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.