High Performance through Service Management: Accenture Research & Insights into Service Management Mastery

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Across numerous industries, effective service management has become increasingly important to companies’ ability to achieve high performance for a number of reasons.

One is simply that the opportunities to wring value from traditional supply chain improvement initiatives are becoming more scarce, thus driving companies to find other areas to pursue.

Another is that in many sectors, products are becoming commoditized, making service the key competitive differentiator that is difficult to duplicate.

Furthermore, in today’s multi-polar world, organizations increasingly find themselves supporting a fragmented, diverse and globally dispersed customer base with more complex requirements and increased demand for new solutions—which heightens the need for companies to find better ways to deliver and manage service.

Finally, the usual overriding pressures on businesses to improve margins, find new revenue streams and increase capital effectiveness have led to increased scrutiny of all areas of the business, especially those that, like service management, represent a sizable portion of a company’s profit and loss statement.

Service management represents, in many ways, “uncharted territory” in the pursuit of high performance. In fact, Accenture believes that most companies have only scratched the surface of what is possible in building distinctive service management capabilities that contribute to competitive differentiation and stronger profitable growth.

By adopting leading practices, companies can optimize all elements of the service supply chain—labor, parts and material—to build a service management function that is a robust source of high-margin revenue and a strong driver of the kind of customer loyalty that is critical to high performance in today’s hypercompetitive global economy.

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High Performance through Service Management: Accenture Research & Insights into Service Management Mastery

  1. 1. High Performance through Service Management Accenture Research and Insights into Service Management Mastery Consulting Technology Outsourcing
  2. 2. Contents Introduction 03 Service Management Masters 06 Insights and Recommendations 20 On the Journey to High Performance 21 2
  3. 3. Introduction In nearly every industry today, service. Lastly, the intense pressure to managing after-sales customer boost margins, identify new revenue service effectively has become critical opportunities and increase capital to achieving high performance. effectiveness has increased scrutiny Manufacturing high-quality products of all areas of a business. Areas like and distributing them on time have service management that are a sizable become merely table stakes in most portion of revenue and profit are under industries, and for a number of the microscope. reasons. The first is that it’s getting And indeed they should be, given more difficult to wring value out of how big after-sales support—what traditional supply chain improvements. Accenture calls service management— Initiatives to boost sourcing, has become in many enterprises, manufacturing and distribution and what a substantial drain it can operations are generating diminishing be on the bottom line. At many returns. A second reason is that industrial and service companies, products have become commodities after-sales service accounts for 10 in many industry sectors; customer percent to 40 percent of revenue service is now a major differentiator, and up to 50 percent of inventory and one that is difficult to imitate. investment.1 The automotive Third, in today’s multi-polar world, industry is a case in point. Service companies support a globally management generates about half of dispersed customer base, one that all original equipment manufacturer has more complex requirements and (OEM) profits from after-market needs not just products but better operations,2 of which warranty ways to use them—that is, product management is a big component (not and service “solutions.” Of course, to mention one of a manufacturer’s that demands companies find better largest controllable expenses). ways to deliver and manage customer 3
  4. 4. Service as a Competitive Differentiator Given the preceding, it’s surprising As equally important, we also that many companies do not probed the maturity of their view service as a competitive service management practices differentiator or as a source of and capabilities, as well as their high-margin revenue. In fact, executives’ opinions on the value recent Accenture research shows of service management overall. many companies underestimate the importance of service management to achieving high performance. In the second half of 2008, we conducted an extensive survey of more than 230 service management executives from around the world (see Figure 1). Our focus was to determine how well these organizations managed after-sales service and the sophistication of a wide range of service management capabilities. To gain this intelligence, we measured participating companies’ performance in key service management areas. By Geography By Industry By 2007 Revenue 38% 34% 29% Europe Americas Asia Pacific Figure 1. Survey participant demographics 4
  5. 5. Fixed right the first time (FRTFT) 80 percent Work orders over 90 days 10 percent Work orders past original due date 15 percent SKU fill rate 80 percent Broken calls due to parts, tooling or information 10 percent unavailability SKU-level forecast accuracy for A & B parts 80 percent Obsolescence of gross service-parts inventory 10 percent Warranty costs as percent of sales 10 percent Spares inventory turns 8 Days sales outstanding (DSO) 30 days Figure 2. Performance across key service management metrics by the overall survey sample. The findings were both broad-ranging customer-facing stock-keeping units could help them manage and deploy and revealing. One finding was that (SKU). Furthermore, across our entire parts, people, facilities and partners. service management has yet to achieve sample, 10 percent of service calls • Have “customer transparency” and “mission-critical” status in the majority were unresolved (or “broken”) due to knowledge of customer profitability. of companies. Only 42 percent consider lack of parts, tooling or information. By customer transparency, we mean it a key contributor to the overall Additionally, our respondents posted possessing deep insights on customer customer experience. As a result, just an 80 percent SKU-level forecast needs, wants and other information most companies don’t view service accuracy for A & B parts (see Figure 2). critical to pricing, creating the right management as having the potential Furthermore, companies in our sample offerings and messaging. to further satisfy customers, boost retention and bring new customers into had only moderate levels of maturity Our survey found the typical survey the fold. Only half said their service in service management processes, respondent had only low to moderately management organization is extremely skills and technologies. For example, developed service management important to their company’s overall few companies: capabilities. To achieve high business. And barely more than half (52 • Have end-to-end service solutions— performance, companies need much percent) operate service management that is, advanced capabilities in more sophisticated service capabilities. as a separate entity with profit-and- developing and selling parts; service But where should they start? What loss responsibility. practices and capabilities are the and solutions; and asset management/ maintenance, repair and operations most critical to excellent service The performance of service (MRO) solutions. management? Our research findings management was also generally provide clear guidance, especially the lacking. The companies we surveyed • Have implemented a flexible service data we collected on companies that as a whole said they had only delivery model—that is, one that excelled at service management. lackluster performance on 10 key enabled them to tailor service by metrics. For example, companies customer or customer segments. had only an 80 percent accuracy in fixing right the first time (FRTFT) • Are taking advantage of the full and just an 80 percent fill rate in range of service-related data that 5
  6. 6. Service Management Masters Masters Laggards Fixed right the first time (FRTFT) 95 percent 65 percent Work orders over 90 days 4.5 percent 20 percent Work orders past original due date 5 percent 21.5 percent SKU fill rate 95 percent 20 percent Broken calls due to parts, tooling or 5 percent 20 percent information unavailability SKU-level forecast accuracy for A & B parts 90 percent 60 percent Obsolescence of gross service-parts 5 percent 20 percent inventory Warranty costs as percent of sales 3 percent 25 percent Spares inventory turns 22.5 3.5 Days sales outstanding (DSO) 10 55 Figure 3. Masters outperformed laggards on 10 core service management metrics. For companies playing on a global In studying the survey responses of stage, today’s economic conditions the masters and laggards, we found are no doubt immensely challenging. they also differ significantly in how However, through our research and they managed and operated their consulting work, we have identified and service operations. It became clear to studied a number of companies that us that superior service management have responded effectively to these performance correlates strongly with challenges through superior service certain practices and capabilities, management operations. They have namely: service management turned post-sales support activities into philosophy, organization structure a major competitive differentiator and and offerings, service delivery model, significant profit generator. service offering portfolio, partner relationships, resource planning, In our survey, we identified these service transparency, and pricing and companies by isolating those that had customer insight. finished in the top 10 percent of the survey sample on at least three of the In the following sections, we explore 19 key service management metrics these areas and discuss how masters we covered in our survey. We refer outperformed laggards in each one. to these companies as the service management "masters.” On the other end of the scale, we identified respondents that finished in the bottom 10 percent on three or more measures, a group we refer to as the service management "laggards." Overall, we found that masters in general outperformed laggards in 10 critical areas (see Figure 3). 6
  7. 7. Service Management Philosophy, Organization Structure and Offerings Figure 4. Masters appear to value the service management organization more highly than do laggards. One of the biggest differentiators reporting skills development and career between masters and laggards is that management programs for service the former appears to value service management professionals (versus only management more highly than do 46 percent of laggards). the latter (see Figure 4). For instance, masters are much more likely to run Another area that distinguishes after-sales service as a unit with full masters from laggards is what they profit-and-loss accountability. In fact, actually sell, with masters offering in 60 percent of the masters, compared a wider range of both after-sale and with only 26 percent of the laggards, asset management/MRO services than were service organizations given their do laggards (see Figure 5). own profit-and-loss. Masters also were more likely than laggards to view service as a key contributor to the customer experience and elemental to customer satisfaction. The masters of service management also tended to have dedicated support capabilities that are essential to turning service into a thriving business. For example, masters were far more likely than laggards to have dedicated sales and marketing and R&D operations, as well as their own IT infrastructure. Furthermore, service management masters were more likely to develop their own people, with some 70 percent of masters 7
  8. 8. After-sales services Asset management/MRO services Figure 5. Masters offer a wider range of after-sale and asset management/MRO services than do masters. 8
  9. 9. 9
  10. 10. Service Delivery Model 81% 26% Master Laggard Master Laggard Figure 6. Masters are far more likely to tailor service delivery by individual Figure 7. Masters are more likely to have a broader range of capabilities and customer or customer segment. resources in their after-sales service centers. Masters are much more ambitious that that deliver at the right costs and General Electric is an excellent than laggards in the post-sales services quality to the right place. How post- example of a company that has they provide to customers, serving sales service is delivered also appears profited from tailoring services for customers wherever they are, on time to be crucial. Masters to a larger customers. GE Aviation, which makes and with high quality, and at optimal degree than laggards ran their service engines for aircraft companies, began cost to the company. organization centrally but had regional offering “intelligent workscopes.” or local operations where necessary. The company must tune engine Masters are more than three times as Twice as many masters as laggards (30 performance based on what aircraft likely as laggards to tailor service for percent versus 15 percent) managed customers (airlines) need, which each and every customer or by customer service centrally while also having can vary. Some opt for better short- segment (see Figure 6). Furthermore, regional service facilities, which made term performance, others for fuel masters can customize service in part it easier for masters to respond flexibly savings and still others for longer- because they have a broader range to customer demand. term durability3. The workscopes of capabilities and resources in their factor in such customer needs, service centers (see Figure 7), including Interacting with customers via the engine conditions before and after call handling/customer care, parts Web is another hallmark of the masters. they go into the shop, and how warehouses, repair depots and remote Indeed, masters deliver a greater much customers wish to spend on diagnostic capabilities. percentage of both after-sales and maintenance. That enables GE Aviation asset management/MRO services via maintenance personnel to know how In providing fast and cost-effective their online portal (see Figure 8), which far to go in their work. asset-management services, masters helps reduce service delivery costs while are more likely than laggards to improving customer satisfaction. leverage a range of resources, including centralized global service centers, regional service centers and third-party service providers. Masters are more likely to build global delivery centers or to use external partners 10
  11. 11. After-sales Asset management/MRO Figure 8. Masters make greater use of the Web for delivering after-sales and asset management/MRO services. 11
  12. 12. Service Offering Portfolio After-sales Asset management/MRO Figure 9. Masters understand their customers’ needs and develop a portfolio of after-sales and asset management/MRO offerings they can deliver cost-effectively. To be sure, services are more nebulous than products. Many manufacturers that sell services find it more difficult to choose, design and articulate service offerings than they do regarding the goods they manufacture. Our research confirmed just how important it is to have clearly defined service offerings. More than twice as many masters had a clearly defined portfolio of both after-sale and asset management/ MRO service offerings covering all their services and solutions (see Figure 9). They also are more likely to use simulation or modeling to create the right mix of services and assess their revenue and margin impact, develop proactive service and parts strategies that were in line with their company strategy, get sales and service professionals to work jointly in selling the company’s full portfolio of parts, services and solutions, and use their analysis of customer product usage and feedback data to create new parts, services or solutions offers. 12
  13. 13. Partner Relationships: Collaborating with Best-of-Breed Service Companies Figure 10. Masters are superior in working with and managing service partners. Few companies can go it alone in First, masters are nearly three times and support to 170 countries around the service game, even the biggest of as likely as laggards (78 percent to the world. In managing warranties, the manufacturers. Nearly every service 27 percent) to formulate their service company relies on more than 2,000 organization in these companies needs strategies jointly with partners, partners for repairs and customer other firms to round out or help deliver as well as create joint marketing service. In 2005, the company their offerings. In our research, we initiatives around those services. determined that by outsourcing found the companies that were best Second, masters tightly integrate warranty management, it could cut at service management were superior their service management processes annual warranty costs by 9 percent to at working with and managing such and information systems with those 8 percent. Its warranty management service partners (see Figure 10). Of of partners (72 percent versus 29 partner developed a new warranty course, the advantage here begins percent). And masters are nearly three information system to control the with having a partner strategy. The times more likely to use structured and whole warranty process. The system majority of masters (62 percent) but automated performance management identifies before a repair is made only the minority of laggards (14 processes with partners (64 percent to whether the service contract covers percent) had a well-defined and well- 22 percent). That enables masters to the parts as well as which parts should articulated partner strategy that was continually evaluate the effectiveness be used. The system also alerts Fujitsu tightly aligned to their overall business of their partners and make changes Siemens Computers about faulty strategy. Knowing when to bring in as conditions warrant. It also ensures systems earlier than in the past, which partners also separated the masters a consistent brand appearance to improves quality. from the laggards. Some 69 percent the customer regardless of whether of masters (versus only 30 percent of a company or its partners executes a laggards) said their sales and service service task. people know when and how to use partners to serve specific customers. Consider the case of Fujitsu Siemens Computers. The company is a leading Masters also are more likely to provider of computer hardware in collaborate with their service partners Europe, the Middle East and Africa, rather than keep them at arm’s length. and its service division provides repair 13
  14. 14. Resource Planning: Using Data to Optimize People, Parts, Facilities and Partners People Figure 11. Masters are much more likely to use a full range of data to help them plan how service people, parts, facilities and partners are managed and utilized. The service business is rich in data: of masters but a minority of of masters manage parts globally customer maintenance records, laggards uses contract service-level (36 percent) versus only 14 percent service inquiries, contract details agreement and historical data. of laggards. And the same trend and agreements, and so on. Our For facilities planning and usage, holds true for facilities (23 percent research confirmed one of the keys response times, service contracts versus 6 percent) and partners (22 to managing the service business volumes and site/facility capacity percent versus 7 percent). for high customer satisfaction are the data used by a majority and profitability is collecting and of masters versus a minority of exploiting service data to manage laggards. And in terms of partner every piece of the business. The planning and utilization, a majority “exploiting” aspect of this is crucial. of masters versus a minority of Many companies collect service data laggards use scheduled preventive but use little of it to improve maintenance data. In all four cases, service operations. the percentage of masters indicating they use a broad range of data The masters use and leverage a typically outpaces laggards by a ratio far greater range of data than the of at least 2:1. laggards do, which helps them better plan and use their service In addition to using a wide range people, parts, facilities and partners of data to make planning and (see Figure 11). For example, to utilization decisions, masters are help manage and deploy people, more likely than laggards to manage the majority of masters and only their service resources on a global a minority of laggards leverage basis, although in both cases only a maintenance plan, historical and minority does so. About one-quarter service contract service-level (24 percent) of masters manage agreement data. When managing service people globally, versus 14 spare-parts deployment, a majority percent of laggards. About one-third 14
  15. 15. Parts Facilities Partners 15
  16. 16. Service Transparency: Gaining Visibility into a Complex Business Master Laggard Master Laggard Figure 13. Masters are more likely to have service management systems that are fully integrated across the Figure 12. Masters are more likely to have systems extended supply chain and are fully accepted by the user and metrics that help them gain visibility into key data. community. Understanding the performance of monitor customer needs and company masters (57 percent versus 30 percent) a company’s service organization at financial targets, and that are used can change the location from which any time is critical. Masters have full with a fully integrated “command they source parts or service personnel transparency and visibility into the center” with drill-down capability. in real time based on changes in performance of service resources, while customer requests or available laggards have a much more difficult Additionally, masters are more likely resources, and more than three times time understanding the health of their to integrate their service management as many masters (65 percent versus 21 service operations. systems fully with their transactional percent of laggards) can dynamically systems; tools for pricing, warranty redirect parts delivery or service Masters are far more likely to consider management and other tasks; and the technician visits in real time, based on visibility to be very or extremely extended supply chain (that is, suppliers customer requests. important and also are more likely and customers). And, they are twice as to have great visibility into many of likely to have their entire user base fully their service operations. But how do adopt service management systems. they gain such visibility? Our research found that masters possess superior As shown in Figure 14, such information systems and metrics—both capabilities enable masters to gain of which are linked to their key supply significant or full visibility into a chain partners (see Figures 12 and 13). wide range of aspects of their service Consider this: Masters are more than management organization, including six times as likely as laggards to have service personnel productivity and a fully integrated best-of-breed system utilization, cost per service event, or custom software that calculates contract and customer, and status of metrics on customer satisfaction all parts orders across service locations and financial targets. And they are and partners. In turn, this visibility nearly three times as likely to have into the status of service operations a complete set of integrated metrics helps masters dynamically adjust across their organization—metrics that their response to service requests. For example, nearly twice the number of 16
  17. 17. Figure 14. Masters have a greater degree of visibility into a wide range of aspects of their service management organization. 17
  18. 18. 18
  19. 19. Pricing and Customer Insight Figure 15. Masters have a consistently better understanding of factors affecting value drivers of their service business. The service business can become their customers’ business and that methods to keep customers loyal. For unprofitable quickly. Without the they tie customer profitability into example, in 2008 the company tested right processes, systems and data, a command center and real-time engine wash equipment to determine a company can provide too much dashboard. Furthermore, masters were the best way to inject water into or too little service and suffer the far more likely to report they conduct engines and capture residues. Said one consequence in customer defection ongoing competitive pricing analysis GE Aviation manager, “Lowering the and red ink. Our survey found that the (often using a third-party service) cost of ownership is something we ability to price services optimally is and they devote significant time with work on a daily basis.”7 crucial, and that masters consistently customers to proactively identify new have better insights on the factors that and emerging service opportunities. drive returns on their service business. Finally, masters are more apt to As illustrated in Figure 15, the majority prioritize service events through of masters, compared with only a command-center functionality with minority of laggards, had a wide range profitability embedded in real- of practices in place that helped them time analysis, analyze customer understand the value drivers of their preferences, metrics and issues to service business and price and propose new service offerings, and predict service offers accordingly. For instance, planned and unplanned maintenance masters were much more likely to events and propose the appropriate indicate that they have formal tools service offerings. and processes to extensively monitor General Electric Co.’s GE Aviation and gather customer feedback, and unit demonstrates the importance that they base their pricing on a of customer insights for achieving specific value proposition and market high performance through service. intelligence. Masters also were much The company uses customer feedback more likely to say they establish service to continually create new service value on a service’s contribution to 19
  20. 20. Insights and Recommendations Our research shows just how important matters a great deal and should not service management has become to be regarded as a stepchild to the core achieving high performance, especially business. Our survey also points to to product companies whose offerings the need for managers to make sure compete in commodity markets. service management operations are The ability to help customers get organized properly, use the right tools maximum value from products—from to define and price offerings, team chemicals and electronic parts, to with product sales to jointly market construction equipment and factory a complete solution, and leverage machinery—and keep them running at the voluminous data that the service peak performance has become a major business generates. At the same time, source of differentiation and profit. It service managers must keep a tight grip is also becoming the factor that keeps on costs, managing them according to customers satisfied and reluctant to agreed-upon service levels. switch allegiances. In short, service is a key contributor to a company’s Capturing, analyzing and using such overall brand experience. Even when data strategically—to get ahead of customers rave about a company’s product and service issues before they products, poor service can quickly can overwhelm a service organization, erode hundreds of millions of dollars to identify new customer needs spent on factories, R&D and other and to efficiently manage service product investments. resources—is increasingly separating the masters from the laggards in But managing a service business is rife service management. with complexities. Our study suggests that overcoming them requires recognition at the top of a large company that the service business 20
  21. 21. On the Journey to High Performance In ongoing exploration of what constitutes high performance, the topic of service management is largely “unchartered territory.” In fact, Accenture believes most companies have only scratched the surface of what is possible in building distinctive service management capabilities—ones that can significantly differentiate them from competitors and dramatically increase revenue and profits. By adopting the best practices in optimizing the entire service supply chain (labor, parts and material) that we observed in our research, companies can build a service management function that generates high-margin revenue. They can also create a service management organization that drives the level of customer loyalty that is critical to high performance in today’s hypercompetitive global economy. 21
  22. 22. Notes 1 “Best Practices in Strategic Service Special acknowledgement and Management,” Aberdeen Group, June thanks are due to following people 2005. for the effort and time they 2 “When Companies Compete On invested in the preparation of this After-Sales Support, Service Supply report: Thomas Schramm, Volker Chains Take Center Stage,” Jean V. Scheeff, Kristine Renker, Derek Murphy, Global Logistics & Supply Jones, Scott Egler. Chain Strategies, March 2006. 3 Lee Ann Tegtmeier, “Engine Cost vs. Performance,” Aviation Week, December 9, 2008. 4 “Getting to Grips with the Cost of Repairs: How Fujitsu Siemens Computers Entered into a New Era of High Performance in Warranty Management," Accenture, 2007. 5 Tegtmeier, December 9, 2008. 6 “Next-Generation Asset Management: Moving from a Reactive to Predictive State of Maintenance,” Forrester Research report, April 24, 2006. 7 Tegtmeier, December 9, 2008. 22
  23. 23. Contacts Thomas Schramm Philip Monks Munich Manchester thomas.a.schramm@accenture.com philip.monks@accenture.com +49-175-576-8289 +44-7958-324-952 Erik Olson Volker Scheeff Atlanta Hamburg erik.a.olson@accenture.com volker.scheeff@accenture.com +1-770-335-8739 +49-175-576-2093 Thierry Wiart Matti Kurvinen Paris Helsinki thierry.wiart@accenture.com matti.kurvinen@accenture.com +33-680-324-320 +358-405-047-845 Ariano Arboletti Nerea Idirin Turin Madrid ariano.arbolettii@accenture.com nerea.idirin@accenture.com +39-335-632-7697 +34-606-342-379 Cameron Plummer Beijing cameron.plummer@accenture.com +86-139-1115-6383 23
  24. 24. About Accenture About Accenture Supply Chain Management Accenture is a global management The Accenture Supply Chain We collaborate with clients to consulting, technology services Management service line works implement innovative consulting and outsourcing company. with clients across a broad range of and outsourcing solutions that align Combining unparalleled experience, industries to develop and execute operating models to support business comprehensive capabilities across operational strategies that enable strategies, optimize global operations, all industries and business functions, profitable growth in new and existing enable profitable product launches, and extensive research on the world’s markets. Committed to helping clients and enhance the skills and capabilities most successful companies, Accenture achieve high performance through of the supply chain workforce. collaborates with clients to help them supply chain mastery, we combine For more information, visit become high-performance businesses global industry expertise and skills in www.accenture.com/supplychain. and governments. With more than supply chain strategy, sourcing and 181,000 people serving clients in over procurement, supply chain planning, 120 countries, the company generated manufacturing and design, fulfillment, net revenues of US$23.39 billion for and service management to help the fiscal year ended Aug. 31, 2008. organizations transform their supply Its home page is www.accenture.com. chain capabilities. Copyright © 2009 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

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