Implementing servitization

Aalto University seminar 20th November 2012.

by Riku Seppälä

I attended Aalto University’s seminar ”Implementing servitization” 20th November at Otaniemi campus. The seminar was part of “Integrating Service Management and Operations Perspectives in B2B Services”- project at Aalto University within logistics research group. According to the project description the ISMO project aims to develop concepts, tools and methods to actively manage the service processes, resources and competences, including the client, in a service production system. The project was started in 2009 and ends in 2013. More information about the project and its content at: http://www.lrg.aalto.fi/?q=content/project-15

The seminar consisted of two separate tracks, the first one called “Managing profits in service business” and the latter one “Implementing full service business models”.

This post gives an introduction to the actual content of each presenter’s speech and my personal experiences/learnings.

Servitization

–>From goods centered point of view into customer solution centered view.

Servitization (or service economy) is described as a trend where the relationship between products and services are evolving.

Designing performance measurement systems for complex services

Andy Neele, professor, University of Cambridge, Cambridge Service Alliance

Professor Neele gave a presentation about the difficulty in orchestrating measurement systems for complex services. The used case example was the London Underground system.

For many large organizations the problem within measurement of business success and KPI’s (key performance indicators) is not the lack of the sheer number of them but the lack of systematic analysis of the performance indicators. Many organizations simply have way too much KPI’s to measure and few people to analyze those metrics.

In the case example, the London Underground had over 3000 key performance indicators in place and nobody could make a sense of those KPI’s. For example they had a metric which stated that all litter over size of 5*5 cm in underground stations should be removed because of the fire hazard. Litter smaller than that could have been left to place by the janitors. This reflects directly in the daily operations and the environment of the underground stations.

The problem with measurement in today’s organizations is that the measures do not have a relationship to the business strategy. Consultants might propose a vast quantity of measures which bear no relationship where the business aims to go. Also the technological advances that have been happening allow organizations to measure a vat amount of business data, both inside the company and outside.

I totally agree with Neele as we are bombarded with all kinds of raw data from various sources. With my background as a digital marketer I’m faced with data coming out from web analytics software, ad management software, and business intelligence software. The list can go forever.  Some clever guy (Avinash Kaushik) once said that 10 % of the web analytics budget should be spent on software and 90 % on people. This makes total sense when talking about business measurement in general as well.

Professor Neele pointed out four driving forces that affect measurement systems in today business world.

1. Networked organizations

–          a company seldom works just within their boundaries

–          business partners, sub-contractors, customers, government, etc.

–          organizations have overlapping measurement systems, this is too expensive and complicated to function properly

–          nowadays one cannot think just inside the company, one should think inside a network

2. Big data

We are swamped with data coming from various sources, this makes analysis of the data very complex, expensive and time consuming

3. The turbulent world

–          World is changing in a high speed mode

–          There are four forces according to Neele that drive the change

  • Technological
  • Economical
  • Political
  • Terrorist

4. The focus on technology

– Technological advancements in the last decades have made business intelligence companies to flourish. But it is not all about the technology itself that can bring benefits from measurement systems. You need also the right information to the right people at the right time and make the right decision based on the information.

To sum up Andy Neele’s presentation measurement system are/can be:

–          Systems measure too much

–          Focus mostly on financial matters

–          Report history rather than predict the future

–          Where’s the value of the systems when they cost millions of euro’s for large organizations

Cost management and implications of modularity

Petri Suomala, Professor, Tampere University of Technology

Petri Suomala presented the basics of cost management and tried to describe the means of use. According to Suomala, cost management can be described as a process where costs are collected, analyzed, summarized and evaluated in order to make better business decisions.  He also stated that cost management seeks to search the true cost behavior of a service or a product.

As in the above image, cost management can be difficult when calculating true costs for a certain object.

Modularity was used in a case example of a sofa manufacturer. A sofa manufacturer might have straight out of the box sofas with little or no room for adjustment or they might have “modular” products where the customer can choose which kind of sofa arrangement they prefer. The problem with cost management within modularity is that it is rather hard to define the overall costs of modularity.

The cost of modular design usually consists of:

–          Development costs (machinery, software, etc.)

–          Direct costs (costs per unit)

–          Indirect costs (people, marketing, etc.)

–          Remember to take into account the initial cost around modularity

Managing profitability at Fujitsu Services: the service hierarchy map

Mika Hyppönen, Business development manager, Fujitsu Finland Oy

As with all technology companies, Fujitsu Finland has seen a steady growth in the service area of their business. Fujitsu’ s service offering portfolio has expanded rapidly and this has brought a need for a more systematic measurement system (service hierarchy map) of the service portfolio.

The goal of the service hierarchy map was to:

–          Promote a more uniform offerings structure

–          Harmonize terminology and

–          To describe dependencies between the service components

The hierarchy map is also needed for:

–          Clarifying the service catalog

–          Increase offering and production modularization

–          Improving profitability analysis of various services

–          Improving service impact analysis

The hierarchy map has clarified Fujitsu’s service offering and profitability analysis on each separate service products but also brought more sales opportunities when customer needs are better at hand within the company. I would have liked to know how Fujitsu involves customers in the process of concepting new services or is it so that the provider “opens” up their service portfolio to the customers although the actual services has already been concpeted and launched.

Effective personnel integration in outsourcing based service businesses

Saara Brax, Researcher, Project Manager, Department of Industrial Engineering and Management, Aalto University School of Science

Saara Brax outlined the problems and pitfalls in outsourcing in service businesses. In this context outsourcing means the transfer of employees from the customer to the provider, for example from Nokia to Accenture. It can also be described as sourcing a former internal function or process externally. She highlighted two different case situations where outsourcing had been managed in a different way.

Case companies fell in to two groups when considering the integration process. Case A company was human orientated in the integration and Case B company was task orientated.  The difference according to Brax was that human orientated method takes matters of integration into consideration well before the outsourcing has actually happened and the personnel started in the new organization. Task orientated companies tend to start the integration process when people actually are physically at the new premises. Human orientated organisations also proactively seek alternatives and solutions to problems that might lie ahead of them rather than reactively act when problems have already risen.

Becoming solutions provider in the capital goods industry. The case of Océ.

Filippo Visintin, researcher, Department of Energy Management, “Sergio Stecco”, University of Florence.
Mr. Visintin started his presentation with a brief look at the concept/ description on servitization.

Servitization according to Visintin means a logic from goods centered view towards customer centered solutions view.

Mr. Visintin presented a case example of an Italian printing company Océ. Océ faced fierce competition in its wide format printing business and needed to bring new added value services on top of the hardware that they sell.  The company developed “the Océ Solution delivery framework”. The presentation focused on illustrating the process needed to transfer into a “servitized” organization.

Steps in transition towards servitization:

Step 1.

–          Lead the change inside the organization by recruiting the right people to the right post to take the lead in change management

Step 2.

–          Align different functions inside the company to leverage fast deployment

Step 3.

–          Business services – stop thinking in terms of revenue when there might be no revenue at the beginning

–          Instead set target in terms of profit

–          Identify value added activities in the process

Step 4.

–          Identify the building blocks of a service

–          Océ developed a systematic framework to offer new services, consulting, implementing, education and support services

–          Océ example: six step delivery process, orientation, investigation, analysis, design, implement and support

Industry changing maintenance approach for telecoms – key learnings about new service introductions

Marko Lepola, Head of GS Case Solutions, Nokia Siemens Networks

Nokia Siemens Network Care- Active software support service

By far the most interesting case of the day for me with the most hands on approach when explaining new service concepting and piloting with customers.

Mr Lepola gave an excellent presentation of a new service concept within in NSN for their telecom customers. NSN created a new service concept that is still in its “beta” mode and being piloted with first pilot customers. The service included a new support concept, system and interface for their telecom customers.

Although the presentation did not include information about the customer insight research phase and did not have much of a customer point of view, it was an interesting glimpse of how a multinational organization developed a new service offering. This reflection of the presentation is divided into two sections: WHY? and WHAT?.

WHY?

–          The network industry has changed from call to internet services, a real megatrend inside network business

–          End user expectations are higher than before, people demand 24/7 service globally

–          Cost of support is growing

–          Competition is high which leads into price erosion

WHAT?

–          New service offering to telecom customers  “Active software support”

–          Includes active prevention of network problems and blackouts, also includes automated delivery of support

–          Online collaboration, it is responsive and preventive

–          Standard support is something that they call “broke and fix approach”, this concept is preventive by nature

–          Targeted towards technical maintenance personnel of their customers (Elisa, TeliaSonera)

KEY LEARNINGS

–          Technological development to support service delivery

–          Short development cycles

–          Make sure that the service concept is understood everywhere needed

–          Joint service development

–          Strong sponsorship

–          Co-creation with the customers is important

–          Hard to act when there are changes both in the provider organization and inside the customer organization

Conclusion of the seminar

As with all of the day’s presentations and speeches I would have liked to know more how these companies came up (customer needs) with the ideas for new services and what were the role of customers in the service design process. ISMO project has started in 2009 and it is hard to get a crasp of what has been discussed in earlier seminars and what kind of information they have shared. You get only the information that is on the days agenda when coming to just one event in the middle of the project.

I’m not sure how some of the days presentations really match the days agenda “Implementing servitization” and some of them could have been left out completely in my mind. Cost management and outsourcing part could have been trasferred into another type of setting and not necessarily in  to service management seminar.

This post is part of “Current topics” -study unit in the SID Master’s program.

By Riku Seppälä, SID Master’s student

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