High Performance through Service Management Accenture Research and Insights into Service Management Mastery

Consulting Technology Outsourcing

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ContentsIntroductionService Management MastersInsights and RecommendationsOn the Journey to High Performance

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Introduction

In nearly every industry today, managing after-sales customer service effectively has become critical to achieving high performance. Manufacturing high-quality products and distributing them on time have become merely table stakes in most industries, and for a number of reasons. The first is that it’s getting more difficult to wring value out of traditional supply chain improvements. Initiatives to boost sourcing, manufacturing and distribution operations are generating diminishing returns. A second reason is that products have become commodities in many industry sectors; customer service is now a major differentiator, and one that is difficult to imitate. Third, in today’s multi-polar world, companies support a globally dispersed customer base, one that has more complex requirements and needs not just products but better ways to use them—that is, product and service “solutions.” Of course, that demands companies find better ways to deliver and manage customer

service. Lastly, the intense pressure to boost margins, identify new revenue opportunities and increase capital effectiveness has increased scrutiny of all areas of a business. Areas like service management that are a sizable portion of revenue and profit are under the microscope.

And indeed they should be, given how big after-sales support—what Accenture calls service management—has become in many enterprises, and what a substantial drain it can be on the bottom line. At many industrial and service companies, after-sales service accounts for 10 percent to 40 percent of revenue and up to 50 percent of inventory investment.1 The automotive industry is a case in point. Service management generates about half of all original equipment manufacturer (OEM) profits from after-market operations,2 of which warranty management is a big component (not to mention one of a manufacturer’s largest controllable expenses).

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Figure 1. Survey participant demographics

By Geography By Industry By 2007 Revenue

Given the preceding, it’s surprising that many companies do not view service as a competitive differentiator or as a source of high-margin revenue. In fact, recent Accenture research shows many companies underestimate the importance of service management to achieving high performance. In the second half of 2008, we conducted an extensive survey of more than 230 service management executives from around the world (see Figure 1).

Our focus was to determine how well these organizations managed after-sales service and the sophistication of a wide range of service management capabilities. To gain this intelligence, we measured participating companies’ performance in key service management areas.

Service as a Competitive Differentiator

As equally important, we also probed the maturity of their service management practices and capabilities, as well as their executives’ opinions on the value of service management overall.

Europe Asia PacificAmericas

34%

29%

38%

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The findings were both broad-ranging and revealing. One finding was that service management has yet to achieve “mission-critical” status in the majority of companies. Only 42 percent consider it a key contributor to the overall customer experience. As a result, most companies don’t view service management as having the potential to further satisfy customers, boost retention and bring new customers into the fold. Only half said their service management organization is extremely important to their company’s overall business. And barely more than half (52 percent) operate service management as a separate entity with profit-and-loss responsibility.

The performance of service management was also generally lacking. The companies we surveyed as a whole said they had only lackluster performance on 10 key metrics. For example, companies had only an 80 percent accuracy in fixing right the first time (FRTFT) and just an 80 percent fill rate in

customer-facing stock-keeping units (SKU). Furthermore, across our entire sample, 10 percent of service calls were unresolved (or “broken”) due to lack of parts, tooling or information. Additionally, our respondents posted just an 80 percent SKU-level forecast accuracy for A & B parts (see Figure 2).

Furthermore, companies in our sample had only moderate levels of maturity in service management processes, skills and technologies. For example, few companies:

Have end-to-end service solutions— •that is, advanced capabilities in developing and selling parts; service and solutions; and asset management/maintenance, repair and operations (MRO) solutions.

Have implemented a flexible service •delivery model—that is, one that enabled them to tailor service by customer or customer segments.

Are taking advantage of the full •range of service-related data that

could help them manage and deploy parts, people, facilities and partners.

Have “customer transparency” and •knowledge of customer profitability. By customer transparency, we mean possessing deep insights on customer needs, wants and other information critical to pricing, creating the right offerings and messaging.

Our survey found the typical survey respondent had only low to moderately developed service management capabilities. To achieve high performance, companies need much more sophisticated service capabilities. But where should they start? What practices and capabilities are the most critical to excellent service management? Our research findings provide clear guidance, especially the data we collected on companies that excelled at service management.

Figure 2. Performance across key service management metrics by the overall survey sample.

Fixed right the first time (FRTFT) 80 percent

Work orders over 90 days 10 percent

Work orders past original due date 15 percent

SKU fill rate 80 percent

Broken calls due to parts, tooling or information unavailability

10 percent

SKU-level forecast accuracy for A & B parts 80 percent

Obsolescence of gross service-parts inventory 10 percent

Warranty costs as percent of sales 10 percent

Spares inventory turns 8

Days sales outstanding (DSO) 30 days

For companies playing on a global stage, today’s economic conditions are no doubt immensely challenging. However, through our research and consulting work, we have identified and studied a number of companies that have responded effectively to these challenges through superior service management operations. They have turned post-sales support activities into a major competitive differentiator and significant profit generator.

In our survey, we identified these companies by isolating those that had finished in the top 10 percent of the survey sample on at least three of the 19 key service management metrics we covered in our survey. We refer to these companies as the service management "masters.” On the other end of the scale, we identified respondents that finished in the bottom 10 percent on three or more measures, a group we refer to as the service management "laggards." Overall, we found that masters in general outperformed laggards in 10 critical areas (see Figure 3).

In studying the survey responses of the masters and laggards, we found they also differ significantly in how they managed and operated their service operations. It became clear to us that superior service management performance correlates strongly with certain practices and capabilities, namely: service management philosophy, organization structure and offerings, service delivery model, service offering portfolio, partner relationships, resource planning, service transparency, and pricing and customer insight.

In the following sections, we explore these areas and discuss how masters outperformed laggards in each one.

Service Management Masters

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Figure 3. Masters outperformed laggards on 10 core service management metrics.

Masters Laggards

Fixed right the first time (FRTFT) 95 percent 65 percent

Work orders over 90 days 4.5 percent 20 percent

Work orders past original due date 5 percent 21.5 percent

SKU fill rate 95 percent 20 percent

Broken calls due to parts, tooling or information unavailability

5 percent 20 percent

SKU-level forecast accuracy for A & B parts 90 percent 60 percent

Obsolescence of gross service-parts inventory

5 percent 20 percent

Warranty costs as percent of sales 3 percent 25 percent

Spares inventory turns 22.5 3.5

Days sales outstanding (DSO) 10 55

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One of the biggest differentiators between masters and laggards is that the former appears to value service management more highly than do the latter (see Figure 4). For instance, masters are much more likely to run after-sales service as a unit with full profit-and-loss accountability. In fact, in 60 percent of the masters, compared with only 26 percent of the laggards, were service organizations given their own profit-and-loss. Masters also were more likely than laggards to view service as a key contributor to the customer experience and elemental to customer satisfaction.

The masters of service management also tended to have dedicated support capabilities that are essential to turning service into a thriving business. For example, masters were far more likely than laggards to have dedicated sales and marketing and R&D operations, as well as their own IT infrastructure. Furthermore, service management masters were more likely to develop their own people, with some 70 percent of masters

Service Management Philosophy, Organization Structure and Offerings

Figure 4. Masters appear to value the service management organization more highly than do laggards.

reporting skills development and career management programs for service management professionals (versus only 46 percent of laggards).

Another area that distinguishes masters from laggards is what they actually sell, with masters offering a wider range of both after-sale and asset management/MRO services than do laggards (see Figure 5).

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Figure 5. Masters offer a wider range of after-sale and asset management/MRO services than do masters.

After-sales services

Asset management/MRO services

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Masters are much more ambitious than laggards in the post-sales services they provide to customers, serving customers wherever they are, on time and with high quality, and at optimal cost to the company.

Masters are more than three times as likely as laggards to tailor service for each and every customer or by customer segment (see Figure 6). Furthermore, masters can customize service in part because they have a broader range of capabilities and resources in their service centers (see Figure 7), including call handling/customer care, parts warehouses, repair depots and remote diagnostic capabilities.

In providing fast and cost-effective asset-management services, masters are more likely than laggards to leverage a range of resources, including centralized global service centers, regional service centers and third-party service providers. Masters are more likely to build global delivery centers or to use external partners

Figure 6. Masters are far more likely to tailor service delivery by individual customer or customer segment.

Figure 7. Masters are more likely to have a broader range of capabilities and resources in their after-sales service centers.

Service Delivery Model

that that deliver at the right costs and quality to the right place. How post-sales service is delivered also appears to be crucial. Masters to a larger degree than laggards ran their service organization centrally but had regional or local operations where necessary. Twice as many masters as laggards (30 percent versus 15 percent) managed service centrally while also having regional service facilities, which made it easier for masters to respond flexibly to customer demand.

Interacting with customers via the Web is another hallmark of the masters. Indeed, masters deliver a greater percentage of both after-sales and asset management/MRO services via their online portal (see Figure 8), which helps reduce service delivery costs while improving customer satisfaction.

General Electric is an excellent example of a company that has profited from tailoring services for customers. GE Aviation, which makes engines for aircraft companies, began offering “intelligent workscopes.” The company must tune engine performance based on what aircraft customers (airlines) need, which can vary. Some opt for better short-term performance, others for fuel savings and still others for longer-term durability3. The workscopes factor in such customer needs, engine conditions before and after they go into the shop, and how much customers wish to spend on maintenance. That enables GE Aviation maintenance personnel to know how far to go in their work.

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LaggardMaster

Master Laggard

81%

26%

Figure 8. Masters make greater use of the Web for delivering after-sales and asset management/MRO services.

After-sales Asset management/MRO

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To be sure, services are more nebulous than products. Many manufacturers that sell services find it more difficult to choose, design and articulate service offerings than they do regarding the goods they manufacture. Our research confirmed just how important it is to have clearly defined service offerings.

More than twice as many masters had a clearly defined portfolio of both after-sale and asset management/MRO service offerings covering all their services and solutions (see Figure 9). They also are more likely to use simulation or modeling to create the right mix of services and assess their revenue and margin impact, develop proactive service and parts strategies that were in line with their company strategy, get sales and service professionals to work jointly in selling the company’s full portfolio of parts, services and solutions, and use their analysis of customer product usage and feedback data to create new parts, services or solutions offers.

Service Offering Portfolio

Figure 9. Masters understand their customers’ needs and develop a portfolio of after-sales and asset management/MRO offerings they can deliver cost-effectively.

After-sales Asset management/MRO

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Partner Relationships: Collaborating with Best-of-Breed Service Companies

Few companies can go it alone in the service game, even the biggest of manufacturers. Nearly every service organization in these companies needs other firms to round out or help deliver their offerings. In our research, we found the companies that were best at service management were superior at working with and managing such service partners (see Figure 10). Of course, the advantage here begins with having a partner strategy. The majority of masters (62 percent) but only the minority of laggards (14 percent) had a well-defined and well-articulated partner strategy that was tightly aligned to their overall business strategy. Knowing when to bring in partners also separated the masters from the laggards. Some 69 percent of masters (versus only 30 percent of laggards) said their sales and service people know when and how to use partners to serve specific customers.

Masters also are more likely to collaborate with their service partners rather than keep them at arm’s length.

First, masters are nearly three times as likely as laggards (78 percent to 27 percent) to formulate their service strategies jointly with partners, as well as create joint marketing initiatives around those services. Second, masters tightly integrate their service management processes and information systems with those of partners (72 percent versus 29 percent). And masters are nearly three times more likely to use structured and automated performance management processes with partners (64 percent to 22 percent). That enables masters to continually evaluate the effectiveness of their partners and make changes as conditions warrant. It also ensures a consistent brand appearance to the customer regardless of whether a company or its partners executes a service task.

Consider the case of Fujitsu Siemens Computers. The company is a leading provider of computer hardware in Europe, the Middle East and Africa, and its service division provides repair

Figure 10. Masters are superior in working with and managing service partners.

and support to 170 countries around the world. In managing warranties, the company relies on more than 2,000 partners for repairs and customer service. In 2005, the company determined that by outsourcing warranty management, it could cut annual warranty costs by 9 percent to 8 percent. Its warranty management partner developed a new warranty information system to control the whole warranty process. The system identifies before a repair is made whether the service contract covers the parts as well as which parts should be used. The system also alerts Fujitsu Siemens Computers about faulty systems earlier than in the past, which improves quality.

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The service business is rich in data: customer maintenance records, service inquiries, contract details and agreements, and so on. Our research confirmed one of the keys to managing the service business for high customer satisfaction and profitability is collecting and exploiting service data to manage every piece of the business. The “exploiting” aspect of this is crucial. Many companies collect service data but use little of it to improve service operations.

The masters use and leverage a far greater range of data than the laggards do, which helps them better plan and use their service people, parts, facilities and partners (see Figure 11). For example, to help manage and deploy people, the majority of masters and only a minority of laggards leverage maintenance plan, historical and service contract service-level agreement data. When managing spare-parts deployment, a majority

Resource Planning: Using Data to Optimize People, Parts, Facilities and Partners

of masters but a minority of laggards uses contract service-level agreement and historical data. For facilities planning and usage, response times, service contracts volumes and site/facility capacity are the data used by a majority of masters versus a minority of laggards. And in terms of partner planning and utilization, a majority of masters versus a minority of laggards use scheduled preventive maintenance data. In all four cases, the percentage of masters indicating they use a broad range of data typically outpaces laggards by a ratio of at least 2:1.

In addition to using a wide range of data to make planning and utilization decisions, masters are more likely than laggards to manage their service resources on a global basis, although in both cases only a minority does so. About one-quarter (24 percent) of masters manage service people globally, versus 14 percent of laggards. About one-third

of masters manage parts globally (36 percent) versus only 14 percent of laggards. And the same trend holds true for facilities (23 percent versus 6 percent) and partners (22 percent versus 7 percent).

People

Figure 11. Masters are much more likely to use a full range of data to help them plan how service people, parts, facilities and partners are managed and utilized.

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Parts

Facilities

Partners

Understanding the performance of a company’s service organization at any time is critical. Masters have full transparency and visibility into the performance of service resources, while laggards have a much more difficult time understanding the health of their service operations.

Masters are far more likely to consider visibility to be very or extremely important and also are more likely to have great visibility into many of their service operations. But how do they gain such visibility? Our research found that masters possess superior information systems and metrics—both of which are linked to their key supply chain partners (see Figures 12 and 13). Consider this: Masters are more than six times as likely as laggards to have a fully integrated best-of-breed system or custom software that calculates metrics on customer satisfaction and financial targets. And they are nearly three times as likely to have a complete set of integrated metrics across their organization—metrics that

Service Transparency: Gaining Visibility into a Complex Business

monitor customer needs and company financial targets, and that are used with a fully integrated “command center” with drill-down capability.

Additionally, masters are more likely to integrate their service management systems fully with their transactional systems; tools for pricing, warranty management and other tasks; and the extended supply chain (that is, suppliers and customers). And, they are twice as likely to have their entire user base fully adopt service management systems.

As shown in Figure 14, such capabilities enable masters to gain significant or full visibility into a wide range of aspects of their service management organization, including service personnel productivity and utilization, cost per service event, contract and customer, and status of all parts orders across service locations and partners. In turn, this visibility into the status of service operations helps masters dynamically adjust their response to service requests. For example, nearly twice the number of

Figure 12. Masters are more likely to have systems and metrics that help them gain visibility into key data.

Figure 13. Masters are more likely to have service management systems that are fully integrated across the extended supply chain and are fully accepted by the user community.

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masters (57 percent versus 30 percent) can change the location from which they source parts or service personnel in real time based on changes in customer requests or available resources, and more than three times as many masters (65 percent versus 21 percent of laggards) can dynamically redirect parts delivery or service technician visits in real time, based on customer requests.

LaggardMaster

LaggardMaster

Figure 14. Masters have a greater degree of visibility into a wide range of aspects of their service management organization.

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The service business can become unprofitable quickly. Without the right processes, systems and data, a company can provide too much or too little service and suffer the consequence in customer defection and red ink. Our survey found that the ability to price services optimally is crucial, and that masters consistently have better insights on the factors that drive returns on their service business.

As illustrated in Figure 15, the majority of masters, compared with only a minority of laggards, had a wide range of practices in place that helped them understand the value drivers of their service business and price and propose service offers accordingly. For instance, masters were much more likely to indicate that they have formal tools and processes to extensively monitor and gather customer feedback, and that they base their pricing on a specific value proposition and market intelligence. Masters also were much more likely to say they establish service value on a service’s contribution to

Pricing and Customer Insight

their customers’ business and that they tie customer profitability into a command center and real-time dashboard. Furthermore, masters were far more likely to report they conduct ongoing competitive pricing analysis (often using a third-party service) and they devote significant time with customers to proactively identify new and emerging service opportunities.

Finally, masters are more apt to prioritize service events through command-center functionality with profitability embedded in real-time analysis, analyze customer preferences, metrics and issues to new service offerings, and predict planned and unplanned maintenance events and propose the appropriate service offerings.

General Electric Co.’s GE Aviation unit demonstrates the importance of customer insights for achieving high performance through service. The company uses customer feedback to continually create new service

Figure 15. Masters have a consistently better understanding of factors affecting value drivers of their service business.

methods to keep customers loyal. For example, in 2008 the company tested engine wash equipment to determine the best way to inject water into engines and capture residues. Said one GE Aviation manager, “Lowering the cost of ownership is something we work on a daily basis.”7

Insights and Recommendations

Our research shows just how important service management has become to achieving high performance, especially to product companies whose offerings compete in commodity markets. The ability to help customers get maximum value from products—from chemicals and electronic parts, to construction equipment and factory machinery—and keep them running at peak performance has become a major source of differentiation and profit. It is also becoming the factor that keeps customers satisfied and reluctant to switch allegiances. In short, service is a key contributor to a company’s overall brand experience. Even when customers rave about a company’s products, poor service can quickly erode hundreds of millions of dollars spent on factories, R&D and other product investments.

But managing a service business is rife with complexities. Our study suggests that overcoming them requires recognition at the top of a large company that the service business

matters a great deal and should not be regarded as a stepchild to the core business. Our survey also points to the need for managers to make sure service management operations are organized properly, use the right tools to define and price offerings, team with product sales to jointly market a complete solution, and leverage the voluminous data that the service business generates. At the same time, service managers must keep a tight grip on costs, managing them according to agreed-upon service levels.

Capturing, analyzing and using such data strategically—to get ahead of product and service issues before they can overwhelm a service organization, to identify new customer needs and to efficiently manage service resources—is increasingly separating the masters from the laggards in service management.

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On the Journey to High Performance

In ongoing exploration of what constitutes high performance, the topic of service management is largely “unchartered territory.” In fact, Accenture believes most companies have only scratched the surface of what is possible in building distinctive service management capabilities—ones that can significantly differentiate them from competitors and dramatically increase revenue and profits.

By adopting the best practices in optimizing the entire service supply chain (labor, parts and material) that we observed in our research, companies can build a service management function that generates high-margin revenue. They can also create a service management organization that drives the level of customer loyalty that is critical to high performance in today’s hypercompetitive global economy.

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1 “Best Practices in Strategic Service Management,” Aberdeen Group, June 2005.

2 “When Companies Compete On After-Sales Support, Service Supply Chains Take Center Stage,” Jean V. Murphy, Global Logistics & Supply Chain Strategies, March 2006.

3 Lee Ann Tegtmeier, “Engine Cost vs. Performance,” Aviation Week, December 9, 2008.

4 “Getting to Grips with the Cost of Repairs: How Fujitsu Siemens Computers Entered into a New Era of High Performance in Warranty Management," Accenture, 2007.

5 Tegtmeier, December 9, 2008.

6 “Next-Generation Asset Management: Moving from a Reactive to Predictive State of Maintenance,” Forrester Research report, April 24, 2006.

7 Tegtmeier, December 9, 2008.

Special acknowledgement and thanks are due to following people for the effort and time they invested in the preparation of this report: Thomas Schramm, Volker Scheeff, Kristine Renker, Derek Jones, Scott Egler.

Notes

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Contacts

Thomas Schramm

Erik Olson

Thierry Wiart

Ariano Arboletti

Cameron Plummer

Philip Monks

Volker Scheeff

Matti Kurvinen

Nerea Idirin

Munichthomas.a.schramm@accenture.com+49-175-576-8289

Atlantaerik.a.olson@accenture.com+1-770-335-8739

Paristhierry.wiart@accenture.com+33-680-324-320

Turinariano.arbolettii@accenture.com+39-335-632-7697

Beijingcameron.plummer@accenture.com+86-139-1115-6383

Manchesterphilip.monks@accenture.com+44-7958-324-952

Hamburgvolker.scheeff@accenture.com+49-175-576-2093

Helsinkimatti.kurvinen@accenture.com+358-405-047-845

Madridnerea.idirin@accenture.com+34-606-342-379

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About Accenture Supply Chain ManagementAbout Accenture

The Accenture Supply Chain Management service line works with clients across a broad range of industries to develop and execute operational strategies that enable profitable growth in new and existing markets. Committed to helping clients achieve high performance through supply chain mastery, we combine global industry expertise and skills in supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management to help organizations transform their supply chain capabilities.

Accenture is a global management consulting, technology services and outsourcing company. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. With more than 181,000 people serving clients in over 120 countries, the company generated net revenues of US$23.39 billion for the fiscal year ended Aug. 31, 2008. Its home page is www.accenture.com.

We collaborate with clients to implement innovative consulting and outsourcing solutions that align operating models to support business strategies, optimize global operations, enable profitable product launches, and enhance the skills and capabilities of the supply chain workforce. For more information, visit www.accenture.com/supplychain.