Introducing: "Smart Services Blog"

Thanks to all who have contributed to the successful launch of ServiceChainGuru.com! As it happens, I will be posting on a more regular basis at SmartServicesBlog.com (see screen shot).

I will be posting occasionally to ServiceChainGuru, but you'll find the freshest fodder at Smart Services Blog, where I'll be co-blogging with my good buddy, Steve Pazol.

Live From Field Service 2007: Day Two

Have you ever had your picture taken with a 200-pound python? I'd be lying if I didn't admit that this was one of my highlights on the second day here in Vegas.

But aside from the crowd-pleasing stunts at the cocktail reception, there were a couple memorable tidbits from the day's main event as well.

1. As I noted in a previous post, consumables represent a chunk of business for many OEMs. I said that by more accurately detecting consumables demand patterns, companies can minimize interruptions in this valuable revenue stream. But, as I was reminded today, it's actually simpler than that: Machine goes down... consumables not needed. Clearly, at the core of this simple equation is a correlation between asset uptime and consumables consumption. Service professionals struggling with building a business case for service chain improvement might not need go any further than this, at least as a starting point.
   
   
2. I rarely recommend books I've never read, but in the interest of providing a real-time glimpse of the goings-on here, I will pass along a recommendation made by the presenter who reminded me of point # 1 above. Check out The Ultimate Question: Driving Good Profits and True Growth, by Fred Reichheld. From the summary I heard, Reichheld offers a simple yet elegant way of quantifying which customers are "adding" to your business and which ones are "subtracting" from your business, the end-goal being to systematially attract and serve only those customers that add to - or as the author puts it, "promote" - your business. I'm going to pick up a copy, so I'll let you know if my opinion changes after reading it.

Live From Field Service 2007: Day One

Greetings from sunny Las Vegas! Best I could tell, more than 150 people attended the Pre-Day of Field Service 2007 - themed The Future of Service. I opened the day with some remarks on what the future might indeed hold for service professionals in a product world. I suggested that improving service chain performance is only the beginning, and in order to build a quorum of service champions from engineering, marketing, sales, and the executive suite, we must clearly tie service performance to product quality and performance, quantifiable customer value, sustainable competitive advantage, and of course, tangible finanical performance (see illustration).

For those of you who were not among the throng, here are some highlights from the day's discussions:

1. Still no Chief Service Officers. As I usually do, I asked if anyone in the room boasted the lofty CSO title, and as usual, I got mostly smirks and shrugs. But as we forged through the day's sessions, it became clear that the prevelance of this title is really not an indicator of how readily manufacturers view post-sales service as critical contributors and sustainers of their financial and operational health. In fact, the emergence of a CSO is more likely to be the effect of the burgeoning service chain business and process changes we talked about today, versus the cause.
   


2. "Profit-center" does not equal "business unit." As appropriately noted by Michelle Griffin, VP of Customer Experience at Oce North America, even if senior executives dub service as a profit-center, they are still likely to lean hard on cost-cutting when the going gets tough. Once service becomes its own business unit, with presidential oversight of profit & loss, then service is genuinely "strategic," and the business can more freely invest in customers and programs to optimize profit and revenue performance.
   
   
3. The choir gets it. Preachers needed at NMW. Throughout the day, there were plenty of nods and even a few "amens," but I wonder if the response would be the same at a show like National Manufacturing Week, where the product still rules. The reality is we still have quite a ways to go before our counterparts in design, engineering, manufacturing, and quality put their shoulders behind concepts like design-for-serviceability.
   
   
4. Labor shortage necessitates smarter services. Robert Apelgren of the Institute of Electrical Motor Diagnostics reminded us that today's career-minded students are opting out of the skilled trades en masse. With the baby-boomer generation approaching retirement, the job of recruiting competent field engineers will become increasingly difficult. The good news is - as Dick Frishkorn of GE Aviation illustrated in his presentation - companies can offset some manpower requirements by systematically capturing and analyzing probabilistic, diagnostic, and prognostic data about their serviceable assets. Will the need for field techs ever go away entirely? I highly doubt it. But smarter, data-driven service models can maximize the contribution each individual technician can make to the enterprise.

The Future of Service: Smart Services

This is the theme of the Pre-Day on April 23rd at the upcoming Field Service conference in Las Vegas - "The Future of Service." And I'll be chairing the day's agenda, sharing the stage with service executives from GE Aircraft Engines, Tokyo Electron Company, and other service-minded OEMs.

A topic this ambitious will be tough to cover in a day, so I thought I'd pre-empt it with a few days of virtual discussion...

This morning, I'll kick it off with some thoughts on "Smart Services." At their core, Smart Services are differentiated post-sales product support capabilities, enabled by wirelessly capturing and analyzing real-time product performance information, and usually delivered by manufacturers or service providers to the owners/operators of the serviceable equipment or machinery. Leveraging on-board sensing and control devices and wireless Internet connectivity, Smart Services solutions allow manufacturers to remotely capture and analyze asset performance data, identify root causes of failure and trigger corrective workflows including repairs, upgrades, and technician and part dispatch. These solutions are deployed enterprise-wide, so that service and support professionals can proactively manage and optimize entire installed bases of assets at multiple customer locations.

So, what's so "futuristic" about Smart Services? One could compare the lifecycle stage that Smart Services is at today to where the Internet was in the early 1990’s. At that time, knowledge of the Internet was growing, but very few executives fully grasped how Internet-enabling their business would change it. In the ensuing span of about fifteen years, companies like Google and eBay have ascended to dominant blue-chip status, and countless smaller businesses have fundamentally changed the way they conduct business and interact with their customers.

As such, Smart Services is uniquely poised to transform the product value chain just as monumentally and irrevocably as the Internet did to commerce.

Healthy product margins? Service STILL matters

You might say there's a “perfect economic storm” brewing in aftermarket product service, fueled on the demand side by asset owner/operators requiring unprecedented levels of asset uptime, reliability, availability, and output; and on the supply side by manufacturers facing increasing commoditization and competition on the product side of their businesses.

But some niche manufacturers still enjoy sizable margins on their products and haven't felt as much as a passing breeze from this alleged "storm." Is aftermarket service irrelevant for them? Absolutely not! Here's why:

1. Spare parts: I was on the phone this week with a mid-size manufacturer from the U.S. mid-Atlantic seaboard that attributes 10% - 12% of its annual revenues to the sale of spare parts. With healthy margins on its complex industrial machines and little competition on the horizon, the company hasn't lost much sleep over its service performance. But the reality is, this company could more than double its annual parts revenues within 1 to 2 years, because it's currently losing ample market share to small enterprising machine shops knocking off their parts. The problem? This company still views service purely as a cost center, and has overlooked this opportunity to pad margins from the top-line.
   

2. Consumables: We've all analogized with Gillette's razor-blade strategy or Dell's printer-cartridge cash cow. The model is simple. You can sell your products at slim to no margin, as long as you can clean up on aftermarket consumables sales. But the model still sings with decent-margin products in pre-commodity markets. In the laboratory science space, for instance, it's common for every operation of a particular machine to require a series of consumables (e.g. reagents, catalysts, etc.). By keeping close tabs on consumable demand patterns, these manufacturers can ensure a steady stream of high-margin aftermarket revenues, to complement their already plump product margins.
   

3. Future-proofing: No margin is safe. Whether they're the forces of commoditization, competition, globalization, or obsolescence ... they will attack your product profit margins. And when they do, you'll fare a lot better if you've been parallel tracking with a 30%-margin+ service-driven revenue stream.

A New Chapter

After five years of studying and commentating on the largely untapped economic potential of post-sales service & support operations within product-dominant companies, I decided it was time for me to join the ranks of the trench-men. That is, it's time for me to get my hands dirty.

I have taken a senior business development role at Qualcomm Wireless Business Solutions, and will be helping to develop and grow their remote product service (RPS) solutions.

Stay tuned to this blog for regular postings on what's working and what isn't in emerging service-driven business models. In the words of Andy Warhol, "They always say time changes things, but you actually have to change them yourself."