Several years ago, Blumberg Advisory Group worked with a company that provided hardware maintenance on film based photo labs found in big box retail outlets. Their service revenues and profits were declining because digital photography was replacing the need for film based photo labs. Although the client offered a new digital based technology to replace film based photo-labs, these systems were not being installed at the same rate as the older systems were being phased out. Digital systems didn’t require as much service and support. They were less complex and easier to maintain than their film-based cousins.
Our client required a new strategy to offset their declining revenues and profits. They needed a solution urgently or the parent company would shut down this division. If we did not know the importance of data or the concept of managing the capability to serve, we would have probably recommended that the client lay off some of its field service workforce to reduce costs and improve profits. This could have led to a downward spiral of layoffs, company morale and growth.
So what steps did we take? We analyzed their data. We reviewed their field engineer utilization rates, customer response times, field engineer skill levels, and the equipment on customers’ premises. In conclusion, we found that their field engineers were not being completely utilized. We found out that these engineers had further knowledge and expertise in supporting other types of equipment found on the customer site. They were typically able to respond to a customer request within four hours even though the guarantee was for eight.
Based on our analysis, we recommended that they expand their service footprint to other types of equipment located on the customers’ premises, i.e. electronic cash registers and point of sale equipment. We also recommended that they charge a premium price to customers who required faster (e.g., 4 hour) response time. As a result, this client went from losing 20% of their profits per year to a 50% increase in new business within 24 months of implementing our recommendations.
Ultimately, the key to our client’s success lied within the data. Data is becoming more important as we consider one of the most significant trends impacting the Technology Industry, “Servitization”. This trend describes the transformation that many companies are undertaking as they move from primarily selling products to generating a sizable portion of revenue and profits from services. Ultimately, the path toward Servitization leads companies toward offering anything as a service (XaaS). In other words, their business has reached the stage of development where they are no longer selling products or solutions to their customers, but outcomes. For example, instead of selling a copier machine they are selling their customer the right to use the machine to produce a certain number of copies over a specific period or time.
To deliver on this promise, the provider must not only have great people, process, and technology but access to data related in terms of machine condition and performance (e.g., alerts and notifications), parts availability, field engineer location and skill sets, diagnostics, etc. With this data in hand, the provider can ensure resources are available when needed and that the customer receives the outcome it purchased. The data is made available through technologies like the Internet of Things, Artificial Intelligence, Virtual Reality, etc. Examples of companies that are along the servitization journey are Rolls Royce, ABB, Siemens, Kone, and General Electric. They have generated profitable income and know that a truly exceptional service business is built on four foundations – people, process, technology, and data.
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