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Florence management-presentation


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Florence management-presentation

  1. 1. From Service Busyness to Service Business - Amanagement perspectiveHeiko GebauerAssociate ProfessorDepartment Innovation Research in Utility Sectors - Eawag: SwissFederal Institute of Aquatic Science and TechnologyUniversity of St.Gallen (Switzerland)Karlstad University (Sweden)
  2. 2. Increasing the service orientation inmanufacturing companiesInvestments into the service businessService paradoxAd-hoc servicesupportDominated byproductsValuecontributionMaintenance contractsPerformance-basedBusiness consultingIntegration servicesDominated byservices
  3. 3. Arguments for extending the service businessMarketing benefits– Augmenting the product offering– Intensity of customer relationship– Lock-in effect for customers– Long-term customer relationship (strategic partnerships)Strategic benefits– Differentiation opportunities– Comparison of offerings is more complex– Collaborative innovation between customer and supplier– Services as entry barrier for competitors– Service competencies more difficult to imitateFinancial benefits– Higher margins (product: -1% to 3%; services: 5% to 20%)– Stable source of revenue– High installed base– Size of the service market (service market 2 to 10x bigger than product market)
  4. 4. Example – IBM‘s move from productstoward servicesMilestonesIn 2001, Global Services (40.7%), Hardware (38.9%),Software (15.1%), Global financing (4.0%), EnterpriseInvestments/Other• Management commitment• Management and financial system• Recruiting new and intensive training ofexisting employees• Incentive system for services• Formulation & implementation of aservice strategy• Creation of IBM Global Services asstrategic Business Unit• Continuous service innovations (Network,data storage, e-Business)Revenuesin billion US dollar
  5. 5. Extension of the service business atBosch PackagingProducts to services Revenue shares− Spare and wear parts,field services andmodernizations− Service level agreements,extended warranty, and spareparts packages− Services for competitor products,operational and outsourcing servicesServicesRevenue Market share forservicesCustomersThird-party serviceproviders45%30%25%Machines andsystems66%34%Hänggi, 2006
  6. 6. Complexity of the service businessCognition can limit the extension of the service businessParameter Product business Service businessNature of demand More predictable, canbetter forecastAlways unpredictable,sporadicRequired response Standard, can bescheduledAs soon as possibleNumber of productgenerationsLimited 10 to 15 times higherOfferings Homogenous HeterogeneousNetwork Multiple networksSingle network for allservicesCohen et al. 2006
  7. 7. Identifying strategic paths throughvisualizing service opportunitiesAdapted from Sawhney, 2004Recon-figurationExtensionHow do serviceopportunitiesappear?)Primary customeractivitiesWhere do service opportunities appear?Supplementary customeractivitiesSalesPre-Sales After-sales
  8. 8. Identifying strategic paths throughvisualizing service opportunitiesAdapted from Sawhney, 2004Recon-figurationExtensionHow do serviceopportunitiesappear?)Primary customeractivitiesWhere do service opportunities appear?Supplementary customeractivitiesSalesPre-Sales After-sales
  9. 9. Exploitation or exploration: How toapproach the service opportunities?Adapted from Sawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch(2010)ReconfigurationExtensionHow do serviceopportunitiesappear?)Primary customeractivitiesWhere do service opportunities appear?Supplementarycustomer activitiesSalesPre-Sales After-salesExploration•Radical improvement•New value constellation•Dynamic capabilitiesExploitation•Incremental improvements•Value-adding to existing value constellation•Development of operational capabilities
  10. 10. Parameter ExplorationExampleOrganisationaladaptationRadicalAntecedents Dynamic capabilitiesValue constellationCreation of a new valueconstellationValue contributionShort-term, significantincrease in service revenueExploration of uncontested service marketsExample - HiltiExplorationFischer, Gebauer, Ren, Gregory & Fleisch, 2010
  11. 11. Exploitation of existing service marketsExample – Bosch PackagingFischer, Gebauer, Ren, Gregory & Fleisch, 2010ExploitationParameter ExploitationExampleOrganisationalchangeIncrementalAntecedents Operational capabilitiesValue constellationImproving existing valueconstellationValue contributionLong-term, continuousincrease in service revenue(15 to 30% in 10 years)
  12. 12. Service strategies1) After-sales service providerValue proposition• Fast reactions to product failures• Reasonable product pricesBusiness logic• Reasonable product prices combined with highmargins for spare parts and repair• Unscheduled service activities require fluctuationin service demand, maximizing time at thecustomerOperational capabilities• Planning and forecasting of spare parts demand• Spare parts and repair center close to customers• Service technicians act as reliable trouble-shooters• Technical competencies• Cost or product center in product divisionServices• Spare parts• Repair services and inspection• Trouble-shooting & diagnoseservices
  13. 13. Value proposition• Prevention of product failuresBusiness logic• High-quality products combined with fixed prices forservice contracts• Schedules service activities (capacity utilization),minimizing time at the customer (e.g. exchange ofmodules instead of repair of components)Operational capabilities• Condition monitoring• Risk estimation and pricing• Regional spare parts and service centers• Services as an independent strategic business unitfor services• Service technicians act as performance enablers• Communication & behavioral competenciesServices• Service contracts• Preventive maintenance• Process-optimization• ModernizationService strategies2) Customer-support service provider
  14. 14. Service strategies3) Development partnerValue proposition• Development competencies provide strategiccompetitive advantages (strategic partnerships)Business logic• High-quality products combined with technicalconstruction and design• Development of customer processes, in whichproducts are usedOperational capabilities• Integrating R&D-teams (internal & external)• Technical adviser and collaborative learning• Communication and behavioral competencies• Recruiting and training of employeesServices• Design and constructionservices• Technical advice• Feasibility studies
  15. 15. Service strategies4) Outsourcing partnerValue proposition• Continuous improvement of customer processesBusiness logic• Taking over of customer processes (e.g.,maintenance or production)• Pay-per-use or performance-based pricingOperational capabilities• Service-center at the customer• Recruiting employees from the customer• Balancing standardization and customization• Risk estimation and pricing of risks• Separate company providing outsourcingservicesServices• Operational & outsourcingservices• Taking-over maintenanceactivities
  16. 16. Service strategies5) Solution providerValue proposition• Collaborative development of innovativesolutions for customersBusiness logic• Combining different service strategies• Learning curve by providing solutions(economies of repetition)Operational capabilities• Operational excellence in each servicestrategy (balancing and integrating)• Flexibility in combining services, businesslogic’s and value propositions• Customer proximity to understand thecustomer requirementsCustomer-specific solutions• Combination of products andservices• Integration services
  17. 17. China as an important aspect of serviceorientation• China today / future most important single market• Contribution of services is very little• Challenges– Chinese culture (Guanxi, Mianzi, Renqin) hinders serviceorientation– Customers consider services as „free“ and add-ons– Insufficient quality in the basics for earned a livingthrough services (spare parts logistics)• Solutions:– Adaptation of human resource management to culturalcharacteristics– State-of-the art logistics solution (bonded / non-bondedwarehouse) and logistic processes (temporary borrowing,post-custom clearance)Gebauer, Kuzca & Wang, 2011
  18. 18. Conclusion and management questions• Marketing, financial, & strategic benefits motivate manufacturingcompanies to extend the service business• Managing the service business entails high degree of complexity• Management questions:• Managers should define the most attractive service opportunities?(which products, which customer activities should be supported throughservices)• Managers should decide on the strategic approach for services(exploration or exploitation)• Managers should align the business logic, value proposition, andoperational capabilities with the service strategies?
  19. 19. More information can be found in following book
  20. 20. Thank you very much for your attentionIf you have any further questions, pleasecontact