Servitization, outcome-based services and product-as-a-service are hot topics. However, we see little examples in the industrial sectors. Too often, there is a gap between the theoretical framework and the real practice. Here Jan van Veen, Managing Director, moreMomentum, outlines 3 critical steps to boost the success of your servitization journey...

Summary

We hear a lot about servitization, outcome-based services and product-as-a-service business models. However, we see little examples in the industrial sectors. Many manufacturers face serious challenges while developing and launching new service offerings:

• Clients do not see the value, have many objections and are not ready for it
• Lack of strategic support to invest in necessary capabilities and to develop their business model

3 of the root causes are:

• The gap between academic terms like servitization, outcome-based services and product-as-a-service and the practice is not being closed yet
• Poor definition of the critical business problems of clients which will be solved with the new offering
• The impact on the manufacturer's business is not clear yet

In this article I share some of the best practices for designing advanced offerings which will help you to overcome these challenges:

• Build deeper and broader insights in your clients business challenges and pain points
• Focus on specific customer segment, based on their needs
• Approach your business models more holistic

 

The Problem

Just as an increasing number of manufacturing companies, you may be looking for ways to thrive during disruptive change in your industry. This is an exciting journey of enhancing your business models with digital solutions and advanced services.

Some of the major trends that make this mission critical for your future success are:

• Digital technologies
• Digitalisation of clients’ operation
• New emerging business models
• Shifts in the value chain / ecosystem

The vision behind these innovations is:

• Develop advanced services and solutions to develop new and recurring revenue streams and increase long-term differentiation.
• Develop better performing and more efficient predictive maintenance services.
• Meet a broader scope of (latent) customer needs, beyond availability and condition of equipment like operational performance solutions.

Most service leaders and innovators, solution providers, academics and consultants use broad and abstract concepts to describe their vision, strategy, innovations and new offerings with container words like:

• Servitization
• Advanced services
• Outcome-based services
• Remote services

I often hear from service leaders and innovation teams that they struggle with challenges like:

• Clients do not see the value of the new offering or solution
• Clients see many obstacles and risks
• Clients are not willing to pay more for the new solutions
• Clients are not ready for the new solutions
• Lack of support from strategic stakeholders and other functions in their organisation

In essence, all boils down to the following 3 problems:

• The new solutions and services do not solve (new) critical business problem of the clients. The value or impact is not clear (other than potentially lower prices for the maintenance services).
• It is not clear how these services contribute to the overall business challenges and vision of the company as a whole.
• The service vision is too abstract for internal stakeholders to understand and endorse. Words like servitization, outcome-based services, remote services and product-as-a-service are too theoretical and do not clearly articulate a vision and strategy.

This is pretty frustrating, isn’t it?

 

The Solution

In this article I share critical frameworks which many service teams miss in their service innovation strategies. These are:

• Build deeper and broader insights in your clients business challenges and pain points
• Focus on specific customer segment, based on their needs
• Approach your business models more holistic

Build deeper and broader insights in your clients business challenges and pain points

To be truly outside-in and customer driven, you need to have a deep insight in the challenges and problems your clients are facing in their business. Deep customer insights should:

• Go beyond their requirements about uptime and maintenance of their assets
• Cover a time window of 3-7 years
• Be thought provoking eye-openers for your clients

You and your colleagues already have most information at hand. It is a matter of turning this information and knowledge into a compelling customer story, for irresistible advanced services.

You can read more about this in ( “Build a Strong Customer Story in 7 Steps and Launch Irresistible Advanced Services” in the Handy Little Book, published by Field Service News.

Focus on specific customer segment, based on their needs

One size does not fit all. Different clients have different visions and strategies, different challenges and therefore different needs. When defining the (latent) customer needs for today and the near future, it is crucial to have some sort of segmentation of your important clients based on their (future) needs.

This segmentation will help you to develop a robust strategy which defines which customer segments you will target, with which new service offerings and which business models you will develop.

There are many ways to segment clients based on their needs, largely depending on the specific industry. I will share two generic patterns for customer segmentation which can be useful for you to take as a starting point. They are based on segmentations of innovative and successful manufacturers and service leaders. 

Two often used patterns for customer segmentation are:

• Maturity – Willingness to outsource of a business
• Maturity – Complexity of a business

 

This could be a useful pattern in industries where many of your (potential) clients tend to do most functions themselves instead of outsourcing the activities (like maintenance of equipment).

Along the vertical axis you can separate segments based on the maturity of their core capabilities and processes.

For example, in the industry of metalworkers this could be:

• Traditional craftsmen
  The entrepreneurs personally (together with their employees) manufacture the metal products themselves, love part of the manual work and working with their machines and tools. This is their pride. Little of the activities are put into structured processes.
• High tech workshops
  The entrepreneurs have invested in state-of-the-art tools to improve quality, consistency and efficiency. Their main focus is still on the technical side of the profession. Probably there is more structure in the workflow and processes, predominantly organised from a technical point of view. From a more economical point of view, the structure is not efficient yet.
• Lean manufacturers
  The entrepreneurs have a more economic view (or hired an operations director with economic competencies) and are working on efficient processes, workflow and organisation. They follow lean-six-sigma or similar approaches to optimise human resources, capital investment and materials.
• Value chain optimisers
  These entrepreneurs have a broader scope and are looking to their added value in the entire value chain, partnerships, vertical integration or specialisation. They may also develop more advanced value propositions to their clients like inventory management and delivery of the components they manufacture in small packages in the production line of their clients.

This is a very brief description. You should probably also look into functions like sales, marketing, engineering, internal logistics, inventory management, tools management, financial management, human resources management etcetera. You get the picture.

Along the horizontal axis you can segment your market into clients that tend to do as much as possible themselves versus clients that outsource many functions which are not part of their core-process. Clients in the first category probably have various dedicated departments, competence centres or teams for functions like process optimization and maintenance.

 

This pattern could be useful if you have clients with different types of operations with different levels of complexity.

The vertical axis is the same as in the “Maturity – Willingness to outsource” pattern.

Along the horizontal axis you segment your market into clients that have short and simple value chains versus clients with longer and more complex value chains. For example, again in the industry of metalworkers this could be:

• Jobbers or workshops that fulfil specific tasks like welding, cutting, bending, drilling etcetera and that manufacture intermediate components or semi-finished products
• Component manufacturers which perform several tasks to manufacture components, like engine blocks for the automotive industry
• Product manufactures, which manufacture complex products
• Machine manufacturers

Whatever pattern you use with these segmentations, you now have 4 (or more) segments in a logical structure. For each segment you can:

• Find a descriptive name
• Further describe their specific needs
• Define their characteristics to recognise them

For each segment you should:

• Decide whether you want to serve them or not. Or at least define which segments have your focus
• Develop a customer insight or customer story
• Develop specific messages to use in your marketing, sales and service delivery
• Develop and map specific services, offerings and delivery models
• Develop a specific commercial approach

When you are still in the early stages of developing advanced new service offerings, it often pays to focus on one specific segment first.

 

Approach your business models more holistically:

As soon as your advanced services go beyond the maintenance and the condition of the equipment your company manufactures and sells, you will be reconfiguring or extending the business model of your company as a whole. This means, you need to have a strategic dialogue and innovation process with strategic stakeholders.

To make this a fruitful and coherent process, you should avoid a discussion about product versus services. It starts with:

• A shared concern about developments in the industry
• The threats and opportunities for your business as a whole
• A vision about the future state of your entire business and what needs to change to achieve this

This will result in a few strategic priorities, one of which (hopefully) is services innovation.

Now I would like two share two useful frameworks that help to take the development of the business models to a more holistic – company wide – level:

• Generic types of business models for products and services
• Types of service value propositions

Note that these frameworks are not limited to services or products alone. They address the overall value proposition, which can be a combination of products, software, data and services.

 

In the matrix above, you can describe changes of your business model along two aspects.

Along the vertical axis, you differentiate value propositions:

• From stand-alone offerings (like single products or services)
• To comprehensive and integrative solutions which cover a broad scope of needs and solutions

Along the horizontal axis, you differentiate highly standardised offerings from highly customised offerings.

This results in 4 types of business models, which I will further describe with document printers as an example:

• Product Business Model
  • Only printers, probably including service contracts
  • A wide portfolio of different models to choose from
  • Additional equipment for folding documents, putting them in envelopes etcetera
  • Getting the printer for free and paying for the ink only
  • Predictive and remote maintenance
  • Cloud storage solutions and Microsoft Office 365 still fit in this model, even though you pay a small fee per month
  • Retail banking
• Project Business Model
  • An assessment of the entire business, to define how many printers, which type and where
  • Connecting the printers to the network, configuring security systems
  • Designing, building and commissioning an entire print room for high volume printing and mailing of documents
  • Designing more effective and efficient processes
• Solution Business Model
  • Taking over the entire print room from clients, which could still be at your clients’ locations
  • Connecting the Salary Administration system to the print room to print all salary slips at the end of the month, put them in envelopes, and send them to the postal services
• Platform Business Model
  • In the printer industry the example may become a bit theoretical, anyway.
  • An online platform where clients can upload templates, designs and lists of destinations and pay for the job. The platform will split this in smaller jobs for various connected and certified print facilities across the world and process the financial transaction. (I am not sure if this kind of service ever existed).
  • In the Additive Manufacturing sector, we do see initiatives in this direction to allow manufactures to print metal spare parts anywhere in the world close to the customer
  • Other examples of today are Apples Appstore, iTunes, Spotify, Amazon, Uber and Airbnb.

 

This framework will help you to better articulate the kind of value and related business models you are aiming for. 

In this framework you can define your value proposition along the horizonal axis based on the scope of the services. There are several ways to add value to your clients (deliver outcome if you like). I will use the commercial truck industry as an example:

• Better products
  For example, improve fuel efficiency of the truck and engines.
• Better availability
  Your services can maintain and improve the availability and condition of the equipment. This could be quite advanced with real time data, smart diagnostics predictive analytics or supported self-help offerings using AR.
  For example, predictive maintenance to improve availability (and maybe also improve fuel consumption).
• Better application or use
  Your services can drive the output or performance of the equipment you delivered to clients by improving the use, configurations, settings and ongoing optimization tactics. These services can be onetime projects or ongoing support.
  For example: Reduce fuel consumption by improving the driving behaviour of truck drivers.
• Better processes
  Your services can also concentrate on the overall processes and operation.
  For example: Reduce fuel consumption (and other cost) by improving the route planning, combining jobs, choosing the right vehicles for each job etcetera.

Along the vertical axis you can separate your offerings in

• Effort based offerings
  You promise to do certain activities for which your clients pays, regardless of the result of the activities. It remains the responsibility and risk of your clients to manage the overall performance and take the right decisions.
• Performance based offerings
  You promise your clients a certain result and get a fee depending on this result. In the example of commercial trucks, this could be:
  • Guaranteed uptime and availability of the truck of 99% and penalties if the performance is below 99%
  • A fee per percent-point of reduction of fuel consumption
  • A fee per transportation job

 

How to use these frameworks?

Map your current business model(s) in one or more of the matrixes described above. Also map a few scenarios for the envisioned business model(s). 

This will help you and your stakeholders to have a more structured and neutral discussion about the major trends in the market, technology and competitive landscape as well as in what direction your value propositions and business models should develop. Any choice will have an impact on engineering, manufacturing, software development, marketing & sales and services.

What are the takes

If manufactures cannot successfully adjust their business model, they run a serious risk of falling behind existing and new competitors.

Clients are developing digital capabilities in all their functions. They will have other needs for services and solutions.

This is an important opportunity for manufacturers to grow their relevance for their clients and grow their business.

It is also a unique opportunity for digital native service providers and system integrators, which offer remarkable and complete solutions to the (new) problems of your clients. They are your new competitors.

Benefit

If you use these frameworks and embed them in your service vision, your innovation strategy as well as in your dialogue with strategic stakeholders, you can develop the;

• Shared concern for the business as a whole
• The strategic priorities for the business as a whole, one of which will be services
• Shared vision for the business as a whole, which includes services
• A specific shared concern for the services business unity
• The strategic priorities for the services business unit
• A shared vision for the services business unit

Rome was not built in one day

It is an iterative journey. It takes time and work. The frameworks above will help you to facilitate and structure this journey.

Manufacturers and service leaders with successful advanced services have used these kinds of frameworks for a long time and still are. This allowed them to achieve quick, continuous and more radical innovations and thrive in disruptive times.

 

Conclusion:

For quite a few service leaders, the journey of service innovation is a tough one. Their clients do not see the value of new advanced offerings, they do not want to pay for them, and internal stakeholders do not provide the necessary support.

Some of the key reasons are;

• The critical business issues of the clients are not clear and are not addressed with the new offerings
• The business value of the new offerings and business models are not clear
• The envisioned business model(s) are not clearly described

Litmus proof

I would like to challenge you with the following questions.

Can you describe your services vision and strategy in concrete words? Without using words like;

• Advanced services
• Servitization
• Product-as-a-Service
• Remote services
• AR, AI, IoT

Does your services vision start with a description of;

• Major trends in the industry of your clients
• How challenges and priorities of your clients are changing
• How that will change their needs

 

Recommendation

If you want to be leading the transition of your business and industry, I would recommend you to;

• Define a clear shared concern with your strategic stakeholders;
• What are the developments and trends?
• How are customer needs changing? (our worksheet “Build your Customer Story” will be useful)
• What is the (potential) impact of these changes for your business?
• Does your business want to act on this by innovating the business model?
• Together with your strategic stakeholders, consider various options for developing the business model(s) and assess how these business models would help your business to thrive
• Agree on the innovation strategy and next steps
• Iterate!

 

---

Further Action: 

• Read more about Servitization and Advanced Service @ www.fieldservicenews.com/blog/tag/servitization-and-advanced-services
• Read more exclusive FSN articles by Jan van Veen @ www.fieldservicenews.com/blog/author/jan-van-veen
• Connect with Jan van Veen on linked in @ www.linkedin.com/in/janvanveen1
• Follow moreMomentum on twitter @ twitter.com/more_momentum
• Schedule a discovery session with Jan van Veen @ moremomentum.eu/discovery-session

 

Jan van Veen explains how to accelerate your service innovation in disruption times and to ultimately thrive, leveraging servitization and outcome-based services.

 

We hear a lot about servitization, outcome-based services and product-as-a-service business models. However, we see little examples in the industrial sectors. I often hear about serious challenges manufacturers face developing and launching new service offerings:

• Clients do not see the value, have many objections and are not ready for it
• Lack of strategic support to invest in necessary capabilities and to develop their business model

3 of the root causes are;

• The gap between academic terms like servitization, outcome-based services and product-as-a-service and the practice is not being closed yet
• Poor definition of the critical business problems of clients which will be solved with the new offering
• The impact for the manufacturer’s business is not clear yet

In this article I share some of the best practices for designing advanced offerings which will help you to overcome these challenges.

Servitization, digital solutions and Advanced Services

Just as an increasing number of manufacturing companies, you may be looking for ways to thrive during disruptive change in your industry. This is an exciting journey of enhancing your business models with digital solutions and advanced services.

Some of the major trends which make this mission critical for your future success are;

• Digital technologies
• Digitalisation of clients’ operation
• New emerging business models
• Shifts in the value chain / ecosystem

The vision behind these innovations is;

• Developing advanced services and solutions to develop new and recurring revenue streams and increase long-term differentiation
• Develop better performing and more efficient predictive maintenance services
• Meet a broader scope of (latent) customer needs, beyond availability and condition of equipment like operational performance solutions.
  
  

Here is the problem

Most service leaders and innovators, solution providers, academics and consultants use broad and abstract concepts to describe their vision, strategy, innovations and new offerings with container words like;

• Servitization
• Advanced services
• Outcome-based services
• Remote services

I often hear from service leaders and innovation teams that;

• Clients do not see the value of the new offering or solution
• Clients see many obstacles and risks
• Clients are not willing to pay more for the new solutions
• Clients are not ready for the new solutions
• They lack the support of strategic stakeholders and other functions in their organisation

In essence, all boils down to the following 3 problems;

• The new solutions and services do not solve (new) critical business problem of the clients. The value or impact is not clear (other than potentially lower prices for the maintenance services)
• It is not clear how these services contribute to the overall business challenges and vision of the company as a whole
• The service vision is too abstract for internal stakeholders to understand and endorse. Words like servitization, outcome-based services, remote services and product-as-a-service are too theoretical and do not clearly articulate a vision and strategy.

This is pretty frustrating isn't it?

The solution

In this article I share a couple of frameworks which many service teams miss in their service innovation strategies. These are;

• Build deeper customer insights
• Segment clients based on their needs
• Approach your business models more holistic

This is by no means exhaustive; many aspects come into play to get it right.

Build deeper customer insights

To be truly outside-in and customer driven, you need to have a deep insight in the challenges and problems your clients are facing in their business. Deep customer insights should;

• Go beyond their requirements about uptime and maintenance of their assets
• Cover a time window of 3-7 years
• Be thought provoking eye-openers for your clients

You can read more about this in my contribution “Build a Strong Customer Story in 7 Steps and Launch Irresistible Advanced Services” in the Handy Little Book, published by Field Service News (add link)

Segment clients based on their needs

One size does not fit all. Different clients have different visions and strategies, different challenges and therefore different needs. When defining the (latent) customer needs for today and the near future, it is crucial to have some sort of segmentation of your important clients based on their (future) needs.

This segmentation will help you to develop a robust strategy which defines which customer segments you will target, with which new service offerings and which business models you will develop.

There are many ways to segment clients based on their needs, largely depending on the specific industry. I will share two generic patterns for customer segmentation which can be useful for you to take as a starting point. They are based on segmentations of innovative and successful manufacturers and service leaders.

The two patterns are:

• Maturity – Willingness to outsource of a business
• Maturity – Complexity of a business

 

This could be a useful pattern in industries where many of your (potential) clients tend to do most functions themselves instead of outsourcing the activities (like maintenance of equipment).

Along the vertical axis you can separate segments based on the maturity of their core capabilities and processes. For example, in the industry of metalworkers this could be;

1. Traditional craftsmen
   The entrepreneurs personally (together with their employees) manufacture the metal products themselves, love part of the manual work and working with their machines and tools. This is their pride. Little of the activities are put into structured processes.
2. High tech workshops
   The entrepreneurs have invested in state-of-the-art tools to improve quality, consistency and efficiency. Their main focus is still on the technical side of the profession. Probably there is more structure in the workflow and processes, predominantly organised from a technical point of view. From a more economical point of view, the structure is by far not efficient yet.
3. Lean manufacturers
   The entrepreneurs have a more economic view (or hired an operations director with economic competencies) and are working on efficient processes, workflow and organisation. They follow lean-six-sigma or similar approaches to optimise human resources, capital investment and materials.
4. Value chain optimisers
   These entrepreneurs have a broader scope and are looking to their added value in the entire value chain, partnerships, vertical integration or specialisation. They may also develop more advanced value propositions to their clients like inventory management and delivery of the components they manufacture in small packages in the production line of their clients.

This is a very brief description. You should probably also look into functions like sales, marketing, engineering, internal logistics, inventory management, tools management, financial management, human resources management etcetera. You get the picture.

Along the horizontal axis you can segment your market into clients that tend to do as much as possible themselves versus clients that outsource many functions which are not part of their core-process. Clients in the first category probably have various dedicated departments, competence centres or teams for functions like process optimization and maintenance

Along the horizontal axis you segment your market into clients that have short and simple value chains versus clients with longer and more complex value chains. For example, again in the industry of metalworkers this could be;

1. Jobbers or workshops that fulfil specific tasks like welding, cutting, bending, drilling etcetera and that manufacture intermediate components or semi-finished products
2. Component manufacturers which perform several tasks to manufacture components, like engine blocks for the automotive industry
3. Product manufactures, which manufacture complex products
4. Machine manufacturers

Whatever pattern you use, with these segmentations, you now have 4 (or more) segments in a logical structure. For each segment you can

• Find a descriptive name
• Further describe their specific needs
• Define their characteristic to recognise them

For each segment you should;

• Decide whether you want to serve them or not. Or at least define which segments have your focus
• Develop a customer insight or customer story
• Develop specific messages to use in your marketing, sales and service delivery
• Develop and map specific services, offerings and delivery models
• Develop a specific commercial approach

When you are still in early stages of developing advanced new service offerings, it often pays to focus on one specific segment first.

Approach your Business Models with more holistically 

As soon as your advanced services go beyond the maintenance and the condition of the equipment your company manufactures and sells, you will be reconfiguring or extending the business model of your company as a whole, that is, the value proposition of your business model. This means, you need to have a strategic dialogue and innovation process with strategic stakeholders.

To make this a fruitful and coherent process, you should avoid a discussion about product versus services. It starts with;

• A shared concern about developments in the industry
• The threats and opportunities for your business as a whole
• A vision about the future state of your entire business and what needs to change to achieve this.

This will result in a few strategic priorities, one of which (hopefully) is services innovation.

Here I would like two share two useful frameworks that help to take the development of the business models to a more holistic - company wide - level. Note that these frameworks are not limited to services or products alone. They address the overall value proposition, which can be a combination of products, software, data and services. 

In the matrix above, you can describe changes of your business model along two aspects.

Along the vertical axis, you differentiate value propositions;

• From stand-alone offerings (like single products or services)
• To comprehensive and integrative solutions which cover a broad scope of needs and solutions

Along the horizontal axis, you differentiate highly standardised offerings from highly customised offerings.

This results in 4 types of business models, which I will further describe with document printers as an example;

•   Product Business Model
  • Only printers, probably including service contracts
  • A wide portfolio of different models to choose from
  • Additional equipment for folding documents, putting them in envelops etcetera
  • Getting the printer for free and paying for the ink only
  • Predictive and remote maintenance
  • Cloud storage solutions and Microsoft Office 365 still fit in this model, even though you pay a small fee per month
  • Also retail banking fits in this business model
• Project Business Model
  • An assessment of the entire business, to define how much printers, which type and where
  • Connecting the printers to the network, configuring security systems
  • Designing, building, commissioning an entire print room for high volume printing and mailing of documents
  • Designing more effective and efficient processes
• Solution Business Model
  • Taking over the entire print room from clients, which could still be at your clients’ locations
  • Connecting the Salary Administration system to the print room, to print all salary slips at the end of the month, put them in envelops, and send them to the postal services
• Platform Business Model, in the printer industry the example may become a bit theoretical, anyway
  • An online platform where clients can upload templates, designs and lists of destinations and pay for the job. The platform will split this in smaller jobs for various connected and certified print facilities across the world and process the financial transaction. (I am not sure if this kind of service ever existed)
  • In the Additive Manufacturing sector, we do see initiatives in this direction to allow manufactures to print metal spare parts anywhere in the world close to the customer
  • Other examples of today are Apples Appstore, iTunes, Spotify, Amazon, Uber and Airbnb 

The framework above will help you to better articulate the kind of value and related business models you are aiming for.

With this framework you can define your value proposition along the horizonal axis based on the scope of the services. There are several ways to add value to your clients (deliver outcome if you like). I will use the commercial truck industry as an example;

• Better products
  For example. improve fuel efficiency of the truck and engines
• Better availability
  Your services can maintain and improve the availability and condition of the equipment when your clients need them. This could be quite advanced with real time data, smart diagnostics predictive analytics or supported self-help offerings using AR.
  For example, predictive maintenance to improve availability (and maybe also improve fuel consumption)
• Better application or use
  Your service can drive the output or performance of the equipment you delivered to clients by improving the use, configurations, settings and ongoing optimization tactics. Also, these services can be onetime projects or ongoing support.
  For example: Reduce fuel consumption by improving the driving behaviour of truck drivers
• Better processes
  Your services can also concentrate on the overall processes and operation.
  For example: Reduce fuel consumption (and other cost) by improving the route planning, combining jobs, choosing the right vehicles for each job etcetera

Along the vertical axis you can separate offerings which are;

• Effort based, where you promise to do certain activities for which your client pays, regardless of the result of the activities. It remains the responsibility and risk of your clients to manage the overall performance and take the right decisions.
• Performance based, where you promise your clients a certain result and get a fee depending on this result. In the example of commercial trucks, this could be;
  • Guaranteed uptime and availability of the truck of 99% and penalties if the performance is below 99%
  • A fee per percent-point of reduction of fuel consumption
  • A fee per transportation job

How to use these frameworks

Map your current business model(s) in one or more of these matrixes. Also map a few scenarios for the envisioned business model(s).

This will help you and your stakeholders to have a more structured and neutral discussion about the major trends in the market, technology and competitive landscape as well as in what direction your value propositions and business models should develop. Any choice will have an impact on engineering, manufacturing, software development, marketing & sales and services.

What are the takes

If manufactures cannot successfully adjust their business model, they run a serious risk of falling behind existing and new competitors.

Clients are developing digital capabilities in all their functions. They will have other needs for services and solutions.

This is an important opportunity for manufacturers to grow their relevance for their clients and grow their business.

It is also a unique opportunity for digital native service providers and system integrators, which offer remarkable and complete solutions to the (new) problems of your clients. They are your new competitors.

Benefit

If you use these frameworks and embed them in your service vision, your innovation strategy as well as in your dialogue with strategic stakeholders, you can develop the;

• Shared concern for the business as a whole
• The strategic priorities for the business as a whole, one of which will be services
• Shared vision for the business as a whole, which includes services
• A specific shared concern for the services business unity
• The strategic priorities for the services business unit
• A shared vision for the services business unit

Rome was not built in one day

It is an iterative journey. It takes time and work. The frameworks above will help you to facilitate and structure this journey.

Manufacturers and service leaders with successful advanced services have used these kinds of frameworks for a long time and still are. This allowed them to achieve quick, continuous and more radical innovations and thrive in disruptive times.

Conclusion

For quite a few service leaders, the journey of service innovation is a tough one. Their clients do not see the value of new advanced offerings, they do not want to pay for them, and internal stakeholders do not provide the necessary support.

Some of the key reasons are;

• The critical business issues of the clients are not clear and are not addressed with the new offerings
• The business value of the new offerings and business models are not clear
• The envisioned business model(s) are not clearly described

Litmus proof

I would like to challenge you with the following questions.

Can you describe your services vision and strategy in concrete words? Without using words like;

• Advanced services
• Servitization
• Product-as-a-Service
• Remote services
• AR, AI, IoT

Does your services vision start with a description of;

• Major trends in the industry of your clients
• How challenges and priorities of your clients are changing
• How that will change their needs
  
  

Recommendation

If you want to be leading the transition of your business and industry, I would recommend you to;

• Define a clear shared concern with your strategic stakeholders;
  • What are the developments and trends?
  • How are customer needs changing? (our worksheet “Build your Customer Story” will be useful)
  • What is the (potential) impact of these changes for your business?
  • Does your business want to act on this by innovating the business model?
• Together with your strategic stakeholders, consider various options for developing the business model(s) and assess how these business models would help your business to thrive
• Agree on the innovation strategy and next steps
• Iterate!

---

Further Reading:

• Read the "Build your Customer Story" worksheet @ https://moremomentum.eu/worksheet-customer-story
• Read Jan van Veen's article, “Build a Strong Customer Story in 7 Steps and Launch Irresistible Advanced Services” @ https://www.fieldservicenews.com/blog/build-a-strong-customer-story-in-seven-steps
• Read more articles by Jan van Veen @ https://www.fieldservicenews.com/hs-search-results?term=jan+van+veen
• Read more about moreMomentum @ https://moremomentum.eu/
• Read more about servitization @ https://www.fieldservicenews.com/hs-search-results?term=servitization

What can we learn from the social environment of silicon valley and can it be adapted to service? Mark Glover finds out more...

In the 1960's, sunlight seeping into the bay area of San Francisco would glisten not only off the sea but, perhaps less evocatively, off the many silicon transistors being developed at the time.

Curating Innovation in Field Service

Since then, the area better known as silicon valley sparked with creativity from the world famous Stanford University and through a tech evolution that started in military equipment, straddling space research, radio equipment, computer software; stopping slightly to ease itself out of the dotcom bubble, has emerged as the technology capital of the world.

It now means that when we think of innovation, we think of silicon valley. It contains the largest concentration of high-tech companies in the United States. The area bristles with start-ups who have started or are about to; a place where ideas fizz creating some of the biggest trends and movements.

Its criss-cross of streets and avenues are dotted with famous tech companies.

Facebook, Google, Twitter all bloomed from its creative soil and it was while researching this article, using the aforementioned web-based search engine, my browser guided me to a picture of an unassuming garage in Palo Alto, the caption underneath reading: "The birthplace of Silicon Valley."

Further investigation revealed the garage had, in 1938, been where two college friends, William Hewlett and David Packard, began developing their audio oscillator. As I look around my office I see a printer with the pair's names on which is probably ubiquitous across many other offices up and down the land and another nod towards the global influence of the Valley.

Hewlett Packard, Facebook, Twitter base themselves or have a presence there. Google's 'Googleplex', the company's vast glass and chrome office-space shimmies and shines over 2,000,000 square feet in Mountain View, California.

Employees from the surrounding San Francisco areas are whizzed into work and back by a wi-fi enabled Google shuttle bus. It's not Google's main HQ, that's in New York City, but the company recognised the importance of embedding themselves here.

But why is this part of the world such a fertile area for creativity and big ideas? Of course, the weather, fine beeches and transport links all help - as does the location of of Stanford University, one of the finest education establishments in the world but the creativity has matured and eventually embedded itself over time.

 

"It's interacting heavily with each other, doing the same things and learning and inspiring each other and setting the same standards..."

 

The original sediment fused in silicon chips has, for those that work there, become an ingrained culture that is the envy of many a businesses and thought pieces in Wired and HBR. Those that find themselves working there can't help but be absorbed and locked into its social environment.

In a recent Field Service Podcast Jan van Veen discussed how an social environment like that of Silicon Valley's can lead to business success. "The environment you're in heavily dictates or defines your success," he said. "There is a ambition to it, there is a stretched goal that you are trying to pursue.

"An example of this is Silicon Valley. Everyone is there together, doing the same kind of thing and just by being so close to each other and interacting with each other and doing similar work and collaborating with each other and then all of a sudden that boosts development."

"There are buildings where start-ups join together and are based but it's not just about the office-space, it's interacting heavily with each other, doing the same things and learning and inspiring each other and setting the same standards for example, 'How do we run our business and develop our business and grow our business?'"

It all sounds great, even better if you're in the California sunshine sipping a smoothie while caressing the keypad of your Macbook pro, but what does it really look from a business perspective? "It's a social environment, an environment of people together," Jan suggests. "The environment is a group of people, either inside your business or outside or a combination of both, all sharing the same kind of aspirations and values and goals. And that they have a high-level of interaction and the exchange of information, insight and experiences and interact with each other," he paused at this point in the podcast, "but it's more than this."

"It's setting a culture and values and that way influencing each other's behaviours, mindsets and habits and the actions you take," he continued. "It can boost the things you do and how well you are able to succeed in achieving your goals."

 

"The demands from clients are changing and we see that business models are changing and we are seeing new entrants coming into the industries..."

 

As we move forward over the next twelve months what benefits can adopting such a culture bring to the service sector? van Veen thinks it can affect how successful we are in using innovation to develop a more service-orientated business model. "In manufacturing industries we are seeing more and more digital technologies coming in. The demands from clients are changing and we see that business models are changing and we are seeing new entrants coming into the industries."

What this new social environment signifies is a warning to those that choose not to or fail to follow. If manufacturers are not able to adapt quickly and escape from business-as-usual and fail to adapt to new models then they will drop behind the competition. How well are we able to change the way we innovate our businesses, drive that innovation and thrive in a rapidly changing world?

When Mr.Packard and Mr.Hewlett dusted away the cobwebs in a garage in Pala Alto, looked around and taken a deep breath, did they know what they would achieve? Probably not, but they would have driven each other on, confident their mini social environment would get them through.

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Further Reading: 

• Read more articles by Mark Glover @ www.fieldservicenews.com/markglover
• To listen to the podcast referenced in the article click here.
• Read more about Service Innovation and Design @ www.fieldservicenews.com/service-innovation-and-design
• Join Jan van Veen's Community @ moremomentum.eu/discovery-session
• Connect with Jan van Veen on Linked in @ https://www.linkedin.com/in/janvanveen1

Many service innovations fail because they do not have a substantial and desired impact for clients. Often, customer insights and value propositions are limited to a description of features and benefits, without considering the outcomes clients desire. The best practice is to have a compelling customer story and vision as a starting point. Jan van Veen, explains how you can achieve this and (and launch irresistible advanced services)...

This customer story illustrates the challenges, common mistakes and best ways clients should solve these mistakes. Based on this insight, you can develop irresistible new advances services and compelling marketing and sales messages, even if you have limited resources.

 

The Importance of Building Your Customer Story:

Do you still see that many ideas and new advanced services do not hit the nail on the head?

• The pain points your teams discuss with their clients do not hit their nerves
• Your clients are not eager to use the new services
• Let alone that they are willing to pay extra for these services

Even though you already did:

• Voice of the customer projects
• Customer journey mapping
• Customer feedback like NPS

Develop a set of features and benefits, for example by using the value proposition canvas

The good news is

• You are not alone. 
• And it does not have to be like this.

In this article, I describe seven practical steps to build a compelling customer story. These are the best practices applied by leading manufacturers to successfully develop and commercialise irresistible advanced services.

Here is the Problem

Your clients do not recognise which of their essential problems you are solving or how your services are offering a better solution. They do not see the positive impact they get from your offerings. And often, this problem is a bigger game than just higher uptime of equipment.

The Solution

You and your colleagues already have most information at hand. It is a matter of turning this information and knowledge into a compelling customer story, for irresistible advanced services.

 

The Elements of a Customer Story

 

• For every customer segment, you should be able to describe the bigger picture;
• The relevant trends which have an impact on the business and lives of your clients. 
• The ultimate fear for your clients, caused by 3-4 dominant problems.
• 3-7 common mistakes your clients make, which cause the 3-4 dominant problems
• Related to each common mistake, your vision or the best practices to solve this common mistake
• The ultimate prize your clients will get, with 3-4 benefits

You can use this customer story in many ways;

• A pitch to your CEO or your client of 1 minute
• A presentation of 5-10 minutes
• 7-12 articles of 700 words each
• Source of insights to develop new advanced services
• Source for the marketing team to develop marketing and sales messages and marketing collateral

 

Be Aware of the Common Pitfalls

This customer story is all about your clients, not your company, products and services. I have done quite a few workshops and masterclasses to develop a customer story. In the beginning of these workshops, pretty much every team struggles to focus on the customer. The pitfall is to be stuck in;

• Use of your equipment
• Maintenance of your equipment
• Performance of your equipment
• Performance of your services

Although these insights are useful for many improvement processes and initiatives, they do not contribute to developing and commercialising irresistible advanced services. On the contrary, these insights increase biases and keep your innovations being stuck in business-as-usual.

 

Getting Started

The following 7 steps take you through each element of the customer story. Ideally, you form a small team to work on the 7 steps.

Step 1: Define the Niche/Segment

A customer insight or story should always be specific for a group of clients with the same characteristics that are relevant to the same challenges and needs they have. This could be a particular customer segment or your ideal client.

At first, it can be challenging to define the specific customer segment. This is not a problem. In that case, just move on to the next steps. In step 3 and 4, you will notice that a lot of the customer problems are not relevant to all clients and how you could segment your clients into a few groups. By then, you can jump back to step 1 and iterate.

Step 2: List 100 Customer Problems

Having this customer segment in mind, start listing all the business problems you know or think they encounter or will encounter. If you do not have a clear definition and choice of a customer segment yet, just start with 1 or 2 relevant clients in mind.

The objective is to build a long list of problems, at least 100. Use the following tactics to keep the flow of new problems going and to ensure you have a broad and open perspective;

• Do not evaluate yet. Just write the ideas. Consider it a brainstorming practice.
• Build on problems you have already listed and think of 4 directions to reframe (see the picture below) 

• Description automatically generated
• Consider different stakeholders in the business, including the CEO and the field engineer
• Address challenges and problems your clients will or may encounter in the next 3-7 years too
• Also consider external stakeholders of your clients, like their clients, other vendors, partners and distributors
• And again, avoid topics which are related to your products, services and organisation. 

 

Step 3: Cluster to 7-10 Main Problems

Now start grouping all similar or related problems. You can do this in a spreadsheet. If you are doing this in a workshop with several people, you may want to work with post-it notes.

You will probably see that there are different ways of clustering. That is perfectly fine. See what makes the most sense.

Now, it is also an excellent time to evaluate if the customer segment you chose, still makes sense. Or, in case you did not select a particular segment, see if you can recognise some sort of segmentation. If so, you can iterate the process so far and start with step 1 again.

Step 4: Further Group to 3-4 Dominant Problems

7 to 10 problems is a lot to memorise and to help to build and communicate a clear message. The magical number is 3. 4 is okay too. If you have more than 4, you will notice that colleagues and clients will not memorise all of them after a conversation.

So, the next step is to further reduce the main problems into 3 or 4 dominant problems.

Summarise these 3-4 dominant problems into one single ultimate fear, like “adapt or die” or “hard work for less financial results, with no perspective for better times."

Step 5: Define the 3-7 Common Mistakes

Next step is to identify the 3-7 common mistakes you see your clients make that prevent them from solving the 3-4 dominant problems. These common mistakes are “wrong” thinking, actions and practices of your clients. 

For example, if one of the dominant problems is “too high operational cost”, one of the common mistakes related to this dominant problem could be that your clients have a “lack of understanding of their cost drivers and cost structure”. 

You may find some inspiration in the list of 100+ customer problems you identified in step 1.

Step 6: Define the 3-7 Solutions for Your Clients

Now define your vision of how your clients should solve each of the 3-7 common mistakes. This is not about your solution or offering yet; you will cover that in one of the next steps.

This is a relatively easy step. In essence, each solution is the opposite of a mistake. Further building on the example in the previous step, your view on the clients’ solution could be that they should “establish cost management practices”. They should gather and analyse data and step by step build a structure of their costs and cost drivers so they can monitor and manage their costs. 

Step 7: Define the Benefits and Outcome for Your Clients

Finally, describe the 3-4 key benefits and the ultimate outcome for your clients if they address the 3-7 common mistakes and apply the 3-7 customer solutions you have specified. The 3-4 benefits are the opposite of the 3-4 dominant problems, maybe structured slightly different. And the ultimate outcome is the opposite of the ultimate fear. 

Next Steps After This:

At this point, you already have a tremendously valuable insight, just using the information and knowledge you already have. Next steps to make this insight and your customer story rock-solid, are to get feedback and additional ideas from:

• Colleagues in various functions (sales, marketing, R&D, other countries)
• Partners, vendors
• Distributor or dealers

and then;

• Process the new information and update your customer story
• Build variations of the customer story for the most important customer segments
• Get feedback from your clients through open and in-depth conversations
• At some point, you may want to initiate a customer research based on the insights in your customer story to validate and expand the insights
• Adjust the wording and messaging to make your customer story more compelling and attractive for external and internal use.

 

The Benefit:

Now you have a robust and in-depth insight into your clients’ needs for today and the future which offers you an “unfair” competitive advantage. You can now;

• Improve existing service offerings
• Boost the innovation of advanced service offerings
• Improve your marketing and sales messages and marketing collateral
• Advance the conversations all customer-facing colleagues have with their clients
• Improve your Customer Success practices

Conclusion:

You are sitting on gold. You and your colleagues already have a massive amount of information and knowledge about your clients. You can turn that into actionable and compelling customer insights and a customer story to boost;

• Development of your services 
• Engagement with your clients
• Commercial success of your service business

 

You can build a substantial competitive advantage, even if you do not have the budget and resources for intensive customer and market research.

All this requires is to;

• Follow the 7 steps I described in this article, ideally with a small group. You can do this in 1-2 days. You can use our job-aid with slides and assignments for this workshop (https://moremomentum.eu/worksheet-customer-story)
• Keep each other focussed on the clients, not your own business or offerings
• Be open to new perspectives

It is not about convincing your clients of the value of your services, but about letting them convince you what they need.

 

Final Question for Reflection

Which 3 common mistakes do you make when developing and using customer insights for service innovation?

 

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Further Reading:

• Read more of Jan's exclusive writings for fieldservicenews.com @ https://www.fieldservicenews.com/blog/author/jan-van-veen
• Follow Jan's own work with his consultancy moreMomentum @ https://moremomentum.eu/
• Schedule a discovery session with Jan directly @ https://moremomentum.eu/discovery-session

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Jan Van Veen, founder of moreMomentum, outlines a crucial approach he has been developing within his peer-sharing community to help service organisations grow through innovation and diversification...

Manufacturers with a narrow innovation focus miss many opportunities, see more innovations fail, often see that competitors do exactly the same thing and struggle to turn their innovations into growing revenues and margins.

Leading and successful manufacturers cover a much wider scope of innovations than those that stagnate and fall behind competition. They actively search for opportunities to improve the value they promise their clients, how they deliver the value and how they capture part of the value. 

They find and launch more innovations for growth. Sounds like a good recipe, doesn’t it?

The problem: Too narrow innovation

Many manufacturers have a too narrow focus on their innovations. Their dominant focus is on improving features and functionality of the products they sell. An increasing portion of the manufacturers also improve their services, but are still focusing on break-fix and maintenance services.

There are major disadvantages of the narrow innovation focus:

• Companies miss many opportunities to better serve their clients and grow their business;
• Most innovations are not a complete solution, miss crucial aspects and therefore fail;
• If clients do appreciate the new value, they often have the buying power to benefit from this new value without paying more for it;
• For competitors it is easy to recognise the innovations and do exactly the same (or better), hence, commoditise the new capabilities and value even before the investment is earned back.

As a result, they not only fall behind competition. In today’s rapidly changing industries, they ultimately run the risk of be pushed down the “food chain”, stagnate or even become obsolete. This is pretty frustrating, but does not have to be like that.

How Many Manufacturers Struggle to Grow with IoT

A common struggle is to drive growth and monetise new remote capabilities.  Most manufacturers focus predominately on predictive maintenance, remote diagnostics and remote resolution. The aim is to increase the value they offer to clients by improving uptime of their equipment and the resolution time if a failure occurs.

They encounter the following typical challenges:

• Uptime is already quite high, so there is not much room for improving the value for clients. If uptime is already 95%, how much value will it bring your client to increase uptime to 96-97%?
• Clients recognize that you will be able to deliver maintenance services at a lower cost, so they may actually expect to pay less, not more. 
• Competitors are working on exactly the same, so there is no opportunity to differentiate
• Clients fear a myriad of IoT networks, platforms and having their data flow to external parties. Every brand and manufacturer they work with is asking for the same.
• Clients start looking for a common infrastructure and services from neutral service providers.

As a result, manufacturers invest a lot, see little value coming in return and see a declining interest for business innovation from senior stakeholders in their company.

Solution: Search along 21 innovation tracks

Leading and innovative manufacturers have a pretty broad range of areas in which they innovate for growth. They are more open to new domains, new business models and new perspectives which enables them to adapt and thrive in rapidly changing industries.

In our research, we have identified 21 innovation tracks for growth, spread over 3 clusters. You can thrive in today’s disruptive world and achieve sustainable growth by widening your scope of innovation along these 21 tracks and by making strong and coherent combinations in each innovation.

Just like the leading innovators, make it a habit to embed these 21 tracks firmly in your innovation strategy:

• Actively search for growth opportunities
• Along 21 innovation tracks
• And enrich each innovation idea by combining a few innovation tracks.
  
  

If you want a more in-depth description of the 21 innovation tracks, you can download the Job-aid 21 innovation tracks to thrive during disruption. This includes a description of the innovation tracks and a template assessment sheet to assess your current portfolio of innovation projects and ideas.

The three clusters of the 21 tracks are;

1. The value you promise to clients

Which problems or needs do you solve for which customer segments? Your growth opportunities are in solving more or other problems of your existing clients and expanding the market you serve. Alternatively, instead of expanding on scope and market, you could also specialise more in a specific niche of customer segments and needs and become the market leader in that niche. This cluster of innovation tracks also includes developing your brand to better articulate and expose the value you provide.  

2. How you deliver the value

Which activities and capabilities do you need to deliver the promised value to your clients? Your growth opportunities are in building and improving the capabilities to deliver the value in an effective, efficient and consistent way, so clients get and see the value.

3. How you capture part of the value

Which portion of the value you create and deliver do you capture? So how and how much are you being paid for the value you deliver? This involves your pricing model, earnings model and your position in the value chain. Successful and innovative companies always have these three clusters – value.

A few examples of how the various tracks are embedded in their strategy;

• There was a latent need of easy availability of tools and information and easy access to music (track 1). A lot was already available for the techies, but not for the mass market until Apple made this easy and readily available (track 2).
• Various manufacturers have offered something similar before, but Apple made it a commercial success by learning from the previous attempts of others what was needed for success (track 8)
• Apple developed an ecosystem of products and services with seamless integration as well as the Appstore (track 7). Other app-developers can offer their apps in the Appstore as well (track 15), but have to comply with Apple’s requirements. They also need to pay part of their license fees to Apple (track 19). As the app-builders are replaceable and the Apple eco-system is not, Apple can afford to ask pretty significant fees (track 21 and 18).
• Apple’s brands is far beyond “great products”. It is much more about lifestyle, ease, fashion and desire (track 11 and 12).

Back To Iot – The Opportunity

Once you have the sensors in your equipment, the infrastructure for connectivity and data and the capabilities to turn data into valuable insights, there are many opportunities to enrich your innovations and business model and hence dramatically improve the potential for your clients and your own business. To mention only a few:

• Your clients are on a journey of becoming more digital and data driven in many of their processes. This is a challenge with many unknown domains, unanswered questions and uncertainties.
• How can you identify these new needs (track 1) and reduce the complexity and uncertainty for your clients (track 2)?
• With the data and intelligence you develop on the back of these data, you can help your clients to reduce usage of energy and materials, improve efficiency and productivity, develop their products and shift their core business (track 6).
• This could start with assessment and benchmarking services, evolve in consulting and training services and further grow into business outsourcing services.
• For example, Fresenius does not only sell the instruments for kidney dialyses, but also runs entire kidney dialyses departments in hospitals, including the staff treating the patients.
• Part of this journey is also advancing your brand from being a product manufacturer to a solutions provider and being known for what problems you solve. (track 11 and 12).
• For example, Caterpillar helps clients achieve operational excellence through advanced services covering asset management, project planning, fuel consumption etcetera.
• Particularly for component manufacturers, you have the opportunity to develop unique intellectual property with which you can improve the overall performance of bigger systems of OEM’s. This will make you less replaceable and increase your ability to secure your margins from the OEM (track 21 and 18) – like Intel Inside. 
• Maybe you can even do business with the end-client buying assets from the OEM (track 19). An example is how Rolls Royce does not sell its airplane engines to the airplane builders (OEMs) but to the users of the airplanes.
• For most innovations, you will need to develop new capabilities, processes, competencies and tools to deliver these new values in an efficient way (track 14).
• As your business becomes more focussed on outcome and starts building more recurring revenues, you will need to develop your sales model as well (track 20), with more emphasis on onboarding, driving and demonstrating customer success, improving customer life time value and step-by-step growing the business with your clients by upselling and cross-selling.

 

Conclusion

For sustainable success in today’s rapidly changing world, there is no single silver bullet. A great product or great service will not bring much value. To thrive in these disruptive times, you need diversity in your business innovation with initiatives in different innovation tracks as well as initiatives with a rich and coherent set of innovation tracks. That way, you will launch innovations which:

• Provide clients a complete, remarkable and desirable solution
• Are hard to replace by other actors in the value chain, like OEM’s or system integrators
• Cannot be easily copied by competitors
• Your clients will love to pay for

If you want to take your business innovation to the next level, I would like to recommend you and your team to;

1. Assess your portfolio of innovation projects along the 21 innovation tracks. How well are the 21 tracks covered?
2. Enrich each innovation idea and project by adding a few more innovation tracks to it.

Feel free to use our job-aid “21 innovation tracks to thrive during disruption”. You can download it here. 

It contains:

• A description of each innovation track with some examples
• An excel sheet to map each innovation to the 21 innovation tracks and get an insightful graphical picture of how diverse your innovation is
• Slides you can use to brainstorm with your teams to enrich your innovation projects.

Good Luck!

 

 

 

Jan van Veen says firms need to protect themselves first and then accept and adapt to the inevitable long-term affect of the virus.

We all need to take our responsibility to keep our colleagues, our clients’ staff and the public safe. The Coronavirus will be with us for a long time, probably years. We should anticipate a scenario that will have to continue carrying out measures to control the virus.  This could have a substantial impact on our society, economy businesses and our clients' businesses. If we stay close to our clients, we have the best chances to mitigate the impact and reinforce the loyalty of our clients.

Three Phases

In the next six months we should all walk through the next three phases:

Response: Right now we have to control the crisis and mitigate the direct impact on the short term.

Review: Assess what we can learn from the impact of the current outbreak on our business and clients business. What are the vulnerabilities and weaknesses? What are our strengths and what are our opportunities? Which other trends are being triggered? Often, an economic crises and new disruptive technologies can accelerate market disruptions. This could be a chance for significant and innovative change. 

Redesign: How can we make our business more agile and less vulnerable to these kind of outbreaks? Think about safety, capacity, supply chain, remote capabilities. How can we enhance our value propositions to better support our clients? How should we evolve our operating model and business model? Stay flexible and be prepared to adapt.

 

Jan van Veen was part of our panel at Field Service News' Covid-19 Emergency Symposium which you can listen to here.

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