In this third and final excerpt from a recent white paper published by IFS and Noventum we look at three case studies illustrating successful transformation journeys.
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Now that we’ve outlined the strategic plans, as well as the technology enablers, let’s consider, holistically, what this looks like in practice. To illustrate the service transformation journey, here are three different case studies that each illustrate a part of the journey:
- The first case study is about a company that convinced the top management to change the business model to a service business. This case study focuses on the first part of the journey ‘Set the climate for Service Transformation’.
- The second case study is about a company that re-engineered their service delivery model to become low cost and perceived as high value by customers. This case study illustrates the step of using customer experience design to (re)design and implement the delivery model.
- The third case study is about a company that whose existing strategy adequately pushed sales but did not promote sustainable growth for the business. This case study highlights the step of redesigning the go-to market model.
1. CONVINCING TOP MANAGEMENT TO CHANGE THE BUSINESS MODEL TO BECOME A SERVICE BUSINESS
The current situation
A division of a German engineering group, that had traditionally produced and sold large machines for the paper making industry, had built a modest service business contributing less than 5% of the division’s total revenue. Their current service offering consisted of providing spare parts plus reactive and preventive maintenance service contracts.
They were facing several challenges:
- Price pressure on new equipment sold was increasing due to increased competition from Chinese suppliers
- Annual growth of the company had been below industry average for the past 5 years
- Profitability of the overall business was going down
Two senior managers saw several opportunities to grow the service business but were having difficulties in convincing the board of directors to strategically invest in the service business to develop its potential.
What was done?
The service director used benchmarks, an outside-in view and assessment outcomes to convince the CEO of the company to invest in growing their service business.
The following steps were taken:
- A financial and operational benchmark was performed of the company’s performance against a comparable group of industry leaders. The report included the growth and profit potential for this company if they would strategically invest in the development of their service business.
- A web-based survey was sent out to several hundreds of customers immediately after the most common interaction point of a customer service request by phone or email, a spare part order request, an on-site visit by a field engineer, and following a visit by a sales person.
- Several customer interviews were conducted using video conferencing. The interviews were analysed, and a short video compilation was made to high light the key conclusions about what the customers’ service expectations were and what service they were receiving.
- Growth potential and productivity improvement opportunities were prioritised, and the conclusions were discussed during a workshop with the board of directors of the company. The result was a commonly agreed and documented vision with the strategic and financial objectives defined and a service transformation roadmap for the coming years.
- A short-term plan was made that secured the first real result within the first year. In addition, a multi-year roadmap was implemented by setting up the service transformation governance programme organisational structure, planning and funding.
The result was that the board of directors understood that customers were expecting more help from the company. They expected help addressing their business challenges such as improving their competitive position with smart outcome-based services, industry knowledge, data and information systems that would help customers to lower production cost by integrating several players in the value chain.
The company has started their service transformation journey by implementing the multi-year strategic roadmap. This contains several projects that required substantial investment, organisational change, and the development of new capabilities in the company. The financial results in the past 5 years have been a sustained double-digit growth with profit margins above the industry average.
2. RE-ENGINEERING THE TRADITIONAL SERVICE DELIVERY
The current situation
A major manufacturer and service provider for healthcare equipment concluded that if they wanted to increase their market penetration while maintaining their profitability, they needed to dramatically lower their cost of service delivery. This was particularly true in emerging, lower cost markets.
Their service delivery model at that time was rather traditional: customers would call in if they had a problem with their equipment and in most cases a field engineer was dispatched to go on-site, diagnose the problem and fix it. This service delivery model was the result of relatively high cost of the equipment, typically ranging from 700 K Euros and higher per installation. The total cost of maintenance for most clients was relatively low when compared to the cost of depreciation and related operational costs, such as the cost of hospital staff needed to operate the equipment. Customers were expecting a personalized approach in service and they would find it normal that even for small problems, that could have been solved remotely a field engineer, would show up to fix it and explain to the staff what happened. The company was already improving their capability to remote monitor, diagnose and fix equipment but the traditional way of working was hard to change.
They were facing several challenges:
- The average price of equipment that was sold in high growth markets was much lower than in the traditional market. The average equipment price was below 50.000 euros but could go as low as 2.000 Euros per device.
- To provide field engineer services for such equipment would result in relatively high cost when compared to the equipment purchase price and cost of operation.
- Healthcare equipment is highly regulated and in most cases mission critical, often lives could be at stake, and delays in treatment of patients could lead to high levels of frustration
- and financial losses for hospitals and doctors involved. Therefore, customers would expect the highest levels of service, especially in emerging markets where hospitals were often small and did not have more than one device.
- Customers would not be willing to pay for higher levels of services and price premiums on service contracts were often not accepted, even though excellent service was certainly an expectation.
- As a result, many customers would leave the maintenance and repair role with their own internal Biomed (internal maintenance services for medical devices) and were, generally, disappointed with the level of service.
- Equipment failure could cause damage to the reputation of the brand, as customers expectation is a very high standard of service.
The company had limited understanding of how customers of medium to low priced equipment were currently experiencing their service. Traditionally, such equipment had not been a focus area for the service division of the company as the general assumption had been that the service business growth potential was limited and the possibility to earn good profit margins was low.
What was done?
To rethink the service delivery model, other industries were investigated to gain ideas. Very inspiring examples were the low-cost airlines that had stripped their services of all extras to the bare bone basic service requirements, simplifying and streamlining business processes, introducing high levels of automation and often asking customers to help themselves with self-service.
Other examples included business models such as Ikea’s knock-down furniture where customers are asked to transport their own furniture and assemble it themselves.
One important element in the success of these examples was that it is important to get the balance right such that increased automation and ease of use for customers, outweighs any perceived reduction in service caused by streamlining and process change. The objective of these models is to increase the value of service for the customer while reducing the cost of delivery for the supplier.
After translating these examples to their own business, the company came up with several high efficiency service delivery models:
- Self-help: Whereby customers solve issues and conduct maintenance themselves without the support of their service provider, including the use of manuals, online FAQ’s, and web videos.
- Supported self-help: Whereby customers solve issues and conduct maintenance themselves with the support of the service provider, i.e.: via a helpdesk (phone, email, chat) or ‘look-over the-shoulder service’, possibly with help of a remote connection for diagnosis.
- Product exchange: In this instance, rather than repairing equipment, a service provider will arrange its replacement whereby the customer will either receive a new or refurbished product.
- Bench repair: Here, the product in need of repair will be shipped to the service provider’s repair shop, after which the product is shipped back to the customer. In the interim the customer may receive a temporary loan product.
- Tech courier: Having determined which part or component needs replacement (via customer or service provider diagnosis), a low-cost courier with basic technical and product knowledge will deliver the component and conduct the swap. In this instance, products are designed for easy access and swapping.
- High efficiency Field engineer: In this instance a field engineer with limited technical skills is dispatched to repair the customer’s product, potentially conducting the diagnosis himself using diagnostics methods and tools that were created by very experienced field engineers • Remotely using a machine to machine (IoT) connection: In this instance a service provider will access a system via a remote connection and not only detect and diagnose the issue but also execute the solution via the remote connection.
- Predictive Maintenance Management: Using the data obtained from connected equipment the problems will be predicted in time so there will be no need to do any corrective repairs. Preventive maintenance plans will be adjusted, often just in time, to reduce the chance of malfunction and reduce downtime and lower maintenance costs in the process.
The following steps were taken to get to these models:
- An investigation was launched into customer’s expectations from the brand. Narrowing down the minimum expectation that should be fulfilled and the most important brand values that would have to be respected and built-into the customer experience.
- The current cost of the service value delivery chain was analysed and the main areas for potential cost reduction by changing the service delivery model were identified. All best practices and the latest trends in service delivery models from other industries were evaluated as well as emerging trends in technology that could help reduce the cost of delivery or improve customer experience.
- Pricing models were developed by benchmarking the equipment “street prices” with pricing of various levels of service. This was validated with various key markets in the world, in particular the markets where the highest growth of new equipment, at lower street prices, was expected.
- New service delivery models were designed and tested. Processes and enabling service information technologies were designed evaluating achievable cost levels, the impact on customer experience and the resulting service value proposition, often defining 2 or 3 basic services with a limited set of optional services to keep the complexity low.
- A multi-disciplinary approach was taken (including R&D, product marketing, manufacturing, and service) which led to the conclusion that sometimes products had to be re-engineered to improve their serviceability. Lowering the cost of service did have a major impact on the total life cycle cost. Product engineers that may previously have had their focus on inventing new features and benefits to the product, now understood the profound impact on customer experience and life cycle cost it would have to design products from the ground up for their desired modes and levels of service.
The IT team created a Service IT Solution Architecture that would leverage the connectivity of the products and use the data through intelligent applications that were now able to create predictive maintenance models. The data could also be used for process optimisation and designing enhanced services to customers.
After the design phase the new service delivery models were tested in the markets and rolled-out country by country to allow for local deviations from the standard model.
The result was that the new high efficiency delivery models have enabled the company to grow their service business, typically with double digit growth rates. It allowed the company to sell equipment with a “street price” as low as 2000 Euros together with a service contract and still achieve gross profit margins worth of 50% percent. Each delivery model would be able to fix remotely any software problem or problem caused by the end user. The chances of such problems occurring would be reduced by smart predictive analytics capabilities. Users would receive “look over the shoulder” assistance often with remote agents taking control of the device and helping remotely. Hardware problems would no longer require a field engineer to visit the customer site.
In the longer term, the mission critical components in a device would either be engineered with redundant components, or replaceable units that the user of the device could replace by themselves. Alternatively, a “tech courier’ a driver with a limited technical skill set would come on site to replace the unit. Field service, the most expensive element in the chain, had now become a service logistics operation often outsourced to third party logistics providers who had economies of scale and low-cost services. Customers were educated on the new service delivery models and the benefits of self-service, such as the speed of resolution and being fully in control, were also perceived as valuable, on top of the higher reliability and lower life cycle cost.
3. DRASTICALLY INCREASE SERVICE REVENUE BY SMARTLY CHANGING THE GO-TO MARKET APPROACH
The current situation
A pan European medical equipment provider whose existing strategy adequately pushed sales but did not promote sustainable growth for the business. This was because their sales force was still employing traditional techniques which pushed the features, characteristics and pre-defined benefits of their company but were of little relevance to the customers’ situation. In the purchasers’ eyes, the benefits being sold to them were barely distinguishable from those of other providers.
The service sales force presented characteristics and benefits of the service offering to the client but used very few ‘hooks’ to effectively highlight the company’s competitive advantage. They frequently spoke to someone other than the decision maker who had different needs. Further, in most cases their approach was reactive rather than proactive, i.e. the customer calls in with a query, or just before their warranty expires.
This resulted in the service sales force encountering issues relating to their client’s ‘budget’ as the person who called only had limited buying power and simply forwarded the proposal to the purchaser without being able to justify the value.
The root cause here was that their approach was not proactive and not customer driven; there was a lack of attention to the customers’ critical business issues. Consequently, a common vision with the decision makers on how to really address critical business issues could not be developed. This customer buying vision is essential however because it defines the value of the offering and the urgency to do something about it.
What was done?
Working with this medical equipment provider, we started transforming their sales approach to embrace customer centricity. The approach required getting a good understanding of client needs and challenges, which is only possible by developing the skills of customer-facing staff so that they can have informed discussions and get a good understanding of the customers’ business. Ensuring that the teams had the necessary capabilities to have such insightful conversations with customers was a specific challenge we addressed before improving the sales process.
A key step here was to train the company’s field service engineers to act as trusted advisors so that they could develop a better understanding of their customers’ needs. They were trained to recognise opportunities for sales which were then communicated to dedicated sales teams.
We designed a new go-to market strategy for each service, launched very specific sales campaigns and set up a dedicated service sales teams that proactively followed up leads and were able to articulate the value of a service in the context of customers’ needs.
That was done by researching customers’ service requirements. The company did have a good understanding of what customers were expecting in terms of product features and quality.
However, they had very limited knowledge of how the products were being used. It turned out that there was no such thing as “The Customer” as groups of customers with similarities in the use of the product and in the expectations of the expected benefits could be segmented by typical customer service needs. Customer service needs were further categorised into product related needs and customer business needs. The product related services needs can typically be satisfied by specifying the service performance characteristics in service level agreements. E.g. performance metrics such as uptime and response time were the key metrics in the SLA but could still be different for each type of customer.
The customer service business needs were a lot more difficult to identify. Customers had non-technical needs such as needing help to optimise the workflow in a laboratory or wanting to pay for the products based on their actual usage (Pay per Use) and leave the technical management to the provider. One segment of customers went so far as to demand that the product provider also manages the entire end-to-end process for a combination of laboratory instruments together with the staff of the customer.
Within a year the service revenue had grown by more than 20% as well as EBIT on the service revenue. Ultimately, the strategy forged a path for the development of a range of new products and services, as well as expansion into other market segments. These results would have been impossible without an underlying focus on what has become the defining factor of sales: customer centricity.
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