Preparing for the Fourth Industrial Revolution

Antonia Kay gives a preview of WBR's upcoming event in St. Louis

Worldwide Business Research (WBR) will be hosting the Connected Manufacturing Forum on June 19-20, 2018 in St Louis, MO. I recently had the chance to talk to Antonia Kay, the Program Director, about a few emerging trends impacting the Manufacturing Industry.

1. What are the biggest challenges facing the Manufacturing Industry today, specifically when it comes to Industry 4.0?

We are at the beginning of the Fourth Industrial Revolution, which will fundamentally change our lives. Things that we deemed impossible or futuristic as children – artificial intelligence, human-like robots, drones, self-driving cars – are quickly becoming an everyday reality. As fascinating as it may sound, these technological advancements translate into a lot of uncertainty and hard work for industrial leaders tasked with “giving a facelift” to their manufacturing ecosystems.

The biggest challenge most executives are facing today is mapping out their digitalization journey, making first steps towards connectivity and automation, and adapting their company culture to the drastic change that comes with the digital transformation. As of today, there is no one-size-fits-all approach to connected manufacturing, but top global industrials are investing in IoT, cloud computing, advanced analytics, robotic process automation, and 3D printing in order to capture opportunities early on and secure their competitive edge in future.

2. What do you see as the most important trends and opportunities with respect to Industry 4.0?

The Industrial Internet of Things (IIoT) is the word of the day.

Global manufacturing organizations are investing in predictive maintenance and condition monitoring – the move from don’t fix what’s not broken to making sure things don’t break through continuous, smart monitoring and maintenance of the factory equipment.

Augmented reality (AR) and virtual reality (VR) are big too, as they can drive equipment optimization and productivity on the factory floor and beyond.

And, of course, there is an ever-present talk about Big Data and advanced analytics – how do you collect and secure your data assets, how do you leverage it for informed decision making, product/service innovation and, eventually, improved customer satisfaction?

The opportunities that come with connecting people, processes, and assets are endless. The question is, how do you do it?

3. What is the Connected Manufacturing Forum and why should people attend?

Connected Manufacturing Forum is a networking and learning platform for Industry 4.0 frontrunners who are ready to move past fear of the unknown and revolutionize their business, one step at a time.

4. Can you give an overview of what people will get?

Connected Manufacturing Forum will offer a comprehensive coverage of the main Industry 4.0 trends and will help manufacturing leaders find answers to their toughest digitalization questions.

We have a good number of real-life case studies focused on Industry 4.0 blueprint development and implementation, projects that have helped companies like Johnson & Johnson, LEGO, Intel, Boeing, Coca-Cola and more start their connected manufacturing transformation, align teams around the same goals and prepare for future industry advancements.

Cultural change and workforce management is a big topic this year – executive leaders from Georg Fischer, Kuhn Krause, Subaru, Nature’s Variety will share best practices in preparing your organization for the Industry 4.0 revolution, delivering required training to your existing employees and expanding your talent pool by attracting new, highly skilled workers who will drive the future of your company.

Lastly, we will be discussing innovative technologies – IoT, augmented reality (AR), 3D printing, robotics, sensor technologies, human machine interface (HMI), predictive analytics – that can help companies improve processes and optimize efficiencies.

5. Why did WBR choose to produce the event, and how will it be different from other events focused on Industry 4.0?

Our in-depth market research indicated that there was a high need for an Industry 4.0 conference that would help industry leaders benchmark their connected manufacturing strategies and find solutions to the toughest digitalization challenges.

While there are many smart manufacturing events out there, the quality of our content and the seniority and experience of our topnotch speakers by far outweigh competition and what other events have to offer. Our program was developed through in-depth interviews with Fortune 500 executive leaders and is packed with case studies, panels, roundtable discussions, and interactive workshops focused on real-life challenges that manufacturing executives are trying to overcome on a daily basis. Our goal is to help them do just that and progress to the next digitalization level.

6. What will people be missing if they do not attend?

They’ll miss out on top-quality, real-life content and outstanding industry networking opportunities. If your company is going through a digital transformation, you simply can’t miss Connected Manufacturing Forum!

7. If they must come up with one reason why to attend, what should it be?

Connected Manufacturing Forum is your one stop shop for all things Industry 4.0. Have questions about digitalization? Don’t know how to roll out an IoT initiative and deliver on it? Want to learn from the best in the industry and meet the most innovative solution providers? Then hurry up and register today!

Register to join 150+ executives in a collaborative debate on the emerging Industry 4.0 trends in Manufacturing, Technology, Operations, and Advanced Engineering.

And as a bonus to my readers, use code CM18BLUMBERG to save 25% on your ticket!

REGISTER NOW

Value and Price: Understanding the Forces that Influence Service Revenue

This article was first published at Field Service News.

I am often asked by clients to help them implement strategies to grow their service revenue.

Often these engagements occur because a client perceives that they are not getting their fair share of revenue and it’s impacting the profitability of their company.

Developing new revenue streams does not happen by magic, a consultant doesn’t just waive his wand and suddenly sales take off. Increasing top line service revenue takes a little work but the results of this effort can pay off  handsomely.

All too often, Field Service management teams attempt to solve their revenue woes without first understanding their root cause.

They assume that the reason why more customers are not purchasing services from their company is that they price is too high. After all, that’s what their customers are telling them, so it must be true.

Companies that get caught up in this line of reasoning often find themselves implementing sales strategies based on some form of price concession, discount, or gimmick.

For example, charging the customer a small upfront contract fee for the right to purchase Time & Materials (T &M) service at a discounted rate, or treating service contracts as though they were a paid-up T & M retainer and allowing customers to carry unused portion of the retainer into the next year.

The assumption behind these pricing strategies is that more customers are likely to purchase the service because it is more affordable.

Unfortunately, the logic behind this line of reasoning is a bit flawed. Sure, the company may be able to secure more equipment under contracts through price adjustments. However, they will more than likely need to sell more service contracts to achieve the same gross margins as before the increase.

A company with a 40% Gross Margin target would need to generate an additional 35% in service revenue if they were to lower their prices by 10%.

For example, a company with a 40% Gross Margin target would need to generate an additional 35% in service revenue if they were to lower their prices by 10%.

At issue, price may not necessarily be the only reason why companies don’t buy service. This assumption would hold true if all customers are price sensitive. The truth is all customers are not. It typically a small percentage.

More importantly, customers will always point to price as their primary reason for not buying services if they are not presented with other compelling reasons to buy.

The reason many customers do not purchase service is because of the perceived lack of value.

Customers think prices are too high when they do not recognise or understand the value they will receive from the service provided.

The problem is that it is difficult to articulate the value of service.

Most companies, particularly manufacturers, don’t know where to begin.

The more distinctions that can be made about a service, the more tangible it becomes, and the higher the probability that more customers will buy it.

As consumers, we’ve all become accustomed to describing value in terms of the tangible aspects of a product. For example, its size, colour, workmanship, reliability and price. However, service is an intangible. How does one describe the value of something that is intangible?

The answer is by making distinctions about it. In other words, by describing the service in terms of the problems it solves, the outcomes or results it create, and/or the time it takes to complete.

Indeed, time is usually one of the biggest value drivers in field service.

Consider this, the more distinctions that can be made about a service, the more tangible it becomes, and the higher the probability that more customers will buy it.

Assuming no difference in price, which service offering sounds more appealing?

  • A) a service contract that simply provides parts and labour or,
  • B) one that provides 7-day by 24- hour coverage, parts, labor, same day onsite response time, remote support, and guaranteed uptime.

My hunch is that you picked B. This offering provides more value. Don’t you agree?

Unfortunately, most companies are not making these types of distinctions about their service offering.

It is should comes as no surprise that customers think the price is too high and don’t buy service contracts, and instead choose to take their chances and purchase service when needed on a Time & Materials basis.

Don’t misunderstand me, I am not urging field service companies to sell service features or outcomes they can’t deliver.

On the other hand, I am recommending those companies who are struggling with selling service contracts consider whether their service offerings or portfolios are defined with the customers’ perception of value in mind.

For the service to have value, it must be described in terms of the experience or outcome provided.

Does it save time or money? Does it increase machine utilization? Does it improve the quality or cost of operations?

By defining the portfolio in this way, Field Service companies can test different offerings through competitive analysis, survey research, and conjoint (i.e., trade-off) analysis.

They would, of course, need to ensure they can deliver on the promise of the portfolio prior to offering it to the customers.

Conducting this type of research, also allows companies to determine which service offerings are most optimal or in demand by their customer base.

All things being equal, Customers will always choose the service offering the provides more value as defined by more distinctions

In addition, distinctions provide the basis for differentiation and creating a competitive advantage. All things being equal, Customers will always choose the service offering the provides more value as defined by more distinctions then one that does not.

Some segments of the market may even pay a higher price for high value services particularly if they cannot purchase them elsewhere.

With the trend towards offering anything (e.g., products) as a service (XaaS) and Smart (i.e., IoT) Services, Field Service companies will need to become more adept at selling outcomes.

To do so they must be able to describe distinctions and articulate value. XaaS and Smart Services will not just sell themselves.

Field Service Executives are advised to start developing these skills now with service offered on existing equipment so they learn to be proficient at selling service contract when their XaaS and Smart Service programs are actually launched.

Innovation is a Given

This is a reprint of an interview which appeared on Core Systems’ website in their Field Service Management Blog.  Core Systems develops solutions and software for the Field Service Industry.

In this week’s interview we have spoken to Michael R. Blumberg, independent consultant and President of Blumberg Advisory Group, about the latest technologies field service businesses need to implement and what managers can do to create a culture of innovation.

You are consulting a lot of companies on strategic planning and efficiency improvement. What are your customers’ pain points?

I help my customers unlock value within their service supply chain like for example technical support, field services, services parts logistics or depot repair. For example, they may face challenges growing top line revenue or boosting profits. They may be trying to improve various KPIs associated with service quality and productivity. Others are focused on reducing costs, improving operating efficiency, or enhancing customer experience. One specific set of challenges I help clients deal with is validating their need to implement new technology to automated key business processes and functions.

What do you advise those companies to meet those challenges? 

I help them compare their current business processes and performance to best practices and industry standards. As part of this evaluation, I help them understand where there are gaps and how they can close them through process and systems improvements. I then make specific recommendations on what the new processes and systems should look like.

According to you, what are the top technologies that will change how businesses deliver service in the future? 

Every management guru and industry analyst wants to point to disruptive technologies like IoT, wearables, drones, and 3D printing as the top technologies that will change how service will be delivered in the future. No doubt these technologies will have a dramatic impact on the future of service. However, in order for these technologies to have any real and measurable benefit, they need to be incorporated into a company’s overall service business strategy, service delivery processes, and systems infrastructure.

More importantly, it may be a long time in the future until a company is ready and able to make these investments. In the meantime, there is lower hanging fruit they can pick off the trees that will help them achieve measurable gains in service performance, in a shorter period of time. For example, technologies like social collaboration, mobility, cloud computing, crowdsourcing platforms, or knowledge management. Businesses should consider implementing these technologies, if they haven’t done so already.

Do you have particular examples of companies that have innovated their field service? What results do they see? 

Most examples usually center on implementing some form of field service software. Either a basic system with dispatch, depot repair, and inventory management functionality or more advanced systems with capabilities for dynamic scheduling, spare parts optimization, field service mobility, and knowledge management. The results include greater control over people and parts, improved access to real-time business intelligence, better decision making, lower operating costs, improved utilization of parts and labor, and increased productivity of field resources.

Which features should a field service software ideally have? 

Businesses seeking to implement a field service software solution should consider features which automate critical service delivery processes and capture key data related to service transactions. In addition, the software should have the capability to produce performance reports in order to evaluate how well the processes are working. At a minimum, field service software should include feature functionality for work order management, parts usage, customer history, equipment history, time and cost tracking, and reporting & metrics. More advanced features might include mobility, contract management, and dynamic scheduling, routing, and knowledge management.

Do you feel there is a fear on the side of businesses to implement new technologies? Or are they open to innovation? 

I think most field service leaders today recognize that their businesses need to innovate in order to survive and thrive. Without innovation, they risk going out of business. This was not always the perspective of service businesses. Looking back, 15 or 20 years ago, there were more field service leaders who resisted innovation than embraced it. Technology was often perceived to be a threat to their existence. Now most field service leaders see innovation as a given. Sure business executives still have fears about innovation, its human nature. However, the fears are more realistic then in the past. Rather than an irrational fear about being replaced by a machine, the fear is centered around whether or not their companies are ready for innovation, whether the implementation will go smoothly, and whether the results will live up to the promise.

What would you advise managers to do in terms of getting everyone on board with innovating service processes? 

Managers really need to make sure that everyone understands and appreciates where the business is in terms of current levels of productivity and efficiency. They need to communicate this with all stakeholders and help them understand the risks associated with maintaining the status quo versus the rewards associated with pursing innovation. In addition, managers must create a well-defined plan for innovation and communicate the plan with key stakeholders. Most importantly, managers must create an environment which motivates and rewards people for embracing innovation.

Got a question? Click here to schedule a free consultation

Strategies to make service more affordable

strategic service pricing

In my last blog post I discussed the strategic importance of continually finding ways to reduce cost of operations while enhancing service quality. A company can benefit from their cost savings in the form of higher profits or by passing them on to customers in the form of lower prices. Most rational business owners and executives would probably choose higher profits over lower prices unless of course lowering prices is a matter of survival. However, cost reduction is not the only strategy for achieving this outcome.

As I mentioned in my last post, there are a number of market focused strategies that a company can pursue that can result in offering customers services at a more affordable fee. Let’s examine them:

  • Standardization The establishment of standard, well-defined service modules or portfolios can lead to reduced cost through the ability to control the human element and ensure consistency in the service delivery process. McDonald’s is a good example of a company that employs standardization in their service strategy.   In the High-Tech Service & Support Industry, standardization may take the form of offering the customer a bronze, silver, and gold service package.
  • Use of alternative delivery systems To reduce investment and operating costs a company can find alternative ways to deliver service to their customers. In other words, they can make it possible for customers to be more involved in the service delivery process. Electronic banking, including bank-by-phone and the use of ATMs, are examples of this type of service strategy. In the High-Tech Service & Support Industry, this may take the form of an internet portal that allows customers to issue work orders directly to Field Service Engineers or perform troubleshooting on their own.
  • Market segmentation and focus on price sensitivityThere are, of course, significant service sub-market segments, some of which are price-insensitive. However, price-sensitive service market segments also exist. In general, those customers who are more price-sensitive will tend to do a greater portion of the service themselves, including self-maintenance and delivery functions, which might normally be done by the external service vendor at an added cost. IKEA, a furniture distribution organization, is an example of service directed toward the low-priced customer base. As such, they leave services such as picking, delivery, and assembly up to the customer. Medical Device companies do this by offering parts only service contracts.
  • Changing service response and completion times. A final tactic that could be utilized to reduce costs or increase margins is to change or lengthen the service response time and delivery characteristics. In essence, some customers are simply willing to wait longer to reduce service costs), than others. (Some customers want and need rapid response and are willing to pay a premium for such service.

 

Companies seeking to make service more affordable to customers can pursue any or all of these options and still achieve healthy profit margins. Now it’s your turn. Do you have a segment of the market that is price sensitive? Which option would you implement to better serve them? Please share with me you thoughts or experiences you’ve had when it comes to this issue. Still searching for answers, schedule a free consultation today.

Four Principles for Overcoming the Biggest Challenge in Your Business

overcoming_obstacles1

We recently conducted a market survey among 250 service managers and executives on critical trends facing the Field Service industry. As part of this research effort, we asked respondents to indicate which issues where the most challenging to their company. Reducing the cost of service delivery was at the top of this list. Over two-thirds of the survey population indicated that this issue was either somewhat (40%) or very (29%) challenging for their organizations.

The truth is that taking a disciplined approach to reducing costs is critical to a business’ long term growth and sustainability.   One way to ensure high profits, year after year, is to consistently find ways to reduce cost by at least 10% per year. They are not simply cutting expenses haphazardly by laying-off people, taking short cuts, asking vendors for price concessions, or making do with less. Those tactics have negative consequences on morale, productivity, and quality which ultimately hurt rather than help a business.

Instead, world class companies take a strategic approach to cost – cutting. They pursue an approach that leads to long term growth, improved market share, and an enhanced reputation among customers and employees.   In other words, an approach that makes them the type of company that makes people want to do business with, work for, or invest in.

Here are a couple of key principles to keep in mind when  applying a cost cutting strategy to your service operations:

  1. It never ends – Just because you were able to find a 10% savings today doesn’t mean that costs will remain the same next year. Your operating expenses will always find a way to creep up on you. There will always be a learning curve associated with rolling out new technologies and launching new services. Even when it comes to delivering existing products and services, waste and inefficiencies will multiply if left unchecked
  2. Know your numbers – There are two old adages that you need to remember when managing a service business – 1) quality is not free and 2) you can’t improve anything that you can’t measure. That’s why it is important to keep an eye on key performance indicators that impact both quality and cost such as First Time Fix Rate, Utilization Rates, Repeat Visits/Repairs for the same problem, No Fault Found, and Dead on Arrival. Continually find ways to improve your performance in these areas and cost savings will follow.
  3. Pursue process and systems improvements – It goes without saying that cost savings can be achieved by streamlining processes and deploying technology to automate manual processes.   For example, a company can achieve a 25% or more improvement in operating efficiency by implementing a disciplined approach to call management, remote resolution, and technician dispatch through reliance on advanced technology such as knowledge management tools, mobile communications, and dynamic scheduling solutions.
  4. Seek alternative delivery models Outsourcing has traditionally been viewed as an effective alternative for reducing costs without jeopardizing quality. However, new advances in crowdsourcing platforms and sharing economy business models offer another alternative for companies to gain economies of scale, improve operating efficiency, and maintain high levels of service quality by contracting directly with independent contractors. In effect, take out the middle man and enable a self-service model. Check out Essintial Enterprise Solutions, an independent services organization (ISO) who uses a Freelancer Management System (FMS) developed by Field Nation to make this type of business model possible.

 

These four principles focus on the internal operations of your business. Follow them consistently and deliberately and you are guaranteed to reap rewards. There are of course market focus strategies that you can pursue to control or reduce the cost of service which we will explore then in our next blog post. In the meantime, schedule a free consultation with me today if want more ideas on where to find cost saving in your service business.

Is it time for a mid-course correction?

mid course correction2

 

The summer is here and with it brings the beginning of the second half of the year. This is great time for re-evaluating progress in meeting our business goals.  It represents a half-way point to determine if we are on track for the year, if we need to change course in direction, or simply act with greater resolve and urgency to achieve our outcomes.

One thing that we uncovered in our recent Readership Survey is that a large percentage (47.7%) of subscribers desire to learn about strategies for achieving better results. The most frequently occurring response when respondents were asked about what they want to achieve in their business over the next 3-5 years in “growth”.  I think that it is safe to say that many of our readers can benefit from strategies that will help them achieve higher levels of growth.

In my attempt to provide readers with more of what they want, let me give you some action steps to follow if you find that your actual growth for this year is not in line with your original target.   First, remember that the trend is your friend.  This means that you need to periodically evaluate your market to determine if the trend is working in your favor.   You’ll want to get a handle on the size and growth rate of the market you serve, the level of competition, industry dynamics, buyer behavior, and purchasing criteria.   You can uncover this information through internet research, market surveys, analysts, and other secondary sources of data such as articles, press releases, annual reports, etc.

Assuming you’ve concluded that the market you serve is large and growing, then you need to ensure you have the right marketing strategy in place to capture your share of this opportunity.  Think of your marketing strategy in terms of a triad.

market strategy triadAt the base of this triad is your company’s performance.  The ability of your company to deliver on its promise is critical to keeping customers. If they are happy with your service, they will tell others and you will gain word of mouth referrals.  The second side of the triad is the value your company provides to customers. Is it defined in a way that the value is clear and compelling to current and potential customers?  Value is often defined by the quality of your offering and the little things you do to win over the customer.  For example, are you providing them with options so they get exactly what they want?  It also includes offering great service and support before they buy.

The third side of the marketing strategy triad is your tactics.  You want to make sure that you are implementing tactics that will drive customers to you and encourage them to do business with you.  Tactics to consider are pricing, social media, advertising, promotion, etc.  Most importantly, the tactics you use must be consistent with the other elements of your triad.  In other words, your advertising and pricing tactics must align with the value you provide and the performance you deliver, and vice versa.

This triad provides a good framework for evaluating the results of your marketing efforts. Like most frameworks, they are only effective if use them as an analytical tool.  If sales are not where you want them to be then look at your marketing strategy triad. Use it to evaluate how effective your performance, value, and tactics are in attracting and keeping customers.  It will provide you with insights on how and where to improve.  If used consistently, it will enable to you win more than you fair share of business.

Seven Ways to Win at Service Marketing

Market-Research1

Revenue growth is probably the single most important objective for executives who are responsible for managing service as a profit center or strategic line of business.  “I want to double my service revenue in the next 3-5 years” is an incantation that I hear constantly from business owners and executives.  That equates to a 20% or more growth rate per year.  Sure, this type of growth is easily achievable if the market is growing at this rate or faster.  I’ve found that these high growth targets are often triggered by management’s desire to take back market share from competitors or increase the share of service revenue contribution to overall corporate revenue.

While high revenue growth in a low growth market is difficult, it’s not impossible. A little hard work is usually required to achieve this type of performance.  To understand where the emphasis is needed, let’s look at where service market programs may fall short:

  1. Service Portfolio not meeting customer needs: Quite often service providers fail to meet their revenue objectives because their service portfolio is no longer meeting customer requirements. In other words, they have failed to offer services tailored to their customer needs. For example, offering only next day response when customers require same day.
  2. Pricing not optimal: If your revenue is flat or declining, you might want to look at how you price your services. Perhaps you service prices are no longer competitive. On the other hand, you may be underpricing your services in relation to the value you provide.
  3. Failure to understand competitive threats:   Many service providers, particularly those that are divisions of manufacturers, fail to understand the competitive threat of “mom & pop” third party maintenance (TPM) companies and/or in-house service providers.  For example, they often under estimate the value that TPMs provide to their customer and/or fail to develop an effective value proposition to compete against them.
  4. Failure to articulate value: How well have you articulated the value of your service offering to current and prospective customers? Do they understand the cost of downtime or the pain points that your services help solve? It is important that you not only articulate value to your customers but make sure that your sales people understand it and provide them with the appropriate sale aides and marketing collateral to support it. 
  5. Lack of communication & follow-up: One way to increase service revenue is by improving contract renewal rates. These rates often decline though lack of consistent communication and persistent follow-up about the value of services provided, when contracts are up for renewal, special incentives for renewing, and information on when they are about to expire. 
  6. Not asking for referrals: Referrals are the best and least expensive source of qualified prospects. The problem is most service providers forget to ask for them. Remember your customers speak to each other. They may be involved in the same networks and trade associations, or call on each other for advice and guidance. Why not enlist them in your business development efforts? 
  7. Lack of customer appreciation:    Your customers will remain loyal to you and purchase more from you when you let them know how much you value and appreciate them. It’s the simple things like a courtesy phone call/visit, thank you card, small gift (i.e., rewards program), or special offer that let them know you value their business.

 

These seven areas have one thing in common, they all benefit from market research.  Whether its information that will help you redesign your service portfolio or modify pricing, market research provides you with an unbiased and unfiltered perspective on what your customers are actually thinking and saying. You will learn things that you may not otherwise from a sale’s call or courtesy call made by a company executive.

Before you conduct research or make any changes, it is important that you have a baseline assessment of how well you service marketing program is working. You may want to consider an audit from an independent and objective industry consultant.     Schedule a free consultation today to learn more.

Strategic Value Drivers of High-Tech Service

strategic value 3

In order for a business to succeed it must have a clearly defined strategic value that it provides to shareholders, stakeholders (e.g., customers, suppliers, employees,) and the market place at large.  It is important to clearly define strategic value since it is the precursor to developing a value proposition and mission statement.  Furthermore, it forms the basis for the strategies, tactics, and programs that a business puts into place.

Nowhere is strategic value more important than in the High-Tech Service Industry.  All too often, service providers, especially those that are divisions of product companies (e.g., OEMs, VARs, Distributors) fail to clearly define their strategic value.  As a result, they fail to make any impact in reaching their business goals and objectives.   They are like a ship on an ocean without a sail, drifting aimlessly in whatever direction the winds blow.

We have found that there are at least three (3) common strategic values that High Tech  Service  & Support organization might chose to pursue/adopt. These include:

  1. Directly influencing the sale and adding value – A company who adopts this strategic value recognizes that service is very critical to the customer in their final selection to purchase a product.   In other words, it’s a value-added feature influencing the purchase decision. Dell is a great example of a company who uses service as a way of directly influencing the sale of products.
  2. Generating revenue and profits directly – This applies to any company that operates their service business as a profit center or strategic line of business. These companies recognize that customers are willing to pay for service independently from purchasing equipment. More importantly, their willingness to pay is based on the value-in-use of the service not it terms of the perceived cost. Much of IBM’s success in the 1990s was due to their ability to generate revenue and profits from directly selling services.
  3. Providing market control – Companies who embrace this value driver provide a broad array of services in order to gain account control. In essence, they engulf their customers with an extensive portfolio of basic and value added services in attempt to establish a trusted advisor position and influence future sales. GE is a prime example of a company that has achieved this result by offering its customers technology assessments, strategic planning, and other types of professional and value added services.

 

When establishing your strategic value it is important to select one and only one value driver.  Otherwise, it will lead to inconsistent performance and confusion in the market place. Strategic value cannot be defined in a vacuum, it must take into account the needs and requirements of your key stakeholders and align with your overall corporate strategy. For example, a company focused on generating services revenues and profits directly may find this goal at odds with its objective to increase market share in its product market.  Basically, the service division would be competing with the products line of business for resources and investments.   More importantly, your definition of strategic value will determine where you focus in terms of Key Performance Indicators (KPIs), such as investment considerations, business constraints you must optimize, and possible market outcomes.

Strategic value when set into motion is difficult to alter since your entire service program and corporate objectives are based on this.  It often takes a commitment from the C-suite and/or board of directors as well as persistent and consistent follow through from management to successfully redefine your strategic value in terms of measurable outcomes.   This change should not be pursued lightly.  Those who succeed at redefining their strategic value often do so after very serious consideration, typically involving strategic market analysis, risk assessment, and scenario planning.

Strategic value is the DNA of your service business. If defined poorly, your strategic value maybe a liability and bankrupt your company.  If designed optimally and implemented effectively it can lead to unlimited upside potential.

Strategic Market Analysis – The Foundation for Smarter Business Decisions

strategic market analysis 2

Strategic market analysis is the solid foundation from which to build your business intelligence. Having careful, objective and professional analysis of the market place, competition, internal resources and capabilities and assessing future trends built on hard data and evidence is paramount.

All Companies have a critical need for strategic market analysis. Strategic market analysis provides an understanding of the market in which you are competing. Here are a few of the questions where you can achieve insights:

  1. What’s the total market opportunity?
  2. What is our current market share?
  3. Who are our main competitors?
  4. Is this a market we should be investing in or planning to exit?
  5. Should we consider merging, acquiring or selling?
  6. What market trends can we take advantage of, or do we need to address to grow?
  7. Does our business plan reflect market wants?
  8. Are there market niches we are missing, or should be growing?
  9. What are the market segments that are growing, or declining?
  10. Are we missing any important market segment opportunities?
  11. Do we have a deep understanding of our competitors which will allow us to exploit their weaknesses?

 

Planning and Allocating Market Analysis Resources
Planning and allocating resources for strategic market analysis is essential whether your needs are for proprietary or off-the-shelf research. The value proposition in making a sound purchase decision should come down to the strategic value of the information vs. the cost. When trying to make decisions, the place to start is with the most accurate and up-to-date information you can get . Outdated or bad information will result in a cascading effect of bad decisions. Because of this, allocating sufficient resources for strategic market analysis and business intelligence is absolutely necessary. These costs are insignificant compared to the capital, assets, and business failure you risk by making bad decisions based on flawed or obsolete data.

One note of caution, you should be of aware is that lower cost off-the-shelf research when not used for its intended purpose of broad view and general trend information will in the end cost more than proprietary research.

Proprietary Research or Off-the-Shelf Research
The important key to whether proprietary custom or off-the-shelf research is best for you depends. It depends upon answers to questions like these:

  1. Why do you need the data?
  2. Are you simply in need of broad trend data?
  3. Do you need it to plan and allocate operational resources?
  4. Do you need specific information on sub-segments of the market?
  5. Is having a deep dive on the competition required?
  6. Will you need data to enhance buying & decision making processes?
  7. Do you need strategic and market analysis?

 

Bottom line proprietary market research is the choice for comprehensive and specific information that allows you to make informed operational and tactical decisions. Also when you need more data points like:

  1. Market size and forecasts by product or region
  2. Deep dive competitive information
  3. Understanding market behavior, needs and wants
  4. Analyzing your capabilities to deliver against market needs
  5. The help of a market expert to leverage industry data from a proprietary databases

 

Off-the-Shelf market research is best for a broad view of the market without a lot of specifics. This type of market research attempts to satisfy the needs of most people wanting to gain a high level view of a market or industry.

When off-the-shelf or Internet research is used as the method for obtaining market data it is often referred to as a “Swiss cheese” approach. However, the problem, as we know with Swiss cheese, is that it has holes in it. This method is fraught with issues like:

  1. quality of the data
  2. old data, freshness of the data
  3. not getting the whole picture
  4. comparing apples to oranges

 

This approach is like trying to build a jig saw puzzle with pieces from different puzzles. Is this what you want as the foundation for your decision making?

Take Away

No matter the type of market research, the important point to remember is that no successful business goes to market without all the market research it can obtain and continues to utilize market research on a consistent basis to remain successful.

The building blocks to Servitization

servitization1

The “Servitization” of Manufacturing is taking the High-Tech Industry by storm!  By definition, Servitization is a transformation from selling products to delivering services.  It typically involves two components:

  1. The idea of a product-service system – an integrated product and service offering that delivers value in use.
  2. A “Servitized” organization which designs, builds and delivers an integrated product and service offering that delivers value in use

In more practical terms Servitization turns the product–service offering into a “utility” that the customer pays for on a subscription basis.   Under this model, the customer pays a monthly or annual fee equal to the amortized cost of the equipment plus the value of services provided for a specified period of time.

The concept of Servitization is nothing new. As early as the 1950’s, manufacturers provided their customers with the option to lease equipment with services attached to the lease agreement.  In the late 1990s and early 2000s, companies like ABB and GE begin to offer tperformance based service contracts to their customers.

Servitization is more than just a pricing strategy.  It is an overall business model that attempts to maximize and monetize value in use to the end-customer. This requires a manufacturer to proactively identify all the services that an end-customer may require over the lifecycle of equipment operation, understand the value that the customer assigns to these services, build this value into the subscription pricing model, and then deliver on that promise.

The trend toward Servitization has picked up steam in recent years for a number of reasons. First, market participants (i.e., OEMs and End-customers) have a greater appreciation of the strategic value of service to their overall business models.  Second, manufacturers recognize that service can generate more revenue over the lifecycle of the equipment than the actual purchase price of the equipment itself.  Third, the Great Recession forced many manufacturers to rethink the economics associated with how their customers justify the acquisition of new equipment.  Fourth, service tools and technology are now available that facilitates the design and operation of an integrated product-service system in a cost effective and real-time basis.

Ultimately, it’s the technology that is having the greatest impact on advancing Servitization business models.  There are some basic building blocks that any company will need to implement in order to deliver on the promise of Servitization. First, they’ll need a state-of-the-art service management system. It needs to perform the basic activities involved in managing a service organization (e.g., dispatch, scheduling, parts management, etc.). Second, they’ll need to have a way to connect with and monitor the condition of equipment within their serviceable installed base.  They will also need to integrate this information into to their back-end service management system. The third step is a mobility solution to communicate with people in the field. Finally, analytics are needed to evaluate what’s happening. Most companies will probably benefit by using a big data solution, as well, so they can look at unstructured data from their installed base and the customer’s environment at large, and start to analyze, predict and forecast.

In summary, Servitization is a transformational process that requires manufacturers to rethink all aspects of their business from marketing and sales, to pricing and financial management, to service delivery infrastructure.  The benefits of Servitization are great including the ability to build a multiyear annuity stream, gain account control, and create deeper and longer lasting relationships with customers.

I’d love to get your thoughts on Servitization.  Let me know if your company is pursuing Servitization.  What benefits do you expect to achieve? What obstacles remain in the way to realizing these benefits?   Last but not least, if feel free to schedule a strategy session with me if you want to discuss how Servitization could impact your business.