This is a guest blog by my friend Nick Frank of Service in Industry. Nick is British and I did not Americianize his spelling.
WHY THINK ABOUT STARTING A SERVICE TRANSFORMATION
By the very nature of their history, engineering and industrial businesses tend to focus on technology and processes when developing product-related services. However, for these services to be enduring and profitable, they must develop and even change their people as they evolve into a services-centric culture.
Generally, engineering companies have large groups of technical specialists who are good at delivering ‘answers’ to customer problems or commercial people who are good at looking after the needs of the customer and building relationships. To be successful, these businesses need people that can bridge these two mindsets at the customer touch points. At these ‘moments of truth’, team members move beyond solving problems and towards being trusted advisers. Staff need to have the knowledge and language that gives their customers confidence that they understand their needs and can provide robust solutions. Building this capability can drive revenue and improve margins through improved customer perception.
This management insight will discuss five guiding principals for developing a ‘People Action Plan’ that will contribute to successful transformation to a new organisational state:
- Leaders that understand the need to align ‘People’ with the ‘Brand’ and the ‘Strategy’.
- An ‘Outside-In’ mind-set, that is in tune with customer and industry trends which enables the organisation to seamlessly deliver the customers needs.
- Aligning teams & people around the customer and ‘Busting the Silo’s’.
- A formal programme that supports the people development processes to achieve the business’s goals.
- Recognise and reward success.
1. THERE IS A POWERFUL LINK BETWEEN LEADERSHIP, BRANDS, PEOPLE AND STRATEGY
Leadership is more often than not, the major differentiating factor in a company’s level of success. Yet how many leaders consciously link their services strategy, to their brand, to their people? Understanding that these factors are inter-related is vital to transforming a product-orientated business, which undertakes transactions, to business model based on delivering outcomes as an on-going service. Successful companies often base their strategy around:
- Delivering a strong service based brand that offers a compelling value argument to its customers or
- A people-driven strategy based on long term personal relationships.
This contrasts against companies that have tried to differentiate themselves through adding features to their offering or looked to compete primarily on price. These companies had much lower growth rates and profitability.
This is good news for most industrial companies who generally have developed a very strong brand position over many years based on their technology and manufacturing roots. These businesses are very well positioned to follow a Brand or People driven strategy, in which they develop services that:
- Increase equipment availability and operational uptime through services such as preventive/predictive maintenance and equipment availability contracts.
- Develop new revenue streams through ‘knowledge driven’ services, which are independent of the product. Good examples would be the ATM provider that has used its understanding of machine usage to offer a cash management service.
- Transformational services, which fundamentally change how a market operates. For example, the ‘Power by the hour’ business model, which transformed the market for aircraft engines from a product transaction to a service transaction, i.e. the purchase of power to fly the plane
By understanding how these services and differentiation strategies interact, we can start to understand how the people and culture of our organisation must move from simple vendor relationship to that of a strategic business partner. Within the vendor driven environment, service is price driven and often seen as a cost centre, the skills sets revolve around being able to quickly and efficiently fix the problem set for the specific products supported. A good example would be the white good industry, where it is sometimes more cost effective to replace a product such as a microwave than fix it on site.
As the service strategy evolves to be more feature and people driven, so more sophisticated services such as availability and performance guarantees are offered. To be profitable the organisation needs to develop a much deeper understanding of their customer’s business. This entails sales and service people to be able to identify issues/opportunities, which sometimes customers may not initially recognise themselves, and then co-develop solutions. The skill sets and capabilities of both sales and service organisations when acting as a ‘Solution Provider’ can be seen to be quite different to that required of a ‘Vendor’. A good example might be the injection moulding machine supplier that decides to move to supplying systems that deliver the end product such as a plastic cup. No longer are they supplying & supporting their machine, but in fact a complete injection moulding process that not only incorporates the machine, but also the moulds, hot runners, supporting ancillary devices and knowledge of the process.
As companies strategies evolve to being people and brand driven, so knowledge based services are naturally introduced into the relationship. And as soon as this happens, the people on the front line become even more critical to delivering a customer experience and their relationship will evolve to that of a ‘Trusted Advisor’. For example should a customer require their equipment to be replaced or upgraded, the solution provider will tend to provide a technical response to the specific issue based on their technical skills. A Trusted Advisor will provide a balanced opinion on whether to upgrade or replace, based on an understanding of the clients business needs. This business understanding is a new capability within the organisation that needs to be nurtured at each interaction with the customer, if the organisation is to live to its brand values.
When customers choose their partner’s because of their brand reputation to be able to deliver transformational change, the relationship has evolved to that of a strategic business partner. A good example of this would be in the Medical Instrumentation industry, where suppliers no longer supply a piece of equipment. More and more they are taking on an operating responsibility for that equipment within the hospitals to which they are working as a strategic business partner. And this is fundamentally changing the way that health care is being provided within many national health care systems.
2. DEVELOP AN OUTSIDE-IN MIND-SET
Key to understanding that relationships change as the suppliers evolves to a brand driven strategy, is the transition from ‘Inside-Out’ to ‘Outside-In’ thinking.
What is Outside-In thinking: A common approach taken quite naturally by many technology-orientated organisations and individuals is the ‘Inside-Out’ approach. Idea’s are generated internally and literally pushed onto the outside world. The development of the supersonic Concorde aircraft would be a good example of this thinking. Leading edge technology show casing British and French engineering prowess, pushed into a market that did not value the proposition. The result was that Concorde was never a commercial success.
On the other hand ‘Outside-In’ thinking is when organisations and people look outside themselves to guide actions and activities. At a commercial level most of us would recognise market research, focus groups, and customer pilots as methodologies to drive this type of thought process. But it also applies to operations looking outside to their competitors, and other industries using techniques such as benchmarking. This concept is at it’s most powerful, when individuals in the organisation are able to see, seek and respect ideas that are outside their own area of responsibility and even ego.
Why the ‘Outside-In’ challenge is important: An organisation’s culture is the key challenge to service transformation, as it influences an organisations capability to deliver ‘value’ at each of it’s customer’s touch-points. It is at these moments of truth that employees must go beyond solving problems towards being Trusted Advisors. Beyond being an order taker to solution provider. They have to be able to communicate the value of the technology solutions they are discussing.
For example as shown the grid for service excellence, a typical field:
An engineer will focus on the technical problem at hand such as fixing a machine. The Trusted Advisor will also deliver a customer experience. The technical specialist might offer his maintenance skills but the Trusted advisor would offer his opinion. They will understand the clients business need, the value of his offer in relation to the competition and that of alternative actions. This thinking goes beyond the concern for fixing the problem and introduces an awareness of the ‘outside’ customer.
The same development can be seen in the grid for sales excellence. Within the selling of a complex engineering system an order taking approach is taken with little understandings of the customers true needs (Inside-Out), success is likely to be very limited. However, as our concern for the customer and understanding of the customer increases, so our ability to sell solutions and services is tremendously enhanced.
Internal Branding to overcome the Outside-In Challenge: The problem for most Engineering business is that Outside-In thinking is only found in particular areas of the business. These types of businesses tend to have technology & manufacturing engineers, who are generally good at solving problems. Then there are the sales specialists who are good at managing relationships. The development of product related services in many ways is the combination of these two skill sets into service centric led business. A business that can understand its customer’s value chain and then bring its technological competence to bear to deliver value on an on-going basis is going to be successful.
To make this step change in culture requires both organisations and individuals to develop a healthy ‘Outside-In’ culture that enables business strategies, which are internally focussed, to be turned into customer experiences (outside focus). Remember it is often said that
‘A customer may well forget what you tell them, but they never forget how you make them feel!’
One way of developing this type of culture is to deliver the same message for both customers and employees. Miele, the premium white good’s manufacturer tag line has always been ‘Forever Better’. In training their service technicians, they use the same brand message to ensure that technicians exhibit the right technical and behavioural skills that re-enforce the company’s values every time they came in contact with the customer.
For services, attention to the internal branding of the business is one of the most important factors in communicating the brand values to the outside world, as it is the service people who have more customer contact than almost any other part of the organisation.
3. ALIGNING TEAMS AND PEOPLE AROUND CUSTOMERS AND ‘BUSTING SILOS’
Generally, the companies that succeed in becoming customer centric have eliminated the functional silos when serving their customers. Functional silos often inadvertently have competing Key Performance Indicators (KPI’s) that are not aligned to meeting the needs of the customer. So in eliminating this issue, companies have had to face up to 5 key challenges:
- How to create an organisation driven by customer value.
- Teamwork between marketing, sales and service teams.
- Ensuring competencies in place that support the organisational model.
- Meeting the needs of different customer and market segments with cost effective sales and delivery organisations.
- Ensure teams are organised to maximise the life time value of the customer
To overcome these challenges, best in class companies employ the following techniques:
- Consulting customers: Shifting from equipment and service products to consulting customers on business needs.
- Coordination: Establishing structural mechanisms and processes that allow employees to improve their focus on the customer by harmonizing information and activities across units.
- Cooperation: Encouraging people in all parts of the company through cultural means, incentives, and the allocation of power to work together in the interest of customer needs.
- Capability development: Ensuring that enough people in the organization have the skills to deliver customer-focused solutions and defining a clear career path for employees with those skills.
- Connection: Developing relationships with external partners to increase the value of solutions cost effectively.
For example, a leading manufacturer of capital-intensive equipment for healthcare providers has started down the silo-busting route through evolving to a customer-focused organisation. They have moved from an organisation that was organised in functional entities such as sales, service, finance and HR, to teams focused exclusively around specific customers. Each team is headed up by a General Manager, who is responsible for managing the entire customer relationship, ensuring the needs of the customer are met profitably. Changing employee behaviour, especially around the area of adding value has been one of the key challenges.
4. PEOPLE DEVELOPMENT PROCESS
In order to deliver this level of change in an organisation, companies need to develop a methodology or framework to develop their people.
Typically, there are two key elements:
- Define a competency framework for the new skill sets required in the business
- A career planning process, which enables development, recruitment, as well as managing poor performers out of the business.
Skills and capability assessment: Beginning with a good ‘Competency Framework’ to define clearly which competencies are important, how to achieve them and what needs development. Within services there are generally three skills set to assess:
- Professional skills: are specific to engineers and support staff and not normally required of anyone else in the business; the skills relate to diagnosis and fixing of technical problems whilst taking into account any additional contributory customer issues. A good diagnostician will know the right questions to ask and then be able to interpret information to discern what is relevant, differentiating between symptoms and causal issues.
- Business skills: are often the least accomplished and are concerned with the ability of engineers and support staff to understand the commercial impact of their performance. These skills engender confidence in the engineer and support staff. This raises an awareness of their value to the business and customer’, in turn encouraging loyalty in the customer, which is unquestionably at the heart of being a ‘Trusted Advisor’.
- Behavioural skills: are those needed to attend to customer issues caused by a problem which might not be technical, but is still extremely important to the customer. It is in these areas where the adaptable engineer or support person can adopt relationship skills that will score highly on customer satisfaction and loyalty ratings. They exhibit awareness of the broader issues and make the customer feel cared for. The expectations of all customers have changed significantly, and responding to changing needs requires engineers and support staff to offer more than just excellent technical skills – which most customers take as a given.
Having looked at the big picture and defined conclusions and priorities, the next step would be to look at your people. An assessment should provide a picture of the competencies of each individual, using questionnaires, manager assessments, as well as self-assessments. Combining these methods provides an overall balanced picture of individuals, their strengths, and their weaknesses in order to prioritise which competencies need development.
These priorities then help define development plans towards necessary training. Most approaches to training often don’t yield good results with most employees reverting back to their original standards soon after training. Usually this is due to the environment not being conducive to implementing the training or because those receiving it haven’t necessarily understood it. Improving the capabilities of their management and staff is not just a training issue, but is a more complex requiring a company wide approach.
Career Structure and job roles upgraded: These plans must be in the context of structured career plans. One problem many engineering businesses face is that service is not seen as being an attractive career and many prefer to stay on the technology and manufacturing path. Leading organisations such as Rolls Royce now recognize this and have put in programmes to formally develop a career path within their services business.
Training, Coaching and Academy concepts: While training, coaching and people development is an important capability in all leading organisations, often it is deficient when dealing with service management. Usually this is because services management has not been seen an important strategic driver, and so a deep understanding by Human Resources and its trainers has not been built up.
For companies looking to develop Product Related services, it is fundamental to their development they build up a cadre of people who have this knowledge and see themselves as service professionals. One way of developing this deep expertise is to establish an internal academy concept for services. The role of the academy is to implement the people management methodology previously discussed. It will define the competency framework, the methods of assessment, education and training support required, to help services professionals attain their development goals within the context of the business. In this way, the academy becomes a core HR tool to develop a workforce that has the capabilities and skills to support services over the 10-30 years that is often required by their customers.
5. RECOGNISE AND REWARD SUCCESS
John Kotter, the Harvard University change guru identified that good leaders motivate their people by:
- Articulating their vision in a way that relates to the values of their employees
- Involving people in deciding how to achieve the organisations vision
- Supporting their people realise the vision through coaching, feedback and role modelling However it is the reward and recognition of success that gives people a sense of accomplishment and that they are part of an organisation that cares about them.
Others have shown that this pride in the organisation has a direct impact on the commitment employees have in delivering customer satisfaction in the services they offer. So ensuring reward and recognition is part of the design of Services transformation is an essential part of long-term sustainability of change.
CONCLUDING THOUGHTS
We have focused on the importance of people on the successful implementation of a Service Transformation programme. This is especially important, as many of the organisations that are well position to develop these types of services are highly technology orientated and not necessarily focused on the impact their people can have on the customer experience.
It is important that business leaders recognise this and understand that there is a direct link between their brand values, strategy and the capabilities required by the organisation.
To this end developing a strong ‘Outside-In’ culture is a critical success factor in the transition from a product-focussed business to a customer/service centric business.And many of the companies trying to develop an ‘Outside-In’ culture are inhibited by functional silo’s each with their own agenda’s. This is why some businesses have been successful in ‘busting these silo’s’ through developing organisations that are organised around customers and regions, with full responsibility for the ‘Quote to cash’ and ‘After market’ processes. However many organisations are not well positioned to develop their service capability because they do not have the depth of human resource knowledge regarding service management. One of the solutions to this is to develop this knowledge through a structured programme centred on the academy concept.But which ever way is chosen, it is key to ensure employees are recognised and rewarded for their development as this will have a direct influence on their commitment to delivering high value and sustainable services.
About Nick Frank
Nick Frank is a founding collaborator of Service in Industry. He has led service transformation in industries as diverse as fasteners to capital equipment and is Managing Partner of Growth Stages, a consultancy focused on driving business growth through leveraging services and smarter-connected technologies. Nick is a regular contributor to the Manufacturer Magazine and Field Service News. He focuses primarily on service strategy development, servitization business models, ecosystems, innovation management, and service business development, working on numerous projects in diverse industries including engineering, high volume manufacturing, equipment manufacturers and technology. Nick has BSc in Mechanical Engineering from the University of Southampton and an MBA from Cranfield University.
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