How Smart are your Smart Services?

Since the dawn of the information age, plenty of ink - and blog bytes for that matter - has been dedicated to the differentiation between "data" and "knowledge." Most companies' plates overfloweth with the former, but starve for the latter.

What separates top smart services practitioners from the also-rans has a lot to do with how the OEM, service network partner, and asset operator systematically extract actionable knowledge from heretofore inaccessable machine data.

Well-tuned analytics go beyond basic reporting and provide insights into future equipment performance patterns, operator behavior discrepancies, supply chain improvement opportunities, and unmet customer needs. Machine data trend analysis can enable OEMs to evolve from product suppliers to trusted advisors to their customers, by fueling new information-based service offerings. And herein lies the much-touted opportunity for OEMs and their channel partners to unlock new, highly-profitable revenue streams.

Consider the telephone manufacturer that can now help its business customers optimize call-center performance, or the air compressor manufacturer that can now ensure its customers' compliance with efficiency regulations, or the fuel-dispenser manufacturer that provides its customers with detailed reports on fuel loss, price elasticity, and fuel logistics optimization. In these and countless other examples, the ability to collect and report raw machine data no longer differentiates the OEM. The bar has risen, and keeps rising.

On July 16th at 1 pm ET (12 pm CT), I will be participating on a Webinar entitled Smart Business Intelligence Solutions to Optimize Your Services Operation, and I invite you to attend and ask some questions of your own.

It's Summit Season Again

This time, I have a valid excuse for the long hiatus between posts. I have been chasing down a tangle of loose ends in the wake of my relocation from Boston to Chicagoland. But here I am, blogging for the first time from the windy city, or as I like to call it, Red Sox Nation Midwest.

The Smart Services landscape continues to expand and evolve, often in ways that mystify the industry's leading pundits. The diversity of applications of this technology seems boundless, and the mandate for business leaders to embrace it is rarely questioned... at least in theory.

In response to these market dynamics, this year's Smart Services Summit has taken on a few new attributes. First, it's now called the Smart Services Leadership Summit and will explore the increasing relevance of Smart Services to C-Level executives and their strategic agendas.

Second, there will be industry-specific break-out sessions on Day 2, to allow peer groups to roll up their collective sleeves to grapple with the real-world implications of Smart Services in their unique markets. (See sneak-peak agenda synopsis below.)

And third, the event will be in San Diego - not Chicago as in prior years - and will be held at Qualcomm's headquarters. In place of the storied Cubs Rooftop experience, there will be an invitation-only reception aboard the USS Midway aircraft carrier (see inset).

Hope to see you all in sunny San Diego in July! Here's your sneak-peak Summit '08 agenda:

Day 1: General Session
Some of the most forward-thinking services leaders from a diversity of market venues will come together to continue to define the new business language of Smart Services. They will explore best practices for executing on smart services strategies, key challenges they’ve faced, and what it will take to remain smart services leaders in the future. In this cross-functional session, major corporations will mix it up with entrepreneurs, industry analysts, and academic experts through a combination of practical presentations, interactive panel discussions, and networking events.

Day 2: Breakout Session - Major Manufacturing
By 2010, almost two-thirds of product manufacturers will have embedded networking capabilities in at least half of their product lines (Harbor Research, 2007), collecting health, performance, and location data to support aftermarket service delivery, product quality improvement, and value-added asset management services. This breakout session will give like-minded manufacturing leaders the chance to collaborate with their peers on such pressing issues as commercializing smart services in product-centric environments, empowering dealers and distributors as go-to-market allies, and cultivating the end-customer value proposition to engender stronger relationships and long-term competitive advantage.

Day 2: Breakout Session - Remote Health Services
Societal, environmental, economic and other forces have given birth to the rapidly expanding world of telemedicine. For instance, as much as 40 percent of today’s American-based home health agencies employ some form of telehealth in their daily operations. This breakout session will explore the role Smart Services is playing in unique life-saving applications, as well as some of the technological challenges and business opportunities that might await product and service providers in this evolving arena.

Day 2: Breakout Session - Disruptive Innovators
In most cases, the technological backbone of a Smart Service is a machine-to-machine (M2M) managed network communications service that connects a physical device to an enterprise application. As such, today’s entrepreneurial marketplace is rife with innovative companies leveraging Smart Services to solve a vast range of business and consumer needs. This breakout session will showcase best practices employed by early- to mid-stage outfits, and will give these companies the opportunity to explore potential synergies among their unique solutions.

Braving the Wild Blue Yonder

One of these days, I'll be able to post to this blog without apologizing for the time elapsed since the last installment... But not this time.

It certainly has been a hectic start to 2008, due in large part to the hours I've already logged at 30 some-odd thousand feet. What this airborne time has afforded me though is the ability to catch up on some reading, and I recently read from cover-to-cover for the first time Blue Ocean Strategy.

As is the case with most business books I read, I discovered some solid take-aways, as well as a handful of leave-behinds. The reality is that for many product manufacturers, smart services can provide the foundation for a bona fide blue ocean strategy.

For those of you who haven't read the book, a blue ocean strategy is a way for a company to distance itself from the "red oceans" of bloody competition by increasing or decreasing its focus on certain elements of its business in order to more consistently deploy its resources towards the creation of customer value.

To test the applicability of blue ocean thinking to the world of smart services, I tried my hand at creating what the Blue Ocean authors call a "strategy canvas" for a typical product manufacturing company (see inset). This framework lays out the primary drivers of market competition (note x-axis) and plots red ocean and blue ocean strategies against each other according to how much or how little investment is made (note y-axis) in each of the competitive areas. The goal is to visually depict the separation that exists between blue ocean and red ocean practitioners.

As you can see in the inset image (click on it for larger version), smart services-enabled product manufacturers invest much more aggressively in areas like product lifecycle performance, gaining knowledge about customers' businesses, reducing customers' total cost of ownership, and introducing value-added services. Why? Because they can. Without reliable intelligence on the behavior of deployed products, red ocean manufacturers find it very difficult to build the asset knowledge base required to deliver value in these areas. Hence, we have the beginnings of a blue ocean.

Now, it's entirely possible that all this ocean talk is resonating with me because I'll be leaving the Atlantic Ocean I know and love for a new home in the Mid-West in a couple weeks. But I still think manufacturers might stand to gain some clarity around their smart services efforts if they think about them in terms of what creates and sustains value for their customers. Agreed? Or am I all wet? Post a comment and let me know.

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!