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

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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?
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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

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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.

Digital Thread: Closing the Loop

For more than 25 years I’ve worked in the after-sales domain. Hardly ever I came across the words Digital Thread. That changed when PTC acquired ServiceMax a couple of months ago. I wish I had come across the Digital Thread concept a lot sooner. I’ve come to learn it as a powerful paradigm and being very useful in creating momentum for digital transformation. I get even more excited when I tie the ends of the thread and create an infinity loop.

What’s so compelling?

Having been a service executive for 25 year I’m rather practical and down-to-earth. I like to talk about service excellence, but my actions are more around service basics. When I hear a phrase like “data is the new oil”, I’m sceptical at first, immediately followed by curiosity.

I’d like to illustrate this through a research we commissioned about the rise of “Asset and Service Data Gravity“. Though friend and foe agree on the value of data, siloed organisational design and behaviour inhibits the flow of information. Since the publication of the report in 2018, I’ve seen and heard many more stories about the value of data, but I’ve always missed the handle, the story to break the siloes.

What is the ‘binding entity’ across all the business functions of an organisation? Yes, the product they sell! Some people have the idea, others design the product, next you produce it, then you sell it. Once the product goes into the ‘field’, you’ll help your customers install, operate, sustain and decommission the product. The common demeanor is the product lifecycle. 

In each phase of the lifecycle the product creates data. Instead of each organisational function creating its own siloed representation of the product, you can picture a ‘thread’ where each station passes the baton onto the next. That is a compeling message for me.

Design-for-Service

One of my favourite activities in my current job is that I get to do frequent ride alongs. I ‘staple’ myself to a service request and observe each step in the process. The eye-opening part in the ride along is the ‘field’ piece. I mean the part where either the customer, technician or depot repair operator is in front of the product, tasked to fix it.

Sometimes it appears like we ask customers, technicians and operators to perform service activities ‘blindfolded’. Some examples:

  • The engineering of the product is optimised for manufacturing but not for service.
  • The service and operating manuals are available as reference documents, but not as actionable bite-sized instructions contextual to the job at hand.
  • There is a spare parts catalogue, but finding the right part is like finding Wally. Especially when the product is a configure-to-order product.

All these bullets make it harder to service products. More effort. More cost. Less efficiency. Less margin. Lower customer experience.

With Digital Thread we can picture an alternative future. Engineering designs a product with an intended use case in mind. Maintenance engineering ‘translates’ the product design and use case into a recommended preventive maintenance scheme, spare parts kit and component MTBF. Wouldn’t it be great if all that knowledge ‘flows’ into the after-sales and service delivery function? On the same platform?

Closing the loop

Now we have a linear thread starting with the definition of a product all the way up to sustaining and augementing the product, what would happen if we close the loop? Why is that important and who benefits?

Let me tell you a true story when I managed a field service organisation. The engineering department asked me to collect 25+ data points during the debrief of every service activity. Knowing that my technicians had not signed up for the job to do admin, I needed a lever to steer the conversation.

The good news, engineering recognised the value of data once the product was in the ‘field’. The bad, the cost of collecting the data was in after-sales/ service. To solve this dilemma, I played a game. 

25 Data points equals 15 minutes admin time. Multiplied by volume. Multiplied by fully burdened cost. “Engineering, the cost of your data request is 581k per annum”. Can you guess the response? Isn’t this internal money? Endgame, engineering reviewed the list of 25+, settled on 5 questions that had an impact on value creation. Engineering funded service to collect the data. Technicians understood the reasoning of the 5 extra questions. Technicians got extra time (and pay) for retrieving the additional data points.

In all, we closed the loop, created value, balanced cost/ effort, got lasting funding and mitigated adoption. We all won.

There is more

Once engineering receives relevant and quality feedback on the performance of products in the field, you can setup a ‘plan versus actual’ process. In designing revision 1, engineering had a plan. Now the product is in the field, they receive actual. The comparison of ‘plan versus actual’ is useful in designing revision 2 of the product. This will benefit both the sale of new products as well as allow the service function to target the existing installed base with engineering and upgrade offerings.

Knowing that modern products are getting more complex and have an ever increasing digital component, establishing a closed PLM-SLM loop is critical to a sustainable and profitable business model.

Let me end with a personal note. Throughout my career it was fashionable to say “customer first”. Being in service, I deliberately voiced a counter message: “design your business processes along the axis of the product and service lifecycle”. Hence you can see why I am so enthusiastic about the Digital Thread concept and the infinity loop. For me it is a game changer.

I have no doubt why organisational siloes should, even must, work together. When you plot each organisational function on the digital thread and infinity loop, you have a simple, powerful and reinforcing visualisation. The graphic emphasises both the organisational dependencies and value amplification.

No surprise, I will repeat this message infinite times .

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:

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.

Digital Thread: How the Service Bill of Materials Drives System of Record Across the Platform

“We’ve defined ERP as the system of record for our installed base”. This a phrase we hear quite often. Is it a smart choice, and what are the consequences of this choice? When you are in the business of managing the service lifecycle of an installed base, we believe you should consider an alternative approach to system of record.

This blog is part 2 in a series of three.

Limitations of ERP

ERP is often a solid choice for the system of record for many data objects. But lesser so for products, equipment and assets that have left the building. When products hit the field and start their operational lifecycle, those products become a handle for a lot of contextual usage data. Think in terms of how is the product being used, how is it being maintained, and what touch points have we had with the product?

Bill of Materials lifecycle

Let us paint a picture of the lifecycle of the Bill of Materials (BoM). In the design phase of a product, engineering will create an engineering BoM. In the build phase, manufacturing will pull the latest revision of the engineering BoM and use it as a template to manufacture a batch of x units. All those units have the same as-built. If we use a configurator in the sales process, the as-sold may differ from the as-built. So far the information we have captured is product specific.

Post-point-of-sales, when the unit leaves the building and the customer starts using the product, the unit becomes unique. Though the engineering team may have had a specific use profile in mind when designing the product, in real life, customers use the product within (or outside) a bandwidth of the product specifications. Tracking how customers maintain and operate the product thus becomes essential to keep the product running. Being in the operational lifecycle of a product we’ll refer to the BoM as as-maintained or as-operated.

Service lifecycle management (SLM), fit for purpose

If we have to name one single reason why any OEM should revisit their ERP installed base system of record paradigm, it is total product lifecycle cost.

For mission-critical assets, the lifetime Opex is a multiple of product expenditure Capex. Thus, if you want to make a valuable impact on the users/buyers of your products, you need to focus on the service lifecycle.

The SLM asset record is fit for purpose. SLM connects as-engineered, as-built, as-sold, and as-maintained. In part 1 of this series, we explained how the Service-BoM sets the standard of maintenance, underpinning the value promise of product uptime and sustenance. PLMERPCRM, and FSM all add data to the digital thread of the product. SLM, being on the receiving end, defines the data master for products in the field.

Enterprise data architect

Knowing that it takes both product and usage-specific data attributes to keep products running, we’d like to better understand why we’ve defined ERP as the system of record for our installed base. Is this a dogmatic, pragmatic, or conscious decision?

In the decision-making process for enterprise software, there are two factions. The business persona and the IT persona. Both weigh decisions along different (internal) metrics. Though it may seem obvious to abandon the ERP mantra from a business perspective, IT may have sufficient counterarguments not to do so.

This is where we can/should call on the help of the enterprise data architect. The enterprise data architect is key to any system of record conversation. What is primary, and what is secondary? How does data flow from one business area to the next? Does any function own data or is every function contributing data to an enterprise pool of data? The enterprise architect will be able to weigh the arguments and weigh the value of data beyond the individual functions in an organization.

Value of Asset Data

Knowing that the value of asset data is only getting bigger and bigger, we believe we are at an interesting point in time to create a digital thread of data. Focused on keeping the world running. Using the Service-BoM as a pivot. Using SLM as a system of record.

In part 3 of this series, we’ll focus on value using Service BoM and SLM data to drive cross and upsell. Teaser: when you exert a lot of effort in designing, building, and selling products, how much effort do you want to put into generating margin contribution off your installed base?

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

Digital Thread: How the Service Bill of Materials Links Engineering to Service

When we embark on a digital transformation journey in the after-sales domain, where does the process start? With the sale of the product? Commissioning of the product? First service call? We believe the foundation for the design of your service delivery processes starts in engineering.

This blog is part 1 in a series of three.

The creation of the service manual

When Engineering designs a product, they have an intended use profile in mind. That use profile defines wear-and-tear. Subsequently, the maintenance engineering function will define mitigating strategies to maintain the output specifications of the product and to sustain/prolong its lifecycle. The results are typically captured in the service manual and the Service Bill of Materials (BoM).

The golden standard of service

In a recent engagement with a prospect of ours, we asked to see the service manual of a medium-complex product to scope the service delivery business processes. Our premise: we may upsell on the service manual and promise higher value, but when we deliver less, product continuity and lifecycle may be at risk. As such, the service manual can be seen as the golden standard of service delivery.

In the 165 page pdf-document, we found a wealth of information on what to do, when to do it, and how to do it. Bill-of-materials, serviceable parts, PM-frequencies and kits, recommended consumables and spare parts, installation parameters, calibration values, and MTBF rates. We got enthusiastic. If somebody in engineering created this document, how does it ‘flow’ to after-sales? What system of record does after-sales use to be able to act upon the information in the service manual?

Digital thread

In the last decade, we’ve seen a lot of digitization initiatives driving the transformation agenda. We’ve also seen that a lot of digital data is still created and collected in silos. Engineering is digitizing product lifecycle management (PLM), manufacturing is pursuing Computer-aided manufacturing (CAD), sales are rolling out customer relationship management (CRM) and service is reshaping field service management (FSM). But how do they link to one another? Isn’t the overarching value promise of digitization the sharing of data leading to 1+1=3?

If your organization is in the business of designing, manufacturing, selling, and servicing products, then all those functions are connected through a digital thread. The carrier of the thread is the product itself. Starting as an as-engineered and subsequently transitioning into an as-built, as-sold, and as-maintained. In each stage of the lifecycle, additional information is added to the thread. Zooming out, each function will look at the digital thread through a lens to increase the value proposition.

Design for service

In our engagement with the above-mentioned prospect, we were curious how much design-for-service thought was put into the engineering phase and how that information would shape the design of the service delivery processes. Though the wealth in 165 pages of the service manual was phenomenal, the service organization had not yet invested in processes to receive the engineering baton.

The opening paragraph of the service manual provided a great narrative to introduce the baton. “Congratulations on your purchase. To protect your investment and get maximum return, we’ve defined some handles for good husbandry. This manual contains the instructions to guarantee the nominal output over its technical lifecycle”. In other words, the service manual defines the golden standard of maintenance to underpin the value promise of the product sale[1].

What Engineering documented in the 165-page service manual can be condensed in the following picture. In the first column, we find the Service-BoM. The Service-BoM is a subset of the Engineering/Manufacturing BoM. It contains only those parts that are serviceable. The manual pre-empts what skills are required to perform that serviceable activity. Can it be done by the customer, does it require a skilled technician or should the part be swapped in the field to be repaired in a depot/repair center?

With the above information from maintenance engineering, service delivery has a great blueprint defining what output its business processes should deliver. Analogously, service sales has an anchor to model cross and upsell offerings for customers having needs beyond the baseline described in the service manual.

Design for improvement

The service manual also serves another very important purpose; improvement. Improvement in two directions. Engineering giving handles to service and service giving feedback to engineering. As an illustration, I’ll use the mean time between failures (MTBF) column in the above table.

When Engineering designs a product, they typically have an idea of the lifecycle/MTBF of used components. Those values initially are theoretical numbers. Call them Plan. When the product hits the field in larger numbers, empirical values will trickle in. Call them Actual. When Actual is within a narrow margin of Plan, we say this is expected behavior. When it falls outside the margin, we call it an outlier. Understanding the root cause of the delta between Plan and Actual will enable you to drive improvement by process design.

  • Maybe the product was not installed properly
  • Maybe the product was not used as intended
  • Maybe engineering was wrong
  • Maybe service delivery was not in line with the service manual
  • Maybe the customer pushed out a preventive maintenance cycle
  • Maybe non-approved spares have been used

Actionable Service-BoM

What started as a trivial ask “can you share the service manual of a medium complex product” resulted in a pivotal conversation bridging engineering and service. The service manual is no longer a static 165-page pdf-document sitting in a knowledge repository. It is now an actionable document driving improvement and value in both the service and engineering domains.

[1] When selling products with a transfer-of-title, the risk of maintaining the product transfers to the buyer. Thus, the buyer becomes responsible to mitigate that risk in order to continue receiving the outcome/value of the product. The buyer may purchase maintenance services from OEM or choose differently. Read further in part 3 of this Digital Thread series.

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