Has the Covid Crisis Accelerated the Case for Servitization?
In times of economic turndown, we have consistently seen service revenues become the backbone of recovering economies. Indeed, many point to the global financial collapse of 2008 as a significant driver for the mass adoption of the Software as a Service model. So it would hold, that the pandemic could accelerate the growing momentum of the service-centric approach to revenue. Will the ultimate upshot of Covid-19 be an Everything-as-a-Service economy?
The big question when discussing the impact of Covid-19 we should be considering then is perhaps to ask just how has the pandemic, all the lockdowns and the borders crashing down changed the level to which we are reliant on service provision.
Also, we have to stop and consider the fact that all industries are going to be facing significant cash-flow issues – although whether this is likely to be a barrier or a boost towards servitization is yet to be fully understood.
Of course, the move towards a more outcome based approach to service delivery is not necessarily a new consideration for service providers, but while the appetite has been there for forward thinking service providers, the challenge has often been convincing customers to come on the journey as well.
“Our revenue decreased, but our margins grew. So it had to be a joint approach to this, it also had to be a good piece of education as well…”
– Kieran Notter, ServiceMax
As Kieran Notter, VP Global Customer Transformation, ServiceMax explained during this particular iteration of the Think Tank, “Twelve years ago, when I worked in service operations, we had a client where we renegotiated their contract,” he explained “We had technicians covering on-site shifts twenty-four hours a day, we swapped the customer’s contract to an uptime contract.
“Having done this, we could dictate when and how often those technicians needed to be on site. Initially, in the first period after the switch, it was a quite a struggle, because the customers were saying, ‘there’s no technician here, or ‘there’s not enough technicians here’.
“The only way we could overcome such objections was to go back to them with the actual data compared to what it used to be. Was it any more uptime, or was it any less uptime? We were guaranteeing them the uptime, which was their output, and the people we had put on site were achieving that. It secured the ability for us to reduce the number of people on site which reduced our cost and allowed us to reduce the client’s cost as well.
“Our revenue decreased, but our margins grew. So it had to be a joint approach to this, it also had to be a good piece of education as well, and you have to educate with actual factual data rather than anecdotal evidence.”
While the backdrop of the conversation remained whether the impact of the lockdowns could mean a drive towards or a barrier for servitization, Notter’s point around education was one that resonated firmly with each of the service leaders around the table.
“As leaders in the industry, we have to get that message out there that, customers can put their trust in our engineers’ service, in our organizations’ service…”
– Tony Chapman, Siemens
“Maybe I can give you an anecdote of something that happened in our organisation,” offered Tony Chapman, General Manager, Customer Services, Siemens. “A client had an asset that had an issue, and we knew we had the perfect guy to fix it. However, that ideal guy couldn’t travel the site for three days, but we had a technician that could go, and with the help of this remote person, we could have it fixed within a day.
“As leaders in the industry, we have to get that message out there that, customers can put their trust in our engineers’ service, in our organizations’ service,” Chapman urged.
“Essentially, we need to say to them, please let us deliver the best service we can for you, and we’ll take care of that while you go off and deal with what you need to deal with. We’ll fix this problem for you, and the outcome will be uptime. “That’s the whole point of why we’re here.”
“Someone has to recognize what that value is within the customer,” added Notter. “To differentiate between, ‘I see a human. Therefore I’m getting value’ versus ‘I see the output, and there is my value.’”
“The education isn’t just about the customer…”
– Ged Cranny, Konica Minolta
However, there are more challenges than educating the customer – there is a wider internal education that is also required as well. An entire shift in thinking is required.
“The education isn’t just about the customer,” commented Ged Cranny, Konica Minolta.
“Education needs to be with our salespeople as well. Often it is the case that the salesman has found adding additional layers of service is an easy way to sell as they don’t get charged with the value which goes back to us all in service. This is something I didn’t pick up on for a long time.
“I used to think that writing a service catalogue was a real challenge to find the balance between value for the customer and something realistic. We’ve all got to change our attitudes as service leaders in this regard,” Cranny continued.
“We need to write our service catalogues, in a way that is fair to customers but fair to ourselves, which allows us then to be able to develop trend and create a marketplace where the young kids of the day want to come into this industry because they don’t at this present moment in time.”
One means of overcoming this challenge is to shift the responsibility of service revenue away from a product-centric sales team.
“We moved the commercial aspect of service contracts into the service department and not into the sales department,” Notter explained.
“So the sales guys could bill the product, but they could not discount the service, they could not change the prices of the service, and they had to get that from the commercial aspect of the service business. Again initially, this caused a bit of a problem internally.
“However, it turned around and made it a lot, a lot better in the aspect of the company overall, because there’s nothing worse than the discount being applied to the contract that’s going to last for another ten years. After all, that’s ten years of extra additional discount.”
It is true there is a lot of new thinking that needs to be processed when it comes to servitization. But is there a better time for such bold new thinking than when we are building the new normal entirely?
All members of the Field Service Think Tanks are speaking from their own personal opinions which are not necessarily reflective of the organisations they work for.
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