2008: The Year of...

How does that saying go? "If you don't learn from your past, you're doomed to repeat it." Here's hoping that we all can retain at least a few of the hard-learned smart services lessons of 2007 and break new ground in the new year.

I suppose it makes sense to round up some of these key learnings, since this is the time of year for "Best of" lists, but I'd rather look forward. On the cusp of the leap year 2008, what should we expect from the next 366 days in smart services? At the risk of repeating past prognosticative pitfalls, I can't help but to offer up the following holiday food for thought:

1. Green is the new black

It's hard to pick up a newspaper these days without reading about another corporation's ostensibly earth-conscious efforts to "go green." Whether or not we have Al Gore to thank for this is open to debate, but the reality is that there are plenty of green-backs to be won in the new green economy. As discussed on this blog earlier this year, law-makers are contributing to this heightened consciousness with legislation aimed at holding corporations more accountable for their impact on the world around them. Increasingly, smart services will figure prominently in this landscape, elevating the responsibility of and opportunity for OEMs to partner with their customers on energy-saving, pollutant-reducing initiatives.

Further, as "clean technology" emerges as its own industry category, smart services will prove invaluable means to efficiently monitor and control the first generations of widely dispersed physical assets needed to provide and sustain alternative energy sources. In fact, I expect to see these new OEMs adopt smart services much more aggressively and unilaterally than have manufacturers in mature categories like industrial, medical, or construction equipment.

2. Unexpected category leaders emerge

In most manufacturing industry categories, one or a few companies stand apart from the rest of the pack, usually determined by a combination of market-share and mind-share. And although they might not admit it publicly, the also-rans take their ques from these category leaders.

What might not be surprising is that I expect 2008 to be a smart services leadership year for companies in a few key verticals, like construction equipment and industrial HVAC. But what might surprise you is that in some cases, the company that emerges as the smart services leader might not be the category’s incumbent.

For some enterprising product manufacturers, smart services represent a growth platform upon which strategies to topple giants can be executed. It’s been said before – even on this blog – that changing from a product-dominant to a service-driven business is a complex undertaking leaving very few, if any segments of the business unchanged. With everything to lose and unsure of what's to be gained, often overly inertia-reliant category market-share leaders might be unable or unwilling to make these changes. Historical B-players on the other hand might just have the agility and gusto required to harness the potential of smart services and chalk up a win for the ages in 2008.

3. Get to know your neighborhood CFO

As corporations increasingly submit to the scrutiny of financial regulators, CFOs are becoming more involved in strategic company decisions earlier in the decision-making process. Line-of-business executives who've grown accustomed to acting first and getting forgiveness later have already begun to change their ways to include financial stakeholders.

This cross-over culture might place some CFOs outside their comfort zones. As such, when financially justifying smart services strategies, service and product execs should prepare to take leadership roles in educating financial management on the appropriate metrics to gauge success. For instance, finance team members might encourage using payback periods and ROI calculations, but these methods are often too simplistic or even misleading. LOB execs should develop deeper relationships with their financial counterparts in order to begin to socialize more comprehensive business case justification tools including NPV (net present value) and scenario forecasting.

All the best for a prosperous... and smart... 2008!

The "Smart" Product Lifecycle

Have you ever noticed the four unassuming words that serve as the sub-title for this blog: "redefining the product lifecycle"? It occurred to me that we have yet to sufficiently address what this means. So here goes...

Much of today's business-value dialogue surrounding smart services revolves around aftermarket service - the final stage of the product lifecycle. And rightly so, as OEMs and their service network partners stand to gain innumerable near-term benefits from increased machine intelligence.

But what about the other key stages of the product lifecycle? Namely, Design, Manufacture, and Sell (see inset). Can smart services drive business value upstream as well? Without a doubt!

For the purposes of this discussion, I'll focus on the "Design" and "Sell" stages. First, Design. Most manufacturers employ Failure Mode and Effects Analysis (FMEA) to help them identify and analyze the causes and impacts of failures throughout the value chain. As part of design-for-quality (DFQ) initiatives, design and engineering teams use FMEA to predict product performance problems that might occur in operation.

More than half of companies that participated in a recent Aberdeen Group study have already deployed technology and tools to support FMEA. With access to timely machine performance data and trends afforded by smart services, these tools could allow design engineers to more accurately guard against future product failures. This kind of feedback loop between service and design seems intuitive enough, yet nearly three-quarters of companies studied by Aberdeen exhibit ad hoc or no collaboration among service, manufacturing, and design. Smart services might eventually bridge these costly gaps.

In addition to design-for-quality, many manufacturers also have design-for-serviceability (DFS) initiatives underway, whereby engineers model service scenarios using virtual prototypes. The goal is to anticipate service requirements at the point of design to minimize support costs and complexities. For example, some manufacturers try to optimize the mix of field replaceable units (FRUs) and customer replaceable units (CRUs) in order to minimize the burden on the field service force and maintain service margins. Instead of virtual prototypes - whose accuracy and currency are approximate at best - smart services-enabled machines could provide real-time and ongoing field service intelligence to design teams working on new product designs.

Now, in the "Sell" stage, machine intelligence can be integrated with Customer Relationship Management (CRM) systems to more accurately qualify cross-sell and up-sell opportunities for such items as service contracts, consumables, and the like. Further, as more manufacturers are experimenting with pay-for-performance contracts or PBAs (performance based agreements), historical equipment usage trends can be analyzed to ensure profitability on future PBAs.

These are just a few examples of how smart services can dramatically reduce latencies and gaps in the product lifecycle. There are many others. Have some of your own? Disagree with the ones discussed here? Post a comment and let us know.

Got "muda"?

Got what? Muda. It's Japanese for "waste." I didn't expect to pick up any foreign languages at the Field Service Long Cycle Forum in Atlanta this week, but "muda" stuck with me. As many of you know, muda is a foundational concept of Toyota's touted production system, originally developed by Toyota’s Chief Engineer Taiichi Ohno. The system has since spawned widespread adoption of lean manufacturing, Six Sigma, and other process improvement programs.

According to Ohno's system, there are seven main categories of waste that can erode efficiency and profitability in a manufacturing environment: Material, Inventory, Transportation, Motion, Waiting, Overprocessing, and Overproduction. While Ohno's venue was manufacturing, service executives can apply the same concept to service and support, particularly as it relates to justifying a smart services strategy.

If your service organization is anything like some of the companies convened in Atlanta this week, post-sales product support issues are often resolved by "throwing people and parts at the problem." This is muda.

Consider this scenario: a machine goes down at a customer site, and based on the customer's description of the problem, you or your channel partner promptly dispatches a technician with a trunk-full of spare parts. The technician arrives on site, troubleshoots for an hour, swaps 4 or 5 parts one at a time until he determines which one is the culprit, and restarts the machine.

What's wrong with this picture? At least 3 or 4 flavors of muda, all of which could be averted with more timely and accurate machine activity data. To start, those handful of potentially new spare parts that the technician ruled out as the cause of the problem cannot simply be re-stocked as new parts. They've been used, albeit for a matter of minutes, and have instantly depreciated in value. This might not seem like much of a hit for a few parts, but if this is standard practice, it can add up in a hurry.

There's already elements of transportation-, waiting-, and motion-muda in this scenario, but what if the customer's diagnosis had been wrong and the technician didn't have the appropriate parts in trunk stock or even the appropriate skills or experience to fix the problem. You get the picture.

Try this exercise: lay out a complete process map for your service operation today, and try to identify and categorize all the muda. Look for wasted time driving, waiting, flying, diagnosing, etc. Or excessive overtime in certain regions or with certain field technicians. Or imprecise spares inventory decisions. And then in each case, try to quantify the value of the wasted resource or activity, and ask yourself if timely indicators of your products' history, performance, health, or other activities could have mopped up some muda. I suspect you'll find that muda is money.

Beantown Bliss to Peachtown Preso

Tens of thousands of Red Sox Nation citizens (this blogger among them) lined the streets of Boston today to welcome home our victorious hardballers.

Present in the rolling cavalcade among the players, coaches, and front-office execs were Barry and Eliot Tatelman. Who? Anyone who owns a television in the northeastern U.S. knows that these brothers are the owners of local furniture retailer Jordan's Furniture. What does any of this have to do with Smart Services? Let me explain...

Back in the Spring, Barry and Eliot ran a promotion that entitled anyone who bought furniture before tax day to a full refund... if and only if the Red Sox won the World Series. So, on the morning of October 29th, the Tatelman brothers woke up owing a sum of more than $20 million to 35,000 customers. Of course, Jordan's had taken out an insurance policy that would cover their "losses," so no harm done.

As I watched the beaming brothers Tatelman rolling through the confetti blizzard, it struck me that this kind of marketing hubris is exactly what's needed to jumpstart the adoption of Smart Services among many OEMs' customer bases. I've mentioned before that the stakes in the Smart Services game are high and getting higher and the time for OEMs to place their bets is now. I've seen several examples of OEMs willing to take a short term risk by offering Smart Service-enabled support packages at no incremental charge to their customers for a finite period of time. And they're now enjoying the spoils of hearty recurring returns. Smart Services is part of a Horizon 2 business and needs to be run accordingly.

There will be plenty of time to explore this idea further at the upcoming Field Service - Long Cycle Forum 2007 in Atlanta, where I'll be making the presentation, Smart Services: A Game-Changer for Long-Cycle Service Organizations on November 13th. We're also hosting a dinner on November 12th at the nearby Spotted Dog. To reserve your spot on the guest list, just send a note to smartservices@qualcomm.com. Hope to see you in Peachtown!

CSOs in the house?

Sorry for the long hiatus between posts. It's been a busy start to Fall '07, including such happenings as:

- The 2nd Annual Chief Service Officer's Summit

- The 37th Annual S-Business World Conference

- A characteristically dramatic ALCS victory for my hometown Boston Red Sox.

As much as I'd like to devote today's post to the latter, there's just not much left to be said, with Boston's legion of storied sports writers penning hourly on new sub-plots and pre-Series melodrama... Except maybe, Go Sox!

So, on to the topic of the day: key insight from the CSO Summit. Keynote speaker Michael Treacy - author of Discipline of Market Leaders and other business books - encouraged delegates to Innovate, Learn, and Adapt in their service strategies. Against this backdrop, it struck me that many of the attending OEMs still hold the precarious view that service is mainly maintenance and repair.

The discussion panel in which I participated touched on the issue that the same forces of commoditization that squeeze products are acting upon mainstream services as well.

So, what does it mean to constantly innovate services? In the context of Smart Services, connecting serviceable equipment to a network is indeed an innovation, but not a competitively differentiable one, at least not over the long term. OEMs must constantly uncover new ways to exploit machine data to deliver new value-added services to their customers.

Preventing equipment from failing is a given. But OEMs that embed themselves in their customers' long-term asset management strategies will win in the end. Here are some ways leading OEMs are leveraging Smart Services to accomplish this:

- Track performance discrepancies among work shifts, to uncover training gaps

- Monitor energy consumption to comply with green regulations

- Provide system of record for customers' financial audits

- Identify asset interdependencies, and provide systemic asset performance optimization plans

- Maintain centralized asset knowledge repository in order to optimize the utilization of high-cost resources

What are some ways your company is going beyond break/fix with its smart service offerings? Post a comment, and tell us about it.

Party like a... Service Exec?

If it were left up to conference companies, you and I would find ourselves at a different one-of-a-kind exclusive symposium of senior grand poobah mucky-mucks every week of the year. But alas, we have day-jobs.

That said, allow me to implore you to consider joining us in Orlando next month - September 17th and 18th to be exact - at AFSMI's annual World Conference. It'll be the first in the long-running series since AFSMI joined forces with three other services associations (SSPA, TPSA, and ESCA). So this won't be your father's or grandfather's AFSMI.

One reason you might consider attending is I will be giving a presentation on the 17th called Leveraging “Smart Services” to Drive Product and Service Sales, which will feature best practices for packaging, selling, and marketing Smart Service-enabled product support capabilities.

Still not convinced? On Monday evening, September 17th, we will be hosting an exclusive dinner and rock-and-roll memorabilia tour in The John Lennon Room at The Hard Rock Café, Universal Studios. The room actually replicates John Lennon's Manhattan apartment. Plus, a guy with "Rock Dude" on his business card (seriously, I've met him) will be on hand to provide colorfully narrated tours of the Hard Rock's treasure trove of musical mementos.

Please don't mistake this for a shameless promotional pitch, but space is limited. We really can only accommodate 25 guests. Just picture John Lennon cramming that many people into his apartment! Even if you can't make it to the AFSMI event, come out for a truly one-of-a-kind exclusive experience at the Hard Rock. Reserve your spot on the guest list by replying to this evite. Hope to see you there!

Cubbies Edge Giants, Despite 2 Bonds Round-trippers

For the 16th year in a row, the nPhase Smart Services Summit culminated in a rooftop view of Wrigley Field (see inset), sans precipitation I might add. Barry 'roid-rage Bonds crushed two homers to inch within 2 of Hank Aaron's record, but Summit delegates were still treated to a 9-8 home team victory.

The Summit itself was attended by a record-high 120 people, representing such companies as ABB, John Deere, Siemens, Electrolux, Air Products, Diebold, Xerox, and Bausch & Lomb. Too many nuggets of wisdom to share in one blog post, but here are a couple highlights:

• Metric that Matters. Equipment uptime/availability -- the percent of scheduled production or calendar segment a machine is available for production -- tends to dominate discussions about the Smart Services value proposition for equipment owners/operators, but Reid Jaiko of ABB Robotics reminded us that availability is just one of the three building blocks of Overall Equipment Effectiveness (OEE), along with Performance and Quality.
  
  Performance is the quantity of output produced during the machine's running time, versus the potential quantity, given the designed speed of the equipment. And Quality is the amount of good products versus the total amount of products produced. So, for all you quant-jocks out there, here's how the OEE calculation breaks down:
  
  Availability Rate = Operating time - Downtime / Total Operating Time
  Performance Rate = Total Output / Potential Output at Rated Speed
  Quality Rate = Good Output / Total Output
  
  OEE = Availability Rate x Performance Rate x Quality Rate
  
  Why is OEE important? It has a direct and substantive impact on the operator's profits and ROCE (return on capital employed). So if OEMs can demonstrate Smart Services' impact on OEE to their customers, game is on!
  
  
• Smart Services on the chasm cusp. Some of you might be familiar with or even devoted followers of Geoffrey Moore's "crossing the chasm" concept, which he first popularized in his 1991 book. As Joan Waltman, president of QUALCOMM Wireless Business Solutions, shared at the Summit, the basic concept is that with any new disruptive technology, there exists a daunting market-penetration gap between early adopters and what Moore calls the early majority. While you might not realize it, if your company has already adopted Smart Services, you are perched advantageously on the near-side of this chasm. And if your company hasn't yet adopted Smart Services, you're somewhere between just-across-the-gorge and six-time-zones-away.
  
  If the latter describes your company, what can you do about it? Joan aptly quoted Moore in her presentation, saying, "When confronted with market disruption and technology revolution, your biggest challenge is letting go of comfortable old behaviors before they kill you."

If you missed this year's Summit, you can rest assured along with all the other Cubs fans, that there's always next year. In the meantime, you'll soon be able to check out more of the highlights on nPhase's Web site.

Smart Services Adopters are Bullish on Brand

If product support is going to fulfill its promise of providing an OEM with new competitive advantage, then the brand must embody the service message. To make certain that a new Smart Services offering is favorably received in target markets, most OEMs would be well-served to organize a cross-functional brand strategy team – comprised of representatives from marketing, service, and sales – tasked with determining the most effective packaging and positioning.

Here are a couple of tactics this brand team should consider:

1. Tap R&D budget: Some level of investment will be required to define and execute a Smart Services branding strategy. Marketing dollars are the obvious source of funding, but increasingly, leading OEMs are claiming research and development funds that historically have been reserved for product-related initiatives.
   
   How can this approach be justified to a CFO? In essence, Smart Services can be “productized” and heavily leveraged to drive additional product sales. And in product categories approaching commodity status, investments in new product features and capabilities will yield far less returns than investments in new higher-margin, faster-to-market, and more competitively differentiable service offerings.
   
   
2. Create unique Smart Services brand: Most OEMs have been selling numerous flavors of service agreements for years, from extended warranties, to preventative maintenance, to dedicated call center and field service support. Among these legacy service approaches, Smart Services stand apart, able to deliver unprecedented improvements in asset uptime, business continuity, and overall performance within the asset operator’s enterprise.
   
   But one of the obstacles is that over the years, product-driven sales representatives have conditioned the market to under-value post-sales service by gifting service offerings to prospects during late-stage negotiations in order to ink a product sale.
   
   To differentiate Smart Services from vanilla service agreements and to begin to undo end-users’ misperception of the value of service, OEMs must create a new premium brand for their Smart Services offerings. Many leading OEMs have created clever acronyms, logos, and department names for their Smart Services programs.
   
   ABB Robotics uses "ARM," which stands for ABB Remote Monitoring. Respironics chose "Respi-Link" for its smart service solution. And Gardner Denver is positioning its "ESP 20/20" offering as perfect machine visibility.
   
   Let’s face it. Smart Services are not your grandfather’s maintenance agreements. Build a bold brand and stand by it.

Where's your company at in the Smart Services branding process? Post a comment and share your marketing lessons learned.

OEMs: Appeal to your customers' "green" side

Struggling to quantify the impact that Smart Services can have on the asset owner/operator's enterprise? You're not alone.

After three solid days at IQPC's Remote Device Monitoring & Management Summit here in steamy Boston, I came away with a few realizations. One of these pertains to the multi-faceted business case for Smart Services that OEMs are in various states of building and defending. Of the four "Value Blades" that I presented at the Summit (see illustration), customer value remains the most difficult component of the value proposition to quantify.

But with today's increasingly environmentally-conscious law-makers, the timing might be just right for OEMs to position their Smart Service offerings as critical tools for their customers to comply with emerging "green" regulations.

As we speak, U.S. Congress is considering a stack of proposed bills including the Global Warming Pollution Reduction Act, the Safe Climate Act, the Climate Stewardship Act, and other legislation aimed at reducing greenhouse gas emissions by as much as 83% by 2050.

In the U.S., carbon dioxide emissions represent about 84 percent of total greenhouse gas emissions, according to the Energy Information Administration. And 98% of carbon dioxide is emitted as a result of the combustion of fossil fuels. Therefore, carbon dioxide emissions are tied directly to energy use. Theoretically, by monitoring and limiting energy consumed by its machines via Smart Services, an industrial OEM could aid its customers in curbing CO2 emissions.

But an OEM's role in ensuring its customers' green-friendliness is not limited to the realm of airborne pollutants. In the case of one manufacturer's equipment, the cleanliness of hydraulic fluid directly impacts the machine's usable life. Contaminated fluid increases the frequency of filter changes and oil disposals. In this instance, a Smart Service-enabled OEM could monitor and potentially avert causal factors that elevate sediment levels in the machine fluid, and thereby help its customers to dramatically reduce their toxic waste discharge levels.

The Pacific Northwest Pollution Prevention Resource Center (PPRC) is one entity that offers end-users some tips on working with their equipment suppliers to minimize negative environmental impact.

Is going green a top priority for your customers? Have you talked to them about how Smart Services might help them reach their goals? Post a comment and share your experiences.

Are your machines co-dependent?

Early generations of remote product diagnostic solutions required the service-providing entity to proactively "call" a machine to find out if it was operating within acceptable limits. If there were multiple machines installed at a location, the pulse of each one would have to be checked individually.

But there's a fundamental flaw in this approach. A machine that appears to be healthy on its own might actually be hindering the performance of a related machine. Herein lies the value of taking a systemic enterprise-wide approach to Smart Services.

Take air compressors for example. They tend to hog energy if they are not operating at full load. The problem is, monitoring unit efficiency will give a skewed view of systemic efficiency. The performance of one air compressor impacts and is impacted by other co-located compressors. The metric that matters is dynamic efficiency.

John Donne was the first to say that no man is an island. You should determine if this applies to your serviceable machines as well.

Compensation Drives Behavior

I was in the windy city this week at the The Manufacturer: LIVE show and was reminded that one of the most fundamental truths about human nature - fallen as it is - could help to unlock the potential of Smart Services. Compensation drives behavior.

No matter how sophisticated, educated, or highly evolved we deem ourselves to be, our propensity to complete a task at hand is directional proportional to the personal reward at stake.

Think about your childhood. Why did you make a snack out of that unsuspecting earthworm? Or slingshot an acorn at your neighbor's attack dog? Because your comrades were willing to pay you up to $5 - depending on the degree of danger or humiliation - for your .. er.. bravery.

As I was reminded this week by Dave Gleditsch of DemandPoint, we can apply the same incentive-based philosophy to the challenge of integrating Smart Services into the culture of a manufacturing company. Gleditsch cited Steven Levitt's Freakonomics in making the point that incentives have extraordinary power in affecting change.

And when it comes to Smart Services, technology is actually NOT the biggest challenge. It's change management. It's motivating sales forces that have dealt products for decades to add service and support offerings to their bags.

So, why not try hard incentives? Deliver the message that it's not unrealistic to capture 50% of revenues and 60% of profits from service - according to the Harvard Business Review - and that a portion of these spoils are up for grabs. Leading companies like Toyota have aggressively pursued profit-sharing, President's Club contests, and bonus programs for years. If it's Smart Services sales you want, ratchet up the rub for service sales and see what happens after a quarter or two. Or change the mix of your existing bonus program to compensate sales representatives disproportionately for margin contribution, not just revenues.

As with any significant change, your sales team's behavior won't change overnight. But you can be certain that when their paychecks do, their behavior will be soon to follow.

The Evolution of a Revolution

You’ve heard of manifest destiny. Well, I think this is it. It is time to move up to the next level and M2M (Machine to Machine) just doesn’t cut it anymore. I mean, it’s great as a technical description of what we do – we connect machines to other machines - but it just doesn’t mean anything to most people in business. For the past three years I’ve been wrestling with the issue that M2M doesn’t resonate with the majority of people who would most benefit from it – business people.

Now for engineering types and some visionaries, the simple fact that we could connect to an asset or device or machine wirelessly is enough for them to grasp that there is an opportunity waiting to be exploited. Hence the “internet of things” as described in the very recent issue of the Economist . The problem is, it describes how it works, not what it does.
So, you may ask, what do Smart Services do?

As I said in an interview with StartIT, “The premise behind Smart Services is that companies can provide innovative and differentiated offerings as part of a service offering by connecting to your products in the field and extracting insight remotely. In other words, companies can provide better service more cost effectively when you have visibility into how your products are being used in real time or near real time.

I feel that Smart Services today is very close to where the Internet was in the early 90’s. Knowledge of the Internet was growing, but very few people really had a clear idea of how Internet-enabling their business would change it. In just twelve years, not only were companies like Google and eBay created, but many existing businesses have fundamentally changed the way they do business and interact with their customer.”

And the thing is, most business folks get it. They understand services businesses, so why not make them smart? If M2M was the revolution, then Smart Services are the evolution.

To put it another way, Smart Services will be the business language that opens the door for the revolutionary capabilities of M2M technology to become a standard operating practice in mainstream markets.

Taking up the Smart Services flag was not something that was done
capriciously, but was a decision that I came to after innumerable conversations with many people, some of those most influential being John Tillotson, Steve Lundin, Michael Jarosik, Glen Allmendinger and PeggySmedley.

Ergo, SmartServicesBlog.com (the business side), M2MBlog.com (the technology side). Joining me on Smart Services Blog is Mark Vigoroso, formerly Chief Research Officer of Aberdeen, and now chief services strategist of nPhase and who will be responsible for much of the content. On M2Mblog.com David Geltner (also of nPhase) will be back in blogging mode to talking about how this stuff actually works.

As for me, I plan to bounce between SmartServicesBlog and M2MBlog while letting these two guys do the heavy lifting. However my comments will be as insightful (or not) as always.

Services of the world, unite!

- 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. (see illustration)

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.

• 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.
  
  
• 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.