1. Why Story telling and pictures are Critical to Success
Developing Advanced Services within a Product Centric environment takes many years of organisational and technical development. Having a clear overview of the key elements required to successfully deliver service transformation over an extended time period is vitally important to a business leader. Even more important is the ability to communicate the route of the journey so that all members of the organisation can understand how they can contribute to the end goal. Time and again we see that successful leaders are able to articulate their vision with a simple picture and a compelling story about what they want to achieve. They are able to motivate all members of their team, what ever their role, into going the extra mile to meet their goals. They don’t use the language of the business MBA where managers describe WHAT must be done in a nice logical business plan type structure.
No, they first look to inspire their people as to ‘Why’ a change must happen and communicate with words and a style that engages their people. Usually it is pretty much the same style that they would use with their customers, keeping messages simple and relevant to the listener.
This insight paper aims to share ideas & metaphors that business leaders can use to suit their particular situation. For example I have heard CEO’s describe their journeys as a 20 mile march to emphasis the length of the period of transformation. Others have used night and day to show the fundamental nature of the change from the current to future state. One often hears managers talking about a ‘burning platform’ to spotlight urgency and the desire to survive. These phrases all capture the imagination and the need for change. The metaphor that I have seen frequently used is the one of building a house. It’s success is probably because everyone can relate to the building of a house, it is very visual in nature and can be made as complex or as simple as desired.
The ‘House of Service Transformation’ describes how all building projects start with laying the foundations which are our ‘People’. On the foundation we build four key supporting structures that will support our Brand, which in essence are our business objective. These four pillars are the key activities we need to transform in order to reach our goal;
- Customer needs and expectations
- Service Sales
- Service Factory
We will review the elements of the house in detail so that managers can build up their own metaphor and thoughts depending on their context and situation. The goal of this paper is to break down some of the complexity that is involved in this transformation. The output is a view of the process, which is both easy to comprehend and communicate, yet has the intellectual rigour to enable timely and profitable execution. The benefit to the leadership is that the vision and next steps become easier to articulate, so enabling faster alignment of people and actions.
This review will be done in the context of the specific issues that impact product or technology focused companies who want to enable advanced services or integrated solutions. This analysis will help business leaders see this big picture, yet also appreciate the detail required for successful implementation.
2. THE HOUSE OF SERVICE TRANSFORMATION
Many product centric business’s that provide complex engineering systems such as aircraft, medical equipment or even injection moulding equipment, are looking to transform themselves into service centric businesses. This process takes many years and reaches into every aspect of how the business operates. One of the key reasons that transformation slows or even fails, is that business leaders find it difficult to fully grasp all the issues they have to address, and then articulate them to their teams. These are usually experienced people who have made a successful career in leading technology and manufacturing focussed enterprises. It is no wonder they become overwhelmed as they move into the services world by the intangible nature of the deliverable.
It is often said that story telling is a very effective way of communicating a vision. Business leaders need stories and analogies that help them understand and then articulate the transformation journey. If these are also grounded in rigorous research, then they become even more effective and long lasting.
The ‘House of Service Transformation’ shown below is one way of telling the service transformation story.
Although it may simplify some of the issues, it is essentially a communication tool to enable teams to discuss and develop their transformation process. There are many variations to this theme, but this particular version comes from a mix of practical experience of leading change and consulting.
2.1 The Brand
Much has been written on the value of the Brand, but in the context of this discussion it can be seen as the over-arching goal of the business in terms of the values it represents in the eyes its customers and stakeholder. It should help shape every aspect of the transformation process, in the same way as the shape of a roof dictates the shape of a building. The key to successful transformation is to find the story line that appeals to both customers and your people.
But a brand is more than just a storyline. To have value it must become a reality and often is achieved through a formal process of designing and managing the customer experience. In recent years, customer experience management has increasingly moved from being a B2C skill set, into the B2B environment. It involves not only understanding the physical interactions between the customer and supplier, but also the emotional interactions. It is these intangible emotions that really differentiate excellent service providers from the market followers. The important lesson is to use customer experience management to ensure that the foundation and pillars of the house are consistent in supporting the ‘Brand’.
2.2 People are the Foundation
If the Brand acts as a roof, then the foundations of the organisation are built around its people. They will shape how the transformation proceeds and ultimately if it is successful.
Probably the most important challenge that we face as we move through a transformation process is to move from an internal ‘Inside-Out’ perspective to an external ‘Outside-In’ view. In simplistic terms this not only means taking the customer perspective and looking at trends in the external business environment, it also means opening up ourselves to different ways of thinking. This is probably one of the key challenges that a business must overcome. It applies to everyone from the CEO to the shop floor and it is a challenge not to be under-estimated! Fortunately there are many tools and techniques to help people through the transition, in particular the ‘Design Thinking’ tool set developed by the Service Design and User Experience community. Increasingly this has been incorporated into many company innovation programmes to develop this external perspective of the customer or industry value chain. Many call it Service Thinking, but it’s not easy, nor does the journey ever truly end. Key to sustaining this type of transformation is culture and leaders need to ensure that their actions are consistent with the message they are conveying.
Within Service Transformation ‘Strategy’ is a key pillar of the house that defines how we are going to move our people to achieve the brand values we see as being our over-arching goal.
There are many ways of describing strategy so lets look at 3 basic service business models from the customer’s perspective, that are used to support companies growth strategies.
Product Works: traditionally company’s service strategies have been reactive in nature with the sole goal of ensuring that the product works in operation. However as markets commoditise and companies find it harder to compete on price or features such as as reliability, so new business models with services and ‘value’ at their core are evolving.
Optimal life-Cycle costs: many companies have begun to look at optimising the customer’s costs over the products lifecycle through a mix of product design and service models. This model builds closer relationships with their customers as the build more proactive relationship that starts to ensure availability. These might be the introduction of Service Level agreements not only for the service response but also the product performance This leads to a business model based on strong relationships and the ability to deliver long term value, which is much harder for competitors to copy.
Business Outcome and Reduced risk: in effort to further lock out competitors and drive new revenue streams, there is a small but increasing trend for manufacturers to develop outcome based offers, which means them talking on more of the risk. Many of these outcomes such as ‘Power by the hour’ in Aerospace engines have transformed their industries. Companies have developed more sophisticated solutions where products and services are integrated into a seamless solution. Sometimes as an offshoot of this has been the development of professional services that are no longer related to the product itself, such as Energy Management in buildings.
As businesses move from Transactional (Product Dominant) models to more Relationship (Service Dominant) strategies, so the value of the ‘Brand’ generally increases. But it is important to understand that it is not appropriate for all businesses to move to Outcome based strategies. Indeed for some businesses and customer segments, these simply will not be profitable. Therefore it is a judgment call that needs to be made by leaders, but based on deep insights into what makes their customer’s profitable, and where value is added within the Industry supply chain.
By understanding how these services and service business models interact to deliver brand value, managers can start to understand how the people and culture of our organisation must change. For example in the diagram below, one can imagine that the skills of the organisation will change as it moves from from simple vendor to a strategic business partner. This in turn gives us structure to our people development programme and setting the right expectations of performance in the organisation.
Absolutely fundamental to developing a strategy, is gaining insight into what the customer values or could value in the future. Only through this lens can companies begin to segment their customers and markets and so enhance the value of existing services. Usually this initial focus is on product related services. Ultimately product organisations that successfully transition to services are able to change their focus to improving their customer’s processes and risk profile, through knowledge based services or establishing customer partnerships that fundamentally transform an industry.
This process of customer insight is well recognised by many executives, but frequently poorly executed as their own ‘Inside-Out’ thinking and career experiences influence it. For this reason it is important to gain insight using a number of different techniques and sources, including 3rd parties in order to have a truly balanced view.
I have found that this analysis developed by Professors Ulaga and Reinartz very useful in starting to orientate businesses into thinking from the customer’s perspective in terms of whether the value is to be added to the product or the business process. Conversely it also examines the business model a supplier might be considering. Whether their proposition is an action, which they will carry out, or outcome that they guarantee to deliver.
This thinking process is very important in allowing companies to collect data and intelligence on how their customers use their products and the true value they bring. By clearly understanding the area of value, the data collection can be more precise and focussed.
It is a surprising weakness shown by many companies, in that they generally understand how customers use their products and what can go wrong, but they rarely have a deep understanding of the value their products bring to the customers business. Indeed very few business systematically collect performance & cost data that allows them to define customer value.
2.5 The Service Factory
The ‘service factory’ is the analogy to the benefits of standardisation of processes – (similar to a manufacturing plant), in order to create consistency in quality and personalised experience by the most cost effective means. This concept is absolutely key to delivering services profitably.
However it is not achieved overnight and often the first step is to understand the performance of current processes against internal and external benchmarks. This exercise provides managers with knowledge to make decisions on short and medium term wins. Achieving these first two steps is important to increasing awareness, but in itself is unlikely to lead to radical transformation. Experience shows that incremental improvements result in a slower pace of change and a lack of direction to best in class performance. What is key is to use this awareness to move towards a long term vision of service transformation.
A common success factor found in most businesses that transition from a product to service led approach, is to over come the challenge of offering value added services that offer a high level of customisation to the client (the front office), yet are delivered by standard processes in the back office. A good example would be the injection moulding machine manufacturer who offers modularised preventive maintenance programmes made up of standard processes, which can be configured to the specific operating needs of the customer.
2.6 Service Sales
Companies are very unlikely to successfully market their services if they do not invest in the mechanism’s by which the sell their services. This is not just an issue around the sales force. It’s making sure that all customer-facing personnel are ‘service savvy’. This does not mean they all have to have the same level of knowledge, but they all must understand where services fits into the organisations brand and what their role is in communicating value to the customer.
We can see that the notion of value is extremely important in developing the right service sales model, and so the first step is to take our customer insight and turn these intangible business ideas into value based arguments; a process sometimes known as Service Thinking.
Only when we have taken these two steps can we start to understand the optimum design of our Service Sales organisations. There is no set answer to the optimum design, whether that be to sell through a product focussed sales force or a standalone services organisation. The key is very much the level to which the service can be productised and how easy it is for the customer to recognise they have a problem. For example it is possible for a direct sales force to sell services that are packaged and defined as a product. For example a direct sales force often successfully sells preventive maintenance contracts with a new machines to new customers as the problem is clear and the solution very standard. Selling the same contract into a customer who already does their own maintenance is a completely different value argument, as the customer may not even recognise that they have a problem. In this situation a greater technical understanding of the value the product generates in the customer environment is needed, in order to bring awareness of an intangible issue into the customers consciousness. A different skill set from most product sales people!
Usually this phase revolves around developing the sales and support teams that can support services orientated around the products lifecycle. Understanding and identifying the ‘moments of sales’ within the lifecycle can significantly enhance the effectiveness of these teams. For example identifying when within it’s 30 year lifecycle, a beverage packaging bottling production line will require refurbishment versus a new equipment sale.
However to get to the next stage of evolution where businesses are focussed on their customer’s processes and reducing business risk requires solutions to be developed that go beyond the product. Often this type of transformation is based on strategic partnerships, which entails selling at C-suite level. Successful organisations have found that the sales skills to support this transition are more relationship orientated and very different from those required at the level of Lifecycle services.
3. THE JOURNEY
The house is a very high level conceptual model which business leaders can use to communicate the process of service transformation. And as with a house, it is build layer by layer. Organisation nearly always fail, when they try to move from the ‘Getting Started phase’ to the ‘Future State’, because they try to deliver too many new capabilities that service based business models require. They nearly always have to go through an intermediate phase where they get started. The primary aim is to develop credibility through early wins whether that be increased revenue or more often reduced service costs. Successful companies realise this and develop capabilities along this journey. Many companies go through the following phases:
- Realise that you are a Service company: Most product companies already have service offers many of which can be easily formalised into a profitable propositions. For example manufacturer that not only stocks spare parts for its own equipment, but also for other related equipment or even competitors.
- Industrialise the back office: Having realised they already offer services, it is important that they are profitable through robust, scalable processes that ensure a repeatable customer experience
- Create a Service Savvy Sales-force: Once services are recognised as profitable and their value understood, then the sales people are more likely to be able to successfully sell them to customers.
- Focus on Customer processes: companies first become good at selling and delivering services that deliver the best Cost of Ownership to their customers. Once this is achieved, they are then positioned to add value to their customer’s processes and work towards more advanced propositions such as Outcome based services.
As companies move through these phases, they build up their competencies in delivering these 5 core-capabilities, which are required to successfully grow a service business.
- Collecting Customer data and developing insight: this is the ability to analyse and interpret installed base usage and process data to help customers achieve productivity gains and/or cost reductions.
- Financial risk management: the capacity to evaluate the uncertainty whether contractually agreed upon outcomes will be realised and to design in safeguards to meet performance and profit targets.
- Product & Service Design & Development: designing into the product the potential for new service revenues and/or cost reduction.
- Sales & Marketing Capability: The ability to sell value through its organisational network to the right level of decision maker.
- Service Delivery Model: The ability to standardise service delivery and production processes, while safeguarding its ability to adapt to individual customer needs.
What amazes me is that this journey is very consistent when I look at my own experiences in leading transformation in the fastener and Injection Molding equipment business, working with clients a s a consultant or talking to other practitioners. The management of transformation is an ‘Art’. The skill is to know how fast to go, when to stop and to inspire your team to achieve success.
In trying to understand how and where to start, I sometimes use a management tool based on these questions, to help managers understand their current state and where they need to get to. It is organised within the structure of the house metaphor and can help managers begin to understand the key milestones they must pass through in terms of capabilities, as they move from their As-IS state to their future TO BE vision.
For example a companies ability to articulate its brand will have a direct impact on its ability to have an explicit and documented service strategy. Without a documented service strategy, how can the business consistently communicate to its people, what they want to do?
In developing a strategy, which is sustainable in the medium to long term, it is important, that there are clear goals for the service business or product, that ensure the business is profitable, will drive customer loyalty and will improve the image of the business.
By following this process, business leaders can move from very broad high-level concepts, to asking themselves some very pertinent and incisive questions as to what they need to achieve to achieve their goals and the story they must convey.
This discussion illustrates how a relatively simple metaphor such as building a house, together with a simple picture, can be used to explain a relatively complex process. And in truth there will be many nuances and topics that we have not covered, which depend on the context of the discussion. The power of this type of story telling is that the discussion can be tailored to the audience, yet the basic core message remains unchanged.
Written by Nick Frank, Managing Partner at Si2