Differences Between Product Based Companies and Service Based Companies

One of the challenges small business owners have is creating their sales and marketing strategy. Your business plan will differ depending on the specifics of your venture, but the main distinction to be made is whether it is a product or a service-based firm.

While a product-based company sells actual physical products like clothing or boxes, a service-based business provides a service that consumers need, such as plumbing or counseling.

When customers are seeking new solutions, they make an effort to differentiate between the many services and goods offered by businesses and industries in their neighborhood.

What do product-based businesses do?

Companies that focus on producing usable goods (software or hardware) that address significant business issues are known as product-based businesses. Once created, these goods are made available to other businesses that could find a use for them in the workplace. 

Creative companies charge a fee or premium for the services they provide to their customers. Sustainability is a major consideration when developing and using these items. The main goal is to remain relevant for a longer period of time. As time goes on, these goods are updated and get new features.

Many startups and some of Microsoft’s peers – including Google, IBM, and Apple – were already using Agile and Scrum to guide software development projects with success.

What do service-based businesses do?

Businesses that provide services to other organizations are referred to as “service-based businesses.” They can also be considered customers of businesses with a product-based strategy.

These companies might or might not sell their items (IBM offers both products and services). The majority of service-based businesses offer IT, business, consulting, and other services.

 Examples include McKinsey, Infosys, Accenture, and TCS.

Agilemania Agile Transformation Services equip businesses to face increasing competition and market disruption. 

There are 7 differences between a service-based and a product-based company.

1. Work Environment

 Workplace culture is the primary distinction between a service firm and a product company.

  • Product-Based Company

Most individuals who leave service firms and join product firms struggle to adapt to the culture of the latter, and vice versa. Product firms spend years developing a single technology or product.

Companies that make products work to create new technology and products. Therefore, as most of them barely deal with their customers, the personnel do not need to seem official and submissive to any of the consumers.

  • Service-Based Companies

The setting is entirely different from service-based businesses. People are required to wear formal attire. The top-level management might even punish an employee who forgets to wear their uniform, even if it’s a single day.

 2. Human Capital

  • Product-Based Company

Employees in product firms tend to collaborate more. They rarely ever display their disparate life experiences. Employees are urged to submit any difficulties they encounter through email to higher management technicians.

The second thing about product firms is that they see people as one of their most valuable resources. A good company will suffer a big loss if one of its employees leaves. A new employee will need a lot of time to develop product expertise.

Therefore, product firms encourage their staff to participate in practices like rotations, which allow staff members who have worked extensively on a given product or project to choose to switch to another within the same organization.

  • Service-Based Companies

The majority of service businesses employ a hierarchy. Direct communication with clients or consumers is prohibited. They must send their emails and inquiries through the “appropriate channels.”

Contrarily, there are no such limitations on information flow in product enterprises. They believe that when information is spread among many ears, it is lost. It’s preferable to always connect the source and the target directly.

 However, a service organization is barely impacted when an employee leaves. The fundamental justification for this is that workers simply require programming knowledge to do the task. The necessity to develop any product expertise is minimal.

3. Targets

  •  Product-Based Company

Product firms hardly ever meet their deadlines for delivery. However, how does it function for them? It’s only because they will continue to hold the market share they are striving for.

Your market is guaranteed for you if you make your product sufficiently competitive with those made by competing businesses. You may get an ever-increasing part of the market if you are confident in the features of your product and can effectively advertise it.

Through instruction and team-based exercises, Product Owner Training aims to develop and solidify their knowledge of product ownership. Taking an Agile approach, it will be clearer what a product owner’s role and responsibilities are in delivering a successful product.

  • Service-Based Companies

How are the targets codified and where do they come from? Consider a service business that beats off fierce competition from other companies to get a job from a client.

One of the main benefits they provide to the client is faster delivery than other players. What is their method? The programmers are forced to work longer hours in their isolated cubes, which they mistakenly think to be the only place in the universe where they can battle problems and code in order to meet their deadlines.

Naturally, the crew is treated to a delectable lunch in a 5-star business hotel when the assignment is successfully completed.

 4. Interview

How a candidate is interviewed for a service firm vs. a product company differs significantly.

  • Product-Based Company

It will be pretty fascinating to see how an interview is conducted at a product firm. Imagine that members of your team conduct the interview and determine if the individual satisfies the requirement if your team has one. 

If so, invite him to a management interview with the manager of your team. The HR component is the last to arrive. The candidate receives an offer based on their qualifications, the budget allocated to your project, and, of course, the corporate requirements. The skill set is never compromised by product firms.

  • Service-Based Companies

When a candidate shows up for an interview, the service company just considers if he can meet any of the standards of the business. 99% of the time, candidates are not interviewed by the team they must join.

New technologies will need to be learned or switched on by 50–60% of the applicants. Additionally, the candidate’s compensation package is not determined by his or her talents. They blindly offer them in accordance with the strict guidelines established by the organization.

5. Job changes

  •  Product-Based Company

Imagine that you work for a product firm developing a technology that no other company in the universe is interested in.

Will you ever be interested in leaving your current position? You will give the decision a lot of thought before moving forward, even if there are a few other people using the same technology. Most likely, you will lose your domain technology.

There is no assurance that you will get the same job elsewhere. People are therefore hesitant to leave good firms.

  • Service-Based Companies

Have you ever pondered why employees in service industries frequently change positions? This can be attributed to a variety of factors.

Perhaps it is the result of getting a similar job with a greater salary and more favorable travel prospects. Let’s say you work for a services organization and have extensive experience with Net technology. The trends change continuously in the market. Coping with technology and increasing sales is difficult as compared to the product-based field.

Do you ever consider staying with your present company if you are given a better job, greater income, plus additional benefits? You’ll make an effort to gather as many offers as you can before selecting the best one.

6. Financial Gains

  • Product-Based Company

Product-based businesses provide excellent benefits, high pay, and reasonable raises. This is one of the main reasons for their great demand. Additionally, the pay is adjusted depending on the cost of living.

  • Service-Based Companies

Service businesses, on the other hand, tend to pay lower wages and provide little to no benefits. Additionally, unlike product firms (which are only found in megacities), service companies may be found in low-tier cities as well, so they can afford to pay lower wages because of the lower standard of living.

7. Turnaround Time

  • Product-Based Company

Companies that sell products typically have relatively short turnaround times since their consumers frequently make impulsive purchases, which isn’t always the case with service-based businesses. 

  • Service-Based Company

Service-based businesses would likely need several rounds of talks and revisions before a contract or arrangement is finalized.

Last but not least, working for a firm that focuses on selling products will allow you to develop a high degree of competence in your field of expertise since you may spend years perfecting a single product, which makes you a great asset to the business. 

This may not always be the case with businesses that provide services.

So, these were some differences between product-based and service-based companies. It is evident that Product-Based Companies are better than the Service-Based ones – Employees are their biggest asset and are treated with respect and loyalty.

Author Bio

As a Scrum Master Trainer and a PST, Naveen Kumar Singh facilitates Scrum Master Training, Scrum Developer, Product Owner, Agile, Kanban, and LeSS Practitioner training, as well as agile technical workshops. As a volunteer and speaker, Naveen is active in the agile community. Additionally, he has presented papers at Global Scrum Gatherings and other Scrum Alliance conferences.

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