PSi & Noventum research has shown that as PET converters look at ways to avoid being squeezed out of the value chain by brand owner’s insourcing manufacturing, many are taking a services-led approach in order to survive. Increasingly the industry is offering services such as design consultancy or ‘hole-in-the-wall operations’to develop closer partnerships with key clients. However the challenge of this transition is not to be under-estimated. Many business leaders who have established their careers in a plastics industry orientated around technology and manufacturing, fail to appreciate that developing services requires a change in orientation of thinking from delivering something that can be held in the hand, to a customer experience. Those that do not appreciate nor understand this subtle difference are slowing down their business growth, or at worst endangering their business through not delivering value.

As a product/manufacturing company, it is not easy to transform to service led client centric approach. But with time patience and sometimes a little guidance, there are many examples where this transformation has been successful.

When working with best in class companies, we see 5 key steps to successful service transformation:

1. Get closer to key customers
2. Strengthen you service proposition
3. Focus on high quality service delivery
4. Use a service development process
5. Establish more effective remote support

The first and most important step is to Get closer to key customers in order to be able to quantify the value your service brings to their business. This will reveal your true market position; your competitive advantage will become clearer, so enabling improved decision-making. Sounds rather obvious, but you would be surprised how many converters are pushing technologies and taking an ‘Inside out’ approach rather than ‘Outside in’!

The ‘Outside-in’ approach allows managers to gain a deeper understanding of customer value, so as to Strengthen their service propositions. Often this knowledge comes out of a structured review with their customers about the key drivers for their business. This opens up the opportunity for companies to offer new solutions, especially if they can reduce the Total Cost within their customer’s operations or minimize business risk. Understanding these needs has allowed PET converters to offer production outsourcing and consulting services.  The challenge within the PET market is how to stay ahead of this trend and develop profitability. A video on the ‘Outside-in’ approach can be viewed on OUTSIDE-IN

Profitable delivery of services is dependent on having a Focus on high quality service delivery.  Typically this involves identifying improvement issues through benchmarking and observation of the customer touch points using tools such as video & interviews. How effectively has the plastics industry taken up the services challenge?  There is probably still significant room for improvement and using a benchmarking tool such as the Best Practice and Service Industry Standards would allow the industry to compare its operations against world-class service organisations.

Successful businesses always use a service development process to implement new contracts & services, in the same way that products move through project plans and milestone decision points. Tools like this help businesses deliver on time, at the right cost and quality, yet we know they are not as widely used in the plastics industry as other sectors.

And finally we see more and more companies using technology to reduce costs through remote support from a central location. Remote production monitoring would be a good example of this trend, but again is not widely utilized. There is an undoubted opportunity to use this type of technology to standardise and centralise service operations, yet retain the flexibility that most customers require.

The opportunities within the PET industry to gain differentiation through the delivery of high quality services seem clear. Those PET converters who wish to transform to client centric, service orientated businesses, would be wise to follow these 5 principals of success. With this research, Noventum now brings its deep understanding of Service Transformation into the PET industry.

You can download an executive summary of this report based on recent senior executives experiences from a number of leading technology companies through visiting the Noventum website

As an Associate consultant with Noventum, Nick a specialist in the development and execution of service strategies that increase the value of manufacturing and technology businesses. He has a deep knowledge of the needs of the PET market having been responsible for After Market Sales at Husky EMEA.

 Noventum focuses on Strategic Service Management and has expanded internationally over the last 10 years to over 70 staff worldwide.  With expertise in all areas of Service Management, that is continually undertaking pragmatic research on industry trends, providing clients with regular insights and working with them to add value through Service. For more information on our programmes & events see www.noventum.eu

Manufacturing companies are increasingly seeing services as a way to differentiate themselves from the competition. But is there a recipe for success?

Probably the first step is to realize that it is a fundamental paradigm change in leadership thinking.  Business  leaders who have developed their ideas in manufacturing and technology, have to move away from seeing Service as necessary evil or purely as a cost center. They must change their paradigm to seeing their value as an ‘output or capability’ that supports their customers own business goals. This does not at all diminish the importance of manufacturing & technology, which are critical to delivering these capabilities profitably.

Having made this paradigm shift and engaged in what is sometimes known as servitization, are there common themes in companies that do this well, such as BAE, Alsthom, Rolls Royce and GE.

In a recent interview on blogtalkradio, Professor Tim Baines from Aston University in the UK, highlighted 6 areas, which resonated with my own experiences.

1. Manufacturing Facilities located close to the customer, so as to offer faster and more flexible services.
2. Increase Manufacturing Vertical Integration:  For complex products such as rolling stock or engines, this allows greater scope for developing product systems that support the services profitably.
3. Information and Communication technologies: become key in collecting data on product performance which enables:
   a) Lower cost delivery of the service
   b) Collection of data that allows the value offered to the customer to be truly understood
4. People, need to change from a manufacturing perspective that focuses product delivery to a customer centric approach that focuses on the impact on the customer
5. Performance measures that develop beyond the SLA’s which monitor adherence to a specification, but to metrics that are linked to the customers own measures of success.
6. Processes: that move from being reactive around service, to being pro-active

But the key as often is to make that shift in mind-set. To move  away product & technology benefits and think more about the CAPABILITY your business is delivering.

PSi was invited to participate in a working seminar held at Henri Tudor aiming to understand how the government can help facilitate service innovation within Luxembourg. In his address to the working group the Minister for the Economy Jean Krecké clearly recognised the need for Luxembourg to make, ‘a radical change in its approach to innovation and added value’. He cited his own recent experiences in India and China as clearly showing that the nature of global competition has clearly changed.

With this introduction, the working part of the meeting began with an academic overview of the processes that companies can adopt to drive innovation. Where as there was agreement that the economies of Western Europe were now service dominated, there was disagreement on whether Service Innovation required a fundamentally different approach to Product Innovation, or whether the basic steps required to manage product innovation such as stagegate and portfolio management processes were intrinsically the same and what was required was an understanding of how to customize the steps in the process to meet the particular innovation environment.  A good example being the need within service innovation of a greater emphasis on prototyping and feedback into the services design. Our experience is that the latter is true, which it is why a deep understanding of how to use development processes is so important to successful innovation.

We then heard from Eric Dubois about the work Henri-Tudor has being doing in understanding the challenges of innovation within service systems. In particular the importance of managing the Service System Lifecycle through managing the services ecosystem, that contains the value proposition, technology, information/knowledge, people, processes & partnerships.

When looking at how other countries manage service innovation, Alan Mayo of the UK Services Policy Unit told us about the UK’s very market orientated approach, where there was not a Service Innovation programme as such. Instead the British government works with business to clear their barriers to innovation. A good example being the out-sourcing of many services in the National Health system could be argued to be the largest ever service innovation project in the world at £40bn.

TEKES from Finland run a programme where state aid for service innovation is available, but that the horizon’s of the receiving companies is challenged by TEKES innovation consultants to ensure money is spend on pushing innovations that can be taken across Europe.

We then heard about the Luxembourg State aid programme that is similar to Finland, but probably less aggressive on the consulting.

The outcome from the seminar was that it was felt that Luxembourg needs to do more to pull the different actors within the innovation process together, so that there is a coherent strategy for Luxembourg. Key is to continue to find ways to encourage the mind-set of Luxembourg’s business to be more innovative and dynamic.

Nick will be co-presenting with Mark Notschaele from Cetrel at the Innovation in Financial Services Summit in Luxembourg on the 23rd September 2011 which has been organised by the Public Research Centre Henri Tudor

The topic is on Creating focus and clarity, before starting the journey to results and relates Cetrel’s recent experiences in formalising an innovation process for their business.

CETREL had a history of technology & service innovation within the Luxembourg Financial sector, but realised that to retain its position as a centre of excellence  for Issuing Processor services, it needed to invest in its technology and particularly innovative/step changing technology

However CETREL identified there was no clear definition of innovation in the business, which led to the mixing of research projects with standard development projects, which slowed the innovation process. That not only did they need to look internally for ideas,, but that collaboration with leading researchers would be an effective way to remain on the leading edge of technology.

The presentation / workshop shows how a pragmatic working definition of innovation created a common language, the launch of a dedicated R&D team brought focus and a Product Service Innovation roadmap brought direction.

Nick will be presenting at the Service Management Expo 2011 on the 21st September with a former colleague Stefan Berger from Husky on the topic the Field Engineer of the future.

Societies concern with the environment, mixed with an increasingly competitive world, will challenge service organisations to provide the Support Engineers with an environment to last longer in the business, support their customers sustainability challenge, and to work leaner & cleaner. The presentation will explore trends in society and introduce real practical examples of how companies are meeting this challenge

“To act in a ‘green’ way costs money, but blue is when ecology becomes economy”

….so stated a senior European manager from Canon Netherlands at Noventum’s recent Service & Maintenance ‘11 conference. In Japan, the colour green is associated with cost, and indeed many corporations see the environmental issue as one of legislative compliance. Blue however is associated with economy & profit. Back in the late 80’s at the height of their battles with Xerox, Canon saw that ecology was about eliminating waste through finding a better, more sustainable ways to do things, which in reality saved money and improved competitiveness.  They now apply the ‘blue’ philosophy to all all aspects of their business including Service & Support engineers. The question is whether this is a trend or a fad?

Fiercer competition and an increasingly active concern within our global society for environmental issues has led leading companies to take a more holistic view of sustainability; Ensuring the long term future of a business through doing the ‘right’ thing. In other words making it a priority to look after their people, their know how, their environment, the local community, so keeping them ahead of the game. This has led to a profound shift in these company’s values & their brands, so influencing the ‘customer interface’ teams and ultimately the person at the sharp end, the Support Engineer. In effect sustainability and the notion of blueness will become the norm.  The organisations who recognise this now, will not only gain initial advantage from their brand position in the market, but most importantly improve motivation & retention of their own service staff, through closer reflecting the trends we are seeing in society.

Within this evolving environment, we explored they key sustainability challenges that Service organisations and their Support Engineers face;

• How to ensure the ‘Customer Interface’ teams reflect the evolving brand values around ecology that have been driven by the coming to power of ‘Generation Y’.
• Emboldening the support engineer to play a pivotal role in validating the values of the business, and supporting their customers ‘sustainability’ challenges
• The ‘ Be Blue Challenge’: become leaner and more responsive, supporting customers to also be ‘blue’.
• Managing the support engineer as a scarce resource, as  Western Europe faces up to the growing technical skills shortages. Indeed it is the recruitment, retention and training challenge that may be the toughest of them all.

We conclude that the Support Engineer of the future will have to

….last longer in the organisation

………………..be trained to support their customer’s sustainability challenge

………………………….and will be part of a ‘Blue’ Service organisation

If you want to get a feel of where Services are going the product world, you could do worse than look at Technology and software sector for clues. These are the businesses that have grown exponentially through product innovation that has helped drive the eye watering development of technology in our societies.

Typically they started with a strong product focus in either software, hardware or both that propelled them into market leading positions. As new entrant gained traction in the market, these business invested more and more in features to go faster, longer, more integrated and easier to use than their competitors. But how did the user’s cope in this ever more complicated world. The TSIA observed that a consumption gap started to open and widen. This is the gap between the potential value a product can offer a customer, and the actual value the customer gets from the product in its very day use.

This consumption gap spawned the development of professional services, such as consulting and project management, all aimed at helping the client get the most from their investment. Look no further at how the revenue mix for companies such as Oracle have swung towards services, or the rise of IBMs consulting business.

But what does this tell us about other industrial sectors? With the increasing digitalisation of industrial products, the potential to create new features through clever controls and operator interfaces is exploding. For example remote diagnostics appears to be offered by many equipment manufacturers, but do their customers get the true value out of the product. The answer we have found, is that increasingly they do not. Faced with more complex products, and a trend to outsource fixed costs such as maintenance, it becomes very difficult for a manufacturing business to maintain the performance levels of their equipment over time. Hence the great opportunity for OEM suppliers to step in with maintenance contracts, engineering consulting and other value added services.  A huge revenue and profit opportunity awaits those business that can take a leaf out of the technology book, and ensure their customers get the very most out of the products they supply.

Weighing up the multitude of factors involved in strategic decisions can give even the best brains a headache. For leader’s of manufacturing and technology companies, whose careers have developed around products and processes, this is especially true when it comes to Services.

Through the recent economic crisis, services proved to be a key contributor to the survival of many businesses, so propelling it to strategic prominence in the minds of many business leaders. But for many of leaders it is unknown territory, requiring a change in mind set and perspective. The quality of their decision making process can dramatically be improved by structuring the decision criteria in a way that identifies the key success factor’s for developing profitable services businesses.

In response to this need, PSi have developed a Service Capability Assessment tool based on a questionnaire used in the research of Professor’s Reinartz at Cologne University and Professor Ulaga of HEC-Paris.

To illustrate the power of this tool, PSi have developed a case study based from an assessment we did in June 2010 on a manufacturer of capital equipment . The spider diagram provides managers with a visual snap shot of the strengths & weaknesses of an organisation in relation to services. Under this summary, the detailed drivers of the summary are presented based on both qualitative and quantitive analysis. The case study goes on to demonstrates how data can be presented in an easy to understand format, that can be easily used to Decide and Develop your services transformation plan, and later to judge how successfully it was.

Since this case study was developed, the Service Capability Assessment has seen significant developments to the analytical framework and is now underpinned by the work of PSi’s research partners. It is now a statistically robust tool, based on inputs from over 200 companies that can be used to benchmark your organisation’s ability to release value from your services against other companies and industry sector’s.

You can download the case study here. Please let us know what you think.

Much has been written about the ability of technical experts within complex product  service environments, making the difference to customer loyalty or winning new deals. These are the people in our teams who have gone beyond being a technical expert. They have developed their relationship skills to act as informal consultants to their customers becoming what some people term as a trusted advisor.

So why do many industrial organizations shy away from encouraging their service people to create value in this way. It seems crazy not fully utilise the potential of the people who touch their customers most frequently and are probably more trusted by their customers.

Frequently it is the result of a product/manufacturing centric culture that regards technical field service as a cost centre whose purpose is to fix problems quickly and effectively. While this is true in some part, it is a vey simplistic way to look at the relationship between technician and customer. At the end of the day,  many customer issues are fixed by the relationship of the service technician with their customer.  These are the professionals that seem to able to smooth difficult technical problems that could lead to severe customer dissatisfaction by the way they handle their customers.

Another fear is that by being seen to be too close to sales, the field service team is seen to loose their independence in the eyes of their customer. However many organizations have overcome this issue through clearly understanding this balance, and positioning their sales & service organizations appropriately.

In practice we have found  many of these concerns can be overcome through training, coaching and patience. In a recent consultative selling program we ran for Service Managers for a capital equipment manufacturer, we were surprised at how many managers were able to adjust their style  to add more value to their customers. Even those managers that seemed least suitable to the new approach, over time were able to adapt some the ideas and improve their customer intimacy.

And a spin off is that once service people recognize they are not  ‘hard’ selling, but working as a consultative advisor, their motivation and commitment increase significantly. Indeed once they shift their job paradigm, most find it difficult to going back to the traditional ‘narrow’ view of service management.

‘Caught between two stools’ is a well-known phrase when we are not sure what we want to do. The same applies to companies especially when talking about services and the decision on whether to be product led or services led.

How is the going for you?

In his book S-Business, James Alexander sums up the concept from a services perspective very well.

There are those that have chosen to focus on product innovation with service as an important support organisation/cost centre: ‘Going Deep’.

There are others that choose to make the leap and become services led. In other words the solutions to the customer are created around services that pull through technologies or products: ‘Going Wide’.

There are then those caught between 2 stools.  They say they want to be services led, but act and think like a product centric organisation. They are ‘Going Nowhere’.

And it’s easier than one might think to fall into this trap.

A brief history of the fastener industry

A good example is the fastener industry, which until about 20 years ago was dominated by product companies. If you wanted to make money in this business, all you had to do was find a value added niche, work directly with your customers’ engineers to be specified into their designs and then deliver on quality. And this was a very successful recipe for many fastener companies in Europe.

Then distributors who were traditionally the ‘poor relation’ in the industry, began to realise that they could add significant value to their customers by supplying C class items to the production line on a JIT basis. In fact many customers perceived there was more cost to be saved from rationalising their fastener suppliers to a single source, then from innovative ideas to reduce assembly times and increase product quality.

Across Europe JIT distributors began to take the upper hand in many markets, depending on the dynamics of the industry and the culture of the market. As the power of Purchasing Managers increased through the 90s, they were able to insist that all contact come through the single source. Slowly value added manufacturers found themselves unable to gain access to Engineering.

Choosing the right option

What should they do?

Some manufacturers turned themselves into JIT suppliers and some gave up manufacturing completely; Going Wide.

Others chose to invest in their value added products and successfully differentiated their brand and remained profitable; Going Deep.

The companies that really suffered market share and margin loss were those whose products lost their competitive edge, who used their manufacturing focussed organisation to dabble in distribution and found themselves truly between two stools; ‘Going Nowhere’.