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.

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.

Why you should put service campaigns at the heart of your go-to-market

It’s common sense that owners of products, equipment and assets want a maximum of uptime at minimal operational cost. But how much emphasis does this get in the procurement cycle? For many buyers, it is difficult to define the service requirements over a multi year lifecycle. At the same time, buyers do have implicit expectations regarding lifecycle support, often derived from brand perceptions. This is a nice mix for OEM’s to strategize on.

The bulk of lifecycle cost is in operating the asset

To create an asset lifecycle strategy we will have to look at it from cradle to grave, including both the OEM and the asset owner’s perspective. In the following picture you can see the cost elements that go into each phase.

Lifecycle of assets and costs © ServiceMax

What you can see in the picture is that the cost of operating and maintaining the asset is typically a multiple of the cost of acquiring the asset. In the image from Accenture below, the ratio between product expenditure (capex) and the service expenditures (opex) comes to life. For example, if you had purchased a piece of industrial equipment for $1m, you would spend an additional $7.3m over its lifecycle to keep it running.

Initial product purchase relative to total product lifecycle cost © ServiceMax

Nominal output of the asset

Let’s go back one step. Why does somebody buy an asset? Not for the pleasure of owning it, but to use it. In using it, the asset produces a nominal output/outcome, and that generates value for the asset owner. To maintain the nominal output while wear-and-tear is degrading the asset, a mitigating lifecycle strategy needs to be put in place to secure the value potential of the asset. The following picture shows a typical asset lifecycle.

Typical asset lifecycle © ServiceMax

In this picture you’ll see service interventions like preventive maintenance and break-fix that serve the purpose of uptime. An intervention like an engineering change serves the purpose of prolonging the lifecycle of the asset as well as potentially boosting the original nominal output.

  • Extending lifecycle: mid-life upgrade, retrofit or overhaul.
  • Expanding output: booster-packs, product or software upgrades.

Product engineering beyond Point-of-Sale

Both extending the lifecycle and expanding the nominal output of an asset can be plotted against the continuous process of product engineering. Once a product hits the street, engineering receives feedback on its use through quality, warranty and maintenance channels.

Acting on asset feedback, engineering can design newer revisions of that product as well as define upgrade and booster offerings for the existing installed base.

For some OEM’s the asset feedback loop is an integral part of their Go-to-Market. Imagine you operate in an very competitive and tech savvy market. Timing is essential in building market share. At ServiceMax, we’ve come across OEM’s that go GA with a product when engineering is at 80%. They use the service organization to ‘bestow’ the customer with goodness and attention to make up for the missing 20%. In doing so, the service organization retrieves relevant intelligence to complete the engineering process. As part of the deal, the customer gets the benefit of both the latest technology as well as engineering changes post-point-of-sale. A win-win for both OEM and asset owner.

Using the product lifecyle as a means to customer intimacy

Whether you launch your product at 80% engineering completeness or at 100%, most OEM’s will continue to engineer their product beyond GA. The question is, how would you like to make those product improvements and engineering changes accessible to your existing installed base. In other words, have you setup a process to manage asset lifecycle service campaigns?

Service campaigns can stem from two different emotions. A negative and a positive one. In the end, when you manage your campaigns well, you’ll achieve higher levels of customer intimacy.

  • Negative emotions: These are quality and complaint driven engineering changes. A customer expects a certain quality and nominal output level, but is not getting it. The customer expects the supplier to fix it as quick as possible at no extra cost. Though a complaint and quality issue may start as a negative emotion, an OEM’s capability to act on it determines if the emotion remains negative or turns positive. In addition, service campaign capabilities will deliver efficiency and compliance benefits to the OEM.
  • Positive emotions: These are engineering changes that will enhance the capabilities of the asset. As such, you go above and beyond the nominal output specifications promised at point-of-sale. In general customers will perceive this as a positive, adding credibility to the OEM’s leadership and brand value. With service campaigns an OEM can reinforce that positive emotion as well as monetize it.

Service campaigns drive pro-active service

If customers buy assets to use them, OEM’s are very well positioned to facilitate the usage of those assets throughout their lifecycle. The OEM designed the product. The OEM has all the expert knowledge of how and why the product works. Now, if the OEM gets feedback on how each individual asset performs in the field, the OEM is sitting on a gold mine of data, ready to be servitized and monetized. The vehicle to deliver those services to the installed base is called – service campaigns.

This article is published on Diginomica.

How to Use Service Marketing to Grow Service Revenue

Over the last five to ten years, a growing number of Chief Service Officers (CSOs) have been assigned a service revenue growth target—a trend recently confirmed through research by Noventum, which found that more than 85% of product manufacturers have set a growth target for their service function. As this trend gains steam, we think it’s worth examining how CSOs can achieve service revenue growth and what they can learn from the sales side.

If you ask a salesperson to grow revenue, they will ask for two prerequisites:

  • More and newer products with more features at a better price point
  • A marketing budget to target the addressable market

What does a CSO ask for when receiving and accepting a service revenue growth target? For many CSO’s, growing service revenue and using service marketing is unchartered territory.

What’s your marketing budget?

Up to 2012, I managed my service operations at Bosch as a cost center. At that time service was the single largest margin contributor to the company. In 2012, I received service revenue growth objectives. Simultaneously my role transitioned from the service domain to the sales domain. In my first conversation with the chief revenue officer, I was asked: “What marketing budget do you need?”

Having run service operations for 25 years, my automatic response was to first focus on achieving excellence for the existing service delivery capabilities. After a crash course in sales and marketing, I revised my strategy. Sell first. Secure the revenue. Use the revenue to finance the maturing of your delivery capabilities.

The result: a quadrupling of service revenue in five years. How? By focusing on two items:

  1. Using the voice of the customer to develop a services portfolio
  2. Setting up service marketing for the installed base

Developing a services portfolio

Back in 2012, I was so focused on service delivery, it never crossed my mind to challenge my services portfolio. My sales colleagues explained to me that a portfolio with sufficient choice is the basis for revenue generation. We then set on a course to create a services portfolio with selectable features and differing price points. Our goal was to create an “a la carte” menu card.

The true test was to come. Would our customers buy the items from our menu card? This is where we realized our need for a true marketing function. A function to help us frame the value messaging and to reach out to the target audience.

Setting up service marketing

First, we looked at the value promise our company made to its customers. Is that value promise pertaining to owning the product and/or is it about using the product throughout its lifecycle? How does our menu card of lifecycle services fit in? And how do we facilitate product owners in making the right service lifecycle choices?

In setting up a marketing function for service, we used our sales colleagues as reference. In the world of sales, key metrics are Total Addressable Market (TAM) and Market Share. Marketing uses these two parameters to spearhead campaigns. In the world of service, these two metrics can be substituted by Installed Base penetration and Attach Rates.

Total addressable market

Suppose you have installed base visibility of 100% and all those units have an attached service contract. Suppose all those contracts are of the type gold-service. The sum of that equation is your maximum achievable service revenue. You could label this as your service-TAM. If your organization also services units of competing brands, the service-TAM will be bigger.

Market share

Your current actual service revenue is the compound result of two factors – your ability to drive installed base visibility and attach rates, in combination with the attractiveness of your services portfolio.

The gap

As mentioned in an earlier blog Mind the Gap, the delta between your service-TAM and your actual market share is your revenue gap. This gap encompasses your target audience for service marketing. The larger the gap, the bigger your compelling reason to review your services portfolio and to establish a service marketing function.

Targeting your audience

Service marketing has one big advantage over sales marketing: with a field service management system focused on asset-centric business models, marketing will have the perfect data set to drive targeted campaigns:

  • Knowing where your installed base is
  • Knowing the state of the asset and how the asset is being used
  • Having a record of the maintenance history
  • Knowing what engineering change orders and modernizations have been implemented
  • Visibility to the current service contract and entitlements

As one of our customers told us:

“We operated a model of sell and forget. Now we sell and service. We have invested in installed base visibility, attach rates, our services portfolio and service marketing. We are now on a deliberate and conscious path of service revenue growth.”

Setting a budget

Knowing what I know now, I would respond differently to my former chief revenue officer. I would request a service marketing budget to revisit my services portfolio and to initiate targeted marketing on my revenue gap.

I would not hesitate to commit to service revenue growth targets, knowing the service delivery organization had an asset-centric field service management system.

This article is published in ServiceMax Field Service Digital on August 25th, 2021

Managing your Quality and Engineering Changes

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

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

Engineering changes extend into the operational life cycle of a product

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

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

Where is my Installed Base?

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

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

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

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

Spread the Wealth

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

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

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

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

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

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

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

How to Maintain and Protect Your Brand as an OEM

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

Trending in 2021

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

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

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

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

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

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

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

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

Step 2: Support Your Product Throughout Its Life Cycle

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

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

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

Two to Tango

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

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

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

Finding Revenue Leakage in your Service Business – part 2

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

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

Upsell leakage

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

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

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

Defining the upsell service revenue potential

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

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

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

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

Metrics driving upsell leakage

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

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

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

Remedying upsell leakage

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

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

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

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

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

Finding Revenue Leakage in your Service Business – part 1

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

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

Defining leakage

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

We can distinguish two types of service leakage:

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

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

Let’s mention a couple of common scenarios:

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

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

Impact of leakage

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

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

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

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

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

Finding leakage

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

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

Remedying leakage

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

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

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

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

Mit Servicevertragspartnern ein konsistentes Kundenerlebnis sichern

Beim Aufbau und der Umgestaltung einer Serviceorganisation wird unweigerlich das Thema des Umgangs mit externen Dienstleistern und Partnern (Contractors) zur Sprache kommen. Ob es nun darum geht, zu skalieren, flexibler zu werden oder die Kosten zu senken – die meisten Diskussionen drehen sich um das „Wie“. Wie können wir eine Vielzahl potenzieller Partner verwalten und gleichzeitig die Kontrolle über Kunden und deren Erfahrungen behalten? Und was können wir tun, um die Chancen einer Zusammenarbeit zu maximieren und die Risiken zu minimieren?

Konfigurierbares Ökosystem

Um das richtige Gleichgewicht zu finden, definieren wir in der Regel zunächst Begriffe wie Outsourcing / Insourcing und (Sub-) Auftragnehmer / Partner. Je nachdem, ob Sie ein OEM (Original Equipment Manufacturer), ein Third Party Maintainer (TPM), ein Anlagenbetreiber oder ein Facility Manager (FM) sind, ergeben sich unterschiedliche Auswirkungen.

Wenn Sie also Vertragspartner zu Ihrem Ökosystem hinzufügen möchten, müssen Sie die Regeln für die Einbeziehung klar festlegen und diese mit unterstützenden Tools und Prozessen festigen. Diese Regeln können an Bedingungen geknüpft sein, die je nach Region, Produktgruppe, Art des Auftrags usw. variieren.

Partner einstufen

Ähnlich wie bei der Beziehung zu Ihren Lieferanten werden Sie wahrscheinlich ein unterschiedliches Maß an „Nähe“ zu Service-Vertragspartnern haben. Diese Beziehung ist definiert durch die Verfügbarkeit von Partnern und deren Wettbewerbsposition gegenüber Ihrem Endkunden.

Zudem bieten Servicepartner heute die Flexibilität, verschiedene Servicemodelle umzusetzen: 
Partner

  • verwenden Werkzeuge und Prozesse von einem OEM
  • bringen ihre eigenen Geräte in die Prozesse des OEM ein
  • verwenden ihre eigenen Tools und Prozesse – Arbeitsaufträge werden als Blackbox eingeplant
  • verwenden ihre eigenen Tools und Prozesse – Aufträge werden mit vollständiger Transparenz eingeplant

Diese Flexibilität erlaubt Ihnen, Ihre Partner gezielt so einzusetzen, dass Sie mehr Kunden besser bedienen können.

Kundenerlebnis messen

Sie haben nun mehr Flexibilität, Servicepartner zu nutzen, wie können Sie dennoch das Kundenerlebnis steuern? Einige unserer Kunden wünschen eine konsistente Servicebereitstellung, ohne dass der Endkunde weiß, ob der Service von ihrer Organisation oder von einem Partner erbracht wird. Andere Kunden möchten die Unterschiede zwischen den Serviceleistern hervorheben und dies als Wettbewerbsvorteil nutzen.

Um erfolgreich das Kundenerlebnis zu messen, müssen eine höhere Sichtbarkeit geschaffen, die Performance der Serviceleistungen gemessen und einheitliche KPIs für alle Serviceerbringungen definiert werden. Wenn Sie Daten gemeinsam nutzen, ohne über deren Interpretation „verhandeln“ zu müssen, können Sie Ihre Geschäftsziele an den Geschäftszielen Ihrer Servicepartner ausrichten. Infolgedessen gewinnen Sie, Ihr Contractor gewinnt und Ihr Endkunde gewinnt.

Partner messen

Abgesehen von strategischen, kaufmännischen und technischen Aspekten ist die Steuerung eines Servicepartners wie die Steuerung der Serviceerbringung. Bis zu einem gewissen Grad sollten Sie die Arbeit externer Ressourcen auf ähnliche Weise messen wie die Arbeit Ihrer internen Mitarbeiter. Ihr Endkunde soll das erhalten, worauf er Anspruch hat, gleichzeitig möchten Sie eine angemessene Marge erzielen.

Da Servicevertragspartner zu marktüblichen Konditionen arbeiten, sollten Sie sich auf die folgenden drei Messgrößen konzentrieren, da diese die Kundenerfahrung, die Serviceerbringung und die Leistung der Auftragnehmer am unmittelbarsten beeinflussen:

  • First-Time Fix: Ist die Servicequalität gut, wurde das Problem sofort behoben?
  • Mittlere Reparaturzeit: Wie lange dauert es, bis das System wieder verfügbar ist? 
  • Net Promoter Score: Ist der Endkunde mit dem Service zufrieden?