A short story about Servitization: Part One

Jul 29, 2015 • Features • future of field service • M2M • management • Dr. Michael Provost • Servitization

Whilst the trend towards Servitization is rapidly becoming increasingly important for manufacturers and one that will have a significant impact on how field services operate, it is often viewed as a complex subject.

However, one man who has been involved with the movement since its early beginnings is Dr Michael Provost. His excellent book “Everything Works Wonderfully: an Overview of Servitization and Physical Asset Management” (www.everythingworkswonderfully.com) is a distillation of his knowledge and experience in this area built up over nearly four decades, making it a much more accessible topic.

As an introduction, Mike opens his book with an excellent short story that neatly summarises the concept of Servitization. Field Service News is pleased to be able to share it with you here…

A Short Story

Anna Edwards* was a very happy woman. It was her last day as Managing Director of Precision Powerplants* and she was looking forward to a few months of rest and relaxation on the sunny Côte d’Azur with her husband Chris* while she pondered her next move. She knew that she was leaving the company in good shape for her successor (whoever that happened to be: there were several candidates from both inside and outside the organisation who were being put through the on-going ‘beauty contest’) and felt very satisfied with the progress that the organisation had made on her watch and the transformation that she had overseen.

The organisation’s reputation for well-engineered power units just wasn’t being reflected in profitable sales.

How different from the situation a decade ago, when she had taken over from the previous incumbent (now long forgotten) who really hadn’t understood the business and was forced to retire early. Sales and profits were falling, the share price had flat-lined for several years while the rest of the market soared and the City was muttering that the company had lost its way. A scathing analyst report entitled Always Jam Tomorrow: Beware of Perpetual Promises had ruffled a few feathers and made the Finance Director really angry. Competitors were offering deals that even the company’s most loyal customers couldn’t refuse and the organisation’s reputation for well-engineered power units just wasn’t being reflected in profitable sales. Great products (as even the writer of ‘that’ analyst report had acknowledged) but a lousy business, competing on nothing but price… Anna had taken on the job knowing that she was placing her professional reputation on the line. What should she do? She was starting to get worried.

She decided to bring in Peter Carpenter*, an old friend from university whom Anna admired for his out-of-the-box thinking, no-nonsense tell-it-how-it-is approach and excellent people and communication skills. She sent Peter home to have a ‘big think’, telling him to stay away from HQ and the alpha gorillas all trying to outdo each other with short-term slash-and-burn fixes which Anna felt were the painful road to corporate oblivion. Peter’s brief was simple: produce a plan for getting out of the ‘commodity trap’ that the company had fallen into and do it quickly before the inevitable crisis came and the whole organisation would be brought to its knees.

Peter had been musing about how to save the company for a few weeks when Sara* burst in to his study as he was casually doodling on a notepad. “The boiler’s broken yet again, Peter!” she fumed. “I’ll have to cancel my day in town while I wait for the man to turn up to fix it. I bet he won’t even have the right parts in his van either! Why couldn’t the thing let me know that it was going to break, so I could arrange the repair at my convenience? Why can’t it tell the repair man what’s wrong? I don’t give a damn about boilers: all I want is hot water and a warm house! Looking after it is nothing but hassle!” She stormed out, clearly not at all pleased.

Just then, Peter had his ‘eureka moment’. Were customers thinking like this about power units? After all, they had businesses to run and their own customers to serve and didn’t want to worry at all about power sources. Were the units that they had bought just an irritating distraction to them, requiring time, effort and expertise to look after that they really didn’t have? What if Precision Powerplants used its expertise to look after the units it made (after all, the company had designed and built them, so no-one else should know them better) and charged for the power delivered, not the physical units? Would this idea get the company out of its death spiral?

Many of the capabilities needed were already in place: they just weren’t being brought together into a coherent whole.

Peter’s mind began racing as his thoughts kept flowing. Customers would probably be happier making regular payments for guaranteed power, which would smooth out ‘lumpy’ cash flows and could add up over time to more than anyone would pay for ‘bare’ units. The company could shut out the ‘cowboy’ sales and service providers who were beginning to eat into its aftermarket business. It could also build up expertise that could be used to make the next generation of power units currently under development more attractive to the market. The organisation might even be able to offer this service to the owners and operators of competing products (after all, the laws of physics were identical for everybody and there were plenty of staff that the company had ‘poached’ with experience of competitor offerings) and thus eat its competitors’ lunches as well. After a few sleepless nights, Peter had even come up with a name for his new initiative: Megawatts, when and where wanted, or MW4 for short. Perhaps Helen*, who had just graduated from that incredibly expensive art college in Venice, could help him design a logo…

Peter began to ask questions and research his idea in more detail and discovered that many of the capabilities needed were already in place: they just weren’t being brought together into a coherent whole. Peter found people in the organisation who had, despite some management objections and hostility from other co-workers, devised ways of mathematically modelling unit performance and creating actionable information from the data that could be gathered and transmitted from equipment in service: there were also experts in Spares and Repairs who knew how the units should be looked after. All this valuable and unique knowledge had been ignored by Engineering and Manufacturing who just wanted to design, make and sell units before pushing them out of the door ASAP. Something would have to be done to move the organisation from a product to a service mindset, Peter decided, if his idea was to succeed.
* Note: the company and characters are fictitious, but the scenarios are based on experience.

Look out for the second part of the story, coming soon!

Please note that this short story has been previously published in the following:-
Provost, M. (2014). Everything Works Wonderfully: an Overview of Servitization and Physical Asset Management - a Short Story. Asset Management and Maintenance Journal, Volume 27, Issue 5, September 2014, pp. 43-45. Mornington, Victoria, Australia: Engineering Information Transfer Pty Ltd.