Managing your Quality and Engineering Changes

February 2021, breaking news, your engineering team issues a mandatory engineering change to all product models ABC built between 2011 – 2013. “The gearbox needs a retrofit to avoid potential injury and claims”.

Change the verbatim, the dates or the technical details. I guess you’ll recognise the scenario. Whether the origin of the change is quality, compliance, engineering maturity or commercially driven, managing engineering changes is a big deal. A big deal because you don’t want claims. You don’t want your brand image tarnished. You don’t want cost overruns. It’s a big deal because you want to convert a negative into a positive.

Engineering changes extend into the operational life cycle of a product

I once believed every product was 100% engineered before it found its way onto the markets. Having run service organisations for more than 25 years I’ve reduced my confidence in this percentage year over year. Don’t get me wrong, I don’t mean to say that is a bad thing, but I do want to emphasise that acknowledging that anything less than 100% puts a burden on the service organisation to build mitigating processes.

I’ve seen organisations introduce 80% engineered products by business model design, as they need the usage feedback to finalise the engineering. Other organisations aim at a near 100% engineered product, only to discover their products are used in unforeseen contexts leading to post-GA modifications. And in the digital age I see more and more organisations enhancing product capabilities of physical products by ‘selling’ software upgrade options.

Where is my Installed Base?

All variants share a common premise: you need to have installed base visibility as well as an accurate as-maintained BoM to be able to manage your engineering changes effectively.

To illustrate this, I’ll give an example on the other end of the spectrum. If you don’t know where the affected products are, and you have a compliance obligation to reach out to the product/ asset owners, you can only go public … and that is not good for your brand image … as many car manufacturers and food companies will confirm.

In our Global Customer Transformation (GCT) practice we often see a hybrid. Some units sold have an associated warranty and/ or service contract, other units are not visible because they are sold via an indirect channel and/or the owner does not want to be visible. What engineering change managers need is a ‘workbench’ to create a near-complete installed base from multiple data sources.

Now we have a near-complete installed base, we can filter on model ABC with a commissioning date between 2011 – 2013. 

Spread the Wealth

A common characteristic of engineering changes is that they tend to come at an inconvenient time, on top of the existing workload. What potentially complicates things is the combination of a) the availability of replacement parts and b) the customer expectation to be first in line.

Let me give you an illustration that reveals my age. In 1989 Intel launched the 80486 processor. High-end customers upped the specs of their PC’s with the 80487 co-processor. Then a researcher detected a mathematical flaw in the co-processor. Immediately people wanted a replacement. The supply chain was stocked with the flawed 80487 revision 1, whilst Intel had to ramp the production and shipments of revision 2. In analogy to Covid-19 vaccinations you can imagine this became a puzzle of priorities and constant shifting plans.

In our GCT practice we talk to Engineering Change Managers. They receive so called product bulletins on a regular basis. And each time they need to make decisions on when to launch an engineering change campaign while weighing brand image, quality and cost. And once they have launched a campaign, they want to know the progress. But the most asked ‘feature’ by Engineering Change Managers is the ability to adapt the priorities in a campaign based on progress, the amount of ‘wealth’, the voice of the customer and the impact on existing SLA & Contract commitments. Regarding the latter, I’ll dedicate my next blog on Engineering Change prioritisation strategies. 

Digital EC’s and Retrofit Kits as Upsell and Lock-in instrument

I’d like to change the ‘energy level’ of the conversation. Engineering changes are not always negative from a quality, financial or brand image perspective.

There is a limit to the number of mechanical and electrical changes you can make to a product post commissioning using Retrofit Kits, but more modern products have an ever-growing digital component. Digital engineering maturity continues post commissioning.Do you own a Sonos sound system, a Tesla, a digital press? The physical product you bought remains the same, while over-the-air digital EC’s deliver a steady stream of new features and enhancements. Whether your organisation uses this EC-stream for lock-in purposes or upsell revenue, at the core you need an asset centric infrastructure with comprehensive engineering change capabilities.

This article is published in ServiceMax Field Service Digital on March 2nd, 2021

Field Service Circle Recap: Accelerating Your Digital Transformation

Digital service transformation does not start and end with implementing innovative technologies. It starts with a vision. Service Leaders rethink how to generate new service revenue streams and ensure long-term success. And at the end, when companies find the right path, customers benefit from the new services tailored to their needs.

During our EMEA Virtual Field Service Circles in 2020, we offered inspiration, expert knowledge and practical experience to those striving for improvement and progress on their digital journey. And it seems that with the change from on-site to virtual sessions we could translate this imperative into its very own form and take the huge number of attendees, who are looking to make a difference, along for the ride.

Inspired by the findings in the Forrester research report we commissioned in 2019, we created our 2020 season of Field Service Circle events. During these sessions, we looked at the three key pillars that are accelerating the pace of digital service transformation as well as future field service strategies. This article will recap each of our four sessions.

Future-Proofing Your Workforce

Recent changes as a result of the global pandemic have drastically changed the way some technicians conduct their work; however, the role of the field technician has been evolving at an increasing pace for a number of years now. What does a happy, versatile, future-proofed workforce look like? Together with Kris Oldland, Chief Editor of Field Service News, Coen Jeukens and Sumair Dutta from our GCT team not only talked about these questions but also discussed the value of field service tools for technicians, the importance of human intelligence, and the move towards a “remote first” model for service. Watch the on-demand recording here.

Keeping Customers at the Forefront

While technology has raised customer expectations, it can also help field service providers meet those expectations. But how well do we understand the expectations of our customer base and how is the customer’s voice a driving force in the service transformation? How will customers see value in new service offerings and how can we future-proof the supply of the same? All of these questions, and more, formed the focus of this session with Rob Merkus, EMEA Service Director at Hitachi Medical Systems, and Jan van Veen, Founder & General Manager at moreMomentum, as we examined the service delivery chain from the customer perspective, the best ways to adapt to evolving customer expectations, and the business opportunities therein. Watch the on-demand recording here.

strategy & vision

Using Asset Data as a Transformation Consultant

Customers expect their assets to work, and service providers want to know where the assets are, in what condition they are, and how they are being used. The focus on digital transformation has placed companies’ attention on harnessing equipment data for insights, exploring new business models, and implementing digital technologies. Sven Gehrmann, Senior Manager of BearingPoint, Thomas Heckmann, Solution Consultant of ServiceMax and Co-Founder of the German Chapter of the Institute of Asset Management, and Coen Jeukens particularly emphasized the message that equipment will become the transformation consultant of the future driving future business value. Watch the on-demand recording here.

3 pillars of digital transformation are your workforce, your customers, and you assets

Field Service Strategies for the Future

Field service management is evolving and adapting to the “new normal” that we must all embrace as a result of the pandemic. According to an IDC survey spotlight by analyst Aly Pinder, Jr., “The service experience can be THE differentiator for manufacturers in a time shrinking margins and heightened customer expectations.”1

Additionally, Susan Tonkin, who leads Analyst Relations at ServiceMax, presented some of the predictions recently published by Gartner, such as “By 2025, proactive (outbound) customer engagement interactions will outnumber reactive (inbound) customer engagement interactions.”2

Together with Professor Shaun West of the University Lucerne, Susan Tonkin and Coen Jeukens discussed Forrester’s three pillars of digital transformation and ServiceMax’s predictions for 2021 based on our CSO Summit series. Among various points, Shaun highlighted that the so-called “smart services” that are data-driven and geared to individual customer needs are gaining importance. Watch the on-demand recording here.

What’s Next?

Digital Service Transformation is no longer a choice but an imperative. Having visibility and control on Assets, Workforce and Customers allows service providers to drive excellence and growth. Technology plays a decisive role in this journey. It has profoundly changed the business landscape and its impact will continue growing as long as more businesses continue adopting technologies that add value to customers’ lives.

The EMEA Field Service Circles presented a fantastic opportunity to stay connected with ServiceMax and industry peers remotely as we all work to keep the world running and understand how to respond to field service changes.

Take the next opportunity to accelerate your digital transformation with Maximize!Click here to register for Maximize 2021, ServiceMax’s Global Field Service Conference on March 16-18, to learn what you can do today to support your business goals and how you can prepare your service team for the challenges of the future.

1. Source: IDC, COVID-19 IMPACT ON IT SPENDING, 09/2020)
2. Source: Gartner, Predicts 2021: CRM Customer Service and Support, 1 December 2020

This article is published in ServiceMax Field Service Digital on February 16th, 2021

Sales and Service working in Collaboration

“Which function in your organisation has the most touch points and the highest customer trust?”. Here I go again, preaching to the choir. You know where this line of thought is going. Today I want to voice a different tune. I don’t want to highlight what sets Sales and Service apart, but I want to find the common ground. Because we need each other for the sake of organisational survival and growth.

The Ugly Truth

A couple of years back I chaired the Copperberg After:Market event. In my closing remarks I provoked the audience with the word “after” in “after-sales”. Is service an afterthought? A big NO came from the delegates. Though the word “after” triggers quite some emotions and hits some nerves, let me share an ugly truth with you: after-sales does not exist without an initial sale! Service will not replace sales. Service should not compete with sales over margin contribution. Both sales and service have a role to play in customer value creation throughout the life cycle of a product. The product becomes the carrier of value creation.

Contributing Centre

So, I’m not going to ask you to raise your hands by asking if your service organisation is either a cost-centre or a profit-centre. We now agree that you are a contributing centre! Agreeing on this nomenclature is key to collaboration with sales for two reasons:

  1. In a head-to-head battle with sales, sales will claim ownership of the revenue play. You don’t want this. You want a joint role and responsibility in revenue generation and margin contribution.
  2. More conceptual, if Service were a true profit centre, Service would have had the organisational and budgetary mandate to sustain and grow service revenue. Practically all CSO’s I’ve met have a budgetary mandate up to 2,500 dollar, pound or euro. That’s not enough to drive your own margin and revenue destiny. So, maybe it is better to have Sales co-funding your new Service tools. In return you share your customer trust and high quality touch points with Sales.

Handshake

This handshake, this collaboration between Service and Sales can be explained using the technique of Causal Loop Diagrams[1](CLD).

At last year’s Maximize we did a Technician survey and asked what motivates them. In short, most technicians want to be a hero on site. With that status they create customer trust. As a result, they get high quality and contextual feedback.

What happens when technicians can’t share that information, or get a feeling that their insights are not actioned? No, this is not a rhetorical question. Ah, your organisation has an incentive scheme to encourage technicians to create leads. Does it work? Do salespeople take leads from the service domain seriously? Do service people know how to deliver leads on a silver platter?

Yes, technician insights have the potential to create more and better leads. The service domain is also a repository of information to develop new services. Services that include the voice of the customer. Services aligned with your customers use cases.

As a salesperson you would make a great impression on your customer when you display your ability to listen. That you proactively use the feedback shared with the technician. Not only will your propositions be better, also your customer will feel genuine interest and attention.

The killer feature in this Causal Loop Diagram is the reinforcement towards the technician. A reinforcement that outweighs any financial incentive scheme you can devise. Imagine how the technician feels when he/ she gets feedback that his/her discovery and insights have made a difference. A feedback coming from two directions. Firstly, the salesperson who confirms the use of the feedback. Secondly, the customer confirming that their previous conversation was actioned.

Closing the loop adds to the technician’s empowerment and his/ her increase in hero status. Guess what, next cycle this technician and salesperson will even contribute more to your bottom line.

A Groundhog Day experience

Does it really work this way? In 2016 we trialled this causal loop with more than 60 chief service officers. The results were published in Field Service News in a piece called Demand generation: A Groundhog day experience. Do share with us what your experiences are. Happy & collaborative hunting.

[1] Business Dynamics, systems thinking and modeling for a complex world, John D. Sterman, McGraw Hill 2000

This article is published in ServiceMax Field Service Digital on January 26th, 2021

How to Maintain and Protect Your Brand as an OEM

You make great products. You have a strong brand. But how do you maintain those products and protect your brand beyond the point of sale? What do you do when customers demand more through CX or regulators demand more through compliance or channels partners struggle to deliver consistent service? The good news is modern field service management systems provide you with the tools to manage and overcome these challenges.

Trending in 2021

At the close of each year, a lot of people ask me to make some predictions for the new year. Honestly, with some extreme disruptions in 2020, it is hard to single out a theme for 2021. Though I do see a consistent trend over the last decade. A trend that will very much drive the OEM transformation agenda: how do we extend our value proposition beyond the revenue of the product sales? Margin contribution on product sales is dwindling. Thus, it is logical that your CFO is eying service margins and tasking you with service revenue growth. So, let’s focus on two 2021 topics to achieve those goals.

  1. Improve your installed base visibility across all your sales channels
  2. Support your product throughout its life cycle

And by focussing on these two, you’ll get a lot of adjacent benefits too.

Step 1: Invest in Installed Base Visibility and Effective Channel Partners

To exert a maximum level of control over the value an OEM can provide to its customers, an OEM may have the ambition to own each step of the value chain. The commercial reality is that a network of partners and competitors is involved in the value creation. This may result in a battle over the ownership of the customer relationship. Especially when we consider the underlying paradigm: the one who owns the relationship owns the levers to CX and sustainable revenue.

The key enabler to value creation is your Installed Base Visibility. It is pretty straight forward. If you want to create value from the products you sell, you need to know where they are and how they are being used. Without visibility, your service delivery will be in the blind. Without a relationship, your revenue streams will be unpredictable.

We see more and more OEMs investing in installed base visibility. This starts with shifting from margin contribution through product sales to margin contribution through using the product.  The increased margin contribution pays for the investment and buy-in from the channel partners.

Are you curious about what installed base visibility brings to the bottom line? See what Schneider Electric was able to achieve here.

Step 2: Support Your Product Throughout Its Life Cycle

Who knows your product best? You, the OEM. You designed it and built it, so it seems you are best qualified to support its use during its life cycle. Hence the previous paragraph, you need to know where your installed base is and in what condition.

For each product, we know that the true test comes when it is used by real customers. No matter how well designed and built it is, actual customers seem to use products in more different ways than you have anticipated. Whether the feedback is coming to you via the quality department, service interactions, or through an autonomous engineering department, your products do get revisions and engineering changes.

Some of these changes are for liability and compliance. Others may enhance the function of the product, potentially driving more value. Thus, you have multiple reasons to reach out to your installed base. And when you do so, you want to track what portion of that base you have reached.

Two to Tango

The combination of installed base visibility and product life cycle support form an ideal tango to strengthen your brand. Though the commercial reality of your channel strategy may impact your ability to reach out to your installed base, asset-centric field service management tools make it much easier to visualize and manage your assets. Extending those tools to your channel partners will make it easier to share and grow the value creation for your customers.

Whether you decide to take tango lessons in 2021 or not, at least put some thought into the beauty and joy of the dance. I promise you; your customers will like it.

This article is published in ServiceMax Field Service Digital on December 17th, 2020

Back to the Future with Design-for-Service

“Yes, it’s really happening!”. That was my feeling when a customer of ServiceMax contacted me to enlighten them on the Design-for-Service concept. Six years ago, they started their service transformation journey to get Visibility and Control. Now they are moving the needle towards Excellence and Growth. What makes this ask even more ‘special’, is that it is the engineering department that wants to know what service needs to deliver value.

Black swan

Most of us will have plenty of examples where engineering asks technicians to record all kind of diagnostics, reason and fault codes during the service execution. What happens with that data? Will the technician feel taken seriously when servicing yet another piece of equipment that is engineered for manufacturing?

Thus, you can imagine my positive surprise when engineering wants to ‘learn’ what service needs and what modern service execution tools are capable of. It is a true win-win when both service and engineering are seeking the joint benefit of their siloed effort. 

  1. Technicians will get a return on their administrative effort when they see that it results in easier-to-maintain products.
  2. Engineering will get the justification to fund their design-for-service effort when they see that service can improve the margin and drive new revenue streams.

Attach Rates

The concept of design-for-service is not new. Still many organisations only apply design-for-manufacturing. The latter concept drives for cost optimisation in the manufacturing process of a product at the expense of a potential higher maintenance cost over the life cycle of the product. Design-for-service optimises both the manufacturing and the maintenance aspects of a product. Yes, I hear you. What about TCO, total cost of ownership? TCO is great, but TCO only works when capital expenditures (Capex) and operating expenses (Opex) are evaluated by a single entity.

Cutting a few corners and dialling it down into a single metric, have a look at your Attach Rates. You can imagine that when engineering puts more effort/ cost into the design of the product, the selling price of the product goes up. Balancing the effort equation, you have the maintenance cost going down due to better quality and more efficient maintenance delivery. On top of that, the engineering effort may also result in the creation of new types of service offerings like availability services and data-monetisation. To reap the benefits post point of sales, you need to have or get your customer ‘attached’.

Attach Rate: the percentage of your installed base that has an associated service contract with your organisation

Getting ‘attached’ customers might be easier when you sell your product via your own direct sales channel versus units sold via your indirect channel, read dealers and resellers. That all changes when engineering starts including concepts like ‘digital activation’ of the product.

Serviceability

When engineering defines the Product, the result is captured in a BOM (Bill of Material). So far, nothing new, this is design-for-manufacturing 101. When we start designing-for-service, we need to make a number of explicit decisions. Amongst those I’m highlighting two of them:

  1. What components from the BOM are serviceable?
  2. What service delivery model is applicable for that component?

First, is the product serviceable at all? If it remains a single unit, you have made the implicit choice to exchange the whole unit with the option to have the defect unit repaired or scrapped at a depot. This model may be a fit for some products but the larger, expensive and critical the product, the more you’ll need to ‘open the box’.

Second, in the BOM you’ll have to identify those components that are serviceable. For each component in the Service-BOM or SPL (Spare Parts List) you’ll have to classify the part.

  1. FRU: Field Replaceable Unit – the repair/ replace of the component requires specialised skills of a technician
  2. CRU: Customer Replaceable Unit – the repair/ replace of the component can be done by any customer (no explicit skills required)
  3. DRU: Depot Repairable Unit – the repair cannot be done in the field, but requires the asset to come to a depot where dedicated skills, tooling and components are available

Old-school textbook?

I’ve come to learn the above two service design considerations when I stumbled into my first service job at IBM in 1993. Though I did not grasp the full impact at first, the more I talk to today’s customers, the more I am convinced we need to re-establish the handshake with engineering to deliver above and beyond the service value promise. 

Handshake

In my session with this customer, I had conversation with a very adept, eager and forward-looking engineer. He understood the consequences of engineering choices for the service delivery … and ultimately the impact to cost, revenue and customer expectation.

Next, he wanted to know how service delivery constraints and possibilities would impact his engineering process. It was clear to him that state-of-the-art service execution tooling, with a high degree of asset centricity would enable him to create a positive ROI for his design-for-service efforts.

This article is published in ServiceMax Field Service Digital on December 10th, 2020

Identifying new revenue streams in Service

It is no big secret that service revenue streams are profitable. Thus, it is to be expected that many CFO’s are the driving force behind your organisations’ service revenue growth ambitions. Especially when margins on product sales are dwindling. And indeed, we see the majority of today’s CSO’s having a revenue target. This is where the real transformation starts.

Having a cost-centre heritage practically all CSO’s know how to drive cost reductions in the service delivery process. Ask those same CSO’s if they know how to grow revenue, and the answers are less clear. Read on for the missing insights.

A small personal anecdote. In 2012 I was responsible for selling service contracts for a division of a € 60 billion family-run German company. Because my targets were revenue based, my role was moved from the service domain to the sales domain. The CRO asked me how I would achieve my goals and what marketing budget I needed. I said I would first build the delivery capability and then go for the marketing budget. How naive I was.

Voice of the Customer

How could I know what capabilities to build without understanding what customers really value? Without ever having put a lot of thought to my current services portfolio my service revenue stream was more a bookkeeping metric than a conscious business driver. Looking at my website under the services heading I saw the usual suspects; installation services, periodic maintenance, spare part sales and a helpdesk for break-fix scenarios. Remembering the words of the CRO; how did I market these offerings? Well, beyond the website, I didn’t. It made me aware that I needed the voice of the customer.

Customers expect assets to work

And when I asked, the answer was really simple; customers expect their assets to work. They want to maximise uptime while at the same time minimising operating cost.

The Preventive Maintenance story

May I make a guess? Preventive maintenance is a significant portion of your service revenue stream. But what if your customer starts questioning your rationale of ‘preventing’ and how those activities link to the achieved uptime? What if the procurement department of your customer pressures you to reduce the maintenance cost?

In our previous blog on how to sell customers on the value of preventive maintenance we have shown that value recognition of service delivery is moving from the actual execution to the insights you can provide. Sure, the service work needs to be done, but beyond fixing the asset, you have to ‘fix’ the customer. So, if you perform a periodic maintenance, try to shift your focus to the reporting and the interpretation/ communication of what the outcome means to the customer.

A customer may respond with:

  • Did you find any anomalies during PM and what impact do those have?
  • Do I need to reserve any additional budget to keep the asset going?
  • How can I improve the performance of the asset?

From fixing what breaks to knowing what works

Beyond reactive services

Considering revenue streams based on reactive type services are in jeopardy, the way forward is offering services that focus on the output and outcome of the asset. This implies that you have to change your paradigm from a product focus to a customer focus. At the core of your service delivery is not the product, but how your customer is using it. It makes a big difference if the same product is used intermittently at a 25% utilisation versus a 24/7 usage at 99.x%.

The key to selling uptime and performance-based services, is your understanding of the ‘cost of downtime’ of your product in the context of its use. Thus, we’re back at the voice of the customer.

I love penalty clauses

A ‘great’ way to engage in a value conversation with your customer is the topic of penalty clauses. I love them! Not because I, and my CFO, like to include the penalty liabilities into a service contract, but because penalties are a surrogate for something that is important to your customer. Try to discover the ‘why’ behind a penalty clause and focus on the mitigation of that reason. You may discover new types of services you can sell. 

My guess, it’s all about availability of the machine. Apply more curiosity and your customer will tell you when that availability matters … and when not. Even a 99.x% utilisation will have ‘black out’ windows allowing you to perform the necessary service activities without the stress over-dimensioning your service delivery organisation.

Sell first, then build delivery capability

Going back to my CRO. On a continuum of potential services, I could offer a full range from reactive to pro-active, from product to usage-based services. In the end, the determining factor is not me, the seller of the services. It’s all about the buyer of services. My CRO ‘cured’ my naivety. I first listen to my customer and sell what he/ she wants. Then, if I have a state-of-the-art and flexible service execution platform then I do not need to worry about the service delivery capability being able to catch up.

This article is published in ServiceMax Field Service Digital on November 24th, 2020

Finding Revenue Leakage in your Service Business – part 2

Do you know what your maximum service revenue potential could be based on the product units your organisation sells? Is your current service revenue less than this maximum? And, do you have a process to upsell service contracts into your existing installed base? One or more puzzled looks, chances are big you are suffering from Upsell-leakage. 

In the previous episode we have defined two types of leakage; Contract and Non-Contract leakage. In this episode we’ll define Upsell-leakage. Most likely upsell leakage will be twice as big as the other two combined.

Finding Revenue Leakage in your Service Business – part 1

Upsell leakage

As service organisation you’d like all your customers to buy your premium service. Some customers will buy ‘gold’ service level for their installed base, others will be happy with ‘basic’ service. It all depends on the use case of your customer and their propensity to value the services you offer. As use cases tend to change over time, you may want to consider setting up an upselling program using the touch points from your service delivery. 

If you don’t ask, you don’t give them the opportunity to say yes

Not having such a programme deprives you of revenue potential; being the delta between your current service revenue and ’gold’ service level.

Defining the upsell service revenue potential

To quantify upsell leakage we can use a mechanism known to Sales as TAM (Total Addressable Market). Suppose you sold 1,000 units at $10,000 each. Suppose a ‘gold’ service contract has an annual selling price of 12% of the unit selling price. This would put your service-TAM at $1,200,000 per annum.

Imagine your service department has 600 of those 1,000 units on their radar screen. The rest is sold via an indirect sales channel and/ or lost-out-of-sight. This gives an installed base visibility of 60%. Let’s assume those 600 units generate a service revenue of $400,000, split across:

  • 10% of units are in (OEM) warranty and don’t generate revenue (yet)
  • 50% of units have a bronze, silver or gold contract generating $240,000
  • 40% of units don’t have a contract and generate $160,000 in Time & Material (T&M)

With the above figures you currently reap 33% of your service-TAM and you have an upsell potential of $800,000. Monitoring this upsell leakage metric should give you the incentive to put a revenue generation program in place.

Metrics driving upsell leakage

In the numeric example we’ve touched on three metrics that impact and drive upsell leakage.

  • Installed base visibility: it all begins with installed base visibility. Units not on your radar screen will not contribute to your service revenue! This is easier to manage for units sold via your organisation’s direct sales channel, though it does require an effort to manage the life cycle from as-sold to as-maintained. For units sold via the indirect sales channel you’ll have to exert extra effort to get access point-of-sale data, maybe even ‘buying’ the data.
  • Attach rates: both warranty and contracts are attached to the unit, thus driving attach rates. Attach rates are ‘boolean’, they say something about having an attached contract, not about the amount of revenue you get through that contract. Attach rates start at the installation/ commissioning date of a unit. Either Sales makes the attached-sale at point-of-sale of the unit or the Service department drives the attaching post-point-of-sale. Driving metric for Service is to maintain a continuum of attachment throughout the life cycle of the unit. 
  • Service revenue contribution: Within the subset of attached contracts you’d like to have as much revenue contribution as possible, ‘gold’ service being the holy grail. Per service contract you could have any of the following revenue contributions:
    • OEM Warranty: 0% of Service-TAM
    • Enhanced Warranty: 33% of Service-TAM (only the on-top-of OEM warranty piece)
    • Extended Warranty or Basic service: 67% of Service-TAM
    • Gold: 100% of Service-TAM

In terms of merchandise, you can’t force anyone to buy something

Remedying upsell leakage

The overarching paradigm to growing service revenue is twofold: increasing your installed base visibility and making sure you have attached offerings to those units. 

Getting visibility on units sold via the indirect channel is slightly more complicated, but once you quantify the associated service-TAM with those units, you may have the ‘funding’ to ‘buy’ the data. This may even lead to revenue sharing models with your channel partners.

The last piece of the puzzle is using the visibility of the upsell leakage gap whenever you have a touch point with your customer. Note that the original (service) contract has been drafted many months ago by people whom are further away from the business, who could not 100% envision the service reality of today. You thus may end up in an entitlement conversation where the customer has an urgent requirement whereas the contract ‘only’ covers for the ‘basics’. The delta is an upsell opportunity. Either resulting in an upgrade of the service contract or maybe only upgrading an incidental work order. In case the latter happens more often, you have the data points to convince the customer for the former.

Now, understanding that upsell leakage is potentially twice as big as contract and non-contract leakage together, you may have found your compelling reason to start another revenue growth project.

This article is published in ServiceMax Field Service Digital on November 19th, 2020 and Field Service News on Jun1 1st, 2021

Finding Revenue Leakage in your Service Business – part 1

Have you ever had to Credit or Discount an invoice? If the answer is ‘yes’ then you have leakage, if the answer is ‘no’ then you definitely have leakage.

How do you respond to the Aberdeen finding that best-in-class companies have a whopping 14% warranty & contract leakage? Denial, absurd, overstated, or … wait-a-minute, maybe I’m not looking at the right KPIs to detect leakage. Once you acknowledge leakage exists in your organisation, wouldn’t you go all the way to manage leakage out of your business, knowing it has a direct impact on your bottom line?

Defining leakage

What is service leakage? In the simplest terminology: you are losing money. And the bad news is that it often happens without you knowing or realising it.

We can distinguish two types of service leakage:

  1. Non-Contract leakage : the periods in the operational life cycle of an asset not covered by warranty and/or a service contract (sometimes this is also called T&M-leakage because service outside a contract classifies as T&M).
  2. Contract leakage: an asset is covered by warranty and/ or a service contract but in your service delivery you provide more and/or a higher level of service than the customer is entitled to. 

Contract leakage typically occurs when service organisations do not know and/or manage expiration dates of warranty and contracts. Non-contract leakage typically occurs when the entitlement process is fragmented and/ or when the information is not accessible to all involved service actors.

Let’s mention a couple of common scenarios:

  • A customer claims a defect within the warranty period. You correctly entitle the job as ‘warranty’. On site the technician detects ‘customer induced damage’. The technician performs the repair anyhow and there is no charge to the customer.
  • A customer is entitled to next day service but presses you to fix the machine today without paying an additional fee. Because your technicians are not busy today, you give in to the request.
  • A customer makes a service request assuming the current contract is still active. Upon entitlement check you detect it has expired three months ago. The customer agrees to renew the contract per current date. You incur 3 months loss in contract revenue.
  • A customer has multiple machines of the same model. Only one of them is covered by a contract. The single contract line is used to entitle work on all of them because the customer always uses the same serial number.

Service Leaks are not the problem; they are the symptom. They reveal a disconnect between process design and actual behaviour. Denial of leakage increases the disconnect.

Impact of leakage

One of the unfortunate things in business is that the cost always hits you – now, if you are so good at capturing cost why do you allow revenue to slip through your fingers? How do you think your shareholders would enjoy hearing that you worked on a customer’s asset and neglected to bill them? 

Another way to look at the impact of leakage is to establish how much extra revenue would need to found above and beyond what you are already billing for. Let me paint a picture for you, as we have established you capture all of your costs so any leakage (missed revenue) that you capture will have a 100% positive impact to your bottom line – every dollar billed will be a full dollar of equivalent gross margin. So, let’s say you were running at 20% margin as a service organisation and you allowed $100,000 to leak through your service organisation, now a service org would need to go and find $500,000 of brand spanking new business to offset this $100,000 leakage just to break even. How hard is it for a business to find $500,000 of extra revenue with the same resources? 

Actually, quite easy – set your system up to minimise the risk of leakage….

On top of the cost, revenue and margin contribution impacts, customer expectation is a big one. Leakage has a very large behavioural component. If a customer is used to getting service for free, it becomes very difficult to start charging for it. If a customer ‘discovers’ you can’t manage your entitlements correctly, this may lead to ‘unwanted’ service calls.

A similar behavioural impact can be expected on the technician’s end. A technician chose his job because he/she wants to fix things and be a hero on site. A technician did not select the job to do admin and become a contract-referee. Thus, if you do not empower your technicians with the right tools and information, do not expect any cost/revenue sensitivity, they will go for CSAT and please the customer.

Finding leakage

Do you find leakage or is it a matter of ‘capturing’ it? You are delivering all of the services that create the opportunity for leakage, so you already know where it is, you just need the correct tools to capture it, Oh and by the way,  they are never humans and excel… You need a robust process and a software solution to support that process and remove ‘chance’ from the equation. 

Detecting, quantifying and finding the origin of leakage in your organisation is a process like remedying a leaky roof. You’ll need adjacent ‘instruments’ to find the source.

Remedying leakage

The first step towards remedying leakage is accepting its existence. Once you have made leakage visible, you can start actioning it. And in general those actions fall into three categories:

  1. Stop delivering free service; this has a direct cost reduction benefit.
  2. Continue delivering ‘free’ service and start charging for it; this will increase both your revenue and your margin; the additional margin is 100% as we have shown you have already incurred the cost.
  3. Continue delivering ‘free’ service and use it as collateral for something else of value; this benefit is harder to manage, but we can argue it is good for CSAT and can be used during contract renewal to counter cost & rate reduction arguments from your customer.

This article is published in ServiceMax Field Service Digital on November 10th, 2020

The role of service in the Experience Economy

In the Experience Economy, customer service means more than fixing what’s broken. Coen Jeukens of ServiceMax explores what this means for service organizations.

In my native Dutch language, we have an expression “operatie geslaagd, patiënt overladen,” which translates to “surgery successful, patient deceased.” Just because a procedure or process was performed successfully does not necessarily mean it generated a successful outcome. That’s because experience matters.

The ‘Experience Economy’ is a phrase first coined in 1998 in a Harvard Business Review article and later in an eponymous book by consultants Joseph Pine and James Gilmore. It’s based on the premise that businesses must deliberately orchestrate and create memorable encounters for their customers, and that the memory itself becomes the product — or in other words, the ‘experience’. Airlines for example, are not just taking you from A to B on time and at the lowest price, but (hopefully) giving you their distinctive en-route experience.

Valuing the experience in service delivery

The ‘Experience Economy’ states that over time the value of the experience will outweigh the value of the product or service. The implications for service delivery — fixing the product alone — is not enough. You need to ‘fix’ the customer as well.

It’s particularly relevant in service-based industries, because more advanced experience businesses can charge for the value of the ‘transformation’ that an experience offers. But a lot has happened since 1998 and the lines have since blurred. Experience is now intertwined with customer management strategies and more recently the move to outcome-based business models and the rising emphasis on customer success.

To help us measure customer satisfaction, Fred Reichheld introduced the Net Promoter Score (NPS) in 2003. Today you see NPS, CSAT, CES and CX everywhere. We care about the customer because the product/service itself is moving towards becoming a commodity. To differentiate and assure ourselves of sustainable revenue streams, we need to move upwards. We need to do what customers really care about. This drives many transformation journeys.

From break-fix to knowing what works

For service organizations, this means moving from fixing what breaks to knowing what works.

For example, a global technology solutions vendor had a persistent problem in finding sufficient qualified technicians. As an experiment they started hiring hospitality graduates. Their logic was that with modern tools, it’s easier to teach technical skills to people-oriented employees, than to teach people skills to technology-oriented employees. In other words, you hire for attitude and softer skills, then teach the technical competency. With increasingly vocal customers this experiment not only became a success for the company, it also became the norm.

As industries become increasingly automated we are rethinking the skills our workforce needs. The role of service technicians in delivering positive experiences, human touch, contextual understanding, communication and the slew of softer skills aside from the service or maintenance task, is becoming more important than ever.

As the economy begins to emerge from locked-down restrictions to finding a new level of ‘normal’, customer experience will be the bedrock of service delivery, customer retention and proactive customer management strategies.

Published in Diginomica on July 1st, 2020.

Post-Crisis Handbook – Managing the Backlog

We’ve been talking about disruption for quite a while, but many could not fathom out its consequences or that it would even hit us. Nations, organisations and individuals have discovered that their business continuity plans could not mitigate the impact.

Now we’re past the initial shock, what is business-as-usual going to look like? How do we pick-up and how do we process the backlog created by three months of lock-down?

In the previous chapter of our post-crisis handbook @Daniel Brabec provided four handles that are top of mind when navigating the service world in the New Normal. In this chapter we will focus on managing the backlog.

Perpetual Backlogs

Right now, all focus is on Covid-19 and its impacts. But if you look deeper, you will see that many COVID-related themes have pre-existed in varying degrees; its only now that we look at them through a magnifying glass.

  • Remote service procedures have been around for more than 30 years. Rethinking business continuity plans will likely expedite their adoption.
  • Digital tools allow you to remodel your business processes and simulate the amount and mode of touch points. Social distancing guidelines add an additional ingredient to that business process (re)engineering.
  • Balancing the availability of technician capacity and contracted workload is an ongoing exercise for each service-focused executive. Disruptions and imbalance exist at all times. Only Covid-19 is a major shock, illustrating that business-as-usual balancing mechanisms can’t cope.

Balancing Supply & Demand

For about three months many businesses have seen huge fluctuations in both the volume of work and the availability of resources.

The existing workforce has been confined to work from home, has been furloughed or has taken sick/ care leave. In addition, those that are available have to spend more time on a job for extra precautionary activities. In all, you have less capacity to execute work.

From a workload perspective we see that many jobs have been pushed out. We see some equipment being ‘sweated’ to maximum usage (e.g. medical diagnostic equipment) and others going into hibernation (e.g. aircraft engines). This will have a huge impact on the life cycle of the asset warranting a more asset centric approach.

The Impact of the Backlog

Just try to imagine all the impacts a work-related backlog might have on the business:

  • Compliance: For three months Preventive Maintenance (PM) and Inspection jobs have been pushed out. All time-based schedules and counters will see non-conformity. To what degree can you apply flexibility to compliance dates and how do you manage those shifts?
  • Service Level Agreement attainment: There are many relevant questions that need to be answered in the measurement of SLA performance. How does one measure uptime for e.g. medical diagnostic equipment that has been running 24/7? How do you measure uptime of equipment for furloughed organisations? And How do penalty clauses apply; or is the pandemic considered an act-of-god? And finally, how do you filter/ clean metrics that are impacted by Covid-19?
  • Contract renewal: This possible renewal scenario might play out between organizations and customers. Procurement at the customer may say “We’ve not had the benefit of contracted services for three months, so we will only renew in three months” or “We’ll only renew after completion of the pushed-out PM jobs”. Try to imagine and forecast the impact on your contract revenue streams.
  • Dispatching priorities: How does contract renewal drive the priorities for rescheduling the PM backlog? If you have more jobs than capacity, what jobs get priority and what will be the impact to the above three bullets?
  • Workforce capacity planning: Now we have more jobs than capacity, how long will it take us to process the backlog? Will we strike the backlog, or will we contract additional/ temporary capacity? What jobs will we assign to 3rd party technicians and what jobs will our own people do?

To reiterate, the above impacts are not only related to Covid-19, they are universal and timeless. You might recognise yourself in the synthesis of pre-Covid-19 quotes made by various companies: “At present we can only deliver on 85% of the contracted work due to unavailability of skilled resources. In the execution of work, we take calculated business risks balancing compliance, cost and revenue streams”.

Running Scenarios

Ultimately, the challenge for any organisation is the balancing of supply of resources and the demand of (contracted) work. And as we know by now, we have to be able to handle disruption in various degrees of intensity. This brings us to the requirement of being able to run scenarios.

Some examples:

  • What is the revenue & compliance risk of executing 85% of the jobs versus adding resources to get to 95% execution?
  • What happens to my contract renewals, SLA attainment and penalty clauses when I prioritise pushed-out jobs of gold-contracts over bronze-contracts?
  • Can I use knowledge on capacity availability in my service-sales process when making commitments on execution dates?

In its most generic form, running scenarios will help you making informed decisions on both capacity/ resource management and prioritising (contracted) workload.

The New Normal is Business-as-Usual

So, what is so new about this New Normal? Is it new? Or is it business-as-usual under a magnifying glass? I believe it is the latter. I believe backlog management in the past has focused a lot on the transactional aspects. Now the disruption is visible to all, I believe the time is right to make backlog management a strategic decision-making function.

This article is published in Field Technologies Online on June 22nd, 2020.