Opportunity to participate in Servitization Study

by NIck Frank on November 13, 2016

brianI am always keen to support anyone who has a passion for services in industry, and so when we are approached by students wanting to undertake research, we will do our best to help them.

One such Phd student Wanrong Zhang from Warwick University is searching for UK based experienced senior managers from industry to participate in a study on the topic of:

‘Competing through Service Products: Challenges and Solutions

See this link for her pitch

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Published in Field Service NewsBalancing Act in April

As a Field Service manager, imagine having one Key Performance Indicator in your business that could predict how your customers will experience your equipment. One simple measure that your teams could use as a focus for their primary mission; to ensure customers remain satisfied, loyal and profitable. The limitations of most measures of customer satisfaction and loyalty are that they look in the rear view mirror, in that they ask questions after the fact. Far better to create a leading indicator, but how?

 

To get a better feel for customer satisfaction, many managers spend time in the field talking to customers and their teams. Some will create rafts of measures to monitor and improve their operations. Their logic being a great performing team is more likely to have loyal customers. However there is a temptation to measure everything, which can start to confuse teams. To overcome this managers bring focus through introducing key performance indicator’s(KPI’s) and dashboards to make it easier to see the issues and take action. More sophisticated businesses look towards the Balanced Score Card methodology in which a more holistic view is taken of the operation. They not only examine financial and processes efficiency, but also consider organisational capacity and customers in relation to their strategic goals. This balanced approach is pretty sensible, but a can be too ‘management speak’ for the people at the sharp end of the business. The key challenge is to create measures that drive the right behaviours and culture, and not ones where people start to find ways of working around. So it is not quite as simple as many make out. From my own experiences of managing a european service operation, I always felt it would be extremely beneficial to develop a simple measure that was:

  1. Easily understood by everyone.
  2. That gave us a forward view that a particular piece of equipment was potentially going to lead to severe customer irritation and dissatisfaction.

Our business was injection molding systems, and we knew that something was going wrong in the customer when the spare parts spend of the machine increased, fault reporting was high and the same problem re-occurred over a 12 month period. We created a ratio of these 3 indicators and found that at a machine level, we could start to rank problem systems and identify those that were likely to turn into an irate customer. Our thinking was that not only could this be used by the local teams to bring focus to a specific customer issue, it also gave an indications of how well teams were managing their installed base. Unfortunately for a number of reasons we were unable to operationalize this strategy and I often wondered how effective it would have been. Recently I heard Mark Noble, Customer Support Director at Inca speak at a Service Community meeting in the UK. Inca design and manufacture digital printers and gave themselves the goal to improve the equipment productivity and hence satisfaction of their customer base. For their technology, it is the performance of the print head that controls upto 256 ink delivery nozzles, which is critical to uptime. By combining 3 key performance parameters of the machine, alarms, nozzle deviations and productivity, Inca could rank their equipment in terms of the likelihood to cause customer dissatisfaction. They created simple dashboards that clearly identified the priority machines to be working on. This allowed them to identify faults before they became critical therefore reducing costs, enabling their customer support centre to identify issues more effectively, maintaining better print quality and improving the planning of engineer visits around customers production runs.

A second example of this approach is at Peak-Service, part of the Qiagen corporation, a €1Bn technical services supplier for medical, analytical and industrial equipment. As part of their transformation journey, they created a customer experience indicator which aggregated measures of machine utilisation, revisits, call response time and call completion time. They used this to help focus their teams and people on the drivers of customer experience as they moved through a transformation programme. This gave them one measure, which was easy to action and could be used to demonstrate results.

This thinking shows that by using operational data that already exists in most businesses, it is possible to create leading measures that drive action. The analytical techniques are in fact relatively simple, it is more having the right mind-set to try a different approach which is the challenge. As products become connected through the IoT, so the opportunities to gain greater insight into customer experience and satisfaction will expand. Some might call this predictive and others a big data opportunity, but the name is not important. The critical insight we gain from these examples is that these companies are applying their deep know-how of their equipment and customers business, to identify problems before they happen. Fore-armed is fore-warned!

 

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IcebergIf 2015 was the year that IoT & Analytics became mainstream business terminology, then perhaps in 2016 leaders will focus more on how to use these capabilities to gain competitive advantage and growth. Although some serious use cases are now emerging from industrial companies, most CEO’s and directors I meet are still asking the question, ‘How do we develop the opportunity’?

 

Perhaps one reason that most companies are struggling with this question is that despite what business leaders say about being ‘customer focused’, the sad fact is that often they only concentrate on ‘customer needs’. This is generally what the customer tells them about their requirements at the interface between the product and the customer; in other words quite superficial. Customer insight goes much deeper and explores how customers and potentially their customer make money. By applying Service Thinking, companies can understand where the profit pools and opportunities lie within the ecosystem of stakeholders that make up the Industry Supply Chain. With this insight, they can develop product, services and technologies that can drive growth. So as you ponder how to move forward in what are unsettling times, you might consider these six strategies to maximise the value of your businesses knowhow:

1. Understand the Value Iceberg

If you look at the total cost of offering an industrial solution, you will find that the product element only directly makes up between 5% and 30%. It is a bit like an iceberg. Above the waterline it is possible to clearly identify the costs that are directly associated with the product itself. Below the waterline there will be hidden costs associated with the solution. Some can be allocated to the production process such as maintenance, people raw material, energy, assembly, down time, warranty etc . Moving deeper into the iceberg there are costs that can be allocated as ‘production overhead’ such as purchasing, logistics, engineering, quality, implementation support, legal compliance and management overhead. Here are also found costs that are associated with the lifecycle of the solution such as field & technical service, parts, account management and financing. Then in the depths there are far more intangible costs of risk & uncertainty that significantly influence the decision making process of managers.

This Value Iceberg concept applies to nearly all product and technology based businesses, but its composition is very specific to the industry and customer context. Understanding it can help answer the question;

‘Where do my customers capture value and how can we use our know-how to help them grow revenue and profit?’

The most profitable companies in the world know what is below the waterline and target these areas of value for their products and services.

2. Where and what influence does a business have on the industry value chain

Understanding where value is created in the industry supply chain can help companies capture profitable growth. This can be illustrated through two examples:

  • Selling further up the value chain: There are many companies who appear to be a supplier of a commodity product, but realise that if they sell further up the industry value chain to the OEM or even the end customer, that they can design themselves into the product such that even though they are on the end of the supply chain, they are specified as the supplier and avoid price erosion. Frequently component suppliers will offer Application Engineering Services that engage with the OEM design engineers in order to be specified on the production drawing.
  • Consolidating elements of the supply chain into a service: Frequently one sees suppliers of commodity products changing their position in the industry chain by offering services that consolidate and replace some key elements. A good example would be providing logistics services. Some companies will provide their products on a just-in-time basis to line-side, taking cost off the balance sheet and simplifying their customers internal logistics processes. Others will not only support their own products, but supply spare parts or even maintenance services for their competitors. Both services affect the profit pools within the industry chain.

3. Access value through the product

Having understood the ‘Value Iceberg’ and the industry chain, companies can design their product to target specific elements of hidden value under the waterline. For example niche fastener manufacturers who can generate an EBITDA over 30% by focusing on saving assembly costs with their ‘simple’ fastening solutions. Or the tyre manufacturer who understands that 50% of the haulage industry costs is fuel, and that they can design products that can significantly impact their customers profitability.
4. Access value through services and solutions
There is a growing awareness that adding services to products can help access even more of the value that lies below the water line. This has led to companies offering asset management type solutions that include remote, preventive and predictive maintenance as well as guaranteeing equipment availability in order to maximise raw material throughput.

But this is just the tip of the iceberg so to speak. Some industry leaders see so much hidden value under the waterline, they are creating new service based business models to tap into this growth opportunity. For example in the fleet transportation market, Michelin no longer just focus on the tyre technology. They have developed a service business where tyres are charged by the kilometre, which given the importance of fuel economy and the tight margins have had a significant impact on reducing costs and making them more predictable. These new ‘Servitization’ or outcome based business models require a much deeper understanding of the available profit pools that can be accessed by companies, if they are to be successful.

Many of these services rely on data and analytics. By understanding where a company can make a real difference to their customer’s profitability, prioritisation of new technologies such as the IoT, big data analytics and mobility, becomes far more targeted than it is today.
5. Product Design / Service value Trade off
As outcome based services become more popular, it forces alignment between the customers and suppliers objectives. If a tyre is sold by the kilometre, then the design and service must deliver the lowest overall cost of performance over the life of the product.

Even in more traditional business models, there is a realisation that the installed base represents a significant revenue opportunity versus new build. There are many businesses who for every new machine sold, might have anywhere between 10 and 100 pieces of equipment already in the field. The installed base represents a large revenue opportunity!

In both these cases the trade-off in the product design between product cost and service value could have significant financial consequences. For example with the manufacture selling tyres by the kilometre, a saving in the tyre cost which creates higher service costs will impact the profitability. Designing services into the product such as remote connectivity, could enable a growth in service revenues that is far larger than the increase in the product cost.

This more holistic approach to value over the products life is a change in mind-set for most product-orientated companies. This has significant implication on culture, KPI’s and organisational design if a company is to maximise it profit over the assets life.

6. Managing Risk & Uncertainty

As companies take on more responsibility in their customers’ business processes, so their perspective on business risk must adjust. While they have the opportunity to earn more margin, they also have to become better at managing risk and safeguard the value they have won. Indeed many companies will often unnecessarily shy away from profitable opportunities because of this lack of understanding.

It is a complex trade-off, but it is important to first be clear about the difference between uncertainty and risk. Uncertainty is when there is variability in the outcome of an event caused by the environment, human error or lack of knowledge. Uncertainty is a fact of life and so we must develop solutions/processes to dynamically manage these unknowns. For large contracts this is a highly complex challenge, but there are three good pointers that can help all businesses:

  1. Identify areas of uncertainty
  2. Develop processes that actively manage uncertainty in the product service delivery
  3. Ensure transparency of data through the life cycle requirements to aid fast decision making

Risk is a special uncertainty where negative consequences affect the overall performance. This means ensuring your business can cover a worst case scenario, however unpleasant. Managing uncertainty well, decreases but does not eliminate risk.

These six strategies can help all businesses create and safeguard value. If incorporated into a companies thinking, they can help companies manage the value they already deliver more effectively. More importantly it can help them to clearly identify the opportunities where they can grow their business through products service solutions.

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StorytellingDeveloping Advanced Services within a Product Centric environment takes many years of organisational and technical development. Having a clear overview of the key elements required to successfully deliver service transformation over an extended time period is vitally important to a business leader. Even more important is the ability to communicate the route of the journey so that all members of the organisation can understand how they can contribute to the end goal. Time and again we see that successful leaders are able to articulate their vision with a simple picture and a compelling story about what they want to achieve. They are able to motivate all members of their team, what ever their role, into going the extra mile to meet their goals. They don’t use the language of the business MBA where managers describe WHAT must be done in a nice logical business plan type structure.

No, they first look to inspire their people as to ‘Why’ a change must happen and communicate with words and a style that engages their people. Usually it is pretty much the same style that they would use with their customers, keeping messages simple and relevant to the listener.

This insight paper aims to share ideas & metaphors that business leaders can use to suit their particular situation. For example I have heard CEO’s describe their journeys as a 20 mile march to emphasis the length of the period of transformation. Others have used night and day to show the fundamental nature of the change from the current to future state. One often hears managers talking about a ‘burning platform’ to spotlight urgency and the desire to survive. These phrases all capture the imagination and the need for change. The metaphor that I have seen frequently used is the one of building a house. It’s success is probably because everyone can relate to the building of a house, it is very visual in nature and can be made as complex or as simple as desired.

The ‘House of Service Transformation’ describes how all building projects start with laying the foundations which are our ‘People’. On the foundation we build four key supporting structures that will support our Brand, which in essence are our business objective. These four pillars are the key activities we need to transform in order to reach our goal;

  1. Strategy
  2. Customer needs and expectations
  3. Service Sales
  4. Service Factory

We will review the elements of the house in detail so that managers can build up their own metaphor and thoughts depending on their context and situation. Our goal is to break down some of the complexity that is involved in this transformation. The output is a view of the process, which is both easy to comprehend and communicate, yet has the intellectual rigour to enable timely and profitable execution. The benefit to the leadership is that the vision and next steps become easier to articulate, so enabling faster alignment of people and actions.

The full discussion can be found in my Service in Industry Blog

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Interview with FIELDONE from Microsoft

by NIck Frank on January 10, 2016

FieldbytesNick Frank was  interviewed by FieldOne, a Microsoft company selling service solutions on his views on Service and Organisational change.

In this FieldBytes interview, he talks about how through Service Thinking, companies can identify the profit pools in their customer and industry value chain, which they have the skills and technology to access. He goes on to talk about how in developing their services businesses, companies must constantly look to improve their business in 4 areas:

  1. Value for both customers and themselves
  2. GoTo market strategy: How they bring new service & solutions successfully to market
  3. Service Delivery: Ensure operational excellence to drive profitability
  4. Planning: Ensure excellent execution on products and plans

You can access the interview through this link

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