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, CSATCES 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.

Why Asset Centricity Matters

When you communicate with your garage to service your car, what is the first question they ask? Do they ask your name, or do they ask your license plate number? This is at the core of asset centricity. The asset is tracked throughout its life cycle to drive cost efficiency, revenue generation and customer satisfaction.

Know thy Installed Base

One of the first questions we ask to any organisation is what level of visibility they have on their installed base. Do you track your products/ equipment assets beyond point-of-sale?

The rationale is simple. If you want to be efficient in service delivery, you need to know where the asset are and in what state. If you want to drive revenue and satisfaction, you need to know how your customers are using the assets and why those assets are important to them in their operations.

If you don’t know your installed base, your actions will be ad hoc and be at the mercy of tribal knowledge of the people serving that customer.

Schneider Electric transformed their business model from ‘sell and forget” to “sell and service” growing their installed base visibility from 10% to 35% driving service revenue by 11% YoY.

<Insert link to Schneider customer reference>

Recognise the asset

You may know the customer, but if you don’t know the asset you may make the wrong decision. This is illustrated in the entitlement process. Entitlement is the gateway to cost control, revenue increase and customer satisfaction.

  • Leakage: provide service on an asset without warranty and/or contract
  • SLA attainment & CX: over/ underdeliver on customer expectation
  • Attach rates & revenue: miss an opportunity to cross and upsell
The role of Entitlement in Service Execution

Often, we hear organisations say that their knowledge about their assets is not yet at a level to perform a reliable entitlement process, resulting in a lot of corrective actions post work order debrief. Have a look at the Schneider electric video, collecting and validating asset data is a journey.

Tip: if by improving technician productivity the ‘saved’ time does not constitute an extra job per day, you can use the time to take inventory of the installed assets, its state and its surroundings.   

Know the asset

You might know the technical details of the assets you produce. Your maintenance manuals may prescribe what to do under nominal operating parameters. But what do you about how your customers are using the assets? Some may be ‘sweated’ and run at 99% of capacity. Others may be used occasionally only.

Having knowledge about how your assets are being used by your customers is an essential piece of information to define the right action. It will put the service request in context, help in the entitlement decision and support the triage process. It will give your customer the feeling that you’re providing contextual solutions.

Manage the asset

In the car example of the opening paragraph, the dealer focusses on the asset. The asset has a life cycle. In each phase of the life cycle different service and maintenance activities need to be executed … in combination with the usage profile of the asset.

The car may be purchased/ leased by owner A. After a number of years, the asset may transfer to owner B. If the maintenance history would be tied to the customer record, the data would be lost under ownership B. Thus, the reason why more and more organisations adopt asset centricity for life cycle continuity.

This continuity is extremely important in regulated industries. If any time in the life cycle a quality or compliance defect is detected in a series of assets, then you would like to have the opportunity to search an asset centric installed based, instead of sending messages to the owner who did the initial purchase of the asset.

Asset centricity allow you to manage your field change orders effectively. Asset centricity allows you to manage mid-life upgrades. Asset centricity is an equally powerful paradigm as customer centricity. Try to merge them into your business operations.

This article is published in ServiceMax Field Service Digital on April 14th, 2020

5 Ways to Improve New Technician Time to Value

Over the last few years, the topic of technician/talent shortage has been getting more and more traction at service industry events. Analyst firms Forrester, IDC, TSIA, Aberdeen and The Service Council are too in unison about the technician gap. And not only are service organizations struggling to find enough candidates, but they are also struggling to find ones with the right skills—especially as the nature of service jobs evolves beyond simply fixing a piece of equipment. Candidates must also be able to:

  • Adapt to and learn about new technology tools attached to service work
  • Learn about new service procedures tied to more complex service assets
  • Work in a group or team environment
  • Be able to work and engage with the customer

Once you overcome these obstacles and hire new technicians, how can you quickly get them onboarded and delivering value? In a 2017 survey from the Aeronautical Repair Station Association, the average time for a technician to become fully profitable lies between 9 and 24 months. This represents an onboarding investment of between $132,750 and $354,000. Per industry, the values may differ, but the onboarding time is pretty much consistent across organizations. As you can see, being able to improve new technician time to value can make a big difference on the bottom line.

The changing demographics of the workforce adds another layer of complexity. For Millennials, on the job learning is done a bit differently than previous generations. Rather than relying on cumbersome textbooks, they can search the web for the exact info they need or ask their peers. This has implications on the tools you provide to millennials. Having digital business tools with a consumer look and feel and ease of use can go a long way in training, as well as attracting younger talent. Modern service execution tools and millennial learning habits may be your ticket to faster time to value.

Five Ways to Improve New Technician Time to Value

1. Make jobs simpler

Different service jobs have different characteristics and skill requirements. Through slicing and dicing of the jobs and smart dispatching, you can assign simpler tasks to junior resources. Based on their track record and development they can move up the ladder.

2. Facilitate access to information

As much information you want to provide to a technician when dispatching the job, the reality onsite may be different. Proving access to relevant and adjacent information in an on-demand mode will allow your technician to become self-sufficient.

3. Deploy contingent workflows

An installation, break-fix, inspection and preventive maintenance job probably will have different workflows. A workflow may even differ per customer. Instead of requiring your technicians to learn and remember all variants, use a field service management tool to assist and even prescribe workflows.

4. Assist humans with machine learning

Throughout the lifecycle of a product, the product itself and all human interactions generate a lot of data. Mining that data and creating insights allows humans to make better decisions. Simple tasks can be automated creating more meaningful work for technicians.

5. Interweave social interaction into the job

Even when automating many aspects of service, it is the people-component that cements it all together. Call it assisted service with a human touch. Using voice-calls or messaging is an integral part of the job. Interweaving those social interactions into the job creates context and makes the communication more efficient. Try to facilitate connected conversations and conversational workflow for your employees, and make sure it is on an enterprise-grade platform to protect your intellectual property.

This article is published in ServiceMax Field Service Digital on February 11th, 2020

Selling Preventive Maintenance as a Value Add

Selling preventive maintenance is not what it used to be. In the old days a manufacturer could use its expert position to prescribe a maintenance scheme. Today, a combination of emerging technologies and pressure from buyers to do it cheaper/ smarter warrant a revisiting of the value proposition of preventive maintenance.

PM = Periodical Maintenance

As acronym we use PM. When talking we utter the words preventive maintenance. But what do we really mean?

  • Planned Maintenance
  • Periodical Maintenance
  • Predictive Maintenance
  • Prescriptive Maintenance

Analysing a lot of service contracts offered by OEMs we still see most of the maintenance is periodical or counter based. Just like the maintenance interval for your car; a PM each year or at 15,000 km.

All those periodical or counter based maintenance jobs are good service revenue for your service organisations But what happens when customers start challenging you? What if the customer has access to knowledge that amends or contradicts the engineering assumptions that led to the definition of your current maintenance intervals?

Buyers seek to reduce maintenance cost

In a world where people are more vocal, we see customers expecting things to work and buyers seeking to reduce maintenance cost. These expectations impact the way we sell service contracts. 

Selling is more straight forward when you can see a direct relationship between the pain and the gain. Such a link is obvious for installation and break-fix activities. But it is less apparent for preventive maintenance. Try to picture buyers asking these questions:

  • What does PM prevent and what is the risk that remains?
  • What is the rationale of the current maintenance interval?
  • Nothing happened last year. What will happen if we skip or delay a PM?
  • Can you dissect the PM job in activities (show me what you do) and is it really necessary to have all those activities done by an experienced/ expensive technician as yours?
  • Can we do pieces of the PM job ourselves?

You get the gist of the conversation and know where it is leading  less cost for your customer at the expense of less PM revenue for your service organisation.

Problem-Fix curve

What complicates the selling of service, is that in most scenarios the buyer and the customer/ user are not the same person. You may convince the user of a piece of equipment to do preventive maintenance, the buyer on the other hand has a different set of objectives. Most likely the buyer will push you on a path towards commoditising and cannibalising your PM services. All in order to reduce cost.

Rediscovering value

To stay ahead of the game let’s dissect PM along the lines of value creation for the customer. High level you can split a PM into three pieces:

  1. The execution of the maintenance activities
  2. The reporting on those activities
  3. The communication and interpretation of the results

Ask your customers to rate the value of each of those pieces. It’s probable that you will find that the business value of PM to a lesser extent is in the execution and more in the reporting and communication.

Maybe you pride yourself in your uniqueness of execution, whereas the customer might perceive it as a commodity. If also reporting and communication are on par, you may face price erosion.

If your customer needs the PM report for compliance or insurance purposes, the value of the report increases. When you consider that PM is often a play of risk and liability, you can price the value of your brand. Example: It does make a difference to an insurer if a yearly PM/ inspection is performed by a triple A company or a middle of the road company.

Communication value comes into play when your customer expects you to be a partner rather than a supplier. 

  • Supplier – “just send me the PM report, I’ll read and interpret it myself. When I need assistance, I’ll contact you.”
  • Partner – “help me interpret the findings and consequences of the PM. How does this impact my business?”.

In the latter situation you can monetise the communication beyond the effort of having a conversation for a couple of hours. PM can thus elevate from an obligatory periodical execution to an instrument of customer satisfaction and cross- and upselling.

Repackaging the preventive maintenance offering

In order to retain and expand your PM revenue stream in a context where the buyers move to reduce their spend, do go in discovery mode and (re)define preventive maintenance. PM is not a singular black box once defined by somebody in engineering with a product focus. Modern PM is a menu of choices (and consequences) for your buyer based on the usage profile of the product, budget and risk.

This article is published in Field Service News Jan/Feb 2020 issue.

Technicians wanted: how to attract, retain and deploy the right man for the right job

Getting all the work done is more and more becoming a juggle in finding both quantity and quality of skilled resources. Forrester, IDC, TSIA, Aberdeen and The Service Council are all in unison about the technician gap. And the gap is growing.

The existing technician workforce is getting older. At the same time, the influx of new resources is not keeping up with retirement pace. A new generation prefers STEM-education and expects digital in their work-life. Though new assets are likely to have a digital twin, a lot of equipment out there pre-dates the digital age and requires legacy knowledge to keep it running for one or two more decades.

<Quote>1 in 2 UK engineering and tech firms are concerned that a shortage of engineers is a business threat – PoliticsHome – Nov 18th, 2019 </Quote>

More vocal customers and focus on customer experience is changing the characteristics of a service job. It’s not enough to only fix the product, you need to “fix” the customer too. Customers want transparency and they want you to be proactive. Above all, they want you to transform from “fixing what breaks to knowing what works”.

In solutioning the technician gap digital technology is both an enabler and driver. The availability of new capabilities is allowing us to rethink how we deliver services and even augment our business model. Having seen a lot of different technologies emerge, the big question is when to jump on the bandwagon. And when you do, don’t try to boil the ocean. As with any product, tool or software, it’s not about buying or owning it, it’s about adoption and using it.

Before you spring into action, do consider the following four questions:

  1. What is the work of the future?
  2. Who will do the work? Own resources, (sub) contractors or the customer?
  3. How do you prepare people for the work they need to do?
  4. With what tools will you equip those resources?

This paper will provide you with insights and handles to attract, retain and deploy resources in a smart and cost-effective way. Imagine what you can do today to boost your brand value.

7 Tips for HVAC – Service Execution Excellence

Through sweltering heat and fierce blizzards, HVAC technicians are there to keep equipment running at peak performance. But how do you make sure you get peak performance out of your HVAC service organization year-round, year-after-year?

Here is a list of 7 tips to help you achieve excellence in your HVAC service organization.

  1. Manage resources through all seasons
  2. Maximize uptime of HVAC equipment
  3. Improve margin of service operations
  4. Drive cross & upsell
  5. Deploying (sub)contractors
  6. Dealing with increased HSE requirements
  7. Sustainability, dealing with HazMat

Manage resources through all seasons

A customer requirement for heating and cooling is seasonal, resulting in an equally seasonal pattern in technician demand. Typically, a service organisation will try to balance resource capacity by doing installations, retro-fit and preventive maintenance during low season and dedicate capacity in peak season to break-fix. 

Over the years HVAC organizations have acquired a lot of tribal knowledge to mitigate the daily resource juggle. Modern service execution systems will facilitate you to formalize this tribal knowledge and to upgrade your capacity planning process applying dynamic scheduling. As a result your customers will get the service they expect and your technicians will feel in control instead of being dragged from job to job.

Maximize uptime of HVAC equipment

The majority of today’s service level agreements are still stated in terms of Effort. “We will commence the fix of the malfunction in x hours”. Some contracts up the value promise to a Result. “We will deliver a fix within y hours”. To offset the risk of penalties, the latter contracts often have a section of fine print watering down the Result. What owners of HVAC equipment want is Uptime. 

Combining IoT connectivity and Service Execution Management allows a service organisation to both deliver the Uptime a customer expects and to deliver that service in a cost-effective way.

Improve margin of service operations

Competition in the HVAC industry is fierce. Original Equipment Manufacturers (OEM), Third Party Maintainers (TPM) and Facility Management Companies (FCM) all operate in the same space to make a margin. A quick search on the internet tells us that a typical HVAC nett profit margin ranges from 1.4% for TPM/ FCM to 12% for OEMs. These numbers indicate that cost control is a constant driver in decision making.

To control cost you need visibility. To create visibility you need tools and processes. Though HVAC equipment may comprise of generic components, both the infinite number of configurations and wide range of commercial conditions agreed with customers define your requirements for agile service execution tools. Tools minimizing the dependency on IT support and maximizing flexibility for your markets & channels.

Link: https://www1.eere.energy.gov/buildings/betterbuildings/neighborhoods/pdfs/hvac_contractor_business_model.pdf

Drive cross & upsell

Although we see cost control having the primary focus in HVAC, we see maturing organizations driving for revenue increase. The service agreements with low margins won via a tender process, often only contain the basics. The basics being periodical maintenance, a response promise topped with contracted rates and material discounts. To make a customer account (more) profitable, service organisations depend on their ability to cross and upsell beyond the basic contract.

Technicians being trusted advisors to your customers can act as eyes and ears to detect revenue enhancing opportunities. Capturing leads, enabling technicians to quote on-site and ultimately being able to convert a quote into a work order will attribute to your revenue growth targets. In parallel you will see that both customer experience and technician empowerment will get a boost.

Deploying (sub)contractors

According to The Service Council approximately 32% all field service work is completed by partners/ subcontractors. Though this percentage may vary per market and product segment, subcontractors play an important role in getting all the work done. Subcontractors come in all shapes. Sometimes they will compete with you, in other markets they may complement your route-to-market.

Prioritizing and assigning jobs are most probably the two most important aspects of dispatching affecting both cost and service level attainment. Make sure your dispatching console supports you in decision making while simultaneously maintaining visibility of the job progress once handed off to a subcontractor. Modern tools can alleviate the need for complex subcontractor integrations by means of allowing the subcontractor using your processes on a device of their own choosing.

Link: TSCReport-F-2016 -FSOutsourcing-04.pdf

Dealing with increased HSE requirements

“Heating, ventilation and air conditioning company, HLA Services, has been prosecuted by the Health and Safety Executive (HSE) and fined for safety failings after an employee suffered serious injuries in a fall whilst repairing an extraction unit in Newcastle.”

A headline like this is the dread for any company. Of course, you will tell your technicians how to adhere to all regulations at hiring, during onboarding and probably you will have periodical health & safety briefings throughout their tenures. Ultimately you want to create a safety culture in your organisation.

Life gets complicated when the regulations change, when procedures are different per customer location. Somehow you need to embed health and safety handles into daily operations. What if you could make those part of the work order and track compliance through a configurable set of check lists.

Link: http://www.heatingandventilating.net/hvac-company-fined-by-hse-for-safety-failings

Sustainability and dealing with HazMat

Beyond safety for technicians governed by measures of HSE and OSHA we see that HVAC organisations also have a responsibility to take proper care of hazardous material like refrigerants. The increasing attention for the sustainability theme is raising the bar to reduce the use of materials in general and reclaim reuse.

To achieve these goals, you need a service execution system that embeds a supply chain function. To be able to track the use of material and to instruct technicians what to do with defect, used and waste materials.

Links: https://www.refrigerationschool.com/blog/hvacr/osha-affect-hvac-industry/

Measuring Satisfaction: read the comments

What is the ideal customer experience and when do you know you got it right? What should you measure and how should you act? In short: read the comments! As a bonus: do an e-NPS.

The real growth power of NPS is all in the follow-up

Chad Keck

At Maximize Chicago Stephan McPhee from MilliporeSigma and Coen Jeukens from ServiceMax engaged in a discussion with service leaders on the topic of CSAT, CES and NPS. In varying degrees, we all measure customer experience. Though the different metrics may cause confusion in what you actually measure and should do.

What is the ideal customer experience?

If we briefly put aside the metric and look at what (end) customers really want, two things really stand out.

  • Get what you Expect
  • Walk the Talk

The former means a customer is getting the value it has been promised, the latter ensures the delivery is done consistently and setup for repetition.

Different methods of measuring

To measure customer satisfaction three different metrics are in use. Each catering to a different aspect of satisfaction.

  • NPS: will you recommend my brand?
  • CSAT: are you happy with the transaction I just performed?
  • CES: how easy is it to do business with me?

At present the most popular metric is NPS. Aly Pinder from IDC Manufacturing Insights shared his observation that more and more organisations are leaning towards Customer Effort Score as it addresses the action to remove friction, alias dissatisfaction.

Perhaps what you measure is what you get. More likely, what you measure is all you’ll get. What you don’t (or can’t) measure is lost.

H. Thomas Johnson

Read the comments

Ultimately the actionable result of any satisfaction metric is the most important piece of the process. Throughout the discussion at Maximize the same phrase came back over and over again: “read the comments”.

The numerical value of a satisfaction measurement is single dimensional: it tells you “what” your score is and how it changes over time. The comments to the score tell you about the “why”. Often the comments contain “free advice” on how to remedy dissatisfiers.

In progressive organisations we see an embedded process to review the comments on a periodical basis, linked to their continuous improvement programme.

e-NPS

While most organisations have embedded customer satisfaction measurements in their modus operandi, a growing number of organisations is mirroring the NPS philosophy to their own employees.

Your own employees hold an invaluable wealth of improvement opportunities. Ideas to improve their own work and to be better equipped when dealing with customers. If you find a way to tap into this potential, you will see that happy employees indeed make happy customers.

Happy employees ensure happy customers. And happy customers ensure happy shareholders, in that order

Simon Sinek (leadership expert)

If you want to receive more insights into how ServiceMax embeds satisfaction measurements into every aspect of Service Execution, do contact us.

This article is published in ServiceMax Field Service Digital on November 14th, 2019

Equipment as a Service

Do you want to own a car, or do you want to drive it? Do you want to buy and maintain a piece of equipment, or do you want to operate it?

In our business practise we often have these conversations when reminiscing on what really matters to end-users. We tend to believe it’s about outcomes and value, call it Servitisation. Still we see a lot of conventional decision making focussed on the product and associated Capex.

Voice of the Customer

According to a research by Accenture[i] around 10% of the life cycle cost is linked to designed and acquisition. The other 90% of cost is incurred during maintain, operate and disposal. Thus, it is not surprisingly that we witness an increase in customer awareness concerning the maintain and operate phase of a product.

The maintain and operate phase is as important to the customer as it is to the supplier. Witnessing dwindling margins on the product sale, suppliers are (re)focussing on the profitable margin contribution of maintain and operate services. At the same time customers are trying to reduce their operational expenditures. Focussing on the voice of the customer is often the path to finding a long-term partnership compared to short-term commercial “victories” of either party.

We want to reduce our operational expense but realise that we need the supplier in the long run.

 Why should I own the Product

The road to servitisation often starts with a simple question: “if I only want the value/ outcome of a product, why should I bear the risks of owning it while the supplier holds all the knowledge about the product”.

  • Rolls Royce “invented” Power-by-the-hour offering because the Royal Airforce demanded a fixed cost per hour in 1962.
  • Philips created Pay-per-Lux in 2015 as a result of an academic experiment with Schiphol Airport only requesting light.
  • Bosch Siemens Hausgeräte offers refrigeration-as-a-service to housing corporations reducing total cost of ownership while at the same time minimising ecological footprint.

The common thread in the above three examples is that these manufacturers transformed their business model from one based on Capex and Title Passage to one based on Pay-per-Use and partnership.

It’s a matter of looking at a bigger picture beyond the typical functional boundaries inside any organisation:

  • Apart from the one-time-sale, what is the “win” for a manufacturer in selling a piece of equipment the customer is not able to use?
  • Apart from a short-term saving, what is the “win” of a discount for a customer when it stiffens innovation?

The transformation towards outcome-based service contracts enables both manufacturer and customer to define mutual and sustainable value.

A Product is the carrier of its Outcome

Leap of Faith

To a certain extent buying/ selling a Service rather than a Product is a leap of faith. Both manufacturer and customer are in for a paradigm shift.

  • A manufacturer will have to recalibrate from the concept of infrequent revenue recognition to sustainable margin contribution.
  • A customer will have to disconnect the outcome of a product from owning it.

Thus, we see manufacturers and customers not completely abandoning the Capex & Title Passage business model, but we see them adding a business model based on outcome-based services once their mindset embraces the bilateral value promise.

Gartner[ii] expects that by 2023, 25% of commercial or industrial OEMs will offer IoT-connected product(s) via outcome-based service contracts

Seconding the transformation towards outcome-based services is the rise[iii] of the role of the Chief Revenue Officer (CRO). With a lesser margin contribution from the product sale organisations are looking at means to tie in the margin contribution of services. With a CRO organisations are putting all their eggs in one basket regarding to drive sustainable and profitable revenue growth. Companies with a CRO are leading with outcome- and subscription-based service offerings.

Digital and Connected

In an outcome-based model the focus shifts from Owning to Using. Digital technology and connected products are the key enablers in understanding and managing product usage.

It starts with creating full visibility of how a piece of equipment performs in the business context of your customer and how costs are incurred in doing so. Next, you’ll need to have a set of levers to be able to influence the both maintenance and operate activities. Lastly, you’ll need to understand how your customer will make money by using the outcome in order define a pricing model.

In a business model based on title passage and transfer of risk to customer there is a lesser motivation for the supplier to invest in digital and connectivity. The greater the motivation is in an outcome-based model where all maintain and operate risks remain with the supplier. Technology becomes a means and necessity to mitigate those risks.

  • Digital stream lines operations
  • Connectivity creates visibility and transparency

Customers expect things to work

A second reason to invest in digital and connectivity is an increasing customer expectation that products simply must work. This implies two things:

  • Prevent a product from breaking.
  • When it does break, minimise the impact on operations.

Using technology allows us to pre-empt a failure and to minimise the impact of downtime on operations.

In an outcome-based business model both customer and supplier have an aligned interest to ensure availability of the outcome “when needed”. The last two words are essential, because no matter how much you’ll invest in preventing downtime, ultimately any product will break or need maintenance. Thus, it’s the combination of technology and understanding the outcome requirements of your customer that defines the ability to monetise outcomes.

Mutual benefit

With new outcome-based variants in the offing, we often hear the doubt: “What happens when the outcome is made available by supplier, but it’s not utilised by customer”. 

For nearly two decades we are familiar with the copying machines example where you pay per copy. Over the years copier companies have perfected their outcome-based model with their customers to mutual benefit. The mechanisms they have created:

  • Provide consultancy and software solutions to make better and more usage of the deployed copying machines.
  • If utilisation goes up, the copying machine is replaced by a larger model and the former model is deployed at customers with a smaller demand.
  • Use price breaks and contract duration to cater to customer cost predictability expectation. 

Going back to our own examples. An airline buying power-by-the-hour has a genuine interest to fly the planes. A building owner buying pay-per-lux or refrigeration can only last when having tenants. If you can find the right driver to bill your outcome, outcome-based services are the way forward. In the end we want to use products. We need medical equipment because we value life. We require construction equipment because we need buildings to live and work. We need transportation means because we want to travel. Looking forward, the Gartner prediction may be conservative.


[i] Insight into Asset Lifecyle and Total Cost of Ownership – Accenture 2012

[ii] Critical Capabilities for Field Service Management, Gartner 2019 – G00436216

[iii] Anticipating the Information Needs of the Chief Revenue Officer in 2023, Gartner 2012, G00239551,