Listen to a Podcast with Andy Neely on the topic of this blog
This October like others, the Cambridge Service Alliance held its annual Cambridge Service Week Conference bringing together speakers representing the market leaders in their field, Caterpillar, Finning, IBM, Pearson, and even the Northern Arizona University - which is teaching completely online.
We wanted to look at what we term “the big shifts” that are going on around the World as organisations look at selling solutions and services rather than products. As firms have sharpened up their business operations to become more competitive they are increasingly looking at selling the outcome that their clients want rather than merely the ownership of the product.
All these business changes are taking place in a World where climate change, water shortages, demographic changes, and a scarcity of resources are putting huge pressures on decision makers in both the public and private sector.
One of our Cambridge Service Alliance members with an interest in this shift to services is Caterpillar. Caterpillar machines and products might typically last for thirty years but if you sell a machine tool for one million dollars, it is probably worth about four times that if you include over the course of that products life time, the spares and support services that can be sold around it. The big challenge for Caterpillar in today’s fast changing business environment is not just how do they sell their machines and products, but how do they capture the relationship and then the support that they can then offer on the back of the sale of that product to make sure their customers get what they want, which is the ability to move earth, or extract coal from the earth. The customer doesn’t necessarily want the machine itself, it wants the outcome the machine delivers!
|Cameron Ferguson, Caterpillar|
Cameron Ferguson, Manager of Global Dealer Capability in the Customer Services Support Division, Caterpillar, told me: “Our customers make lots of choices about where they are going to get their services done, by themselves, by Caterpillar or by another party so we want to make sure that Caterpillar is at least being considered to being the preferred and primary service supplier. We can do that through solutions rather than just the traditional linear service, but a solution that says, “We can guarantee up time, we can guarantee costs per hour we can guarantee parts availability”, whatever it maybe that is tailored to that particular customers’ needs.”
Surprisingly as the Caterpillar example shows, what we call “the vision” planning is relatively easy. You can understand the role that technology or data might play in enabling you to remotely monitor your equipment or in the education world to remotely monitor whether students are completing their course assignments and are therefore likely to graduate from the programmes they are taking. However the planning process gets tougher when you want to put the right technological structure in place. You will need to get the right behaviour in your organisation and you will need to get your customers to accept these solutions and services! As you can imagine, that will involve a significant change process in any organisation – what we term “the shift to solutions”.
We have learnt that rarely does a single organisation have all of the capability to deliver the service solution or the outcome. Increasingly this shift requires networks of organisations to come together, to pool their resources and capabilities to create solutions for their customers. So who are the players in these new networks and how do they emerge?
Increasingly, we are finding that these new networks involve firms who are traditionally competitors, who come together for the purpose of providing a better service for their customers. We find this work fascinating and revealing. There are some really interesting dynamics around the way firms collaborate, when they compete and how the ecosystems they are working in take shape.
Hold onto your seats, working towards these service solutions requires your business to be quick off the mark and ready for a white knuckle ride. It is clear that as your customers’ business model changes, and what they do changes, you will also need to evolve your business, but here comes the scary part, as you evolve your business, that in turn will allow further evolution in the customer’s business model too, which in turn demands further evolution in your own business plans! Responding to the challenges of business today will require a continuous process of evolving your capability.
We know that firms have thought about competition between firm A and firm B, but now people are worrying about competition between the ecosystems they have traditionally worked in together, and the roles each play in that system. You will need to think very carefully about where you want competition, and who you want to collaborate with! Maybe you should ask yourself if you want to encourage competition between some of your suppliers, and if perhaps you use multiple suppliers for different technologies or sub- assemblies, or data, which ones you might want to encourage competition in, and which part of the ecosystem that would impact on. At the same time you may want to plan for change simultaneously in another part of the ecosystem as well. This means that your boardroom strategic discussion is much more about the way the ecosystem works and your role within it, rather than the traditional model of: “we want to compete with firm A or firm B”.
Certainly a business model that can react with speed and the ability to evolve your business model over time is very important for some industries. You will need to think about the clock speed of the industry you are in, so in some industries the pace of change will be incredibly fast while in some industries it will still be more measured, so therefore you can afford to be slightly slower in evolving the business model.
One of the things we have learnt in the Cambridge Service Alliance is that there are ten basic lessons that you need to get right if you are going to make a successful shift to solutions management. Let me give you three of these.; You will need to understand risk and the transfer of risk and if you offer solutions to your customers find out what risks you are being asked to take on and how that plays out over the longer term? The context really matters too, so you have to ask yourself – “Are we ready to make this transformation as an organisation, can we break away if we are a product or technology business from our technology heritage and worry more about service?” In terms of context, you are really asking- “Is the customer ready for our service?”
The third question to think about is: how do we design the customer service experience to create the right emotional response as well as delivering the pure technical service. Our Alliance partner, Finning have thought carefully about what their customers’ want and if they can support their customers. Finning know that their customers want equipment that works, they want no down time so they have put processes and products in place that meet those needs, but they have also built a centre that creates a great customer experience too. Customers walk in and have been known to say: ““Wow” are you really monitoring three-thousand pieces of equipment remotely, are you really watching what is happening, and looking after our equipment, you are like a safety blanket for us?” This is a valuable service so that emotional response from the customer is partly created from the design of the control centre in Finning’s case as well as the products and services it is selling.
|Lucy Courturier, Finning|
Lucy Couturier, Finsight Manager, Finning, told me: “We have really become involved with the concept of Ecosystems since working with the Cambridge Service Alliance and we now ask ourselves: “who are all the players”? We take into account everybody that has an impact or that we impact in our day to day operations. We have customers, competitors, suppliers, and we need to understand how each of those interact to be able to provide the solutions that customers want. We can’t just look at one part of that puzzle, we need to understand that complex web of relationships to manage it effectively. The customer experience is as important to us now as the business side is. The customer experience and the relationships they have with us, is as critical in moving us forward.”
Mark Anderson, President, Schools & Higher Education Strategy & Business Development, Pearson, says the growth in those needing higher education in the World and the technology changes that are taking place, means the sector will need to adapt to change on both fronts on a huge scale in the future. He told me:
|Mark Anderson, Pearson|
“There is an enormous growth in demand for higher education, at the moment there are about 180 million people in tertiary education, and in about thirty to forty years’ time that will rise to about 500 million people. Countries like China, Brazil, India and South Africa will expand their education systems and at the same time the development of technologies is pluralising access to and availability of education, so we will we have to bring these two changes together.
“The ecosystem concept is one we have worked closely with through the Cambridge Service Alliance, we probably didn’t use it previously but if you are a company like Pearson where for hundreds of years you have essentially been selling books, you had a relatively simple ecosystem consisting of book producer, distributor or intermediary, book seller, and student, there was a linear progression. Now there is a far more complex diverse international mix of organisations who have a stake in education. Governments are now more activist in education too, so we need to track a world which is more complicated with a lot of new entrants who are having a rapid and an immediate impact. Our business environment is changing very quickly and an ecosystem model is a very good way of tracking that.”
As these stories from Finning’s and Pearson show the experiences of others are really an important part of the business journey. Ecosystems are a really good way of thinking how you might innovate your business, how you might come up with services and solutions but remember just because you have come up with them, doesn’t mean to say that you can implement them. There is a lot of hard work to do to bring those visions, those ideas, those innovations, to reality.
I hope we can help our partners come up with the innovations and then help them execute them too, this is what we mean by the shift to service solutions. Hold tight, it could be a roller coaster ride, but we guarantee it will be full of excitement.