Creating Customer Value Through Services

In the Cambridge Service Alliance we have long talked about the importance of focusing on outcomes - understanding deeply and intimately what it is that your customer or even your customer’s customer values and exploring how you can deliver this. One of the most powerful consequences of thinking this way is that it encourages you to change the way you think about the boundaries of your business.

Take, for example, Caterpillar - what is it that their customer’s customer values? Imagine, for example a mining operation or a quarry. Clearly the customer wants a safe working environment. Clearly they want equipment that is reliable and productive. Clearly they want minimum disruption to their operations and production schedules. But ultimately what they want is to be able to extract minerals in the volumes they need at the lowest cost. If lowest cost per tonne is what the customer wants, what can Caterpillar do to help their customer achieve this?

Well the first thing is they can recognize that the mine or quarry is a system - to achieve lowest cost per tonne you have to optimize the system and get all of the people and equipment working in harmony together. It is not enough for Caterpillar to be able to guarantee that their equipment has the lowest operating cost or even lowest total lifetime cost. Unless Caterpillar’s equipment works in harmony with the rest of the quarry the customer won’t achieve lowest cost per tonne.

Working in harmony requires coordination - coordination across mixed fleets of assets and equipment. One of the services Caterpillar and their Dealers now offer are quarry optimization services. They use the data coming back off their equipment to help the customer identify production inefficiencies and lost time. Trucks, for example, have sensors in their beds. As the truck is loaded with material, the sensors record the weight of material in the bed of the truck. So Caterpillar knows when trucks are fully loaded. They also track location, through GPS data, so if your data shows a truck is fully loaded, but its GPS position is not changing then its not moving. That’s lost time - once the truck is loaded it should be moving off up the haul road en route to dump its load in the crusher.

There are loads of similar examples. Bose thinks of itself not as a speaker manufacturer but as providing sound distribution systems. Pharmaceutical firms are reinventing themselves as healthcare solutions provides - seeking to find a new way to complete as the development cost of drugs increases and more and more drugs come off patent.

At this year’s Cambridge Service Alliance conference - creating value through customer services - scheduled for the 6^th October - we’ll be hearing from three leading providers of services and solutions - ABB, Rolls Royce and Zoetis. Each of them will be explaining how they have managed to develop business models - often enabled by data and analytics - to create value for customers by focusing on the outcomes their customers and their customer’s customers really want.

Is servitization for everyone?

One of the questions I have been asking my students recently is whether "servitization is a strategy for everyone". Effectively I ask them to take any product they wish and develop an idea for a service that is directly related to the product. The students have come up with some great ideas. One group developed a business model for renting umbrellas. Imagine having umbrella rental kiosks at busy main line stations in London. You arrive at Kings Cross, without an umbrella, only to find it is raining. Rather than buying an overpriced umbrella in a local store, you can rent one for a day and if you don't return it, you forfeit your deposit, but are then allowed to keep the umbrella. Another group developed a business model for exchanging baby products - a store where you could buy second hand cots, toys and prams (all of which had been fully refurbished and reconditioned). As your baby grows older and bigger the store would take back products you no longer needed and sell you a new set - a child's bed rather than a cot or toys for a three year old, rather than a new born baby. Any products you returned to the shop would be refurbished, reconditioned and sold on to a new set of parents. Yet other groups have suggested technologically enabled services. One team came up with the idea of machine tool manufacturers offering environmental monitoring services. This group proposed that firms should couple an energy monitoring service with the machine tools they sell. In essence the manufacturer of the machine tool would provide guidance and advice on how to reduce energy consumption of capital equipment.

While the ideas themselves are interesting, one of the things that I have found most fascinating is that nobody has yet come up with a product that could not be accompanied by a service. Luxury goods - where ownership might confer status - are appealing as rental items. Why own that fantastic diamond necklace (and carry the risks and costs associated with ownership of a very valuable piece of jewellery) when you can rent whatever jewellery you want for particular events. A counter argument might be that jewellery as a gift is important. If I told my wife that I had rented our wedding ring rather than bought it for her I might get short shrift. But the jeweller who sold me the ring offers a reconditioning service, a personalisation service and could offer a consultancy service, providing advice on which product to select.

Move to the other end of the scale and think about commodity products. Take something as simple as a paperclip. What service could be associated with paperclips? At first blush this appears to be a more challenging question. Paperclips are so plentiful and cheap that it is more difficult to conceive a service. But think about how many paperclips are wasted, taken off sheets of paper and dropped in the bin or put in that jar that sits on your desk and gradually fills to overflowing. What about a service centred around paperclip recycling, where unwanted paperclips (like spent batteries) are collected and returned to source. What about paperclips with RFID tags on them - paperclips that could provide location information so you would never again lose that important document in a pile of paperwork!

The more I think about it, the more I feel that the world of services and solutions is endless. Some of my academic colleagues argue that products are only ever a means to deliver services. I wouldn't go quite that far, but I think it is right to say that all products can be supported or supplemented by services. I'd be interested to hear of examples of products that you think it would be difficult to support or supplement with services.