Service-oriented business strategies are more successful
Following the 2008 crisis years, the commoditisation of products and product-related services is pressuring profit margins and growth across an increasing number of industries.
As customers mount increased pressure for reduced prices, statistics reveal that companies possessing long-term service contracts are particularly susceptible. As a result, a growing number of service businesses are now seeking new ways to fight the impact of commoditisation by increasing their profitability through the development of entirely new cost structures at lower cost levels.
In tandem, many businesses are currently exploring new ways to increase their value offerings by developing more advanced services and by improving how they communicate their value to their customers via the branded customer experience.
In the wake of the crisis years therefore, a key question for Noventum Service Management concerns how service-oriented businesses can overcome these challenges in two ways:
i) By Lowering Costs and improving productivity - by significantly changing cost structures as opposed to making marginal reductions.
ii) By developing High Value offerings through advanced services, which aren’t necessarily related to product and consider the branded customer experience.
This survey was designed to compare performance levels in service businesses to reveal significant trends and patterns helping us to further develop Low Cost High Value Service Models.
Typical examples of low cost, high value delivery models include the following:
- Self-help Whereby customers solve issues and conduct maintenance themselves without the support of their service provider, excluding 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
- Remotely using a machine to machine (M2M)connection In this instance a service provider will access a system via a remote connection and not only diagnose the issue but also execute the solution via the remote connection
- 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.
- Field engineer In this instance a field engineer is dispatched to repair the customer’s product, potentially conducting the diagnosis himself.
This survey was undertaken by Noventum Service Management between January 2012 to June 2012. It comprised an online quantitative questionnaire among 211 participants and qualitative in-depth interviews.
Research was conducted across both the B2B and B2C sectors and among multiple service-intensive industries such as; utilities, computer related, software, telecoms, electronics, medical, print, graphic, machine, construction, HVAC, manufacturing, retail, controls & instrumentation, facility management, government, safety & security and IT consulting.
Selected participants were highly experienced; nearly three quarters (72%) of survey respondents interviewed possess over 10 years of service expertise and 36% with over 20 years of expertise.
Respondents were motivated to undertake the survey for a range of reasons; the most significant group were seeking to design new services with the second largest seeking to improve processes and productivity.
Following the conclusion of our survey Noventum Service Management have identified a number of
important trends and findings related to business strategy, cost and value. The most significant and
unexpected among the findings are as follows:
Results show that among top performing companies, service-oriented business strategies drive
both growth and EBIT (Earnings Before Interest and Taxes) to levels above 20% per annum. Furthermore, successful business strategies were proven to be those which integrate both products and services and those which are both brand and people driven and less focused on cost.
Findings further indicate that businesses in industries offering more advanced value-adding services
are better performers based on operating costs, gross margins and net operating income. Service companies within the fields of IT, software and medical equipment sectors are leading the way in delivering value-adding services whilst companies in the fields of construction, telecoms,
process controls, instrumentation and safety & security remain stagnant.
According to the survey, more successful companies offer a broader portfolio of services while worst
performing businesses do not invest in services. In successful companies knowledge driven and
availability services are shown to supplement warranty and product support services.
Remote services and knowledge management are key enablers among top performing businesses offering a wider portfolio of services. Here, their services were best employed as enabling capabilities for their product-related services (such as warranty, product support and availability services) and not offered as a service in itself.
Top performing companies are masters in communicating value to their customers and at having customers experience value. These companies appeared to communicate value less so through features or capabilities and more through customer centric offerings and via the branded customer experience.
FINDINGS BY TOPIC
More successful businesses are those exercising a business strategy integrating products and services. These businesses were motivated to invest in services on top of their core product offerings because they believe the combined service plus product proposition helps them differentiate themselves in the market place and enables them to offer more value to customers. By contrast, lower performing businesses were still product-oriented and cited unmet customer needs as their main driver revealing a lower level of maturity. Survey findings revealed that customers respond better to businesses that offer an integrated approach of both product and service solutions.
The top ten per cent of business performers implement strategies which are brand and people focused in equal measure with no proportion of their strategy driven by costs. By contrast the worst quartile performing companies focused over half their business strategy on cost and price with a very marginal focus on people.
Lagging commitment towards investment in services by top management executives. Better performing companies appeared to invest in services through a drive from their middle management service directors who gradually convinced senior executives to commit to the investment. Providing analysis, Hilbrand Rustema, Noventum managing director said: ‘It’s interesting to see that this drive to invest in services doesn’t come from senior management or bottom-up from engineers but from middle management responsible for services. Here it is evident that service personnel have to put quite some effort and time into getting more recognition and budget.
'The key message here is not to wait until senior executives recognise the need for services because they are often divisional mid-management initiatives sold upwards to senior management. It’s therefore very important that a solid business case is presented for investment. In the top ten per cent of performers we see that service personnel in middle management are taking the leadership of building the service business step by step and soliciting the interest from top management.'
In poorer performing businesses directors are aware of the profit potential in services but do not take action. Worst performers are twice as indecisive on service opportunities as best performers whereas top performers have senior management that recognise the value of services and act upon the potential.
The top ten per cent of performers greater recognise the need for more services for which their customers are willing to pay. Conversely, customers of companies lagging in performance believe their customers are not prepared to pay for additional costs or services
High Value Findings
Businesses which are better able to communicate value grow faster and are more profitable. The top ten percentile of performers focus on value to customers and are more successful in communicating this. These companies appeared to communicate value less so through features or capabilities and more through customer centric offerings answering specific customer needs and via the branded customer experience.
In more detail, better performing businesses focus on their customers’ needs asking themselves whether they need more services and whether they’re willing to pay for them. These companies did not offer additional services for free but rather communicated the value of their offerings. Here, successful companies present their services as highly valuable via their brand and their communications.
For example, the survey revealed that top performing companies regard remote services as an internal capability enabling them to offer more value. Here, remote services were embedded in more advanced service offerings enabling them to deliver high uptimes and business intelligence to customers making them highly valuable.
Ultimately, it pays how business present their services and how value is experienced by their customers, here lies the difference in customers willing to pay for services or not. In the best cases businesses recognise the importance of advanced services and put strategies in place.
When companies deep-dive into their customers’ implicit and explicit needs, they’ll discover their customers are often very interested in paying for more services which really answer their business problems. Top performers understand much better what customers really want and how they want it.
Top Performers possess a wider portfolio of services to include more knowledge driven services. More successful companies offer a broader portfolio of services while worst performing businesses do not invest in services. In successful companies knowledge driven and availability services are shown to supplement warranty and product support services.
The survey shows that as soon as industries start to add these services on top of existing warranty and product support services they start to add value and these companies are more likely to add to their earnings potential.
In terms of maintaining value in service delivery, top performers are more selective as to when to outsource in their drive to improve productivity. Top performers make a strategic choice to conduct value-adding activities themselves, they outsource less and never in knowledge intensive activities, which are regarded as an important generator of value. Here, support centres, which enable top performers to capture knowledge, are never outsourced.
In terms of industries, the survey revealed that the software, IT and medical industries are proving more successful in delivering value-adding services whilst companies in the fields of construction, telecoms, process controls, instrumentation and safety & security remain stagnant. In the IT, Medical Service and Software industries technological developments appear to be driving new services because products here are not stand alone but interconnected, making these industries the best service value generators. Conversely, low-tech industries don't drive services leaving their potential for value untapped.
Low Cost/ Productivity Findings
In terms of Service Delivery, top performers solve problems less via engineers and more via supported self-help.
The survey showed that top quartile performing companies use less field engineers to solve issues employing around half the field engineers of those in the last performing quartile (16 % and 29 % respectively). In more detail, results show the employment of field engineers dramatically drops with more successful companies moving towards less costly solutions such as remote solutions or supported self-help.
Advanced knowledge management and developing the competencies of in-house service specialists is key to problem solving in top performers; Self-help was not shown to be a driver in profitability but supported self-help is.
Top performers use a lot more supported self-help, which means these companies are investing significantly more in knowledge management and in the competencies of their service specialists and have the infrastructure in place to do so. Interestingly however, pure (web-based) self-help was revealed to be of negligible value in top performers.
Results showed no significant difference in performance as to how businesses use remote intervention for problem solving.
Interestingly we do not see top performers applying significantly more remote resolutions via machine to machine (M2M) links yet. However, these top performers are more successful in conducting the diagnosis remotely via M2M connections and do invest more in remote capabilities. This would justify the expectation that soon we will see top performers utilising remote resolutions via M2M and further increase their profitability.
Top performers capture more service requests via the Internet and remote monitoring and less so via engineers or 3rd party providers.
Top performing companies on profitability exhibited a higher level capturing service requests via either the Internet (email, social media, web site) or via remote monitoring.
This executive summary represents a first analysis of the survey and initial conclusions. Survey respondents will receive the full survey report with numerical analysis in October 2012. Respondents will also receive Noventum’s unique benchmarking service free of charge.
This survey’s conclusions are presented in a webinar. Click here to view online.
Our vision is for a prosperous society in which sustainability and growth are symbiotic, are abundant
and available for all.
We promise to unlock the unlimited service potential in organisations by offering a proven Service Transformation Roadmap comprising strategy, design, service processes, people organisation and implementation.
We can promise this because we are experienced service experts who are connected, pragmatic and innovative. We know what's possible and we can help you get there.
To learn more about Noventum visit: www.noventum.eu