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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.
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If services & solutions become more important, companies that play this new game must understand its rules
Evolution in the value propositionFrom products to solutions
Traditional product
Value-added services
Solutions
Value proposition
Industries
Strategic focus
“We sell and ensure high-
quality products“
“We improveproduct efficiencyand effectiveness“
“We make the customer more
successful”
We optimize your shipping costs
We reduce life-cycle for your fork lift fleet
We decrease the handling costs for C-parts
We prevent break-down of ship motors
We react very fast to fork lift breakdowns
We improve your logistic efficiency
Commercial aircraft industry
Airbus’ long way from the traditional product to value-added services and solutions
Revenues in Billion (Euro)
• 7400 airplanes in operation• Service revenues reach about 1.5
billion Euro (4% of total revenue)• Deliveries increased from 305 to 612
Supply chain
Leasing firms
Flight operators
Aircraft manufacturers
Component suppliers
Maintenance
Inte-grated
• General Electric (50%)• Lufthansa Technik (+5% p.a., 60%
external)• Boeing (15%)
2003 2004 ... 2011 20120
10
20
30
40
Product revenue Service revenue
10.4% revenue growth p.a.10.2% more deliveries p.a.20% more service revenue
Five reasons why you should get married to solutions …
Complexity Product Value-added services
Solutions
Competitors Few Many Fuzzy
Offerings Homogenous Heterogeneous Individualistic
Geography Similar Localized Customized
Demand Sales forecast (un)predictable Customer forecast
Scope 1 to 3 1 to 15 1 to 15 X 3rd party
Adapted form Cohen et al. (200)6
Forecasting customers as „mutualism“
Five reasons why you should get married to solutions …
Complexity Product Value-added services
Solutions
Competitors Few Many Fuzzy
Offerings Homogenous Heterogeneous Individualistic
Geography Similar Localized Customized
Demand Sales forecast (un)predictable Customer forecast
Scope 1 to 3 1 to 15 1 to 15 X 3rd party
Adapted form Cohen et al. (200)6
Five reasons why you should get married to solutions …
Complexity Product Value-added services
Solutions
Competitors Few Many Fuzzy
Offerings Homogenous Heterogeneous Individualistic
Geography Similar Localized Customized
Demand Sales forecast (un)predictable Customer forecast
Scope 1 to 3 1 to 15 1 to 15 X 3rd party
Adapted form Cohen et al. (200)6
Companies struggling with service and solutions
Drivers for the solution business (1)
1 2 3 4 5 6 70
25
50
75
100
Price index
Product generations
Eroding product prices
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
Tractor
Elevator
Locomotive
Automotive
0 10 20 30
13/1
22/1
24/1
30/1
Installed base to new order intake
0 0.5 1 1.5 2 2.5 3Ratio life-cycle cost to
investment cost
1/1
2.5/1
1.8/1
1.2/1
Drivers for the solution business (3)
Automotive
Locomotive
Elevator
x13x55x43
Tractor x36
Technology-enabled solutions benefit the company and dealer network first and the customer second
Information levels
Status
Diagnose
Automated control
Customer profiles and behavior
Automated replenishments
Localization and logistics
Upgrade
Interconnected installed base
Beneficiaries
Company / dealer network
Customers Delivery
Training
Maintenance
Use / Operate
Contracting
Locate
Purchase
Trade-off between gain & pain
High service market potential (installed base)
Service profitability > product profitability
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
Transitioning sales force
Longer sales cycle and lower hit rates
Greater skill requirement
Service excellence
Investment in solution development and delivery
Cross-functional management effort
PainGain
Evolution in the value propositionFrom products to solutions
Traditional product
Value-added services
Solutions
Value proposition
Industries
Strategic focus
“We sell and ensure high-
quality products“
“We improveproduct efficiency
and effectiveness “
“We make the customer more
successful”
We optimize your shipping costs
We reduce life-cycle for your fork lift fleet
We decrease the handling costs for C-parts
We prevent break-down of ship motors
We react very fast to fork lift breakdowns
We improve your logistic efficiency
Hilti‘s strategic leap towards the solution business
CustomersSales channelsHilti
Specialized shops
Retailers
Personal selling
E-Shop
Construction firms (e.g., Hochtief, Vinci, ACS,
Bechtel, Fluor)
Private builders
Drilling, demolition, cutting, sanding and screw fastening systems
Consumables (e.g., anchoring & installation)
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… ”
Hilti‘s strategic leap towards the solution business (3)
Products Services Solutions
- Fleet management solutions (e.g. fee for administering the fleet)
Quality & innovation (e.g., drilling, demolition, cutting, sanding and screw fastening systems)
Consumables (e.g., anchoring & installation)
- Repair
- Maintenance
- Financial services
- Theft-insurance
Destroy customer value!
Add customer value, but what customers do the
attract? Delivery
Maintenance
Repair
Replace
Purchase
Michelin’s bumpy road to fleet management solutions
CustomersSales channelsMichelin
Professional tire distributors (e.g., .
independent regional entrepreneurs or bigger networks)
Euromaster and its 1,700 service centers
in Europe
Private
Truck Tires
Car Tires
Off-Road TiresLogistic firms
Others
Michelin’s bumpy road to fleet management solutions (2)
Products Services Solutions
Truck Tires
Car Tires
Off-Road Tires - Monitor
- Repair
- Switch
- Permute
- Inflate
4-lives of a tire
Michelin Fleet Solutions
Add customer value Selling kilometers, not tires
MFS sales team, but ...- Customer don’t get the value- Pricing- competition to sales- sales approach
Involve partners, but …- Quality levels- Customer complaints- Incentives
Solution business is a painstaking work on many, many details
Success factors
Managerial motivation
Innovation process
Value proposition
Marketing relationship
Strategy
Organization
Culture
Culture means NOT REPLACING product culture, but TO EXTEND it (1)
Hierarchical level
Top management
Middle management
Daily operation
Purchasing Service/Maintenance
Logistics Asset management
Business development
Scope of competencies
Hunter
Reactive
Trouble-shooter
Farmer
Active
Gate keeper
Perform-ance
enables
Entre-preneur
Trusted adviser
Preven-ting
trouble
Visionary
Culture means NOT REPLACING product culture, but TO EXTEND it (2)
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”
Product
Product Services
Vision
Total solution is sold as a service
Total solution is sold
Services are sold integrated in the total offering
Services are sold with hardware
Selling products and giving away services
Active
Entre-preneur
Visionary
Product
Services
ServicesProduct
Service
Culture means NOT REPLACING product culture, but TO EXTEND it (3)
Customer processesApplication of cutting tools
End-customer
Logisticprovider
Recyclingfirm
Machine manufacturer
Distributor
Bank
Optimization
Evaluation
Application
Purchasing
Replenishment
Refurbishment
Recycling
Emergency purchase
Fraisa
Gate keeper
Perform-ance
enabler
Trusted adviser
Optimization
Evaluation
Application
Purchasing
Replenishment
Refurbishment
Recycling
Culture means NOT REPLACING product culture, but TO EXTEND it (4)
Gate keeper
Perform-ance
enabler
Trusted adviser
Customer processesApplication of cutting tools
End-customer
Logisticprovider
Recycling firm
Machine manufacturer
Distributor
Bank
Fraisa
Organizational structure, processes, and incentives (1)
Business unit
Markets
Integrated Separated
Regions
BUProduct
Costcentre forservices
Servicedelivery
Subsidiary / Dealers
Subsidiary / Dealers
Service sales & delivery
BUProduct
BUServices
Product sales
Second-level support
Organizational structure, processes, and incentives (2)
Business unit
Markets
Separated
Regions
Certified partners
BUProduct & systems
Profit-center
services
Second-level support
Metrology solutions
Productpartners
Servicepartners
Solutionpartners
Organizational structure, processes, and incentives (3)
Business unit
Markets
Integrated
Regions
Subsidiaries
BUBusses
BUService
s
Second-level support
Costcentre forservices
BUTrucks
Costcentre forservices
Second-level support
Servicedelivery
Servicedelivery
Dealers
Organizational structure, processes, and incentives (4)
Organizational structures Processes
Incentives Culture
Roll-out – Starting to commercialize value-added service and solutions
Products Value-added services Solutions
=1 x2 x3
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
Thank you very much
