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Coen Jeukens, CSO, D-Essence, explores the developing world of Products as a Service and the increasing drive both from customer pull and vendor push towards outcome based business and service models...

When we need light, we buy a bulb. When we need a hole, we buy a drill. It is so engrained in our thinking to own products whilst we actually need the outcome. More and more we see upstart businesses cater to this “new” demand. They sell a product as a service (PAAS). How are you preparing your organisation to sell your product as a service?

We move water 

At the After:Market 2016 event in Wiesbaden a German manufacturer of pumps introduced his company with the words “we move water”.

With those simple words he set the stage for his PAAS business model. Selling the pump is not his goal; it is a means to start an outcome-based discussion with his client.

In doing so he enters in a conversation where he truly understands what drives his customer. Because the conversation goes beyond the pump, he has created a new business model where he earns money with moving water.

The additional benefit is for the environment. Instead of designing your product for repeat sales you will wind down a track where you deliver outcome at a minimal material/ energy footprint.

Transforming legacy businesses is possible 

Understanding the effort it takes to transform a legacy business, University of Cambridge professor Andy Neely asked the panel of the Field Service Summit 2017 in Warwick what successful transformation examples should encourage others to follow suit. Both Boeing and Philips demonstrate you can have best of both worlds.

They serve customers in a hybrid model.

 

Via one business unit customers can buy the product in a legacy CAPEX/ OPEX mode. Via another business unit customers can buy the output/ outcome of the product. Depending on his propensity, a customer can choose between a  jet engine and a “power by the hour” propulsion solution or a bulb and a “pay per Lux” illumination solution.

Why should you explore PAAS

It may scare corporate executives and sound very blunt but exploring PAAS is a “do or die” message.

If you don’t do it, somebody else will. At best it is your current competition and you can see it coming. For the worst, you will face competition from newcomers starting with a clean slate.

Record labels were so focussed on holding to their CD product revenue stream and deliberated so long on legal download options, they were decimated by services like Spotify.

How do you assess your organisation? Products are meant to deliver a solution.

Using a more positive approach: the more you understand how the outcome of your products generates value to your customer the more you establish yourself as long term partner in both a profitable and sustainable way.

Where to start

In the example of Philips Lighting, a small team beyond the radar of product based business model executives designed the “pay per Lux” solution.

Upon demonstrated success with a launching customer the new PAAS solution was put in the spotlight.

Setting up a sandbox environment with servitization minded people is essential, as you will be in for a paradigm shift:

[unordered_list style="bullet"]

• When you sell Outcome there is no title passage of the Product. This means the product remains on your balance sheet.
• As supplier you will be responsible for and remain in control of all CAPEX and OPEX cost components.
• You need to understand your customer to define a “pay per use” earnings model.[/unordered_list]

Understanding cost

In the Philips Lighting dialogue the customer asks for a Design, Build, Finance, Maintain and Operate solution.

This DBFMO framework (in the image above) can be used to understand total cost of ownership. Design and Build lead to the commissioning of a Product.

Maintaining the Product safeguards the Output of the Product. Operating the Output provides an Outcome. The Outcome generates Value. Maintain and Operate are stated in terms of OPEX. When adding Finance services to your portfolio, you can transpose Design and Build CAPEX into OPEX too.

Design-for-Operation

With PAAS the total cost of ownership shifts from customer to supplier. As a result the supplier is incentivised to throw in all his expertise to continuously optimise product, output and outcome.

In order to make pay per use profitable all cost elements of DBFMO need to be designed in unison. Call it design-for-operate. Where design-for-service supplements design-for-manufacturing, design-for-operate augments the former two.

 

Remember: business models based on breaking products should not be accepted.

Pay per use

Where design-for-operate drives towards minimising waste and cost, engineering the right pay per use model determines your revenue. This is where entrepreneurship and partnership kicks in.

Pay per use is a bi-directional handshake between supplier and customer that takes it to the next level compared to a typical sales-purchasing relationship.

Instead of a cost/ revenue conversation about products and output your dialogue will evolve into an outcome based profit/ value handshake.

Your customer will help you define the pay per use drivers. If you really understand his business and you are confident in the capabilities of your own organisation to generate outcome that makes your customer succeed, your customer will be inclined to enter into a partnership to make you succeed as well. As a result de pay per use drivers will be fair, sustainable and durable to both parties.

Don’t own, enjoy

Ownership comes with responsibilities. Why should a customer have to carry the risk whilst the supplier is the expert in both understanding and influencing risk. A PAAS model is the ultimate form of “back to core business”. The supplier managed DBFMO, the customer uses the outcome to generate value.

In return the customer pays for use.

Does pay per use really work for both parties or do words like partnership, fair and sustainable sound altruistic? The IT industry does give us insight into what is to come. Because SAAS solutions are available for consumers as well, first hand experience is changing our perceptions, attitude and decision-making regarding cost and value.

 

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“Philips Lighting – a PAAS dialogue – “pay per Lux”*

Customer: “I need light in my office.”
Supplier: “How many bulbs do you need?”
Customer: “I don’t know. You are the expert. What do you advise?”
Supplier: “Our proposal contains 100 bulbs of model abc. This is an investment of xyz.”
Customer: “I want the energy bill of the bulbs to be included in your proposal.”
Supplier: “Our renewed proposal contains 90 bulbs of our newest energy efficient model.”
Customer: “I want you to design, build, finance, maintain and operate the solution.”
Supplier: “We have developed a special lighting solution for you. Low on energy, sustainable in materials usage and easy to (de)install. We name it ‘pay per Lux’.”

 

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Kris Oldland, Editor-in-Chief, Field Service News talks to Coen Jeukens, Chief Service Officer, D-Essence who was the Chair at this year's Field Service Forum hosted by Copperberg about the key themes of Agility and Disruption in Field Service

 

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Coen Jeukens, Chief Service Officer, D-Essence describes himself as a business leader with sales DNA and a service heart, here he outlines the knowledge he thinks every service manager should have in his tool belt when it comes to selling service both externally and internally...

In the boardroom Let us start with an example of a typical business plan review meeting:

• Exhibit A: our targets are more ambitious than our current performance.
• Exhibit B: we face increased competition, increased customer volatility and shorter product life cycles leading to declining market share and diminishing attach rates.

Now suppose the CEO invites you, the field service manager, to pitch a solution to this non-sustainable situation.

Are you prepared? Will your message and vocabulary resonate with the board members?

For as long as I can remember, field service managers bring a message of reality about healthy and sustainable profit margins - about attach rates and trusted relationships.

What do you think the sales manager brought forward as solution? A message of hope: “if we introduce a new model, add a new feature or drop the price, we will regain market share”.

When it comes to choice, a message of hope prevails over one of reality.

What makes the clock tick?

The ugly truth of corporate economics: it’s all about sales and success is measured in revenue figures.

Add to that the sales perception that after-sales does not exist without an initial sale and you know the picking order is set. Also factor in mind that most CEO’s have a sales background.

Sales targets

Sales is a big numbers game. Product hero’s playing with capital expenditures.

Going for the win is putting in a peak performance in a short period of time, balancing effort and reward. Asking sales to include Opex related  propositions in the sale does sound altruistic considering that doing so complicates, lengthens and may jeopardise the sale. What about profitability?

In the sales mind-set profitability is not a driver or performance indicator. Not because they don’t care, far from that. Because in most customer organisations the decision making unit for both Capex and Opex are different entities optimising their own silo.

Profitability, who cares? Certainly not sales.

Funnelling leads and Qualification

Sales vocabulary uses words like suspect, prospect, lead and qualification. Elias Lewis has put these words in context in 1898 when he conceived the sales funnel. This funnel is engrained in every sales process. It is in the DNA of sales people to convert leads into a sale.

One of the most important steps in the sales process is the qualification of a lead. Here sales balances effort with reward. When service starts feeding the funnel, it is crucial to know the difference between a lead in the eyes of a field service engineer and a lead according to sales.

In the eyes of sales service-leads are a big bag of small peanuts.

Converting those requires a lot of effort with small reward. For sales to follow-up on service-leads, those leads need enrichment and qualification.

What we need to grow sales? Leads, more leads and qualified leads.

Window of opportunity

Though the clock ticks sales, typical sales solutions to the corporate challenge fail to reverse declining market share or do so at the expense of profitability.

In both cases the course is not sustainable. This is good news as it provides the opening for the field service manager to come forward with his ideas.

Remember, growing sales is an operational process.

Growing your business is changing your business model.

Find the right tune

Although ideas have been voiced for many years at field service conferences, they will be new for sales once rephrased in sales vocabulary. It will become a customer touch points game with roles for hero’s and ambassadors. It is the perseverance of sales to get to a customer on board. It is the caring mindset of service to keep a customer happy. It is their joint effort to come up with new business.

Find the right mix between sales DNA and a service heart to develop new business.

How will sales react? As long as the field service manager doesn’t gloat over his profit contribution and trustworthy customer relationships … and sales can stay in the lead, then sales will go along.

Field service managers can lead by following.

 

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