Sales Archives - Sales DNA and a Service heart

Managing Service Profitability in the Age of Digital Transformation

Editor’s note: This post was co-written by Joe Kenny and Coen Jeukens.

It is an age-old dilemma for Operations Managers. Your CEO wants XX% revenue growth, your CFO wants XX% cost reduction, your CRO wants better references and higher NPS scores, and you are supposed to deliver all of this with zero additional investment, because – of course – you have been doing this for years with no additional cash, so why would you need it now?

To top all of this off, you had very little idea of where you stood, operationally or financially, at any given time. And this was due to the fact that access to real-time data, a current view into work in process, and accurate financial information was all impossible to come by.

Historical challenges for service operations

I often speak at conferences and participate in webinars, and I often relate this anecdote – in March I would lay out my operational plan, based on the most recent P&L statement I had received (January’s), intending to address performance weaknesses I had uncovered. My team would execute the plan and in May I would receive my March P&L to see if the response to January’s performance shortfalls were successful or not. It was madness.

Now, layer onto that, the fact that 30, 60, 90-day invoicing accruals were also Operation’s responsibility, even though we had an AP department. This process greatly impacted both revenue and cost, as the cost of service was consumed, but the associated revenue may not have arrived in 90 days.

Impact of digital transformation

Fast forward to today, and service operations managers have been given a lifeline—digital transformation. Digital transformation can be like a light switch, illuminating what is happening in real time, allowing service operations leaders to adapt to circumstances immediately. They can reallocate precious resources instantly, validate payment status and credit status prior to service delivery, and see and understand the impact of operational plans in real time.

Digital asset and service management platforms can provide real-time performance measurements, both foundational and top line. This includes data round first-time fix rate, mean time to repair, mean time between failures, and equipment uptime. With this data, operations managers can organize and drive for peak utilization of labor resources while ensuring that the training and quality of work are optimal. This then increases the efficiency of their organization and lowers the cost to deliver excellent service.

With today’s technology, service operations are finally on par with our commercial partners and can see and act on upsell, cross sell, renewals, and service contract extensions instantaneously. In addition, we can support sales by identifying and helping them target competitors’ equipment for targeted replacement. We are the eyes of the commercial team on the customer’s location.

Newfound financial control

Utilizing a digital solution allows for real-time tracking of labor, parts consumed, travel, and any other costs associated with a service call, regardless of whether it is a T&M call or in support of a warranty/service contract entitlement. This is a key advantage that enables service operations leaders to manage labor and parts expenses far more granularly. In addition, they can evaluate the revenue associated with the service provided to validate if the pricing is correct based on their revenue and margin targets.

This ability to understand the cost to serve on an asset or entitlement agreement in real time is a huge step forward for service operations. It gives them the data they need to truly align entitlement pricing, cost control, operational efficiency, and productivity to accurately manage and forecast their performance and address fundamental issues that are obstacles to achieving their own performance objectives.

The evolution of equipment and asset service management platforms has greatly assisted service operations professionals in attaining the insight, visibility, and control that their commercial and financial counterparts have enjoyed for decades. As asset and equipment maintenance and service becomes a larger part of most organizations’ revenue and margin contributions, it is important that they equip teams with the technology that enables them to better manage and control their operations.

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.

How OEMs Can Service Products Sold Through Indirect Sales Channels

Imagine you are an Original Equipment Manufacturer (OEM) who designs and manufactures fantastic products. You sell these products through a combination of direct and indirect sales channels. But because you don’t control the end-customer relationship, you don’t know how to best ‘serve’ products in the field. In other words, you have limited visibility into where your products are, in what state they’re in, and how they are being used. This reduced visibility impairs you in managing service costs, growing service revenue, and driving customer satisfaction. Let me tell you how you can regain control over your installed base.

Establishing a digital thread

A couple of years back, a premium brand of energy control systems sold its products based on a sell-and-forget model. That model had become the default modus operandi because:

The business sold a substantial volume of units through indirect sales channels
The company had a legacy of product leadership

This sell-and-forget model caused two major issues:

OEM perspective – the margin contribution of product sales was insufficient to achieve the brand’s EBIT target. Tapping into the margin of services would make It possible to meet and exceed that target.
Customer perspective – the new generation of products was getting more complex. Product owners became more dependent on OEM knowledge and services to sustain the product, to protect the investment.

To mitigate both internal and external challenges, the OEM changed Its model to sell-and-service. Historically, the OEM had access to the as-designed and as-built. Through its transformation journey, it established an as-maintained. In effect, the OEM created a digital thread spanning factory and field.

Indirect sales

You may have noticed a (deliberate) omission in the digital thread above. Namely the as-sold. When an OEM sells products via the indirect sales channel, another legal/commercial entity controls the sales process. This entity will ‘own’ the customer relationship. It will know where the products are, in what state they are in, and how they are being used.

The fact that another legal commercial entity controls the sales process does not mean the OEM is at a loss. Far from that. The product bears the OEM logo. It is the value promise of the product that prompts a user to buy it. Who is better at explaining what the product can do and how to install, operate and maintain the product? Yes, the OEM. The OEM owns the product relationship because it knows how to sustain the product.

Sustaining modern products

When we look at the build of modern-day products, we see that every product engineered post-year 2000 has a digital component next to its mechanical and electrical parts. To sustain a contemporary product, one will need three types of skills.

The OEM as the creator of the product may be the most knowledgeable party to sustain the product on all three levels. Where we see third-party actors becoming competitors on the mechanical and electrical plane, the digital component remains the ‘home turf’ for the OEM. This is where we will focus on re-establishing the thread.

Re-establishing the thread

In the B2C world, maybe the most evocative example is the iPhone. Every phone requires a digital activation. This allows Apple to build a product relationship regardless of sales channel. Through this product relationship, Apple knows where Its products are, in what state they’re in and how they are being used. Apple uses this information to exert control over the product and service lifecycle.

Car maintenance is another example where the product relationship is more determinative than the customer relationship. When you need service for your car, the service provider will ask for your license plate number. The as-built, as-sold, and as-maintained are all linked to your license plate. When the customer relationship changes, the product-related digital thread remains constant. It’s the information in the digital thread that enables control over the product and service lifecycle. Control over items like maintenance intervals, PM-kits, troubleshooting, engineering changes, recalls, consumables, calibration values and software upgrades. All these service lifecycle activities cater to the longevity of the car, and thus the original value proposition of the OEM.

Redefining value creation

When an OEM is dependent on indirect sales channels to push products into the field, what can the OEM do with the data and control obtained through the product relationship?

Threat: The OEM claims the data and uses it to bypass the commercial relationship. If dealers/resellers don’t get their cut, they will stop selling the product.
Opportunity: The data value is shared to augment the commercial relationship. The data is used to create new revenue/value streams beyond the capabilities of each of the standalone entities.

A similar redefinition of value needs to be negotiated with the product owner. An OEM can’t simply grab product data. When Xerox invented remote monitoring for copiers in 1997, owners blocked the outgoing port. Procurement wanted to have control over the purchasing of toners and drums over premium-priced OEM consumables. This example shows that if product data represents a value, the OEM should give something in return.

OEM, it’s your brand

As the OEM you design and manufacture fantastic products. When in the field, they have your logo on them. Product owners will judge your brand on how you’ve organized your service delivery. If you’re dependent on an indirect sales channel to sell and service your products, you can leverage the product relationship to augment the commercial relationship. The tools to build a digital thread are there.

To learn more about establishing a digital thread for field service, read Understanding the Digital Thread & the Role of Service in the Asset Lifecycle.

This article is published on Field Service Digital and PTC Blog.

Digital Thread: How the Service Bill of Materials Enables Cross-selling & Upselling

It’s 2010, and an OEM has asked me to blueprint their after-sales organization. I went to our sales executive and asked, “What do we tell our customers about life expectancy and maintenance costs when we sell the product?” He looked at me with a confused look.

Why is this important? Because, if you want to cross-sell and upsell services in the after-sales domain, you need to know what value was promised when the product was sold. This is where the service manual and the Service Bill of Materials come into play.

This blog is part 3 in a series of three:

Part 1 – How the Service Bill of Materials Links Engineering to Service
Part 2 – How the Service Bill of Materials Drives System of Record Platforms

The value promise of the product sale

My sales executive sold complex capital equipment. For each product in his portfolio, engineering provided him with technical specifications describing the output capabilities. He would ask customers for their intended use profile and select the model that had a matching output bandwidth. To not complicate his CapEx sale, he would avoid a conversation on:

How many years will the product be able to sustain specified output levels?
What is the expected decline in output levels given the customer use profile?
What maintenance efforts are required to sustain product specifications?

Upon delivery and title passage of the product, the buyer would have access to the operator and service manual. These provided insights into the ‘size of effort’ required to use and sustain the product. If a total cost of ownership calculation were a prerequisite to the product sale, my sales executive would defer the calculation of the OpEx piece to the after-sales department.

Total cost of ownership

I’ll skip the semantics on if we should talk about the total cost of ownership or lifecycle cost. The idea is to create an understanding of what it costs to sustain the product over a prolonged period of time while maintaining output specifications.

Once more we can draw on the intellectual property and effort from engineering. As we’ve mentioned in part 1 of this series, the service manual describes the efforts needed to maintain nominal output specifications. To put it another way for the customer, “If you maintain your product as stated in this document, we, the OEM, guarantee the output specifications.” Thus, when we cost/price those activities, we have a pretty neat approximation of the OpEx piece of TCO.

Title passage

When an OEM is in the business of CapEx sales, it will have a title passage of products. Beyond title passage, all pains and gains of the product transfer to its owner. Now it is the responsibility of the owner to act upon the instructions in the service manual. Most likely there will be a clause saying that non-compliance with these instructions ‘may’ void OEM output level guarantees. There may be a clause that voids the warranty when non-authorized parties perform maintenance activities on the product.

This is where it gets interesting and dualistic at the same time! On the one hand, the OEM bestows the risk of owning the product onto the buyer. On the other hand, the OEM wants something from the product buyer post-title passage—“buy my maintenance services.”

This happens in a context where the owner of the product has the legal right to choose to follow the user manual instructions, to ignore or deviate from them. The owner can also choose to perform the activities themselves or to outsource. If your business model is driven by title passage, you can’t force a product buyer to buy associated services. You can only entice product owners to buy your services.

Cross and upsell

The first step to cross and upsell is establishing a baseline on what comes included with the product sale and what is extra. If the product is sold with a warranty, the warranty conditions will define what is included and what is not. It is important to clarify that a warranty is predominantly promising the correct working of the product. Not a ‘free pass’ to mitigate actual wear & tear as a result of using the product.

The second step to cross and upsell is having a conversation on how the owner will use the product. When the use is exactly as envisioned by engineering, then the operating and service manual will define the maintenance standard for sustaining the output specifications. When the customer uses the product in different settings, you may want to introduce ‘bundles’ of maintenance activities associated with low, medium, and high usage. Call them bronze, silver, or gold. For more granular services you may want to use a concept like a menu card.

Once you have jointly agreed on what maintenance activities are required to sustain output specifications given said use profile, the final step is defining who does what. This is a risk versus cost conversation. Either the product owner bears the cost and risk of using the product or those are outsourced to a service provider/OEM at an agreed price.

Companies that have a large installed base of products and trained internal technicians may choose to execute the service manual activities themselves. Others may evaluate the risk versus cost differently, and buy services ranging from preventive maintenance to full service. Mastering the risk/cost conversation in conjunction with intellectual capital captured in the Service-BoM and service manual will become your toolset for cross-selling and upselling.

Digital thread

In three blogs we’ve spotlighted the Service Bill of Materials through the lenses of cross & upsell, system of record, and linking engineering to service. We’ve seen the value of the digital thread spanning engineering, manufacturing, service, and sales—proving value across the entire product lifecycle.

This article is published on Field Service Digital.

Rental in Transition

Last week I went to Riga to participate in the annual convention of the European Rental Association. With the theme ‘Rental in Transition’ the convention rightfully worded the pivotal junction in time. Fuelled by the European Green Deal we are poised to rebuild our economy towards net zero emmisions. This means construction will boom requiring lots of construction equipment. The big challenge for OEM, dealer, rental and construction companies will be to manage the installed base of construction equipment from a carbon footprint and emmisions perspective.

Collective bargaining

When the representative of the EU, the consultant from the Boston Consulting Group and the chairman of the European Construction Industry Federation talked about the need and drivers for transition, I had this nagging question. Suppose I own a construction equipment fleet of 1b$, the majority still being internal combustion engine (ICE) based, how do I monetise that investment if the awarding of new construction jobs is based on lower carbon footprint and emission levels?

This is big. This is a challenge of major proportions. Though the delegates subscribed to the mid-term sustainability and transformation goals, for the short-term there’s that ominous questionmark of the how-to. The impact and magnititude of the sustainability transition shows how OEM, dealer, rental, construction companies and legislators are intertwined. This requires a serious dose of collective bargaining.

Preparing for the transition

Regardless of how the transition is going to pan out, for all players in the value chain it is imperative to prepare for the transition. It will become increasingly important to understand the usage profile of construction equipment versus generic equipment attributes.

Let me explain with an example in the car rental industry. When you rent a car it typically comes with a mileage allotment per day. If you drive more, you pay more. If you drive less you still pay the daily rate. You could also split the rental model in an ‘availability’ and ‘usage’ component. Especially if the usage component drives carbon and emissions output, splitting the rental model can motivate the user for a more sustainable use.

This simple example sits at the core of asset-centric business models. It’s not about owning of having an asset, it’s about using it. See here the incentive to digitally transform your business and get access to equipment usage information. Bye the way, if you are catering to the larger construction companies, you will know that providing the usage data of construction equipment is a critical element of the rental service.

Carbon offsetting

Most of the delegates flew to Riga. Upon buying their airline ticket each had a possibility to purchase the carbon-offsetting option. How many did buy that option? Today the majority of the rental companies offer a similar carbon-offsetting option for rental equipment. How often is that option selected? A brief survey amonst the delegates revealed the non-scientific value of ±5%. Rental today is a very price sensitive industry.

When I look at the construction deadlock in my own country, the Netherlands, I see that each new project must submit a carbon and emissions overview before even getting a building permit. We heard the EU representative make remarks along similar lines. “We will use carrot and stick”. And we know of sustainability-forefront-cities only awarding projects to eco-frontrunners.

Does this mean that we can only use electric or hydrogen based equipment for future construction projects? Contemplating on the sheer size of the sustainability challenge, the answer will be ‘no’. There simply isn’t enough construction equipment to get all the work done. But if you want to continue using ICE equipment, you need to get smart at carbon-offsetting options. At the conference we heard that a CO₂ calculator is a good start, but we need to make it easier to use and equipment usage based.

Beyond Equipment

For the mid and longer term we have an adject challenge when replacing ICE equipment with electric and hydrogen based alternatives. For ICE equipment we can build on the existing infrastructure of fosile fuels. And for remote locations we can very easy offer a fuel management option.

If we want to deploy electric and hydrogen based equipment, it often means we have to supply the complete EV or hydrogen powertrain as well. This implies that the rental paradigm will change from equipment rental to complete solutions rental. From an asset management and equipment availability perspective that will mean that the complexity will increase. This will feed the argument for accelerated digital transformation.

In completely different acumen we could label this as ‘servitisation’. When the contractor needs to excavate 100 tonnes of rock, he’ll need an excavator, dumpster truck and complete power train. As food for thought for rental, would it be too far off to start selling electricity/ hydrogen as well?

Beyond Riga

It was great to be in Riga. To hear so many people in the industry. The challenge is big. Yes, there are some threats. Yes, there is a level of denial and green-washing too. On the other hand, the challenge provides a great number of opportunities too. Those who embrace those challenges and embark on their digital transformation journey, those will have the upper hand in a rental market that is in transition.

This article is published on Field Service Digital.

Previous blog on rental.

Maximising Asset Availability for Rental Equipment

Four years ago we moved to the country side and bought an old farmhouse on a large plot of land. Having big construction and landscaping plans we regularly rented all kind of equipment to get the job done. The journey I experienced was tough for the companies that rent out equipment and for my DIY-projects progress. I wish some of these rental companies had state-of-the-art service execution systems, such they could drive both a better customer experience and value delivery.

Job and Equipment planning is tough

The most important thing I’ve learnt in those four years of home improvement is that a piece of rental equipment is ‘just’ a small piece of the planning puzzle. As an example, for my landscaping an element of the work was the relocation of a lot of dirt. For this I needed a (mini) excavator. The availability of the excavator was intricately entangled with ten or more other planning items. You can imagine my surprise/ frustration when the excavator wasn’t available on its due date … and the alternative had only half the capacity.

This is one of many examples I accumulated over four years. As a result I’ve become proficient in reverse engineering the processes of the rental agencies. It’s tough for rental agencies too. If only they had better visibility and planning tools. Speaking of the devil, I happen to work for a company that provides those tools and has implemented them in both business-to-business and business-to-consumer contexts.

The happy path

A rental fleet represents a significant investment so it may sound obvious to know where all that equipment is, and in what state. When you visit a rental yard or a construction site it becomes clear that knowing what-is-where is not that easy. If my personal experiences are representative for equipment visibilty, then WYSIWYG is a rather common implementation.

WYSIWYG works fine when the rental process follows the happy path. Meaning: actual pickup and return date are as planned/ booked; equipment doesn’t break and/or require servicing; no conflicts between availability and demand for equipment.

Going back to my landscaping job and the excavator. With half the capacity, my rental period mathematically doubled. With half the capacity, interlinked activities got pushed out as well causing additional delays. In the end my rental period tripled. Because ‘my’ excavator originally was booked by another customer, the rental agency phoned me in the third week to expedite its return. I was not happy, and certainly I did not pay anymore than the original contracted amount.

Does this sound familiar? Can you imagine how much it costs for a rental agency to mitigate the not-so-happy-path? Cost in headcount and lost revenue generation?

Reducing Turn-Around-Time?

Knowing that a piece of rental equipment is only making money when it is rented out, a key driver is to reduce the so-called turn-around-time (TAT). The time it takes to clean, inspect and service an equipment after its return, making it available for the next customer.

Suppose you have a rental fleet valued at 1b$, then your daily cost for interest and depreciation are roughly half a million $ per day (based on a annuity scheme at 4% interest and five year term). Thus if you can turn TAT-days into rental-days, cost-days become revenue-days. Suppose each piece of equipment has four rental periods per year, and you reduce your TAT by one day, you save 2m$ in cost. Add your sales margin and we’re talking serious numbers when renting out equipment back-to-back.

Defining servicing priorities

This brings us to the most challenging issue in the rental business. Instead of reducing the TAT for every equipment upon return using FiFo, you want to prioritise those units that have an adjacent rental period. By applying prioritisation rules, you can better plan the capacity of the rental return and servicing functions as well as making sure that the most revenue generating units as turned around first.

An example of the non-priortised

We’ve seen examples where excavators, dumpster trucks and cranes not having an adjacent renter are ‘left’ at the customer site post rental period to save yard space. To ‘free-up’ capacity for the turn-around team in favour of ‘hot rentals’.

Managing the lifecycle of the equipment?

Rental equipment can have a rough life. Let me be honest. I sweated ‘my’ excavator to an extent I would not have done if I owned the excavator. In setting their rates, rental companies take these use cases into account. After each rental period there is a decision to be made: do we maintain the existing equipment or do we replace it?

The math behind the decision is simple: is the earning capacity of the equipment more or less than the cost to sustain it? To make the equation come to live, you need both historical data and forward looking data.

Keeping a record of historical data is pretty much possible in any business tool. For the forward looking piece you’ll need a tool that supports asset centric use cases for your assets.

Plotting the future preventive maintenance activities
Plotting the future calibration and certification activities
Aligning future service interventions such they don’t break or clash with rental periods
Create reporting that depicts plan versus actual versus outlook on equipment level

In the past four years I’ve learnt a lot about the rental business. Though a rental fleet is a significant asset on the balance sheet, in rental operations we still see a lot of appointment centric and reactive business practices. Modern day tools allow rental companies to apply asset centric business practices. Becoming proactive and getting a better return on the asset investment.

This article is published on Field Service Digital.

How do you know you are making money on your service contracts?

In my previous life I sold service contracts for a large OEM. Like many service executives, I was proud of profit margins in the range of 40-60%. But when I talked to my CFO, the numbers didn’t compute in the bigger organisational picture. Let me take you on a narrative of planned versus actual contract profitability and how I gained control over my margin contribution.

Reactive margin contribution

It is still early in the new fiscal year. I have good hopes of making my numbers. Of course I know I have a few ‘high maintenance’ customers. At the same time I have a few ‘cash cow’ service contracts. They will balance out, I’m confident.

Fast forwarding to the last quarter of the year. Am I still that confident? Obviously I have more insights into my year-to-date cost. Did everything pan out as expected? What options do I have in the remaing weeks of the year to make my numbers?

What I am trying to say. No matter how good my predictions and projections were, actual performance has a tendency to differ from planned performance. Maybe less on aggregate level, but certainly on individual customer or contract level.

I want to speak the same language as my CFO to better align with the corporate agenda.

It was my ambition to be more in control. Not to depend on reactive and aggregate margin contribution, but to be proactive and predictive on individual customer/ contract level.

Defining the selling price

When I started selling service contracts I had to brush up my sales 101. How do I define the seling price of my service contracts. I had three paradigms at my disposal.

Selling price = Cost plus Margin (aka Cost Plus)
Margin = Selling price minus Cost
Cost = Selling price minus Margin

If I had full visibility on cost and I had the upper hand in the commercials, then cost plus would work for me. My reality was that cost was more of a guesstimate. Rearding the margin, we had internal margin objectives. But in the commercial arena we often had to give in. This led to the acceptance of the second equation. Margin was not a driver but a result. Margin was reactive.

Expanding on the narrative in the first paragraph: in the last quarter of the fiscal year the CFO would become vocal using the third equation. If the selling price was an unalterable fact and the margins were falling low, then only available option was to cut my cost.

I want to get ahead of the game to deliver predictable margin contribution.

Influence cost while you can

I went back to my drawing board. How shall I construct my service contracts such that I can monitor all three variables: cost, revenue and margin? In addition I implemented the basic financial concept of planned versus actual and outlook in my service execution process.

After having had my service menucard conversation with my customer, I would cost all those entitlements, resulting in the sum of planned cost. When the contract went into service-delivery mode I would keep a tally on the actual cost. If actual cost develops in a bandwidth of say 10% or planned cost, I knew I would deliver on the expected margin.

Beyond the actual cost development, modern day service execution tools also provide visibility of future service activies. Thus you can create a cost outlook as well. Now you have all the info to make the right decision in real-time, protecting your margins.

Predictive margin contribution

Why all this fuss? Apart from my personal and service domain motivation, my CFO told me loud and clear: I dislike surprises, I want predictability. If only I could cater to the CFO’s wants, maybe I could get access to budget to mature my processes.

I knew I was probably the single largest margin contributor to my companies result. Maybe more out of luck than by design. If only I could invest in tools that would give me that control and predictability.

Better and competitive pricing

Beyond the CFO persona I want to highlight role and importance of the Service-Sales persona. Setting the selling price for a service contract is a subtle process. Price pressure is prevalent in pretty much every sales cycle. The Service-Sales persona needs handles to balance revenue versus margin contribution.

Asset owners want maximum uptime at lowest operational cost.

When my cost insights were on guesstimate level, cost plus did occasionally result in non-competive price points. When my cost guesstimate was too low, my margin took a hit. When I started monitoring the actual margin, I got a good idea if I had priced my service contract ‘fairly’. Deliberately I’ve put the word fairly between quotes. High margins may be good for my bottom line, but from a customer perspective high margins may not be sustainable. Margin insights were an absolute must have for me when renewing/ renegotiating my service contracts.

This article is published on Diginomica and Field Service Digital.

Is the Service Menu Card Replacing Bronze, Silver and Gold Contracts?

During last week’s High Tech Manufacturing event in the Netherlands, we reimagined tomorrow’s service delivery in the context of vocal and demanding customers. If customers expect products to work, is it enough to mitigate downtime, or should you know why your products work and in the context of customer usage? Is your current services portfolio in line with tomorrow’s customer expectations?

Bronze, Silver & Gold Contracts

In reviewing the services portfolio I used words like bronze, silver, and gold contracts to paint a continuum of reactive to proactive and predictive contracts. In an earlier blog on Mind the Gap, I used gold to quantify your maximum services revenue.

Proverbially the gold contract is the ultimate bundle of services to guarantee the uptime of the equipment. It’s not really product-as-a-service, as the customer still needs to buy both the product and a service contract, but outcome-wise it is the next best thing.

Just like with any product or service that is sold today, B2B or B2C, the big question is: who decides what is put into the bundle? Is it a seller-push or a buyer-pull?

This is exactly the challenge the high-tech manufactures are facing today. Based on our discussions during the event, the consensus was: we need to provide more choice and autonomy to our customers. Even if the installed product is the same, the usage context is different case by case.

Product Push vs. Usage Pull

It is not uncommon that the current bronze, silver, and gold bundles are based on product characteristics. When we sell expensive and/or complex products, we tend to believe we need to offer the higher segment of bundles. But if your expensive product is used in lower utilization environments, then the cost of downtime to its owner is lower, resulting in less budget for mitigating strategies. That unit may end up with a bronze contract.

If we want to address the challenge of more vocal and demanding customers, we need to flip the bundling paradigm from product to usage characteristics. To understand those usage characteristics we need to have a mitigating strategy conversation with the owner/user of the product.

Mitigating Strategy Conversation

“Dear buyer, why is my product so important to you, and what happens if my product fails? What impact does downtime have on your operations?”

If your customer is buying your product, meaning there is a point of title passage, it implies that all risks associated with owning the product reside with your customer. As a product owner, your customer will define a mitigating strategy for uptime/downtime risks throughout the life cycle of the product. As OEM you can help the product owner by offering life cycle services. The owner will weigh risk versus price.

“Dear buyer, do you agree with me that throughout the life cycle of the product you will need the following service activities to maintain and safeguard the uptime of the product? Which of those activities do you want to execute yourself and which ones do you want me to do?”

Is the Service Menu Card is Replacing Bronze, Silver and Gold Contracts?

The above picture a derived from the ITIL v4 framework by Axelos. All boxes serve the nominal state of the product, the uptime. And uptime ensures the output and outcome of the product. If your customer agrees with this landscape of services, the conversation becomes a simple one: what level of risk does the owner/buyer want to retain, versus outsourcing that risk to a service provider in exchange for a fee.

Driving Business Results with Entitlement Process

Flipping the service bundle paradigm and handing over the choice to your customer may sound scary. Is it controllable? With modern-day field service management software the answer is yes. It’s similar to going to a restaurant. You define what is on the menu. Your customer has the choice. And any good chef knows that the personal interaction at the table when ordering is key to the choices made. The success of CSAT starts when ordering.

With modern tools, you can implement a service menu card in the service-sales process. The true value comes from pairing the menu card with an entitlement engine in your service delivery process. It’s great that you sold all those configure-to-order service contracts to meet customer requirements. The people that have to deliver the services need to be aware of what has been promised, what has been paid for, and what is billable. This is where the entitlement engine kicks in.

A sophisticated entitlement engine has visibility on the customer, the asset, the contractual obligations agreements, and on the specifics of the customer-ask as specified in the case or work order. As ‘gatekeeper’ the entitlement engine will drive:

Customer expectation & satisfaction
Leakage reduction
Cross & Upsell increase

To accommodate vocal and demanding customers a service menu card is a good alternative to bronze, silver, and gold bundles. Having choice and autonomy creates engagement and builds the foundation to success and CSAT.

To stay in the restaurant analogy, the proof is in eating the pudding. Your service delivery organization needs to have insight into what has been sold/ promised and be able to act on it. Imagine the waiter bringing the food without knowing the order. No tip, invoice at risk, no return visit.

The service menu card and the entitlement engine go hand-in-hand. Say what you do then do what you say.

Learn more about service contracts & entitlements from ServiceMax here.

This article is published in ServiceMax Field Service Digital on October 21st, 2021

Asset Data Remains Largely Untapped For Driving Revenue Growth

New study finds asset equipment data is key to bridging the gap between sales and service

PLEASANTON, CALIFORNIA – October 19, 2021 – Valuable data collected from servicing equipment assets remains largely untapped, unused and under monetized, offering rich potential to sales and marketing, according to new research conducted by WBRin collaboration with ServiceMax, Inc., a leader in asset-centric, Field Service Management software and Salesforce, the global leader in CRM.

The study, “Building a Bridge Between Sales and Service with Asset Data”, surveyed 100 field service leaders across the US and Canada from a variety of verticals, including manufacturing, information and communications technology, the semiconductor industry and utility sectors.

While all the organizations surveyed currently aggregate and analyze data from their field service operations, only 22 percent trust their field service data completely, indicating lack of confidence in their existing systems or procedures. And more than one-third of respondents can’t connect their field service management solution with their CRM. As a result, organizations are missing opportunities to provide better service to their clients and generate new revenue streams by monetizing data, such as personalizing marketing campaigns, driving more revenue from usage insights and analytics and demonstrating ROI in sales conversations.

While asset data remains largely under-used at present, the study also revealed that almost half of respondents (44 percent) plan to adopt or update their asset data analysis solutions in the next 12 months —including remote and virtual service support tools, asset data analysis solutions, IoT devices and sensors, and others. Likewise, at present, only 27 percent are currently utilizing their field service solutions for field service analytics, while in the next 12 months, 57 percent will deploy this capability.

“The research shows growing recognition and demand for closing the asset data gap,” said Amit Jain, Chief Product Officer for ServiceMax. “This gap exists between an organization’s current service revenue and the maximum revenue it could achieve when every unit sold could have a higher service contract attached to it. By using field data to optimize revenue and drive product innovation, product, service, sales and marketing organizations can maximize their asset performance. This critical insight is relatively new and empowers service leaders to easily shift to outcome-based business strategies that fuel growth in an age where service is now a differentiator.”

The research also found that 43 percent of organizations admit they need to improve their asset uptime and availability, lending further weight to the need for better service data and service delivery.

The full report can be downloaded here.

Salesforce and others are among the trademarks of salesforce.com, inc.

About ServiceMax

ServiceMax’s mission is to help customers keep the world running with asset-centric field service management software. As a recognized leader in this space, ServiceMax’s mobile apps and cloud-based software provide a complete view of assets to field service teams. By optimizing field service operations, customers across all industries can better manage the complexities of service, support faster growth, and run more profitable, outcome-centric businesses. www.servicemax.com

Media Contact:

Nicole Guzzo
nicole.guzzo@servicemax.com