Manufacturing          the way we see itService as a StrategyA new Capgemini study provides insights into bestpractices of...
Figure 1: The Rise of Service as a Strategy                                                                               ...
Manufacturing                 the way we see itmigration and upgrade, and recycling.   Figure 2: Top-Management Commitment...                                                                                           ...
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Service as a Strategy


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Service as a Strategy - A Capgemini Service Management Point of View

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Service as a Strategy

  1. 1. Manufacturing the way we see itService as a StrategyA new Capgemini study provides insights into bestpractices of service management and suggests thata strong service strategy can have a positive impacton financial performance. This executive summaryhighlights the key findings.Competition, cost pressures and lines, forcing manufacturers toempowered customers are forcing constantly innovate to createmanufacturers to look beyond sustainable differentiating factors.their products to drive profitable Increasingly, service managementbusiness growth. Many are turning is being viewed as a differentiatorto service management. While some and competitive advantage.manufacturers still view service as acost element, an increasing number For those companies that have begunhave successfully grown their service the process of transforming from abusiness while transforming it to a product-centric to a service-focusedprofit-center perspective. approach, service is viewed as a strategy. And evidence suggests thatCompanies have discovered that a strong service strategy can have aservice management can help them positive impact on a manufacturer’saddress current challenges facing financial performance.their business. For example, risingcosts related to raw materials, labor, New research by Capgemini examinesand environmental and regulatory how best-in-class manufacturerscompliance are squeezing margins across the Aerospace and Defense,ever tighter. Service revenues can Industrial Products, Medicalmitigate shrinking margins and drive Equipment and High Tech segmentstopline revenue growth. have adopted differentiating strategies to increase their service revenues.In addition, sophisticated anddemanding customers are lookingmore closely at the total cost ofownership, expecting manufacturersto provide lifecycle maintenanceservices and a comprehensivesolution and service experiencearound their products. At the sametime, globalization and the rapidcommoditization of products haveput additional pressure on product
  2. 2. Figure 1: The Rise of Service as a Strategy SERVICE AS A STRATEGY TOTAL HIGH PROFIT 2010 - ? Post - 2000 SERVICE 2000 MANAGEMENT  Integrated lifecycle 1980 - 1990 BURNING solutions PLATFORMS  One-stop service PRODUCT +  Pay per use  INCREASING COSTS FULL-LINE SERVICE PRODUCT + EXPERT  REDUCED MARGINS 1950 - 1970 AS-REQUIRED  Solve customer  RAPID SERVICE PROVIDER problems and COMMODITIZATION PRODUCT-CENTRIC  Help OEM business make money  CUSTOMER by providing through service EXPECTATIONS PRODUCT  Sell new products customers with contracts  Charge for parts aftersales service  Product innovation and replace if  New products necessary LOW PRODUCT FOCUSED SERVICE FOCUSED TIME Source: CapgeminiKey Findings are moving beyond obtaining of 9% through acquisitions of serviceThe research revealed that key financing for their products to businesses. Through this approach,differentiating factors include top- financing their service deals and are in it has also achieved significant costmanagement commitment towards turn providing customers with product reduction, and increased serviceservices (Figure 2), including usage/service payment flexibility. For efficiency and customer satisfaction.executive representation on the example, a leading High Tech companyboard; an innovative service businessmodel; and motivating employeesto shift focus from product sales to has an agreement with a financial institution to receive one-off funding payment in lieu of its future cash flows 4 Manufacturers are moving beyond servicing their own products and are offering a rangeownership experience. Following (from rent).The benefit is passed on to of “smart” services within theare a number of specific findings: the customer in the form of a flexible segment. Today customers typically payment plan for services offered. need to turn to multiple manufacturers1 Best-in-class manufacturers have moved beyond managing serviceas a cost center to managing it as 3 Best-in-class companies adopt a strategy focusing on mergers offering different services. However, the business model likely to evolve will be one that offers one-stopa strategic profit center largely by and acquisitions and partnerships services (Figure 3). These may includerestructuring their organizational to build the service business and product lifecycle management,capabilities. Companies that extend their service portfolio. transaction and further data analytics,view service as a profit center are Traditionally, manufacturers built inventory management, modelinglikely to categorize it as its own service capabilities internally, but and simulation, logistics, outsourcingbusiness unit across product lines today many are setting up service and financial engineering.and will report service revenues facilities through the acquisition ofin their financial statements. niche service-focused companies. Manufacturers are also entering 5 Companies are moving beyond aftermarket service2 Manufacturers are continually looking for innovative financialsolutions for their capital needs as into alliances or joint ventures with companies that have service expertise. A leading Aerospace and management towards product lifecycle maintenance services, thus increasing their service portfolio.well as to provide customer payment Defense company has increased its These services typically includeflexibility. Service-focused companies service revenue at a compounded rate training, material management,2
  3. 3. Manufacturing the way we see itmigration and upgrade, and recycling. Figure 2: Top-Management Commitment Key to Service SuccessService offerings driven through thismodel tend to be more comprehensivethan traditional aftermarket service Chairman, President & CEOmanagement, thus creating a win-winsituation for both the manufacturerand the customer. Businesses Functions6 Manufacturers are shifting from traditional contractsto offer product “functionality” Aeronautics Executive Vice President CFO Executive Vice Presidentthrough performance-based service Electronics Systems General Counsel Executive Vice President Senior Vice Presidentcontracts. In this model, customerssign a long-term performance Space Systems Treasurercontract (typically five years) with Executive Vice President Executive Vice Presidentthe manufacturer for an asset. IS & Global Services ControllerSupport and service are handled Executive Vice President Vice Presidentby the manufacturer as part ofthe managed-services contract. A Source: Capgeminileading Industrial Products companyoffers a program where customerspay a fixed rate for maintenancebased on the number of hours used.This provides the customer with Figure 3: The One-Stop-Service Modelcontinuous warranty and a moreaccurate way of budgeting operations.The manufacturer gains a long-termcontractual relationship with the Consultingcustomer, insights into the usage Consultingpattern, and opportunities for profitfrom spares and overhaul operations. FinancialAnother leading manufacturer Engineering Trainingoffers ongoing performance ofthe product without charging the IT & Enabledcustomer for maintenance and Services Maintenanceservice parts contracts anymore. Outsourcing7 Product Centric Replacement Manufacturers are leveraging new technologies to shiftfrom a reactive to a pre-emptive Customer Service Support 24*7  Non-Product Centric Basic Servicesmode for service management Repairand delivery. For example, aRemote Monitoring System (RMS) Simulationprovides the service department Upgradeof an Industrial Products company Inventorywith an early indication of product Managementfailure. This enables the technician Product Lifecycleto locate the malfunctioning part Management Analysisand have it replaced before receiving Smarta customer complaint or a call for Servicesreplacement. In another case, aMedical Equipment manufacturerhas expanded its service offerings Source: Capgeminito include wireless monitoring of itsmobile imaging centers. This systemenables engineers to monitor andmaintain mobile imaging centers innear real time.Service as a Strategy 3
  4. 4. How Capgemini Can Help8 Best-in-class companies are measuring customer loyaltyand linking it to their employee Can Service Management Boost Financial Performance? It became evident from the research Capgemini’s service management research offers benchmarks to helpperformance management system. that focusing on service as a strategy manufacturers make the shift fromWith this approach, sales executives can bring a manufacturer significant a product-centric operation to oneaddress customer service needs, benefits, including increased revenue focused on service. This executivethus maintaining a relationship with and profits, reduced costs and summary provides a topline view ofthe customer. At the same time, improved customer experiences. key findings from the study. Yet therecustomers rate the overall experience, As part of the research we further is much more that can be exploredwhich in turn is linked to the analyzed the financial performance of and applied to your own organization.executive performance management companies that have a growing andsystem. Some manufacturers use the profitable service revenue. Our Service Management “InsightNet Promoter Score approach as a Days” can help manufacturers developkey measure to improve the overall Of course, many elements affect share their own service managementcustomer experience and as a means prices, and a company’s financial transformation strategy and roadmapto achieve organic growth. stability and profitability are, among to the future state, including a toolkit others, important factors. However, of best practices, case study examples our research provides evidence and benchmarks. to suggest that the share prices of manufacturing companies that have a best-practice service management business have outperformed those of their competitors. Study Methodology About Capgemini and the Collaborative Business Experience Capgemini’s “Service as a Strategy” research was designed to identify Capgemini, one of the model called Rightshore®, which aims how certain manufacturing companies world’s foremost providers to get the right balance of the best talent have succeeded in growing their of consulting, technology and outsourcing from multiple locations, working as one service business. The study focuses services, enables its clients to transform team to create and deliver the optimum on service as a profit center in four key and perform through technologies. solution for clients. Present in more than manufacturing segments: Aerospace Capgemini provides its clients with 30 countries, Capgemini reported 2009 and Defense, Industrial Products, insights and capabilities that boost their global revenues of EUR 8.4 billion and Medical Equipment and High Tech. freedom to achieve superior results employs 90,000 people worldwide. through a unique way of working, the Service revenue data from 2001 to Collaborative Business Experience™. More information is available at 2009 was studied for more than 10 key The Group relies on its global delivery players within each segment. Of those, two best-in-class companies were selected for in-depth analysis based on For more information on Capgemini’s service management research and solutions for their service revenue performance. manufacturing companies, please contact: For the purposes of the research, Floyd D’Costa service was defined as comprising all The service management research was activities necessary to maintain and conducted by the members of Capgemini restore the functionality of a product Joost Bleize Consulting’s Manufacturing Strategic during its useful lifetime. Insights Group: Vishal Khanna, Swapnil Desai and Nihal Sharma. Frank Tennstedt MRD201003LT-SSC © 2010 Capgemini. All Rights Reserved. No part of this document may be modified, deleted or expanded by any process or means without prior written permission from Capgemini. Rightshore® is a trademark belonging to Capgemini.