This presentation describes how manufacturing firms can become successfully service and solution provider. It is based on 15 years of experiences working intensively with firms. It shows the pains and gains for the strategic shift from products to solutions.

1. From products to services and solutions
Heiko Gebauer
heiko.gebauer@eawag.ch

2. If services & solutions become more important, companies
that play this new game must understand its rules

3. Evolution in the value proposition
From products to solutions
Strategic
focus
Traditional
product
Valueaddedservices
Value
proposition
“We sell and
ensure highquality products“
“We improve
product efficiency
and effectiveness“
“We make the
customer more
successful”
We prevent breakdown of ship motors
We optimize your
shipping costs
We react very fast to
fork lift breakdowns
We reduce life-cycle
for your fork lift fleet
We improve your
logistic efficiency
We decrease the
handling costs for Cparts
Industries
Solutions

4. Commercial aircraft industry

5. Airbus’ long way from the traditional product to
value-added services and solutions
Revenues in Billion (Euro)
40
Supply chain
10.4% revenue growth p.a.
10.2% more deliveries p.a.
20% more service revenue
Maintenance
Flight operators
30
Integrated
Leasing
firms
20
10
Aircraft manufacturers
0
2003
2004
Product revenue
...
2011
2012
Component suppliers
Service revenue
• 7400 airplanes in operation
• Service revenues reach about 1.5
billion Euro (4% of total revenue)
• Deliveries increased from 305 to 612
• General Electric (50%)
• Lufthansa Technik (+5% p.a., 60%
external)
• Boeing (15%)

6. Five reasons why you should get married to solutions …
Complexity
Product
Value-added
services
Solutions
Few
Many
Fuzzy
Homogenous
Heterogeneous
Individualistic
Similar
Localized
Customized
Demand
Sales forecast
(un)predictable
Customer forecast
Scope
1 to 3
1 to 15
1 to 15 X 3rd party
Competitors
Offerings
Geography
Adapted form Cohen et al. (200)6

7. Forecasting customers as „mutualism“

8. Five reasons why you should get married to solutions …
Complexity
Product
Value-added
services
Solutions
Few
Many
Fuzzy
Homogenous
Heterogeneous
Individualistic
Similar
Localized
Customized
Demand
Sales forecast
(un)predictable
Customer forecast
Scope
1 to 3
1 to 15
1 to 15 X 3rd party
Competitors
Offerings
Geography
Adapted form Cohen et al. (200)6

10. Five reasons why you should get married to solutions …
Complexity
Product
Value-added
services
Solutions
Few
Many
Fuzzy
Homogenous
Heterogeneous
Individualistic
Similar
Localized
Customized
Demand
Sales forecast
(un)predictable
Customer forecast
Scope
1 to 3
1 to 15
1 to 15 X 3rd party
Competitors
Offerings
Geography
Adapted form Cohen et al. (200)6

11. Companies struggling with service and solutions

12. Drivers for the solution business (1)
Eroding product prices
Price index
100
75
50
25
0
1
2 3 4 5 6 7
Product generations

13. Drivers for the solution business (2)
Market potential
"The [service] market is bigger than we ever dreamt“,
Jack Welch the former CEO of GENERAL ELECTRIC
Automotive
1/1
13/1
2.5/1
22/1
Locomotive
Elevator
1.8/1
24/1
30/1
Tractor
0
10
20
30
Installed base to new order
intake
1.2/1
0
1
2
Ratio life-cycle cost to
investment cost
3

14. Drivers for the solution business (3)
Automotive
Locomotive
Elevator
Tractor

15. Technology-enabled solutions benefit the company and
dealer network first and the customer second
Interconnected
installed base
Information levels
Beneficiaries
Status
Company /
dealer network
Diagnose
Automated control
Upgrade
Customer profiles
and behavior
Automated
replenishments
Localization and
logistics
Contracting
Purchase
Customers
Delivery
Training
Use / Operate
Maintenance
Locate

16. Trade-off between gain & pain
Gain
Pain
 High service market potential
(installed base)
 Transitioning sales force
 Service profitability > product
profitability
 Greater skill requirement
 Value created by solution above and
beyond the sum of the components
 Greater business value for customers
results in increased win rates
 Opens up new markets
 Increasing share of wallet / deal size
 Improved customer retention
 Longer sales cycle and lower hit rates
 Service excellence
 Investment in solution development
and delivery
 Cross-functional management effort

17. Evolution in the value proposition
From products to solutions
Strategic
focus
Traditional
product
Valueaddedservices
Value
proposition
“We sell and
ensure highquality products“
“We improve
product efficiency
and effectiveness “
“We make the
customer more
successful”
We prevent breakdown of ship motors
We optimize your
shipping costs
We react very fast to
fork lift breakdowns
We reduce life-cycle
for your fork lift fleet
We improve your
logistic efficiency
We decrease the
handling costs for Cparts
Industries
Solutions

18. Hilti‘s strategic leap towards the solution business
Hilti
Consumables
(e.g., anchoring &
installation)
Drilling, demolition, cuttin
g, sanding and screw
fastening systems
Sales channels
Customers
Specialized shops
Private builders
Retailers
Construction firms (e.g.,
Hochtief, Vinci, ACS,
Bechtel, Fluor)
Personal selling
E-Shop

19. Hilti‘s strategic leap towards the solution business (2)
Ted Levitt
(Harvard Business Review 1960)
“ … People don’t want to buy a
quarter-inch drill. They want a
quarter-inch hole… ”

20. Hilti‘s strategic leap towards the solution business (3)
Products
Consumables
(e.g., anchoring &
installation)
Quality & innovation
(e.g., drilling, demolition, c
utting, sanding and screw
fastening systems)
Services
Financial services
Theft-insurance
Add customer value, but
what customers do the
attract?
Repair
Maintenance
Destroy customer
value!
Solutions
Fleet management
solutions (e.g. fee for
administering the fleet)
Purchase
Delivery
Repair
Maintenance
Replace

21. Michelin’s bumpy road to fleet management solutions
Michelin
Off-Road Tires
Sales channels
Customers
Professional tire
distributors (e.g., .
independent regional
entrepreneurs or
bigger networks)
Private
Logistic firms
Truck Tires
Car Tires
Euromaster and its
1,700 service centers
in Europe
Others

22. Michelin’s bumpy road to fleet management solutions (2)
Products
4-lives of a tire
Services
Add customer value
Solutions
Selling kilometers, not tires
Michelin Fleet Solutions
Off-Road Tires
Monitor
Repair
Truck Tires
Switch
Permute
Car Tires
Inflate
MFS sales team, but ...
Customer don’t get the value
Pricing
competition to sales
sales approach
Involve partners, but …
Quality levels
Customer complaints
Incentives

23. Solution business is a painstaking work on many,
many details
Success factors
 Managerial motivation
 Innovation process
 Value proposition
 Marketing relationship
 Strategy
 Organization
 Culture

24. Culture means NOT REPLACING product culture,
but TO EXTEND it (1)
Hierarchical level
Top
management
Visionary
Middle
management
Active
Farmer
Gate
keeper
Trusted
adviser
Entrepreneur
Performance
enables
Reactive
Hunter
Daily
operation
Troubleshooter
Preventing
trouble
Asset
Purchasing
Logistics
Service/Maintenanc
management
e
Scope of competencies
Business
development

25. Culture means NOT REPLACING product culture, but TO
EXTEND it (2)
Vision
 Total solution is sold as a service
Visionary
 Total solution is sold
Service
Product
Services
Services
Active
Entrepreneur
 Services are sold integrated in the total offering
Product
 Services are sold with hardware
Product
 Selling products and giving away services
Product
Services
Doing
„Selling services is just like selling seats in the airplane. You
can not sell the seats from yesterday. You always have to
take the opportunities”

26. Culture means NOT REPLACING product culture, but TO
EXTEND it (3)
Customer processes
Application of cutting tools
Gate
keeper
End-customer
Optimization
Distributor
Evaluation
Fraisa
Purchasing
Machine
manufacturer
Application
Trusted
adviser
Performance
enabler
Bank
Logistic
provider
Recycling
firm
Emergency
purchase
Replenishment
Refurbishment
Recycling

27. Culture means NOT REPLACING product culture, but TO
EXTEND it (4)
Customer processes
Application of cutting tools
Gate
keeper
Optimization
Trusted
adviser
Performance
enabler
End-customer
Distributor
Machine
manufacturer
Evaluation
Fraisa
Purchasing
Application
Bank
Logistic
provider
Recycling firm
Replenishment
Refurbishment
Recycling

28. Organizational structure, processes, and incentives (1)
Integrated
Business unit
BU
Product
Separated
BU
Product
Cost
centre for
services
Second-level
support
Regions
Subsidiary / Dealers
Markets
BU
Services
Service
delivery
Subsidiary / Dealers
Product
sales
Service
sales &
delivery

29. Organizational structure, processes, and incentives (2)
Separated
Business unit
BU
Product &
systems
Regions
Profitcenter
services
Metrology
solutions
Second-level
support
Certified partners
Markets
Product
partners
Service
partners
Solution
partners

30. Organizational structure, processes, and incentives (3)
Integrated
Cost
centre for
services
Business unit
Regions
BU
Busses
BU
BU
Service
Trucks
s
Cost
centre for
services
Second-level
support
Second-level
support
Subsidiaries
Markets
Service
delivery
Dealers
Service
delivery

31. Organizational structure, processes, and incentives (4)
Organizational structures
Incentives
Processes
Culture

32. Roll-out – Starting to commercialize value-added
service and solutions
Products
Value-added services
Solutions

33. Is there a way to the gain?
Yes it is, but ...

It is major organizational change process. Keep the existing AND
building new competences, skills, and capabilities.

Re-consider the organizational structure, processes, and
incentives.

There is not one organizational structure that fits all. Many small
adjustment and its the sum of adjustments that matters

Careful roll-out planning (1, 2 and 3)

Convince yourself, convince your dealer, convince your
customers

34. Thank you very much