Service as a Strategy

Service operations can contribute up to 70 percent of gross margins for many organizations

Traditionally more of an afterthought than a key business strategy, service operations can contribute up to 70 percent of gross margins for many organizations, often providing a greater rate of return than manufacturing. This makes service pivotal to a company’s success. CEOs who incorporate service as a key component of global corporate strategy can position their organizations to capture greater customer loyalty and exploit untapped sources of future growth.

In an often volatile global environment, executives need a fresh look at service, focusing on developing strategic initiatives to address how service is managed and how it can be leveraged to drive revenue. To be effective, digging deep into the service supply chain is necessary to understand promises made to customers, those that can be kept, those that leave the company exposed and how to cover the gaps. It is the service supply chain that translates corporate strategy into execution ultimately satisfying or disappointing customers.

Research indicates that loyalty is increasingly driven by service experience in lieu of brand; customers buy experience. Progressive companies will elevate service operations as a core element of their business using it to capture market share and leveraging service events to create positive customer interactions resulting in future product sales.

While revenue from new product sales varies, service contracts provide a consistent touch point and revenue stream. Unlike new product sales, service revenue is less dependent on economic conditions, and often increases during harsh economic times as customers opt to repair rather than replace products. This can offset thinning margins, particularly in low growth sectors.

 

From planning to profit

Cost-effective service hinges on understanding the actual cost to serve, a complex metric requiring mathematical modeling to predict failure rates, needs for replacement parts and service expertise. Many service organizations struggle to balance customer satisfaction metrics and SLA requirements against inventory levels and service costs.

Effectively operating on a global scale requires proactive and predictive inventory planning. It is impractical to stock replacement parts for every potential situation given carrying costs and scrap costs for excess or obsolete inventory. Applying predictive models to understand where exposures exist for non-compliance and critical care enables optimized operations to meet service obligations.  

Agility is imperative. The ability to adapt strategies and processes to changing market conditions requires a combination of sophisticated technology, analytics and execution rarely found. Predictive analytics models can predict failures, reducing variability and enabling service operations to plan and effectively respond to the most critical failures. The combination of operational excellence, strong analytical and data driven technology capabilities is essential.

 

Competing strategically

As service operations grow in importance, the disconnect between the forward and service supply chain will begin to diminish. While manufacturing and service currently operate separately and have conflicting objectives, as service operations mature the logical move is integration of the two. Integration offers a holistic approach where intelligent choices can be made to cover the entire product life cycle. The impact on both cost and revenue would be monumental—the impact on customer experience and satisfaction, even more so.

Technology innovation ranging from self-service portals to control towers to remote devices via the Internet of Things is rapidly changing the way service is offered and how customers interact with service organizations. These technologies drive a company’s ability to gravitate away from traditional approaches and embrace Service as a Strategy. In an era where most businesses want to convert to “something” as a Service, CEOs need to recognize that if Services is the “something,” Service as a Strategy can be the catalyst that drives operational excellence, competitive advantage, growth and profitability.  

 

Nitin Ahuja is the co-founder, chairman and CEO of Dallas-based Entercoms. He has more than 20 years of experience in the technology and enterprise software application industry. Nitin began his career at Xerox where he led one of the first successful engineering outsourcing projects to India. In 1995, he founded Anavidere Technologies and refined the business model of offshore product development. He then founded ECMi in 2001 to develop solutions for collaboration performance management in supply chains. Nitin holds a Bachelor of Science degree in mathematics and physics from Pune University and an MBA from the Institute of Management Development and Research, Pune, India.

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