Annick Perry, Senior Project Manager, Noventum gives us some insight into the findings of a recent research project that Noventum and Aston Universities Advanced Services Group have undertaken to look at Advanced Services Trend within...
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Annick Perry, Senior Project Manager, Noventum gives us some insight into the findings of a recent research project that Noventum and Aston Universities Advanced Services Group have undertaken to look at Advanced Services Trend within Manufacturing...
In a joint research study with the Advanced Services Group, a centre of excellence at Aston Business School, Noventum explored how five societal ‘Megatrends' bring opportunities for business growth for manufacturing companies through advanced IoT enabled services.
The five societal megatrends we explored in this research are:
- Value change: The increasing importance of transparency, diversity, individualisation and freedom of choice, as well as demand for meaning and connectedness.
- Green and resource scarcity: The increasing consciousness of manufacturers when providing products and services to fulfil human development and at the same time take care of the natural system.
- Health and Aging: An ageing society and the increasing importance of healthy living and lifestyle.
- Globalisation and the need for community: The increasing emphasis on communities, localities, etc. to foster identity in light of a globalised world.
- Inequality and Social Exclusion: The increasing market share of poor customers, means reducing the complexity and cost of a good and its production. Designing products for emerging countries may also call for an increase in durability and when selling the products, reliance on unconventional distribution channels. Globalisation and rising incomes in emerging countries may also drive frugal innovation, which implies that services and products need not be of inferior quality but must be provided cheaply[/ordered_list]
In this article, the focus is on just one of the Mega Trends ‘Value Change’ which provided some interesting insights on how this will impact the manufacturing industry.
Customers’ perceptions of value are changing
Consumer habits are changing, we are becoming more tech-savvy, and less connected to ownership of products and, in favour of experiences delivered by service providers operating new business models, like Airbnb. Expectations of a personalized experience are higher, which means companies must respond to customers’ needs faster and in a unique way. This change is passed on by B2C customers towards their B2B suppliers and partners. For manufacturers, this means staying alert and being proactive. As Anders Mossberg of Scania Trucks stated in our study, “Talk to your customers’ customers because they are the ones that will drive the trends in the future.”
Customers want to Buy Everything as a Service
Manufacturers are recognising the need to find new ways of offering value to customers. Their offerings are changing from a product focus to a service focus, which emphasises providing the customer with the capability to achieve their business goals, instead of emphasising product features. They are now competing through a combination of products and services, enabled by technology, tailored to meet the customer’s needs. Rolls-Royce, for example, sells hours of flight time for its jet engines rather than the more traditional purchase of the engine. These are more sophisticated, higher-value contracts, based on outcomes. They are also higher risk for the manufacturer but with higher potential to create a competitive advantage.
New technologies enable to respond to changing needs
New developments in technology are enabling the value chain to be redesigned. Embedded sensors and processors in assets and devices are increasingly capable of transmitting data to control centres to signal the need for repair or refurbishment. Research participants cited the introduction of driverless vehicles, some of whom mentioned that this is already a reality in some situations, and will increasingly be the case in the future. It will provide the opportunity for companies to take leadership and redesign the value chain to increase efficiency and added value. New configurations of networks allow companies to redefine their role in the value chain.
A transformation is needed
Delivering such advanced service requires fundamental changes in the manufacturer’s operations, relationships, organisational structures and potentially a change in their culture. Denis Bouteille of Fives addressed this in our study by saying, “Talking to the customer, we need people who can really develop the empathy, the listening and the deep understanding.”
Conclusions of the research on societal ‘Megatrends’
This exploratory research concludes that societal megatrends can drive opportunities for manufacturers to compete and grow through advanced services. To realise those opportunities, it’s important that companies exploit the implications of new trends together with their customers and explore what the impact of societal trends might be for future needs. The megatrends explored in this research show a significant potential for companies to develop advanced services and strengthen the competitive position of companies. However, some key factors need to be taken into mind when manufacturing companies take the decision to invest in developing advanced services.
1. Before companies can start developing advanced IoT enabled services…..
- Top management needs to support the development of advanced services and provide clear leadership to staff in the mindset appropriate to the development of the new capabilities[/unordered_list]
2. Stay close to your customers to identify opportunities for advanced IoT enabled services by understanding how value perception and needs are impacted by societal trends
- Understand your companies role in tackling global social and environmental challenges
- Explore the opportunities of the ‘circular economy’
- Recognise the impact of IoT on your customer's value chain
3. When you are developing the business models around advanced services make sure that:
- The tacit knowledge of the very experienced but ageing workforce is transferred into technical solutions to deliver advanced services
- Your company thinks global, but acts local and delivers a superior customer experience
Want to know more? Download an executive summary of this research and learn how the other societal trends can bring business opportunities. @ http://fs-ne.ws/dOId30iepLh
While for many the shift from traditional transactional product focussed business models to a more strategic service centric approach that focuses on longer term, outcome based contracts is a complex process to navigate. However, Jason Smith,...
While for many the shift from traditional transactional product focussed business models to a more strategic service centric approach that focuses on longer term, outcome based contracts is a complex process to navigate. However, Jason Smith, General Manager, Aftersales, EMEA for Japanese food packaging and weighing manufacturer Ishida is a man that has not only been through the process, he has done it twice.
Kris Oldland, spoke exclusively with him about the importance of executive level buy-in to undertake such a move and why customer selection when rolling new service models out is vital….
KO: All too often I hear that despite the fact that service operations of a business brings in a significant proportion of revenue into a company, there is a general lack of support for the service team of many businesses at the top tier executive level.
This of course would be a fundamental barrier to moving to an advanced services model and is a challenge many senior service executives are confronted by even though they can see how both their business and their customers could benefit from a move away from the traditional break-fix maintenance to the type of proactive service operations that advanced services require.
So how can we get the voice of the service department heard at the executive level?
JS: I think the only way to do that is to have a fairly compelling argument and there is nothing like having a very compelling customer story to help give that leverage at board level. Traditionally, businesses are built upon delivering a product and they will have done that very successfully to have grown to a large size. It is the case really that they will have done so on tangible benefits.
I think within most manufacturing organisations there is still probably a lack of understanding about the value services can deliver to a customer combined with a product
Its still regarded as a separation – that’s why we have terms like aftersales – it’s after the sale, its not combined with the sale.
For your typical product salesman it’s hard to comprehend something as intangible as advanced services and how to explain it and describe the value when he hasn’t got any evidence or experience to back it up with.
KO: So does the adoption of servitization as a business model need to be driven from the top down?
JS: Absolutely, without that support from the top it is dead before it’s ever started.
KO: What about the customer point of view - it’s one thing pushing an advances services route and getting buy in internally, but what about externally?
Is it a case that some customers just don’t want to come down this route because they are so used to the transactional nature that they have always operated within?
JS: Very much, it is a cultural thing for a customer and customer selection is therefore very important.
A customer who is used to transactional relationships, that may have those pressures on them themselves from their own customer base, would be one who is very transactional and possibly looking to exploit the relationship.
I think customer selection is absolutely vital. The question is along the lines of technology push/customer pull – which is best?
Therefore, I think customer selection is absolutely vital. The question is along the lines of technology push/customer pull – which is best?
I think it depends very much on the pace at which you want to work. Customer pull you lose control of the pace and velocity at which you want to work at in terms of the delivering the service. But if you push it out to your customers you have the challenge of convincing them to get on board.
KO: Ultimately will there always be two-tier customers, will there be those companies that you take on the servitization journey with you and those that remain doing business in the traditional sense or is the long term aim to eventually bring everyone on board with advance services?
JS: I think there is really three types of customers and I would support the Caterpillar approach that there are those who want to do it themselves, those who want us to do it with them and those who want us to do it for them.
In terms of servitization probably you are always going to have an element in each of those three camps. The challenge that we face as service providers is moving them out of the ‘do it myself’ to ‘do it with me’ to ‘do it for me’.
Obviously moving them from a point where they are doing it themselves, to where you are doing everything for them is a big leap of faith. It’s not something you can do overnight, certainly not at a risk that you can sustain economically. So it’s a case of migrating that customer and building that trust over a period of time, to gain the confidence that you can deliver and that you can add value to their business.
KO: We touched on the fact that servitization needs to be driven from the top down, but do you need buy-in across the whole organisation as well?
For example with our field technicians - do we need their understanding of the concept and if so how do you achieve that?
JS: The easy answer to that is yes, you need buy in across the whole organisation because you are going to be relying on those inter-siloed relationships within the business to deliver within your promise. You’re going to have to rely on your supply chain and you’re going to have to rely on all your internal supporting departments to deliver that.
It is a fundamental change to the way you do business and the way you have done things traditionally, so yes the answer is yes you do need to have buy in from all levels and in particular your service engineers
There will be a lot of knowledge in those teams, which is experiential and built up over time together with product training and in some ways you’re starting to both capitalise on their experience but also put it in a bottle so that you can use it in your supporting systems and algorithms for example.
That represents a fairly big challenge and that’s also going to have it’s own implications for supporting systems such as knowledge management.
KO: Finally, technology is the key enabler to allow us to move to advanced services, but how far along the journey do you think we are in terms of the development of the technology such as IoT and Cloud? Are we there already or is there more to come?
JS: In terms of being enabled to do the job and to support the decision-making within servitization I think we are actually there with the Internet of Things. OK, there will be enhancements, maybe faster connection times, you can store more data etc., but I think it is essentially there.
We’ve got enough to be able to do it, maybe even too much.
The real challenge is what you are measuring, the volume of what you are measuring, how you analyse it and draw conclusions from it -to me that is the real challenge.
Also the prize is that the value of the analysis that you do is metamorphosed into the value that you can then create for your customer. How you do that, that methodology, is your future IP. That’s where your sales proposition will lie in the future.
So its not the fact that you can get the data, its what you measure, how you measure it and more importantly how you analyse it, what you do with it and being able to express that value in a manner which the customer can fully understand.
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In his leader for this issue, Kris Oldland discusses the challenge in finding a metaphor powerful enough to reflect the potential transformation that is happening in field service organisations across the globe...
In his leader for this issue, Kris Oldland discusses the challenge in finding a metaphor powerful enough to reflect the potential transformation that is happening in field service organisations across the globe...
The title came to me easily enough and it is in evidence all throughout this issue. Advanced Services is a field/movement that is advancing at rapid pace.
But how best to convey this in the artwork?
In my mind the shift towards Advanced Services is growing in momentum and as it begins to hit the tipping point it will become an unstoppable force, driving into every corner of business, across every part of the global economy.
Well as ServiceMax CEO Dave Yarnold comments in our exclusive interview on page 24 “Of course outcome based services makes a ton of sense to customers. It’s far more balanced, it’s what customers want.”
Ultimately, this is why Advanced Services will flourish. Because it brings balance to relationships between service providers and their customers, and in doing so brings benefits to both. I remember someone telling me once that a good negotiation is where both parties feel like they have lost something. Where both have had to make some concession to the other.
Advanced Services is perhaps the first business model I’ve come across where that actually doesn’t hold up.
So one of my first thoughts around the artwork was something like a tidal wave or tsunami. A great unstoppable force of nature that would sweep everything before it, leaving space in it’s wake for rebirth - rebuilding and replacement of the old ways with something new.
However, I felt that this imagery was to destructive, to uncontrollable, to urgent. One thing about the Advanced Services movement is it has been patient. Patiently waiting for cultures and technologies to catch up since at least the mid 60s when Rolls Royce were forced by American Airlines to come up with a new business model because the old one wasn’t working.
Now that the time is finally right for Advanced Services to take hold it will be much more of a steady march ever onwards than a flash in the pan incident.
Which lead me to the imagery that I settled on, although I still had considerations around whether the image of an army walking across a battlefield was right to convey something that as I mentioned previously, is a movement that brings balance to the force provider/consumer relationship?
After consideration I realised that of course an advancing army isn’t always one of invasion and oppression but alternatively can be one of liberation and freedom.
OK maybe I’m taking the metaphor too far here, but essentially the companies that have pioneered the SaaS model in the software industry such as Salesforce absolutely broke the chains of monopoly that were restricting all but the biggest players.
Whilst the likes of IBM, Microsoft and Oracle mocked the Cloud, innovative start-ups were getting a head-start, reinventing the game so both they and the customer had more control and freedom than ever before- which ultimately pushed the need for innovation across the whole industry, leading to mass disruption.
You can bet that large manufacturers and others have watched this development across the last decade and a half keenly and are looking to see how they can be sure they are on the Advanced Services train, so they don’t get left behind playing catch up, like the big players in Software had to.
Of course, that’s the other flip-side of the cover image I opted for. Ultimately it does invoke thoughts of a battle or war and in such conflicts there are always winners and losers.
I can’t help but feel that right now we are at a pivotal time in the history of enterprise.
I see us at a fork in the road where those companies who take the right path now, those that embrace technologies like IoT and business concepts like Advanced Services will truly flourish across the next decade.
And as for those companies that don’t... I have just one word of advice.
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Faced with high fuel costs, congestion, driver shortages and changing delivery patterns, the UK road transport industry has to change radically to improve profit margins and survive. Servitization is the solution, recommends this report by...
Faced with high fuel costs, congestion, driver shortages and changing delivery patterns, the UK road transport industry has to change radically to improve profit margins and survive. Servitization is the solution, recommends this report by Eleanor Musson and Dr Ali Bigdeli of the Aston Centre for Servitization Research and Practice
The road transport industry is crucial to the UK economy; 68% of freight goods are moved by road according the UK's Department for Transport Transport Statistics 2014. But the industry faces the challenges of fuel costs, driver shortages, congestion and regulation. Moreover changing consumer behaviour in the UK is turning the industry on its head; 74% of adults bought goods or services online in 2014, compared with 53% in 2008, according to the Office for National Statistics, Internet Access in Households 2014, and the demand for flexible, fast delivery is growing rapidly according to the Guardian newspaper. These are just some of the factors behind the low profit margins in the industry: 3% for operators , reports the Freight Transport Association in its 2014 Logistics Report, and 6% for manufacturers.
This industry has to change radically. There is little to be gained from piecemeal changes to products or pricing; the customer’s priorities and requirements must be placed at the heart of operational strategies. This is achieved through what we call advanced services, which are implemented in an organisation through servitization. Advanced Services are provided by manufacturers and technology innovators with an intimate understanding of the customer’s business priorities, and their difficulties in achieving these. They are a package of a product, and the services that go around the use of the product, consumed as a single offering, which help the customer achieve its requirements.
In order to understand how advanced services and servitization are being adopted in the road transport industry, we interviewed a panel of senior executives from within vehicle manufacturers, component manufacturers, operators, fleet management companies and technology providers, and we outline some of our findings here.
There are three categories of advanced service currently been offered in this industry: [ordered_list style="decimal"]
- The first is vehicle condition and safety related services. Real-time reporting about the condition and performance of the vehicle helps the service provider (e.g. manufacturer, fleet management company) to see how the vehicle is being used by the customer, which mitigates the contractual risk and gives opportunities for service and product improvement. Data are used to help fleet managers monitor costs and identify problem vehicles, either by sharing the information with the customer, or by the manufacturer providing this function as a service. For fuel efficiency and safety, manufacturers test tyre pressure and tread depth, with real-time reporting to alert drivers to problems, and service operatives on hand to make repairs or replacements.
- The second type of services is driver-related services. Through the use of telematics, the manufacturers and operators are able to assess how the truck is being driven, to examine any incidents such as harsh breaking, speeding and idling, and to inspect driving and rest periods. This data is analysed to identify training requirements and in some cases pay performance bonuses.
- The third type is route planning and delivery services. Real-time reporting allows operators to manage routes, taking into account live road conditions. Data on deliveries made compared to schedule and route information enable managers to identify opportunities for improvement.
Advanced services have a three-fold impact in the industry:[ordered_list style="decimal"]
The greatest efficiencies are achieved by maximising the uptime of vehicles, planning routes efficiently, and processing orders. To illustrate:
• The use of technologies and data by skilled route planning staff reduces mileage driven by up to 10%
• Uptime is maximised by reducing roadside failures thanks to greater visibility of the vehicle, its condition and how it’s being used
• Operators can expect at least a 5-15% reduction in vehicle maintenance and service costs as a result of condition monitoring according to telematics specialist Microlise
- Safety and better image
Driver-related services have had a significant impact on driving standards, and in turn the image of operators and the industry. In this regard:
• Microlise reports customers see annual reductions in speeding incidents of up to 90%, and a reduction of up to 60% in the number of accidents.
• The same report states operators are seeing a 5-15% reduction in carbon emissions as a result of optimised routes and better driving.
- Cost Savings By enabling improvements in driving performance and better, more informed route planning, technology is helping to deliver cost savings in terms of fuel usage. According to the Freight Transport Association's Manager's Guide to Distribution Costs, fuel represents on average of 30% of the cost of a vehicle . The average unit costs £49,000 per year in fuel. Microlise reports an average 10% (£4-5000) saving on each unit’s fuel consumption being achieved by customers using driver management and training tools.
While the leading organisations demonstrate what can be achieved, our research demonstrated that advanced services are not being adopted universally or uniformly in this industry. In order to accelerate this, we recommend that manufacturers ensure advanced services are properly led and embedded. Servitization is a wide ranging, complex process that requires transformation and coordination of an entire organisation. In most companies, it doesn’t fit neatly within the realm of one department. Just like any other organisational change, servitization needs a champion to lead it and generate buy-in across departments.
Servitization provides an opportunity to ‘be closer to the customer’ which can also be facilitated by innovative pricing models which assure the prospective service user of the level of commitment, and create alignment of objectives between service provider and user. Selling and supporting services is a very different proposition to selling products, requiring different skills and reward structures. Manufacturers will need to invest in training their staff, and consider the incentive and reward structures that will generate the desired outcomes.
The full whitepaper report Delivering Growth can be downloaded here:
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