Service, the key to survival – Part 1

Managing the transformation journey that manufacturing companies navigate through to become more Service oriented is absolutely vital to developing a sustainable Service business, complementary to an existing product portfolio. In some cases, even critical to survival when traditional products gradually become commoditised.

This can generate many new questions and demand a fresh look at how the company operate and can even require change of the overall company culture.

To give a perspective to the potential impact this focus can spawn, let’s take a brief look at the relative size of a Service business in a typical manufacturing company. It can vary from as little as 5-10% of total company revenue to more than 50% and if we look at the profitability of the service business, partially due to its very specific business model, it far outweighs other businesses and can sometimes even be towards 100% of total company profitability, compensating for an otherwise potentially loss-making company. In this setting, solid understanding of service and relentless focus on making it happen is the way to succeed.

The main areas of importance of this transformation journey are illustrated in below figure:

Ensuring an ‘all-encompassing’ Service leadership, tailored Organisational structure and capabilities as well as an overall company direction that takes ownership of the Service agenda is a must.

Below, we will focus on what does ‘all-encompassing’ Service leadership look like. Illustrating how we prioritize and effectively communicate to different stakeholders, we have chosen to create a simple framework of 4 key focus areas and 17 Service leader accountabilities, together capturing the majority of activities in a modern Service organisation. These 4 focus areas are; Sales & Marketing; Operations and Delivery; Governance & Performance excellence and Innovation & Development. Within each of these, we have listed the most prevalent accountabilities a Service organisation and a Service leader will encounter and consequently having to master.

Over the coming weeks we will share 4 articles where we will look exclusively at these 4 areas and discuss how ‘right’ Service Leadership can make the difference in developing a modern Service organisation and a sustainable Service business. To guide our thoughts, we start by providing a simple high-level definition how we see this, followed by a story that aims to bring out some of the critical parts of each focus area.

SALES & MARKETING

‘Identify and capture customer needs, promote Services and Service product portfolio and execute the quote-to-cash-process’.

Customer management

‘Knowing the Customer, providing business insight, presenting leads/opportunities and after sales close, measure and follow up on delivered Customer satisfaction and Customer Success’.

Selling services typically takes one or both of the following two routes; either you push or promote your standalone service products available in your portfolio, convincing the customer of its performance, benefits and fit or you create a customer pull by identifying customer specific needs and subsequently shape or tailor your service offerings to match these needs. Both routes can surprise you with difficulties and rewards, so before spending tons of effort to decide which is the best approach for you, let’s break down the essentials of executing a successful sale.

In all businesses, knowing your customers is key and the best way to get underway is to put yourself in your customers’ shoes, in other words understanding your customers’ customers. Concurrently, looking at the value chain, Service is generally B2B driven where direct contact with the final consumers is unusual. Identifying potential business opportunities therefore is typically focusing on earlier stages of the value chain where you as a product company must, depending on industry and products gain insight into direct customers, retailers as well as consumers to successfully build a genuine understanding how you can help your customers succeed.

When you identify and distinguish areas where you believe you can add value and consequently will target your sales efforts, you must decide how to illustrate the benefits of your services and consequently reach an understanding and agreement from your customer of your offer. This can be done based on facts, in other words presenting numbers that can be extracted before and after the application of your services showing e.g. savings or efficiency improvements, they can reach using your solution. Alternatively, you can refer to similar cases with other customers and use benchmarking to illustrate the benefits, more building on trust but still with real case references. Finally, you can simply promise an outcome where the client will agree to continue based on previously performed delivery, constituting more of an emotional acceptance rather than facts. All the above can work well and must be applied at your discretion, however if you consider this sale as a foundation to continued sales opportunities, taking a longer perspective and build a client relationship based on execution and delivery as originally committed is key.

Sales management

‘Initiate a service sale by producing a competitive quotation, negotiate contract, communicate business proposition, close contract and collect cash’

Assuming you have succeeded in generating a lead, the outcome of your efforts will be a new business opportunity. It is now time to convert this into something tangible where all parties can see and “touch” the different components and the way the project will be managed and executed.

We call the sales process the ‘quote-to-cash-process´ as this illuminates the beginning and the end of the process. To anchor the initial discussions or precursor to any sales activity, a detailed quote is required where the customer has the possibility to see what he is paying for and an opportunity to negotiate either the total amount or the individual components of the offer. Keeping in mind the presented outcome is based on the full scope of the quote and any changes to this could impact the final benefits from the initial discussions and jeopardize the outcome or objective of the service offer.

From here onwards, follow a number of different activities including order management, supply services, execution at customer and close order to mention some main activities. Significant for a process is that it has an input and an output. In other words, in our example, the customer management process ends with a generated lead. The beginning of the sales management process is the quote and the output is the paid invoice and so forth. It is at this point important to remember that each process and sub processes should be measured by key performance indicators (KPI’s) to support continuous improvement of each process. One example could be; Time to quote (TTQ) where the construction of the service offer in sufficient details must be given to customer within a set time frame to remain competitive and project professionalism as defined by the company.

Product management

‘Develop and optimize use of service portfolio, taking a full lifecycle perspective and by developing business propositions, pricing guidelines and relevant product capabilities to deliver service products and meet company and customer expectations’

To start off, we should agree on what is a product. On the one hand, we frequently categorise the two businesses of a manufacturing company as products and services. On the other hand, these companies tend to promote and sell services as service products and finally when bundling sets of service products, we call it solutions. So, there is clearly room for interpretation and misunderstandings, hence a brief definition could be advantageous.

Seen from a customer’s perspective, a product is something they buy, consisting from a set of features aimed at solving a problem or fulfilling a need. We prefer consequently to call a set of Services, irrespectively if it is based on hardware e.g. an upgrade or software e.g. a performance improvement program, a product when it is aimed at the customer and has both a value and a price. To accentuate that these products belong to the service portfolio, we choose calling them service products.

So how do we make best use of our service products and our service portfolio and how do we ensure it corresponds to our customers’ needs? Usually, this is a kind of an evolution where all elements of the service portfolio derive from an original support of the “machines” the company sell, gradually expanding into a broader perspective looking at the complete “customer operational cost” (COC) of the clients (We will come back to the details of this, definition and examples in a later chapter). It is in this context that you evolve your portfolio structure and scope of service offerings but also commercial models, pricing guidelines, communication approach, etc. to highlight some critical areas of your portfolio and how to effectively apply with your customers.

New service products can consequently rise from both newly developed technologies, tools, systems or similar but also from a combination of several types of services bundled into a solution and sold as one service product, sometimes captured under the term, solutions marketing.

Fuzzy or not, successful product management result from a win-win creation between your clients and yourselves and without trying to do everything for everyone but to focus on your strengths and your ability to deliver your services and service products repetitively.

Business development

‘Identify new customers, segments and categories and provide input for extended sales opportunities and service product development’.

The last chapter under the Sales and Marketing focus area is devoted to business development or the ability to optimise your sales efforts and to identify and realise new business opportunities. In many traditional manufacturing companies this is often a shared function within the overall company business development in other words not dedicated to services (could also be the case for other activities, such as marketing and communication as two examples). However, when addressing your business development agenda, it is absolutely critical to think service specifically and not general company as this could lure you into false sets of analyses or wrong conclusions.

To illustrate what we mean with this, let’s take a look at customer segmentation. This should ideally provide you with a platform for business decisions based on your customers’ buying criteria. If you (your company) have decided to merge the segmentation model of selling machines where the buying criteria can be price, features, relationship, etc. with services where the buying criteria are lifecycle costs, response time, flexibility etc. you will end up with a blunt tool that might lead to missed opportunities or worse, lost sales. It is our recommendation therefore that you maintain a dedicated segmentation model for services, and that you seek early acceptance and buy-in for this across the company.

In summary

Survival is in your hands. By ensuring an ‘all-encompassing’ Service leadership, tailored Organisational structure and capabilities as well as an overall company direction that takes ownership of the Service agenda is the solution.

One of the most critical enablers is an all-encompassing Service leader. Sales and Marketing are two of the most challenging areas to address as they are often opposed by historical behaviour, assumptions and pure resistance to change.

 

Dag Grönevik

Founder and Partner Service Leaders Matters

2 Comments

  1. Aart Schalk

    How do you suggest to get the Sales Organization to market & sell Service Products from the Service Product Portfolio? In the organizations I have worked with, there is often a struggle where the Sales Organization focuses on equipment sales for which they get a bonus %, while they do not get that bonus % when they sell intangible service products. Some say that it is not wise to incentify sales of service. What are your thoughts? Regards, A

    Reply
    1. Dag Grönevik

      I think you are raising two important points, firstly who are the best to sell services and secondly how to incentivise a good job in selling services.

      How you chose to operate with regards to selling services is always in the context of your company’s service maturity. In other words where are you on your journey towards full service orientation. In our experience in the early stages of actively selling services you try and combine all sales people in one organisation. This is as you say always going to compromise services as both the company culture and commercial volumes and rewards favours equipment at this stage. This is not necessarily wrong as it is also what the customers appreciate.
      However as your maturity grows you will gradually introduce dedicated people and processes to support service selling. In the most developed stage you are running service as a business unit with a unique profit and loss and the organisation is tailored to this scenario.
      With regards to incentives, my personal opinion is that everybody in the company should have some links to services in terms of KPI’s. In other words if you are an equipment sales person, you must always promote services when talking to customers and this of course means that you must know a little about services. Our experience is also that because service, in all manufacturing companies gradually become more and more important and eventually even bigger och by far more profitable than equipment which tends to become commoditised. This underlines the fact that everybody in the company will benefit from knowing and contributing to the services agenda. This should therefore be visible in individual objectives and consequent rewards.

      Reply

Leave your thoughts

Service Leaders Matters partners with B2B businesses to assess and acquire top service leadership talent to drive breakthrough performance.

SUBSCRIBE

Contact Us

Service Leaders Matters.
contact@serviceleadersmatters.com