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.