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Jan Van Veen,  founder of MoreMomentum continues his latest exclusive Field Service News series on how companies can monetise their services and data by exploring how companies can remove the obstacles that are stopping them build momentum with their clients. 

Central question
Many manufacturers experience pressure on growth, revenue and margins. Their products and services are being commoditised. Competition from lower cost alternatives are arising. On the other hand, there are huge opportunities with new technologies, value propositions and business models.

One of the important trends is that value propositions and offerings become more data-driven and more service-oriented, which go hand in hand.

Besides predictive maintenance, most of the value from data is related to how clients use the equipment or products and to their operations and processes. Helping clients improve on this by nature is a service.

However, many manufacturers are product-driven businesses which do not fully appreciate the value that (advanced) services have for their customers and their own business.

So, one of the central questions is: How to Monetise Services and Data to Grow in a Disruptive World? The capability to monetising service and data is mission critical for sustainable performance and existence of manufacturers.

In a series of articles, we cover four  critical steps that make the difference between success and failure in monetising services and data:

• Solve bigger customer problems;
• Articulate the value;
• Build momentum with clients to adopt;
• Build internal momentum.

Developing new data-driven solutions and services is all about extending the existing business model, which leads to different challenges than many other initiatives and programs in a business. Recognising this in advance will help understand the challenges and best strategies.

In the previous articles of this series, I have described critical success factors for monetising service and data, such as Solve Bigger Problems,Better Articulate Value and Remove Obstacles for Clients to Adopt. In the end, this all has to be done by people and teams in your organization.

Common mistakes
In this article I will describe common mistakes that many companies make, which holds them back in having fluid and energising change, and to move beyond business-as-usual in their endeavours to monetise service and data.

No North-Star
Many companies, including manufacturers, do not have a clear picture of where the industry is heading and where their business is heading. It is unclear for their employees what needs to be developed and why.

More specific, for many employees it is not clear why the new service and data-driven solutions are that valuable to clients, how it would fit in the overall core business and why it should be paid for by clients. Often, the indicated direction even suggests the opposite and may give room to the logic that value added services and datadriven solutions are (free) features to support the product sales.

Just imagine how a hypothetical mission statement “… being the world’s leading manufacturer of construction equipment and engines” would help develop and monetise advanced services and data-driven solutions.

Blinkered
People in manufacturing are often biased towards products, equipment and technology. They have a narrow view on:

• Customer problems beyond the requirements for the products and equipment;
• How other actors in the industry are developing with advanced data capabilities, which could become competition to the current position of a manufacturer;
• How new technology can be applied to develop new value propositions, solutions and operating models.

This will affect how product managers, marketing and innovation will develop new services and data-driven solutions. Too often, we see that the services and solutions do not always solve a customer problem and hardly differentiate from services and solutions competitors are offering as well.

It will also affect how their colleagues in the operations (sales and delivery) understand and engage, as there is no compelling context to understand the importance of the new services and solutions, let alone be engaged.

Top-down P&L thinking
Too often, we see that developing and launching innovations, such as new advanced services and data-driven solutions, stagnate because of the decision-making habits in an organisation. Typically, we see one or more of the following:

The strategic intent from senior leadership is unclear, hardly based on a well-developed shared concern, not giving a clear path on what services and solutions to develop, nor on what the strategic priorities and objectives are, to be successful. So, employees are not really enticed to take action and therefore no change.

The strategies and plans are more short-term which emphasise short term financial objectives, leading to two different scenarios:
Financial objectives are not articulating the need for services and data-driven solutions, nor specifying which portion of these objectives should come from services and data-driven solutions. Often, employees are actually motivated to stay away from developing and launching the new services and data-driven solutions.

Or, in case the financial objectives also assign financial objectives coming from services and data-driven solutions, there is a lack of description of qualitative objectives and strategic priorities on how to arrive at those financial goals. The result is often a lack of initiatives and progress, or lack of alignment and results.

Top-down strategies from senior leadership are so specific and instructive that these actually dismiss other employees taking ownership of the plans, and/or adjusting plans and local strategies where needed.

Paralysis by control
Top-down control mechanisms from the last few decades are a huge obstacle for fluid and energising change in an organisation and therefore hinder the initiatives like monetising services and data. More specifically, we often see the following patterns;
Internal conflict of interest in the product sales teams, because they are often incentivised on sales volume.

It does not make sense for them to sell complicated service contracts. It hardly affects their commission, consumes a lot of time and may even put their product sales deals at risk. Instead, it is more beneficial to please their clients by offering discounted services.

In case there is a separate service sales team, for the same reason, there are often internal arguments on who owns the client and what is the best plan forward with each client. In the worst case, this even leads to having different faces towards the clients, leaving them confused and with a bad customer experience.

Control mechanisms that are too strict create an unsafe environment in which employees show defensive and risk-avoiding behaviour. Instead of trying, learning and being successful in monetising new services and data-driven solutions, they instead become complacent and resistant.

Typical signs are pointing fingers to other teams to take action, declaring that the new services and solutions are not the core business, that customers don’t want to pay and referring to other companies who have tried and failed.

Some solutions
Many things come into play when increasing momentum for monetizing (new) services and data, and preventing existence of too many obstacles and resistance. In general, the more adaptive and fluid change in a business, the easier a specific innovation on service and data.

We have seen that leading manufacturers have adopted 4 winning habits which sets them apart. These winning habits define how both operation and innovation is lead. In the next paragraphs I will describe the 4 winning habits in relation to monetising services and data.

"People in manufacturing are often biased towards products, equipment and technology..."

Direction
Leading companies have a transformative vision and mission on where the business is heading, what needs to change and develop, and why this is important considering the changes in the industry. This is a quite a holistic picture in which all stakeholders and entities in the business can relate and get direction on how to develop themselves, their teams, their department and their business unit.

It provides an outside-in picture on how the business is and will be relevant to a certain industry and customers. It explicitly points out how the business will add value to clients and that this requires certain technology, (data-driven) solutions and services.
Now imagine how the following mission statement will drive the development and implementation of new services and data-driven solutions: “Our purpose is to enable healthcare providers to increase value by empowering them on their journey towards expanding precision medicine, transforming care delivery and improving patient experience, all enabled by digitalizing healthcare.” 

Discovery
Here I want to focus on two phases on innovating your services and datadriven solutions: the development phase (including ideation, selection and design) and the implementation phase

For design purpose
In general, the envisioned services and data-driven solutions differ significantly from current business logic, mindset and operations in your business. Even though anyone in the organisation could raise great ideas, it is crucial that the development of the new services and solutions are done by dedicated teams with the right expertise and focus.

They need to ensure they are open-minded and unbounded by current (and old) business logic and pathways. In terms of discovery, this means they should:

Talk with other stakeholders in client organisations (rather than the ones your organisation normally speaks with) - for example, the CFO, CEO, VP, Innovation, commercial leaders, etc. Build a new expert-network outside the organisation - which is outside the current network of partners, suppliers and clients - including the academic experts and consultants in areas you usually have no relationships with and talk about topics other than current technology, products and service, and more about major trends, visions of the future industry,key challenges and strategies of different actors in your and adjacent industries.

This will not only help to obtain more ideas for future success, it will also help to change perspectives and business logic within the innovation teams and the rest of the organisation, by sharing these insights.

For implementation purpose
Once the new solutions and services have been designed and developed to a scalable offering, it probably needs to be embedded in the existing organisation. Now, the risks of resistance or complacency may come into play.

The more developed the mindsets and habits are on “digital” and change, the more fluid the implementation and change will be. This can be promoted massively by strong Discovery habits: Involving key players in the operating organisation, well in advance of the implementation, into the initiatives for launching new services and datadriven solutions - for example, by having a frequent dialogue on shared concern and discussing the alternatives to solve these concerns. This can be done by frequent conversations or including them in the extended innovation team.

Having everyone involved in discovery activities that do not require too much expertise and dedication, for example, by having colleagues; Have broader conversations in their day-to-day conversations with clients, suppliers and partners. You can provide them with topics and questions to help open the conversations

Joining events with customers where you discuss trends, visions, needs and how they see your added value. Join conferences within your own industry and even other industries and sharing new insights and learning points from the expert teams, painting a picture of what is going on in the outside world, how this may impact your business and how this will/could be addressed.

Decision making
In line with the mission, vision and direction leadership of leading manufacturers, have a clear strategic intent on:
Result objectives - for example, overall growth aspirations that new services and data-driven solutions are crucial and how much business is expected to come from these new services and solutions. Strategic objectives on which offerings and capabilities need to be developed.

Next, they have a clear (top-down) strategy which articulates crucial choices on how to achieve these objectives in a few phases. This should provide a common roadmap on which offerings to develop, how to sell them, to whom and by whom, how to organise marketing, sales and delivery, and which obstacles to overcome.

This strategy should address all stakeholders (including R&D, marketing, product-sales, service sales and service delivery) who have direct influence on implementation and success.

With this top-down strategy, still, a lot is left open on how to achieve the objectives. Local teams are empowered to develop their local roadmap and strategy, and to take full ownership of the local development, learning, capability development and execution. This will allow them to mitigate local strengths, weaknesses, opportunities, threats and market circumstances.

Dialogue
With a constructive and forward dialogue between individuals, teams and departments, issues are solved in a fundamental and sustainable manner, hence building capabilities to perform.

For monetising service and data, this means that: Ideally, services and data-driven solutions are being sold at point of sale (when equipment is sold) - maybe not the full package, but the entry level offering which will be the first step to the next level mature offerings. Commission structure of sales people needs to be designed in such a way that it promotes the right focus and behaviour.

I have seen quite a few examples where equipment sales people were quite successful in selling service contracts once the commission they would receive was tied to the sale of a service contract.

Sales people who sell advanced services and data-driven solutions need to have specific skills and background, which are not necessarily the same as skills required for selling the products and maintenance services. Most stateof-the art sales techniques such as Solution Selling, Challenger Selling or Value Selling, assume a fluid and educated dialogue on related business domains.

Often, these conversations should happen with other stakeholders at the client organisation, maybe at higher seniority levels. The different teams need to have the confidence and safe environment to learn and develop these skills and knowledge, and become fluent in these conversations and sales approaches.

Different teams in your organisation need to be “in the same boat” without conflicts of interest. We currently see more and more companies aligning targets and incentive schemes, in which common and shared objectives prevail above individual targets.
Full transparency in key performance indicators on progress and results is required, to have all stakeholders have the necessary insights to be able to take ownership and accountability and intervene when/where needed.

Benefits
The leading manufacturers, ahead of the game, have built momentum for continuous and easy change from the inside, moving beyond “business-asusual”. Their teams are passionate and eager to perform, learn and pursue opportunities. Instead of resisting new ways of thinking about customer challenges, customer value and their business, they focus on customers and pursue opportunities to increase value.

Monetising services and data has become a logical part of their overall vision and strategy. They are better in solving bigger customer problems, better at articulating the value for customers and in removing obstacles for their clients to adopt the new solutions. As a result, they better differentiate themselves – in the eyes of their customers - from their competitors. They perform better and have more resources to keep innovating their business and hence grow in our disruptive world.

Boost your monetisation If you want to accelerate the monetisation of your (new) services and datadriven solutions, I would like to recommend:

• Review your business alongside common mistakes and suggested solutions, and add the discrepancies to your strategy;
• Download the scorecard How to Monetise Services and Data here;
• Book a Discovery Call with Jan van Veen;
• Join our upcoming Impulse Sessions on How to Monetise Service and Data. These are full day interactive meetings with like-minded peers during which we will exchange experience, insights and challenges.

Essence It’s not about making money from new services and data-driven solutions; it’s about being highly relevant and valuable to clients in a sustainable manner and empowering your people to do the same.

It goes without saying that if you deliver value for money, you also get money for value.

Jan Van Veen is Managing Director at MoreMomentum. 

Coen Jeukens, CSO, D-Essence, explores the developing world of Products as a Service and the increasing drive both from customer pull and vendor push towards outcome based business and service models...

When we need light, we buy a bulb. When we need a hole, we buy a drill. It is so engrained in our thinking to own products whilst we actually need the outcome. More and more we see upstart businesses cater to this “new” demand. They sell a product as a service (PAAS). How are you preparing your organisation to sell your product as a service?

We move water 

At the After:Market 2016 event in Wiesbaden a German manufacturer of pumps introduced his company with the words “we move water”.

With those simple words he set the stage for his PAAS business model. Selling the pump is not his goal; it is a means to start an outcome-based discussion with his client.

In doing so he enters in a conversation where he truly understands what drives his customer. Because the conversation goes beyond the pump, he has created a new business model where he earns money with moving water.

The additional benefit is for the environment. Instead of designing your product for repeat sales you will wind down a track where you deliver outcome at a minimal material/ energy footprint.

Transforming legacy businesses is possible 

Understanding the effort it takes to transform a legacy business, University of Cambridge professor Andy Neely asked the panel of the Field Service Summit 2017 in Warwick what successful transformation examples should encourage others to follow suit. Both Boeing and Philips demonstrate you can have best of both worlds.

They serve customers in a hybrid model.

 

Via one business unit customers can buy the product in a legacy CAPEX/ OPEX mode. Via another business unit customers can buy the output/ outcome of the product. Depending on his propensity, a customer can choose between a  jet engine and a “power by the hour” propulsion solution or a bulb and a “pay per Lux” illumination solution.

Why should you explore PAAS

It may scare corporate executives and sound very blunt but exploring PAAS is a “do or die” message.

If you don’t do it, somebody else will. At best it is your current competition and you can see it coming. For the worst, you will face competition from newcomers starting with a clean slate.

Record labels were so focussed on holding to their CD product revenue stream and deliberated so long on legal download options, they were decimated by services like Spotify.

How do you assess your organisation? Products are meant to deliver a solution.

Using a more positive approach: the more you understand how the outcome of your products generates value to your customer the more you establish yourself as long term partner in both a profitable and sustainable way.

Where to start

In the example of Philips Lighting, a small team beyond the radar of product based business model executives designed the “pay per Lux” solution.

Upon demonstrated success with a launching customer the new PAAS solution was put in the spotlight.

Setting up a sandbox environment with servitization minded people is essential, as you will be in for a paradigm shift:

[unordered_list style="bullet"]

• When you sell Outcome there is no title passage of the Product. This means the product remains on your balance sheet.
• As supplier you will be responsible for and remain in control of all CAPEX and OPEX cost components.
• You need to understand your customer to define a “pay per use” earnings model.[/unordered_list]

Understanding cost

In the Philips Lighting dialogue the customer asks for a Design, Build, Finance, Maintain and Operate solution.

This DBFMO framework (in the image above) can be used to understand total cost of ownership. Design and Build lead to the commissioning of a Product.

Maintaining the Product safeguards the Output of the Product. Operating the Output provides an Outcome. The Outcome generates Value. Maintain and Operate are stated in terms of OPEX. When adding Finance services to your portfolio, you can transpose Design and Build CAPEX into OPEX too.

Design-for-Operation

With PAAS the total cost of ownership shifts from customer to supplier. As a result the supplier is incentivised to throw in all his expertise to continuously optimise product, output and outcome.

In order to make pay per use profitable all cost elements of DBFMO need to be designed in unison. Call it design-for-operate. Where design-for-service supplements design-for-manufacturing, design-for-operate augments the former two.

 

Remember: business models based on breaking products should not be accepted.

Pay per use

Where design-for-operate drives towards minimising waste and cost, engineering the right pay per use model determines your revenue. This is where entrepreneurship and partnership kicks in.

Pay per use is a bi-directional handshake between supplier and customer that takes it to the next level compared to a typical sales-purchasing relationship.

Instead of a cost/ revenue conversation about products and output your dialogue will evolve into an outcome based profit/ value handshake.

Your customer will help you define the pay per use drivers. If you really understand his business and you are confident in the capabilities of your own organisation to generate outcome that makes your customer succeed, your customer will be inclined to enter into a partnership to make you succeed as well. As a result de pay per use drivers will be fair, sustainable and durable to both parties.

Don’t own, enjoy

Ownership comes with responsibilities. Why should a customer have to carry the risk whilst the supplier is the expert in both understanding and influencing risk. A PAAS model is the ultimate form of “back to core business”. The supplier managed DBFMO, the customer uses the outcome to generate value.

In return the customer pays for use.

Does pay per use really work for both parties or do words like partnership, fair and sustainable sound altruistic? The IT industry does give us insight into what is to come. Because SAAS solutions are available for consumers as well, first hand experience is changing our perceptions, attitude and decision-making regarding cost and value.

 

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“Philips Lighting – a PAAS dialogue – “pay per Lux”*

Customer: “I need light in my office.”
Supplier: “How many bulbs do you need?”
Customer: “I don’t know. You are the expert. What do you advise?”
Supplier: “Our proposal contains 100 bulbs of model abc. This is an investment of xyz.”
Customer: “I want the energy bill of the bulbs to be included in your proposal.”
Supplier: “Our renewed proposal contains 90 bulbs of our newest energy efficient model.”
Customer: “I want you to design, build, finance, maintain and operate the solution.”
Supplier: “We have developed a special lighting solution for you. Low on energy, sustainable in materials usage and easy to (de)install. We name it ‘pay per Lux’.”

 

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