1. Delivering Value-Added Services Heiko GebauerACMS: optimize for today...Driving organic growth initiatives, through an external focus Florence 2010Department Innovation Research in Utility Sectors - Eawag: Swiss Federal Institute of Aquatic Science and Technology University of St.Gallen (Switzerland) Karlstad University (Sweden)

2. Agenda Session 1: Adding value through service innovationIntroduction8:00-8:10Session 1: Adding value through service innovation Presentation on organic growth in service business8:10-8:40Group work on service innovations8:40-9:10Selected presentations of service innovations Coffee break9:10-10:00 10:00-10:30 3. Agenda Session 1: Adding value through service innovationIntroduction8:00-8:10Session 1: Adding value through service innovation Presentation on organic growth in service business8:10-8:40Group work on service innovations8:40-9:10Selected presentations of service innovations Coffee break9:10-10:00 10:00-10:30 4. Services are much more complex than the traditional product businessParameterProduct businessService businessNature of demandMore predictable, can better forecastAlways unpredictable, sporadicRequired responseStandard, can be scheduledAs soon as possibleNumber of product generationsLimited10 to 15 times higherProduct portfolioLargely homogeneousAlways heterogeneousAdapted from Cohen et al. 2006 5. Continuous extension of the service offerings Bosch PackagingSelling products Core product Own service products Provide services for own products Parts Field service ModernizationProviding productrelated services Bundle basic services Bundle & optimize services to full packaging Service level agreements Extended warranty Parts & labour package Service for other products Conduct services for competitor productsOffering solutions Outsourcing services Provide full functionality & responsibility for complete lines Product unrelated services Leverage to other services such as Logistics provider IT support 6. BOSCH PACKAGING extends the share of service revenue in total revenue Total revenueMarket share in service market Service revenueCustomer 45%34% 66%25% 30%22%Field Service55%Spare Parts23%ModernizationRevenue of machines and productsThird party suppliersQuelle: R. Hnggi, 2006 7. Leverage your unique skills for extending the service business Leveraging of competenciesExamplesUsing it for innovative services FESTO Didactics personell development services LeveragingTRUMPFs services (SYNCHRO) on production optimization TOYOTAs services on lean production practicesUnique competencies and skillsPORSCHE engineering services on automobile development 8. Identifying strategic paths through visualizing service opportunities ReconfigurationHow do service opportunities appear?)Pre-SalesSalesAfter-salesExtensionPrimary customer activitiesSupplementary customer activitiesWhere do service opportunities appear? Adapted from Sawhney, 2004 9. Exploitation or exploration: How to approach the service opportunities? Exploration ReconfigurationHow do service opportunities appear?)Radical improvementPre-SalesSalesAfter-salesNew value constellation Dynamic capabilitiesExploitation ExtensionIncremental improvementsValue-adding to existing value constellation Development of operational capabilities Primary customer activitiesSupplementary customer activitiesWhere do service opportunities appear?Adapted from Sawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch. (forthcoming 2010) 10. Exploitation or exploration: How to approach the service opportunities? Exploration ReconfigurationHow do service opportunities appear?)Radical improvementPre-SalesSalesAfter-salesNew value constellation Dynamic capabilitiesExploitation ExtensionIncremental improvementsValue-adding to existing value constellation Development of operational capabilities Primary customer activitiesSupplementary customer activitiesWhere do service opportunities appear?Adapted from Sawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch. (forthcoming 2010) 11. Exploitation and the corresponding service strategies Development partnerAfter-sales service providerCustomer support service providerOutsourcing partnerService focusSource: Gebauer, Fischer and Fleisch (2010) 12. Operational capabilities for implementing the service strategies Service orientation in the operational capabilities A abstract value of services, B role understanding, C personnel recruiting, D training, E compensation, F distinction product and service organization, G proximity to customers Development partners A 1 G B Customer support After-sales 0.5 service providers service providers 0 A A F C 1 1 G B G B 0.5 0.5 E D Outsourcing partners 0 0 F C F C A 1 E D E D G B 0.5 F Legend (0 low, 1 high cluster means)0 EC DSource: Gebauer, Gustafsson, Edvardsson and Witell (2010), Neu and Brown (2005 and 2008) 13. Exploitation or exploration: How to approach the service opportunities? Exploration ReconfigurationHow do service opportunities appear?)Radical improvementPre-SalesSalesAfter-salesNew value constellation Dynamic capabilitiesExploitation ExtensionIncremental improvementsValue-adding to existing value constellation Development of operational capabilities Primary customer activitiesSupplementary customer activitiesWhere do service opportunities appear?Adapted from Sawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch. (forthcoming 2010) 14. Service innovation processExtension of service offeringTraining of fire brigades on fire-fighting in tunnelsMaintenance Repair service Mobile gas measuring devices Stationary gas measurement Compressed air breathing equipmentService Innovation Process Development phase Creating service ideasPreliminary service conceptBusiness PlanIntroduction to the marketActivities Idea generation Idea selection Concept description Concept evaluation Concept selectionDescription of the Business PlanMarket test Introduction 15. Address hidden customer needsExtension of service offeringFleet Management for Hilti tools, i.e. One agreement for many Hilti tools Additional services, esp. repairs and leasing No consumables, e.g.Hidden Customer NeedsIncremental improvements and shortterm advantages Obvious customer needs Battery packs, battery chargers Insert tools Fire stop, anchors, struts, pipe-rings, etc.Hidden customer needsSustainable competitive advantages 16. 1. Understanding the customer processes Customer process: Construction operations Contracting Purchase Delivery Training Use / Operate Maintenance Locate 17. with all its complexity Owner / ArchitectGeneral Contractor BankCustomer process: Construction operations Contracting PurchaseSupplier small & standard partsDeliverySupplier building materialsTrainingSupplier heavy equipmentUse / OperateSupplier construction toolsMaintenanceConstruction logisticsLocate 18. 2. Absorbing the complexity into own service innovations Customer process: Construction operations Contracting PurchaseHiltiDelivery Training Use / Operate Maintenance Locate 19. 3. Orchestrating complexity in combination with suppliers Customer process: Construction operationsOwner / ArchitectContractingGeneral ContractorPurchaseBank Supplier small & standard partsHiltiDeliverySupplier building materialsTrainingSupplier heavy equipmentUse / OperateSupplier construction toolsMaintenanceConstruction logisticsLocate 20. Achievements Margin: price sensibility decreases dramatically; no upfront investment; schedule; admin work reduction Customer retention: unbelievable; pay for hole, not for tool Cross selling: spare parts, other tools Imitation barrier: process and IT know-how lists competitors on web to watch them dying Customer intimacy: here is the real value Net sales (million SFr) Asia/Pacific North America Latin AmericaEurope/AfricaSource: Hilti 21. Conclusion Service business is much more complex than the traditional product business. Nevertheless, companies continuously try to achieve service growth Strategic paths for service business Service opportunities arise around primary and supplementary customer activities as well as extension and reconfiguration of customer activities Service opportunities can be either exploited or used to explore new value constellations Exploitation creates strategic paths around after-sales service and customer support service providers as well as development and outsourcing partners Service innovations Exploitation is about identify ideas based on existing and obvious customer need Exploration is about understanding customers complexity 22. Agenda Session 1: Adding value though service innovationIntroduction8:00-8:10Session 1: Adding value through service innovation Presentation on organic growth in service business8:10-8:40Group work on service innovations8:40-9:10Selected presentations of service innovations Coffee break9:10-10:00 10:00-10:30 23. 1. Understanding the customer processes Customer process: Wearing black socks Search Purchase Replenish Put on and wear (Hand) wash Emergency purchase Wear colorful socks Dispose 24. with all its complexity Department store BankCustomer process: Wearing black socks SearchManufacturerPurchase ReplenishDistributorPut on and wearLaundry(Hand) washHotelEmergency purchaseAirportWear colorful socksClothes donationDispose 25. 2. Absorbing the complexity into own service innovations Customer process: Wearing black socks Search Purchase Replenish BlacksocksPut on and wear Wash Emergency purchase Wear colorful socks Dispose 26. 3. Orchestrating complexity in combination with suppliers Customer process: Wearing black socksDepartment storeSearchBankPurchase ReplenishManufacturer DistributorBlacksocksPut on and wearLaundryWashHotelEmergency purchaseAirportWear colorful socksClothes donationDispose 27. Achievements Margin: 98 CHF for 9 pairs of black socks; cash-in at day 1 Customer retention: unbelievable Cross selling: underwear Imitation barrier: process and IT know-how lists competitors on web to watch them dying Customer intimacy: here is the real valueSource: Courtesy of Samy Liechty 28. Task assignments 1. Specify the customer processes and activities 2. Elaborate the complexity of the customer processes 3. Create ideas in how to deal and absorb the complexity into service innovations 29. Agenda Session 1: Adding value though service innovationIntroduction8:00-8:10Session 1: Adding value through service innovation Presentation on organic growth in service business8:10-8:40Group work on service innovations8:40-9:10Selected presentations of service innovations Coffee break9:10-10:00 10:00-10:30