September 2024 - Sales DNA and a Service heart

Sustainability by Design: How Service Lifecycle Management and Digital Thread Drive Efficiency

At this year’s 21st service management forum, ASAP will feature “the servitisation revolution for sustainability.” While both keywords attract attention, the road to action is less obvious. I find it positive to see a growing consensus on the ‘why’ and ‘what’ of sustainability. However, I detect a more hesitant dynamic when addressing the ‘how’ and ‘who.’ Hence, I will deliver a keynote, “Sustainability by Design,” on October 25th, sharing practical approaches to help you deliver on your sustainability ambition.

Sustainable product design

For just over 30 years, I have worked in the service domain. When I ask service leaders and technicians about the serviceability of products, it feels like poking a bear. “What did engineering have in mind when they designed this product? It is difficult to both diagnose and repair.”

By nature, service technicians are a mix of firefighter and magician: they will get the work done, one way or another. Whether that work is done efficiently, cost-effectively, or profitably is a different story. But is it sustainable? Definitely! Repairing a product is more sustainable than buying a new one.

For years, iFixit.com has been giving repairability scores to B2C products. Its purpose is to change the consumer mindset regarding sustainability. Today, sustainability awareness is embedded in right-to-repair legislation (both in the EU and the U.S.). See the iFixit Repair Manifesto here.

Shifting to the B2B world of your technicians, they could write a book on the challenges of repairability:

Why do I need two hours of labor to disassemble a product to replace a $5 component?
Why do I need special tools just to open the product?
Why does the repair kit contain parts I never use and/or cannot reuse?

These challenges are embedded in the product’s design, which brings us to the topic of design-for-service, or perhaps we should say design-for-operation. Meaning: how easy and sustainable is it to use products?

Now, we arrive at a branch:

How do we make existing products more sustainable?
How do we make new products more sustainable?

For the latter, we could start from scratch and act upon the guidelines for sustainable product design. For the former, we must accept historical/sub-optimal design decisions and establish mitigating strategies in the domain of service lifecycle management (SLM).

Service lifecycle management (SLM)

When I visit OEMs (Original Equipment Manufacturers) as a service persona, my favorite opening phrase is, “You design and build great products, and then they go into the field.” This “going into the field” will happen regardless of whether design-for-serviceability and sustainability concepts are applied during the engineering process. What I’m saying is that SLM can and should apply its own design-for-sustainability paradigm when defining processes and tooling. By doing so, the service function will achieve two goals:

The current installed base will be serviced as sustainably as possible, within product design constraints.
Data collected from the existing installed base will feed sustainability improvements for the next generation of products.

An example of a simple, efficient, and powerful way to drive sustainability is by using the mean-time-between-failure (MTBF) metric in a plan-versus-actual approach.

Suppose Engineering designs a component with an expected MTBF of 10,000 hours. This is the plan. We then produce a batch of 100 units, which go into the field. Each of those units will have a unique service lifecycle, generating live data. This is the actual. When a unit fails, Service typically repairs the component reactively. But when you start using the MTBF to predict and identify outliers, you become more sustainable:

Planned interventions are both cheaper and more sustainable than unplanned work.
Comparing actual vs. planned MTBF will help identify unplanned downtime and sustainability issues early on.
Capturing actual MTBF is a critical data point for sustainable product design.

If the actual MTBF deviates from the planned value, it doesn’t always mean Engineering was wrong. Sustainability also involves a customer component. Acting on the discrepancy may lead the OEM to advise the customer on better usage and product management.

By design

In the previous two paragraphs, I’ve addressed two facets of Sustainability by Design: a product-design facet and a process-design facet. Combining the two will boost your sustainability benefits, making 1 + 1 = 3.

Two additional concepts come into play. You could see them as building blocks of your sustainability agenda:

Digital thread: The flow of product information through all stages of its lifecycle. In other words, a thread from as-designed, as-built, as-sold, as-installed, as-maintained, and as-decommissioned.
Product Passport: The system-of-record for products in the field, capturing the data from all touchpoints over its service lifecycle.

Where the digital thread anchors product lifecycle information from engineering to service and vice versa, the Product Passport captures the service lifecycle information of each product instance in the field. Together, they create an actionable closed loop regarding a product’s health and performance. These insights help the product owner, OEM, and service organization make informed decisions about three important lifecycle choices affecting sustainability:

When to maintain a product.
When to upgrade a product.
When to replace a product and recover the residual value of the old one.

Whether sustainability is your primary or secondary driver, the technology to realize your ambition exists today. Digital Thread and Product Passport address the ‘how’ and ‘who.’ If you want to learn more, visit us at ASAP Service Management in Brescia, Italy, on October 24th and 25th, or contact us.

Published on PTC Blog.

Monetizing End-of-Life Assets

When we buy a product, we have an expectation of how long we’ll be able to use it and how much value we’ll be able to extract from it. The length of this period is traditionally governed by terms like technical and economic lifecycle. How much more value could we derive from a product with modern asset centric service lifecycle management tools? Let’s show you how to monetize the end-of-life phase of a product.

In 2010 I worked for a global OEM, selling mission critical equipment. In my first conversation with the product sales leader, I asked what value promise we made to our buyers concerning the operational and service lifecycle of our products. In short: “If product owners use the product in line with the use cases anticipated by our design and engineering team, if product owners practice good husbandry and execute all preventive maintenance instructions as laid forward in the user manuals, then our product will operate at nominal performance for the duration of the technical lifecycle.”

Wow, read that response again and spot the “ifs” and assumptions in that sentence.

There was a time when the OEM was the only one knowledgeable about the product and the owner/user wasn’t. The OEM determined the length of the technical lifecycle and the conditions for good husbandry. Today, customers are more informed and certainly more vocal. The OEM will need a better story to contextualize maintenance prescriptions and underpin replacement, retrofit, and decommissioning decisions.

Contextual maintenance prescriptions

In 2020 I wrote a blog based on a question from a product owner who wanted to reduce its maintenance cost. “What happens to the performance of my product when I skip a preventive maintenance cycle or increase it from 12 to 18 months?”

Representing the OEM, this was a tough one. I could repeat the prescribed maintenance instructions, but I had neither carrot nor stick to convince the customer to adhere to these instructions and buy my maintenance services. If I gave in, I would certainly lose preventive maintenance revenue; if I held my ground, I might win in the short term, to lose the bigger picture. What I needed was a mechanism to consider the age of the product as well as the wear-and-tear.

Managing aging products

Creating such a mechanism and developing a contextual rationale for maintaining aging products is relevant for both OEMs and product owners. To underpin the answer to the question is: “What is the tipping point where to continue to invest in the current product versus going for a newer product?”

During the warranty period, asset owners expect their products to work without any substantial maintenance cost. As the product ages towards mid- and end-of-life, those expectations shift. To monetize those shifting expectations, an OEM will need an asset centric service model. Meaning, knowing where the products are, in what state and how they are being used.

What does this look like? If each touchpoint with an asset during its service lifecycle represents an activity. If each activity requires an effort. If each effort has both a cost and revenue component, then you can paint a picture of the cost-to-serve that product over its lifecycle. When you start comparing actual cost/revenue against planned cost/revenue, then you will have the data points for decision-making. In a full transparency mode, customers will have the same information, leading to balanced buyer-seller investment decisions.

Informed investment decisions

To understand how an OEM can monetize end-of-life situations, it is necessary to flip the point-of-view to the asset owner.

Suppose a customer purchased a product a couple of years back, to fulfill specific use cases. The buyer made certain choices to maintain the product to protect that investment. At any point in the lifecycle of the product, the owner needs to decide:

Do I continue using the current product in gradually degrading mode?
Do I retrofit or upgrade the product boosting performance and/or lifespan?
Do I decommission the old product and buy a new one?

To make an informed decision, one considers:

The product is getting older in calendar years
Product output/ performance is dropping below a certain clip level
The cost to maintain the product is higher than the value it generates
The use cases for the product may change over time

Ideally, one would have tools to make a forward-looking statement. A tool answering the question: “Considering all of the above, how much opex and capex do I need to spend on my product to keep it in working order?” Such a tool exists!

Multi-year maintenance plan

In the 1970s a method called the “House Condition Survey” was created in the UK to determine the technical state of buildings and to derive subsequent maintenance plans. Not based on abstract/generic, OEM-sourced maintenance prescriptions, but based on the actual state of the equipment in the context of its use, wear, and tear.

In the Netherlands this methodology has been refined in a norm NEN 2767, with a so-called Multi-Year Maintenance Plan (MYMP) as primary output. The asset owner can ask a service provider to execute ‘textbook’ preventive maintenance and contract an additional MYMP. The MYMP will serve a forward-looking opex/capex statement for budget planning and risk mitigation purposes. For the service provider the MYMP serves as input to defining sales strategies monetizing end-of-life.

Monetizing end-of-life

Now we have the data points to construct a forward-looking statement and we understand the interest of the product owner, the OEM can build an end-of-life services portfolio:

Upscaling textbook preventive maintenance to condition-based maintenance
Selling retrofits and performance booster packages
Subscription offerings to keep the product on latest engineering revision and software level
Buy-back of older products and sell them as refurbished units
Cannibalize decommissioned products for component and precious-metal recovery

With the above services portfolio, both OEM and asset owner have a toolbox to monetize the end-of-life of a product. Deployment of the tool is not a one-size-fits-all but is contextual to the actual behaviour of a product in the field. Knowing where those products are, in what state and how they are being used, is at the foundation of lifecycle monetization.

Published on PTC Blog.

Unlocking Revenue Potential Across Teams: A Cross-Functional Approach

Your company designs and builds great products. For each product sold, you’re making a margin. In a market with growing competition and vocal customers, that margin is under pressure and tempering EBIT growth. At the same time, you hear about healthy margins on services. To satisfy your CFO and shareholders you want to tap into this service lifecycle margin contribution. Consequently, we see OEM organizations turning their attention to service revenue growth. And when they do, what personas will drive the revenue growth agenda?

To help answer that question, here’s a story: About 15 years ago I met a salesperson at an event rejoicing ‘the day of sales and after-sales’. With conviction I explained the value of after-sales services. He was very resolute: “If there is so much margin in selling services and we crave bonuses, why aren’t we jumping on the service bandwagon?” Less than two weeks later another salesperson shook my belief in service value by saying “Profitability, who cares? Certainly not sales.”

These two experiences have humbled me toward the revenue growth agenda. True, service may have a more favorable margin contribution than product sales. Still, you first need to make the initial product sale before you can sell after-market services. Hence, the revenue growth agenda is not an either product or service play, but a joint effort.

To quantify the EBIT/margin contribution potential of a joint revenue play, we’ve developed the mind-the-gap exercise. What if you have visibility of all units sold? What if all product owners have a commercial service lifecycle relationship with you? What if all those service contracts are of type ‘gold’? Compare this maximum, this total addressable market (TAM) with your current service revenue. Either you ‘claim’ this gap…or somebody else will.

Playing a different tune

As simple as it sounds, knowing the gap is existential. As a company you’ll have to make an informed decision where you want to generate margin contribution, how you want to fuel EBIT and deliver on shareholder expectation. What portion of the lifecycle margin contribution do you ‘claim’ as OEM, grant to the indirect sales channel or to our competitors?

The underlying paradigm of service lifecycle revenue is that customers buy products to use them, to derive value from its output/outcome. This drives asset owners to mitigate product-downtime, and, as products become more complex, they will rely on service organizations who can guarantee uptime. This is where the OEM, as designer of the product and owner of the intellectual property, must make a business model choice: do we sell-and-forget or do we sell-and-service? And once that decision is made, multiple personas come into play to underpin revenue growth:

Engineering
Sales
Service/After-Market

Engineering

It makes a big difference if you design a new product for a sell-and-forget model versus sell-and-service. In the former, you optimize the design for manufacturing and focus on the margin contribution from the product sales (capex). Any after-market revenue is incidental, non-recurring and non-predictable. The installation, maintenance and operating manual are packaged in the product sale as mandatory deliverable, not as intellectual property you can monetize.

In a sell-and-service model you optimize product design for serviceability and operability. Since you have a vested revenue interest in supporting the product throughout its entire lifecycle (opex), you’ll make deliberate decisions on how and who can sustain the product.

Do we repair on component or module level?
Is this a self-service activity or does it require trained/ certified resources?
Can we fix this fault code via remote, onsite or depot-service?
Is firmware embedded, open-source or firewalled?
Do we design for retrofitting and upgrades?

Ultimately, one can plot all those service design decisions in a lifecycle chart. Each node represents a touchpoint, an activity, an effort, a cost and a revenue. This engineering plan-view is the basis for revenue generation/margin contribution in sales and service.

Sales

In a sell-and-forget model, sales may choose not to complicate the sale by talking about lifecycle opex. As a result, after-market revenue and margin contribution are unpredictable.

In a sell-and-service model, sales have a choice to generate revenue/margin contribution through a mix of capex and opex. The more engineering embraces design-for-service, the larger the lifecycle services portfolio, the more sales opportunities.

The engineering-lifecycle-view is both a great tool to educate prospects on what to expect during the operational lifecycle, as well as an instrument for cross and upselling. Once the prospect ‘acknowledges’ the lifecycle chart, it becomes a matter of visiting the nodes and ask: “will you do it yourself or shall I do it for you?”

Thirdly, this engineering-lifecycle-view is a pivotal building block in reshaping the relationship between OEM and distributors/resellers. Once you can visualize and quantify the revenue potential of after-market, OEM and reseller can renegotiate the dealership agreement, sharing profit and partnering in joint service delivery, upholding product quality and brand perception.

Service/After-Market

Once products are in the field, actual product behavior can be measured. Because each customer use is different, service delivery personas need (near) real-time tools to detect deltas between plan and actual.

Without such tools, you’ll probably deliver free service. According to Aberdeen State of Service this amounts up to 14% of your service cost. Call it leakage or missed revenue.

Without comparing plan versus actual on installed product level, you may miss out on the customer context and upsell potential. For example, when my car goes for maintenance, the mechanic can tell me if I drove my car according to engineering specifications or if my actual wear-and-tear is different. It may come as no surprise that informed and empowered technicians are the best salesmen, advising me to replace components, suggest an upgrade, or buy a new product.

Team play

Based on the above, we can ascertain that service revenue growth is not owned by a single persona, but it is a team play. The team can use the mind-the-gap exercise to quantify the revenue potential. Once that potential is defined, your CFO and shareholders will certainly task one of those personas to drive the EBIT contribution.

Published on PTC Blog.