Using trigger points to manage your service business

Sometimes it feels like being a jack of all trades when managing a service business. On the one hand you act like a firefighter, on the other hand you know service is strategic to your business’s future earnings. That said, how do you elevate your job from the reactive to the proactive? Establishing trigger points may be the key ingredient to manage your business on an 80/20 basis. Thus, giving you the focus on interventions that matter.

Define success

When do you know you are doing a great job? In speaking to many service executives, it is not always clear what the norm is. “We want to increase service revenue by 20%”. Why 20%? Why not more? Why not less? In my blog Mind the Gap I tried to establish a norm for a maximum service revenue. In a blog by Shawn LaRocco he defined a norm for Cost to Serve. Both blogs have in common that success is put in a perspective of a norm.

Triggering the outliers

A facilities management customer of ours is processing 15,000 – 20,000 workorders per month. In the past they had a team of 30+ people in the back office validating and correcting all debriefed work orders. Based on gut feeling and experience there was a belief that 80% of the work orders did close within a bandwidth of ±5% of expectation. By formalising that bandwidth through trigger points, they now have a tool to filter the volume and start managing by exception.

Timely intervention

Apart from managing your workload on a 80/20 basis, trigger points serve as an early-warning system allowing for timely intervention. You don’t want to pay penalty cost for a missed SLA. Instead, you want a service job to be flagged if its progress jeopardises SLA attainment. E.g., a break-fix job needs to be completed within 4 hours. After 3 hours you could ping the technician to ask if completion is still on track. If not, you could provide the technician with support and/or contact the customer with a heads up.

A trigger point is thus a floor or ceiling boundary on a metric triggering an event. Using workflow, you can route the event to the mitigating personas in your organisation.

Value = Result minus Expectation

Many years ago, the value of trigger points was eloquently explained to me by university professor Meindert Flikkema. He stated that every event has both an expectation and a result. If somebody gets more than expected, then that person is happy … and vice versa.

In the context of running my own service organisation at Bosch I tweaked Meindert’s equation and added the concept of a bandwidth around expectation. Similar to the above example of ±5%, I strived to manage my operations inside the bandwidth. Inside the bandwidth I let the business run on automations. If I managed well, that would account for 80% of my workload. The outliers I routed to my attention queue. Over time trigger points would help me focus on what really matters for both my customers and my CFO. I’ll use the business driver contract profitability to illustrate the value equation and its impact.

Contract profitability in action

Suppose a customer wants to buy a full-service contract with a scope-of-work containing preventive maintenance, capped break-fix events, calibrations, software maintenance and an included set of spare parts and consumables. Using a CPQ-like tool the scope-of-work totals to a calculated cost of $75,000, a calculated revenue of $100,000 and an expected margin of 25%.

Throughout the lifecycle of the contract executed service activities will impact the cost you accrue. If those cost exceed the $75,000 you have either over-delivered or over-run on your calculated cost. Your CFO will see a less-than-expected margin contribution. If your margin is significantly more than the expected 25%, then either you are over-charging or under-delivering. Your customer may get a feeling he/she is not getting value for money. 

Tipping the trigger level should make you curious. Challenge both expectation and result. Do you have a clear understanding of cost-to-serve? Are you taking the life cycle of the product into account? Did the product owner accept your mid-life-upgrade proposal?

Pro-active

As service leader you don’t want to be told about under or over-situations by your CFO when it is too late for corrective intervention. Similarly, you don’t want you customers to churn. Trigger levels act as an early-warning system before you accrue irreversible cost or impact customer expectation negatively.

  • It’s November. Show me all contracts at 80% of calculated cost. Let’s see what service activities we can push out to ‘save’ this years’ margin contribution.
  • It’s July. We anticipated six break-fix events for a full year. We’ve already had four. We want to flag future break-fix service requests to inform the customer service agent and technician to be stricter.
  • It’s September. The year-to-date contract margin spikes at 35%. Upon investigation you find that a contracted and scheduled calibration activity has been cancelled by the customer. Instead of treating this as easy money, you engage with your customer to pre-empt contract renewal conversations.

Managing intelligent

As long as we have unplanned downtime, firefighting will remain an element of a service leaders’ job. Service execution tools are a great help to facilitate the transaction and collect service data. The true value manifests itself when you use transactional data in combination with trigger levels. Trigger levels give you that early-warning to become pro-active instead of reactive. Trigger levels add direction to your decision making. And better decision making makes you more intelligent and more strategic. Not only inside the service domain, but across your organisation.

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

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?