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.
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2 comments:
Mark,
Actually the bigger problem is that CSOs don't really exist yet and when they do they're looking for back-office ERP add-ons, that are easier to get past the CFO. (As opposed to a truly integrated service management and support solution that they don't know how to position and they know they can't afford.) Until CFOs and CIOs begin blocking out more IT budget for aftermarket services, instead of the next engineering or manufacturing tool for instance, this field will continue to limp along from early adopter to early adopter.
The better analogy for the sales rep is that in their pursuit of compensation, they tend to follow the past of least resistance. (Usually we didn't ask what someone would pay us to perform a dare, the dare/ demand came first. ) Get the customer asking for aftermarket solutions and the sales reps will pursue that demand.
Good points all around. Here are some follow-up thoughts:
- According to a recent Aberdeen study, 30% of manufacturers allocate between 10% and 20% of their IT budgets to service chain initiatives. And another 27% allocate more than 20% to service. While 20% is not a majority, it constitutes millions of dollars and a position among the top 5 investment priorities at many OEMs.
- The issue with supply and demand with regard to next generation service offerings is that category-leading manufacturers and their channel partners are in a position to influence and even create demand. With systematic training and incentives, OEM sales reps can play a pivotal role in educating the market on the impact Smart Services can have on business continuity and financial performance within the asset operator's enterprise. The reality is that most companies are in some state of inertia and simply don't know what they don't know.
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