Digitisation & Servitisation: Start with the Customer and not the words

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At this years After:Market conference in Hamburg the message came through loud and clear. Those companies that are successful in implementing a digital led growth strategy don’t bother with the jargon!

At this years After:Market conference in Hamburg the message came through loud and clear. Those companies that are successful in implementing a digital led growth strategy don’t bother with the jargon! The leaders in this field start with the basics – what are the customer’s problems and then work backwards to offer solutions that create value or reduce risks. As part of the journey they work hard to understand their own DNA and take action to fill their capability shortfalls. They identify the data and insights they need and then automate the data collection/analytics process to deliver scalable solutions.  Businesses starting this shift to service led growth would do well to note that successful companies do not focus on the rhetoric, but rather have an intense obsession in how to make their customers more successful. This common theme is the key to monetizing data and connectivity: “Digitization is a means and not an end”

“It’s all about solving customer challenges”

This was the theme that started with the SKF keynote and continued through the conference discussions. SKF’s business has moved from being focused solely around products, to one that considers the challenges further away from the bearing, such as improving their customers Overall Equipment Effectiveness. Even business as sophisticated as SKF acknowledged that they have had to acquire new skills such as predictive maintenance and service delivery through smartphone apps.

Another example of this intense focus on solving customer problems came from Outotec, as they seek to improve the performance of their customer’s mineral plant operations. The intensity and technical detail involved in developing the customer solution was impressive. They started with an analysis of their customer production problems, and an even more detailed review of how they could influence the process, followed by the data they should collect.  However, collection of data takes time, so they then went on to automate the data collection and analytics, so as to deliver a scalable solution.

“My Job is helping my people make the right decisions”

This is what a senior leader from a global elevator manufacturer said when describing how he approaches increasing the customer concentricity of his service operation. This people focus and mind-set theme was constantly mentioned as a key management challenge. Other examples we heard were:

  • How GE healthcare still have had to educate their business that much of ‘Value selling’ is being prepared to take on more business risk in return for sharing the benefits. Not necessarily easy in large corporate environments.
  • Commercializing new service propositions is not like a product launch where everything has to be perfect. The Head of Digital at Grundfos described a service development process that is separate from the product, focused on co-creating solutions with customers in small achievable steps.

Both these examples illustrate how the shift to service thinking forces businesses to change their approach, but few presentations talked about the management art of how to engage people to make change more effective. One exception was the Serco story, a manufacturer of machine tools. Here the transformation leader Carl-Henrik Sjölund gave us all a real practical insight into the challenge.

“Engaged teams are the key to innovation and success”

Carl-Henrik took dry business concepts such as the value chain, and allowed them to be visualized into meaningful Pain-Point Roadmaps, enabling the customer’s problem to be communicated internally at the shop floor as well as board level.

This image was as effective in allowing Serco to talk to their customers, or even the wider ‘ecosystem’ of the customer’s suppliers, about how to collaborate to make all stakeholders more profitable.  

By combining the deep insights gained through developing the Pain-Point Roadmaps with what he called  “Inside the Box thinking” to disturb the way his teams approached their service portfolio, he was able to generate new potentially disruptive ideas. He created a critical mass of talented people with a passion for change. He gained buy in from his leadership team and used ‘boot camp’ concepts to take a cross-functional approach to execution. And finally, he demonstrated value through customer testimonials.

Another presentation led by a business leader from Unicarriers also stood out for three reasons:

  1. An emphasis on finding the right people and investing in them through activities such as a six month induction programme.
  2. Trusting people with deliverables and giving them the autonomy to develop their ideas.
  3. A very clear focus on where it is absolutely critical to succeed so as not to be distracted by the whirlwind of the business.

This engagement also came out in the discussion on ‘Finding and Retaining Great Service people’, where most agreed that giving employees a real sense of purpose through the vision, value and culture of the organization is critical to retaining talent. But that if forced to go outside the company, finding people that are of the right fit is a major challenge.

 

“Communicating value through each touch point is critical to the customer experience”

Value is a very nebulous concept to understand. First off value is not cost and it’s not revenue. So what is it? In his masterclass, Todd Snelgrove started to delve into what he called the ‘Priceberg’.

That the price of the service or product which is clearly identified and above the water line, is only a small part of the operating costs of the business. Services are unique as they open the way to enhance the value and profitability underneath the waterline.  Value is the price plus all the other benefits and deliverables which are impacted by the service. Although not easy, compelling sales arguments are developed when value can be clearly articulated in numbers.

When it comes to value propositions, Holger Pietzsch who oversees business development of Caterpillar's IoT technologies, emphasized how these can be very different for different market segments, which in turn requires completely different GoTo market strategies. For the huge Mining Trucks at the heart of many mining operations, uptime and availability is critical to the profitability. However, for smaller equipment found on all the building sites around the world, the same is not true. Far more relevant are data and consulting services that help to eliminate waste and cost from large construction projects. Indeed, from his 20+ years of experience he identifies 3 critical attributes to successfully developing a service business:
 

  1. Get the market fit right
  2. Focus on people who are the real brand of any business
  3. ‘Tangibilize’ the service offering to make it real to customers, bosses and employees

 

“Important to understand the emotion behind the pricing decision”

 

A significant portion of this year’s Masterclass focused on how services are bought. Many senior buyers will tell you that often “Suppliers don’t come to us with a business case, but this is what we want in numbers”. Understanding this sentiment is critical to successfully selling services. Product orientated companies have a tendency to focus on what they do, rather than their impact on the client’s business. And here lies another emotional dilemma in that many managers understand they can track price, but are less sure about value. This is the challenge when dealing with quantitative verses qualitative data. Many will say, ‘Price hits my bottom line today and value does not”, or “My boss measures me on unit price reduction and not the Total Cost of Ownership”. Overcoming these short-sighted objections is hard work and requires a deeper insight into the ‘Priceberg’ than many businesses are used to. The good news is that as we enter the era of the Industrial Internet of Things, technology can start to provide a direct view of how customers use their products. This in turn will have a profound impact on how solutions are designed, delivered and sold!
 

The final important aspect to appreciate is that with the coming of the internet, 64% of purchasing decision are made before the buyer approaches a prospective supplier. Often when they meet our sales people their view of the buying process has already been made. For suppliers of services this can be disastrous as an important way to differentiate our services from competition is to go through a co-creation process with the client. If this is not possible, then we rely much more on our digital communication to influence the solution buyer.

In conclusion, this year’s conference highlights that the companies that are leading the shift from product to service thinking, are doing so based on sound customer driven decisions using the basic principles of business that have guided profitable growth by business people over the centuries. That is not to say that digital technologies do not dramatically change how businesses evolve. Some will be bankrupted by truly disruptive new business models, but frankly this is nothing new. For industrial businesses, the basic principal of understanding where the value or pain points are in customers and supply chains is still valid. It is still the first step to be taken before embarking on the digitization marketing highway.


Nick Frank is Managing Partner at Si2 Partners, a consultancy helping clients leverage services to win in industrial markets. Nick is an expert in Service Transformation, specifically helping organisations use technology to find new value within their customer’s value chain, facilitating boot camps to help teams solve challenging problems, and business assessments to kick start the change process

 

He can be contacted at nick.frank@Si2Partners.com or +352 621 215 856