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Customer Lifecycle Management


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With these changing business dynamics, leading companies are rethinking their approach to the after sales business, as the same cannot be taken for granted any more.

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Customer Lifecycle Management

  1. 1. Customer Lifecycle Management Changing Business Dynamics of Sales and Service Novoally Software is a Bangalore based company committed to provide innovations into On-Demand Business System for changing business dynamics. We are a young com- pany brining new model for delivery and pricing, for the changing market needs, and first of the companies sharing the risk with our customer in the business. Our employees are the best minds committed to innovation for impact and results, and just not to deliver.
  2. 2. Introduction AMR research found the following for One of the profound changes for com- the service business panies in a past decade have been out- sourcing the operations such as physical 1. As competition heats up, companies creation of product, supply and logistic will loose high margins in after sales while keeping the service, customer sup- business if they continue to spend port in-house. The reason, after sales 60% less on information technology operation is the main experience for the (IT) for their service business. customer over a life cycle of a product 2. After sales strategy starts with foun- along with the massive opportunity in dation of customer knowledge that terms of revenue, brand reliance and leads to operation efficiency and customer loyalty over a period of time for proactive managed service any organization. 3. Tactical automation can cut the cost by 5% to 15% within specific opera- The greater the life of product the larger tions: strategic automation can im- is the spread of the potential revenue prove margins by 25% and gain 60% from the after sales service and main- in share. tenance. It is also been known that the 4. Success requires a dedicated tech- customer spends 5 to 20 times the initial nology strategy beyond Enterprise sales price on subsequent service and consumables. On other hand, the com- Resource Planning (ERP). petition and higher customer demands are challenging companies in maintain- ing margins in direct sales and custom- For companies that make durable er satisfaction levels in the service busi- products, developing a more effective ness. services business boost profits in the short term and provide different sourc- With these changing business dynam- es of competitive differentiation in the ics, leading companies are rethinking long term. their approach to the after sales busi- ness, as the same cannot be taken for granted any more. Main business get- ting affected are Aerospace and De- fense, High Tech, Automotive and other AMR Research survey of 125 compa- industries that have significant service nies revels the aggregated spending of business. the companies have a great inequality in IT spending that’s favors the product Hence, the need is to not just to focus on business over the service to the tune product lifecycle but to devise a strategy of only 20% of the overall spend being for the Customer life cycle Management directed towards service. comprising of Sales and After Sales cy- cle with a holistic viewpoint. These two The spending and focus gap is be- parts of the product traditionally have cause the service business is always been dealt and thought separately, but been considered as a cash cow of these today need to be integrated with the business. But with changing busi- the common objective of building cus- ness dynamics and service business tomer base, increasing market share, contributing 40-50% of profit (20-25% improving after sales margins and maxi- of revenue), achieving the operational mizing revenue during the complete life efficiency, improving customer profit- cycle of the product. ability and building customer loyalty has become the key.
  3. 3. Today the cost of acquisition of each new customer is increasing exponentially, making retention of current customer is imperative, selling him value added servic- es and new line of products, i.e. making customer for the life. Customer Lifecycle Management (CLM) Customer life cycle management is the future of Product life cycle management. It is a unification of “Sales and after Sales” Business Management in holistic view. The sales business has been the focus across the industries leaving the after sales busi- ness to compete with independent service providers, losing the potential revenue and the opportunity to build the foundation of customer knowledge. Figure: Customer Life Cycle Today when the margins from the direct sales are in extreme pressure and reduc- ing each year, the revenue should not be considered per sale only, but in a whole life cycle of the product usage. Novoally Software from the extensive study of business process, potential/op- portunities in after sales markets, have derived the possible approach companies looking into after sales business should consider how IT can be used effectively to achieve the objective of the Customer Life cycle Management. Below is a brief overview on essentials.
  4. 4. Foundation: Customer Knowledge CLM integrate the initial product sales Within these 4 categories there are lifecycle with the customer service and around 15-20 different business pro- experience lifecycle in order to align the cesses. The objective of these process- business objective of maximizing the rev- es is to use the customer information enue opportunity from customer. Without and insight to lock in the customer and CLM companies are only considering reduce the lost revenue opportunities. tactical investments (like separate CRM) It is estimated that the margins on the and decision for the after sales business selling parts and service are around 50% that only improves the ability to respond and on service contracts (AMC) or ex- to the customer requests, missing the tended warranty often exceeds 70%. two crucial link of the after sales market. Thus, capturing and providing the cus- 1. Treating the customer requests as tomer information across the organiza- detached events, losing the opportu- tion (business processes) becomes the nity to leverage them further. most important area of automation. This 2. Assuming customer will request for customer information is the foundation the service, missing the 50%-60% of for the organization customer relation- the opportunities until it was too late. ship pyramid. Adding layers of offering/ ideas/values on foundation provides or- ganization the platform to serve the cus- Fixing these missing links between tomer for his lifetime. Each time a layer various processes in after sales market is added customer become more diffi- along with the proper integration of after cult for the competition. sales processes with sales processes will make the organization proactive and protective to the customer provid- ing the ability to look a head and man- age the customer life cycle. CLM objective is to provide organiza- tion an ability to forecast and plan for customer demand and suggest value added high margins services and not wait for customer to come for service and new request. Building on foundation Organizations need to start with orga- Figure: After Sales Service Offerings (Cus- nizing the collections of process in after tomer relationship Pyramid) sales business and integrating the uni- fied after sales business with the product CLM helps and direct the companies to sales business. segment the customer based on the of- ferings and need and not based on the The after sales business can be divided size, providing the platform to be pro- into four-macro process: active by incorporating the customer information through the life cycle of the 1. Customer: Service and support product. Another advantage from CLM 2. Parts: Logistic and operations is closer interaction with customer, to 3. Product: Services and Configuration identify the true economics of service 4. Sales and Marketing and calculate the service cost pricing for different level of service offerings.
  5. 5. Stakeholders in CLM The transformation in the service delivery has to be brought about with change in business objective and processes, with the help of information technology (computers, software, net- works that tie it all together) enhancing the ability to under- stand, communicate with and evaluate the markets, and to anticipate and respond to the customer needs as never be- fore. Every stakeholder will have a role to play. We can categorize them as: • Manufactures (OEM’s) Raising revenues • Components Manufacturers (Parts Supplier) from after-sales ser- • Retailers and Distributors vices ought to be at • Independent Dealers the top of the man- • Company Owned dealers agement agenda for • Service Delivery companies in matur- ing industries. • Dealers • Independent Service center • Franchised Service center • Mobile service center • Sales and Marketing Traditional relationships between each of the above stake- holder are of a disintegrated player supporting the business objective. The players do not have collaboration in terms of common framework of sharing same information to make better decision. Each entity use a part of information with a mix of individual experience and guts feeling, for production, demand forecast, customer needs, new potential services etc. The need today is to redefine the roles of each player in the delivery chain and bring them to a common platform to share information and resources, along with personnel experience across the domains. Mckinsey & company estimated that service networks in only four US industries—consumer electronics, personal computers, power tools, and vacuum cleaners—could generate revenues of $6 billion to $8 billion a year from after-sales service, parts, and ancillary products. Today, only a fraction of this potential is being realized
  6. 6. Recommendations 1. Organization Realignment Companies failing to establish clear business goals cannot de- cide among the dozens of possible initiatives. Companies that fail to choose mostly implement ‘big-bang’ approach intended to cover every conceivable business contingency. The basic process for troubleshooting goals for a company should start by looking at the four areas in the specified order. 1. Organization (corporate focus/philosophy, level of collabora- tion among stakeholders) 2. Process (Responsiveness to customer needs, field service metrics in place) 3. Knowledge (Visibility into technician, inventory data, etc and accuracy of data) 4. Technology (Scope of service automation, productivity tools) The changes in the above areas have to be thought of, consid- ering conflicting interest within players (dealer, distributor, sales) along with new and changing market (geography) regulations, safety and environmental issues Business owner should be responsible for bringing about the changes in the processes across the stockholders, focusing on collaborative goals and objectives among them. IT own- ers should work in tandem with the business owners to provide systems and integration at each point of change harnessing the relationships and information. IT owner should not strive towards complex and big systems overriding the bad process and prac- tices. In that case the systems will only integrate bad information It is always better and knowledge. to start with a lean architecture, aim- The systems should complement and enforce new practices ing for systems and and approach of the organization. The systems should be in tasks to be accom- place in tandem with the each new practice over a period of plished in steps, time with the final objective of integrating all point of information with saving from collection to a central repository. Each system should serve the each helping to fund purpose/objective of the users/ stakeholders in terms of usage the next. Overhaul- experience, information capturing and retrieval. ing IT architecture may take 3-5 years The objective should be a close knit of systems or a big system to complete; the (developed in pieces over a period of time based on various key saving can start functions point ) where each system covers a business process in less a year with (function) in itself, along with receiving and providing key infor- other intangible mation to other business systems as per need. benefits resulting into sizeable payoff. In case the organization has already invested in lot of diverse system with no expected benefits and returns, they should re- draw the pieces of the IT puzzle to fit together and to help tighten the links between IT and Business. On this new architecture the missing pieces or functions should be build.
  7. 7. One major manufacturing company faced a daunting chal- lenge for its service delivery (after market operations) in the emerging markets. There was no common process and practices and big system installed were not been used as per requirement. As a result Business owner and IT owners collaborated closely to redefine the process and approach. Business owners: responsible for process implementation. IT owners: responsible to build smaller and simpler sys- tems. Each installation in the market were in steps; staring with training of new processes and practices with next step installing and training of the system build on the process and a follow up on the same for a period of 6-8 months to Start with small, reach the performance goals that’s determined the returns focused initiatives to on the investment and time. The key here is that the com- achieve quick wins at pany hadn’t invested heavily in putting big systems, but minimal risk and then invested in building skills along with smaller and leaner sys- build on the success tems that support the skills, slowly adding new functions in as they evolve. systems as confidence grew among users in the markets. Thus, by been focused the company managed to spend less and deliver more. The virtuous cycle – more customers, more productivity, and better economics – generates bona fide opportunity for value players to move into new product and service cate- gories. Companies in other sector like E*Trade, DELL, Wal- Mart, Southwest and Ryanair airlines thrive on impressive cost and its relentless execution with smart use of Technol- ogy. These advantages are typically years in making and so difficult to emulate that rivals lacking them find hard to compete on price and quality of service. 2. Systems (Information Integrators) To succeed in after sales business, companies must have right part at right place, with right pricing at right time. Once this is in place, companies should start looking be- yond the basic service and technical support towards op- timizing warranty cost, designing and selling more service contracts, tracking and segmenting customer based on need to measure economy of the offered services. Service delivery centers can also act as a valuable labo- ratory for developing new products and services, provid- ing information about customers’ needs, and for showing where products have failed to meet them.
  8. 8. For some basic systems are in place and the need is to move to next step to evolve your business and capture new market. Below is a solution map for after sales business. The automation and linking of the information points between all business processes is filled with risk and potential rewards. They should be clearly selected and implementation monitored over a period of time to get the reap reward (cus- tomer satisfaction). Aftermarket systems data also need to be linked to the produc- tions systems (ERP) and financial systems to complete the full integration of data. For example, one midsize industrial-products manufacturer, for example, is decid- ing whether to rent products, start a mobile repair service, and offer service con- tracts and extended warranties—all as a result of insights gleaned from the com- pany’s service network. Figure: After Sales Solution Map Today the IT investments for companies are generally concentrated in business process automation (production side) and sales/ marketing improvement. Service side of business is underinvested resulting in the imbalance in service provided to the customers. It is estimated that 4-5 times of IT spending is made on delivering product as on delivering services. It has become imperative for companies to look at their IT spending and balance the investment to improve competitiveness and customer satisfaction. Across industries the service business contributes to 20%-30% of revenue, but the profit is disproportionately earned at 45%-50% as compared to 55%-50% from new product. Any increase in service revenue even marginally (10%) and reduction in cost (10%) can increase the profit from aftersale business by approximately 40%. It is these figures along with the other competitive benefits that justify the required investment in service part of business. The choice is clear-cut – focusing and investing on service business can dramati- cally improve profitability and bottom line driving customer loyalty while gaining competitive advantages.
  9. 9. References 1. AMR Research: Service lifecycle management (part 1): The approaches and technologies to build sustainable competitive advantage 2. The Mckinsey Quarterly: How to make after-sales services pay off (Russell G. Bundschuh and Theodore M. Dezvane) 3. The Mckinsey Quarterly: The secret life of factory service centers: For a lucrative new source of revenues, profits, and market information, manufacturers need look no further than their own repair shops. (Whitney L. Alexander, Sandeep Dayal, Jack J. Dempsey, and Jonathan D. Vander Ark) 4. Source IRI: 2002 Mckinsey survey of customer and channel management. For other discussions and inquires: Novoally Software Dev. Pvt. Ltd. Bangalore | Noida Novoally Software : A new partner in your business From small to midsize to large busi- productivity, and efficiency across your ness who can best judge IT objectives operations. It’s no wonder that we are and investment with business goals adding more and more customers on and requirements are best positioned daily basis in small and midsize com- to achieve sustainable and profitable panies and helping them to get the best growth in this new competitive world. out of their business. By working with Novoally and our ex- perience partners in your local market, To find out how Novoally solution can you can get the support your company help your company be part of new needs with a solution specifically de- revolution, contact your local Novoally signed for your business requirements representative or visit us at and your budget. Our fully integrated and configurable, on-demand business system can help you optimize your business by enabling better collaboration, coordination,