest satisfaction score leads to higher repeat rates. And the combination of their guest satisfaction scores and the number of future cruise certificates that we sell is an amazing predictor of whether we’re going to be successful. It’s amazingly resilient despite what happens in the environment.”
Now Norwegian is looking at dramatic growth for 2023. What’s the net result? According to Sommer, “The rate of people traveling in 2022 and returning in 2023 is double. Yeah, it’s a ‘wow’ moment.” “We have a philosophy,” Sommer said. “We focus much more on revenue than we do on the cost structure of the company. The upside to revenue is much more.”
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Pivoting from Services to Products
Since ABM’s origin in 1909 with one mop-wielding janitor, the facility services company has offered its U.S. and U.K. clients a wide range of cleaning, engineering, parking, landscaping, and electrical services. It’s traditionally a lower-margin business, very often dependent on the price of labor. But during the COVID-19 pandemic, ABM experimented with offering a productized service for the first time. That experiment has led to a massive shift in its growth strategy. Says Chief Strategy and Transformation Officer Josh Feinberg: “The faster we can convert to solutions, the better. We are retraining clients to think of us as a professional solutions partner.”
ABM launched two new products during the pandemic—EnhancedClean™ and EnhancedFacility™—which it sold alongside its existing cleaning and mechanical services. Developed through a panel of infectious disease and industrial hygiene experts, EnhancedClean™ upgrades the traditional cleaning approach while EnhancedFacility™ improves overall indoor air quality and reduces the spread of pathogens. By putting services together, branding it, and selling the package as value-add solutions, ABM is seeing significantly higher margins and customer satisfaction. “It was through this innovation that we retained work with clients by delivering services in a way that best met their evolving needs, which led to record earnings through COVID,” CEO Scott Salmirs says.
Armed with that data, ABM is now diving fully into productized solutions. Since the onset of COVID, the company has now launched multiple new services that go alongside building management, such as a data-enabled smart parking management system, a service for electric vehicle charging, and several others. Turning individual services into a solution-based program leads to happier and stickier clients.
“We realized the massive opportunities that lay on the other side of digging into innovation,” Salmirs says. “It’s a way to take our services and creatively package them into a solution broader than just deploying any singular offering. It’s an approach that allows our clients to see more of our full-continuum ‘forest’ through the ‘tree’ of any one particular service.”
New Services to Existing Customers
The leadership of Terminix, a pest control company now owned by Rentokil Initial, met in July 2021 for a growth summit. Although Terminix offered four core products (pest, termite, mosquito, and wildlife exclusion/home services), technicians—who visited customers roughly once a quarter—were averaging only 1.2 products sold per household. “Our technicians pull up to a customer’s house, ready to protect their home. They do their job—inspecting the home and completing the contracted service. They don’t sell,” said Joy Wald, chief transformation officer of Terminix.
Wald, who was then the CIO, and the rest of the team decided to create a “Trusted Advisor” program, in which technicians—none of whom were trained as salespeople—were encouraged to advise customers about other services to protect their most valued asset: their home. To help the technicians with the transition, Wald and her team compared their role to that of dentists. “The dentist cleans your teeth, inspects your teeth, and advises you on anything else you may need done,” she said. Terminix built out an automated interface to make it easy for technicians to add needed services. It also financially incentivized technicians.
In May 2022, Terminix’s Trusted Advisor program rolled out to a pilot market. Almost immediately, the results were off the charts; leads went up 400%. As Terminix started scaling the program, the Trusted Advisor program contributed to nearly doubling the organic growth rate in Q2. Said Wald, “It’s about finding that simplistic view of looking at your organization and unlocking that potential. In our case, we created and enabled close to 6,000 salespeople.”
Partnership for Innovation
“We’re only as good as what we can generate next in terms of innovation for our consumers and the category,” said Michael Pellegrino, president and chief growth officer at Sargento Foods, a cheese and snacks provider. Sargento CEO Louie Gentine has challenged the team to generate at least 15% of their three-year trailing revenue from innovation. While they haven’t hit the target every year, they’ve come close—even through the pandemic.
When COVID hit, Sargento did not stop innovating, even as consumer eating patterns shifted dramatically to at-home consumption. It did, however, look to innovate in new ways, including partnerships—thanks to an opportunity with Mondelez International, the maker of Ritz Crackers and other snacks. Why not work together on ideas that leverage the best-known cheese and cracker brands in the industry? Both teams immediately saw huge untapped potential in the market. Their first new product, Sargento Balanced Breaks Cheese and Crackers, launched in early 2021 and was immediately successful, doubling Year One sales estimates. It’s now on track to more than double again in Year Two. In 2022, Sargento received its third Breakthrough Innovation Award in the last eight years from NielsenIQ BASES.
Looking ahead, Pellegrino said, “We are very open to other partnerships as long as they fit with our company culture and our philosophy around innovation and brand building. There’s a lot more in the works you’ll hear about soon.” With the partnerships approach now in place, Sargento has reached its 15% three-year trailing revenue from innovation goal in 2021 and 2022.
Says Pellegrino: “What I love about our CEO is he never says to stop innovating if we fail. He’ll say, ‘What did we learn? What are we going to do differently, and when can we get the next one up and running?’ I think that’s why we’ve been able to beat the industry average overall and continue to have a healthy pipeline for future growth.”
Doubling Down on M&A
PHOENIX Group, the largest European player in the pharmaceutical distribution, retail, and services sector, was founded in 1994 with the objective of consolidating the highly fragmented market. With interest rates soaring and competitors exiting, it might make sense to shift gears. But the company is carrying on with its focused M&A strategy. “We have a history of acquisitions. The process of acquiring and integrating companies is part of the genetics of our company,” said Roland Schütz, chief information officer of PHOENIX Group. On November 1, 2022, PHOENIX Group closed on the largest acquisition in company history: buying parts of McKesson Europe.
The core business of PHOENIX Group is a vital part of the health care industry and has recently been recognized as critical infrastructure, so this environment holds some appeal, said Marko Grünewald, director of corporate development and mergers and acquisitions. “We are very clearly focused,” he said, describing the company’s concentration on market entries and consolidation opportunities for the core business, as well as adjacent businesses such as IT solutions for pharmacies and value-added services. “We have a dedicated scorecard for each transaction to ensure a compelling strategic fit, attractive financial key performance indicators, and a strong business rationale.”
The Digitization of Home Services
Home services provider Neighborly began with a single brand, green-fielded a few more, then embarked on an acquisitions journey. Today, it is the world’s largest home services company, comprised of more than 30 home services brands globally with $3.7 billion in systemwide sales. Eight years ago, the leadership team decided to invest in a digital marketplace that houses all of its brands under one umbrella. The company has spent $30 million over the last four years on digital transformation—a strategy shift that endured through the pandemic and is now bearing fruit. Said Mike Bidwell, Neighborly’s CEO: “We are doing this because we should. It will leverage existing brands, tools, and systems to provide accelerated growth opportunities for our franchise owners while providing homeowners with a better solution.”
Neighborly’s goal is to create a “consumer hub for home services” similar to Amazon’s for products, via a common digital platform. The idea: Just as easily as you can order a product on Amazon, you can now book home services you need through Neighborly’s digital marketplace. “We’re introducing Neighborly as a hub for home services where homeowners will find our premium specialty service brands,” Roger Chacko, Neighborly’s chief strategy and marketing officer, emphasized.
Neighborly began piloting the approach in the U.S. state of Alabama in 2019. In the beginning, at the national level, the rate at which a customer used multiple Neighborly brands was just a few percentage points. Today, it’s in the double digits in several pilot markets. “We have seen good progress in cross-sell patterns across brands,” Chacko said, noting that multi-brand customers are significantly more valuable than single-brand customers.
The company’s unique identity means there’s no playbook. “The capabilities of each service brand as perceived by the consumer are very nuanced. How do you remain true to the uniqueness of each brand’s identity, yet deliver synergy? There has been a constant learning curve,” Chacko said. But that curve has not changed in tougher economic times: “It’s an evolution. The focus is making the digital platform more and more relevant to the needs of the consumer and creating personalized surprise and delight elements,” Chacko added.
Talent as a Growth Engine
At agriculture machinery company AGCO, acquisition is used as a lever to bring in scarce talent. Said Seth Crawford, SVP and general manager of precision ag and digital: “In numerous cases, we’ve gone out and bought the business outright. Because when you can pick up a company with say, 25 engineers at once, that shortens your talent acquisition timeline in a hurry. And we’ve done that in multiple scenarios over the last year.”
Some of these companies happen to be located near universities—which means they can also serve as recruiting centers for students. One American outpost is on the campus of North Dakota State University, and AGCO is also opening small offices connected to innovation centers at Arizona State and the University of Illinois. Said Crawford, “We have similar efforts in Europe and in South America. Instead of asking the students that are graduating to come to our site, we’re basically taking our presence to them and creating a career path for them locally where they can come in during their student time, have some internships, get a feel for what it’s like working with us, and then turn that into a full-time position and a long-term career.”
Customer Satisfaction as a Growth Engine
The devastating impact of COVID-19 on the cruise business allowed Norwegian Cruise Line to conduct an unplanned experiment: What would customer satisfaction look like if you had 50% of the passengers traveling with 80% of the crew? The unsurprising answer was that it went up. But more than that, it led to an increase in customers booking additional cruises. Harry Sommer, president and CEO of Norwegian Cruise Line, said, “In normal times, no one would’ve said ‘Let’s add more crew’ … because you’re so focused on the expenses and the quarterly earnings results. But this forced us into an experiment that showed a higher guest satisfaction score leads to higher repeat rates. And the combination of their guest satisfaction scores and the number of future cruise certificates that we sell is an amazing predictor of whether we’re going to be successful. It’s amazingly resilient despite what happens in the environment.”
Now Norwegian is looking at dramatic growth for 2023. What’s the net result? According to Sommer, “The rate of people traveling in 2022 and returning in 2023 is double. Yeah, it’s a ‘wow’ moment.” “We have a philosophy,” Sommer said. “We focus much more on revenue than we do on the cost structure of the company. The upside to revenue is much more.”