Equipment Service Management: Strategies, Challenges and Trends JWB Research
Article Date: 12-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
A JWB Research study shows where and how heavy equipment managers intend to grow revenues.
Are you profiting from the increased focus on aftersales service? Many heavy equipment managers are pondering this as they restructure their organizations to become more service-led. Developing strategies around service, support and continuous customer care is fundamental to success in today’s competitive market. Following are results from a study of current service trends and tactics in the heavy equipment industry. The intent of the research, which was commissioned by Lawson and prepared in July by JWB Research, was to (1.) address the current issues around service strategy faced by equipment managers, and (2.) provide equipment dealers with knowledge necessary to initiate change to achieve their own growth targets.In a preface to the report, Lawson states, “We know that the right technology solution can enable you to reach these goals. Your IT solution can be the differentiating factor that allows you to focus on developing service initiatives that drive new business, revenue and profit growth.”Introduction
Aftersales equipment service is a vital source of revenue, customer satisfaction and competitive differentiation. Many companies recognize the value of becoming a service-led organization and are re-aligning their service operations with their overall business strategies. This report compares how heavy equipment executives throughout North America are measuring and profiting from equipment service and parts management as they undergo these organizational shifts.Four key questions motivated this research:
1.) What strategic service initiatives are considered most important?
2.) What are the barriers that hinder revenue and margin growth?
3.) What role does IT play in overcoming these barriers?
4.) How do organizations measure their service effectiveness?We collected 128 valid responses from heavy equipment managers from all regions in North America.Here are the key findings:
As many managers indicated, information technology is a tool that can help equipment service management companies reach their growth targets. Organizations need a transparent view of the business that only an integrated IT solution can offer. Technology also removes growth barriers by helping managers to monitor the supply chain more effectively and improve sales tracking capabilities in order to win new customers. Strategies
- Heavy equipment managers are looking to new customers for growth. 96 percent of respondents view new customers as their most important source of revenue growth. This was unexpected since driving new business usually falls behind the importance placed on growing with current customers and increasing their loyalty.
- Increasing the role of service technicians in the sales process is a growth strategy that is gaining momentum. Over half of the respondents see the importance of empowering their service engineers with information to allow them to cross-sell and up-sell in the field.
- Challenges remain in monitoring the supply chain (parts and logistics) and in sales tracking. Over half the respondents see barriers in their ability to manage the supply network. Others face difficulty in tracking up-sell and cross-sell opportunities to current customers as well as tracking the pipeline for new customers.
- Gathering data is not the same as using it. Using key performance metrics creates significantly more equipment uptime and customer satisfaction. Companies with 95 percent uptime were more likely to gather and use all six measures included in the survey. Yet surprisingly, many businesses are not gathering these measures, or they gather the data for internal use but fail to report the information to customers or act upon it themselves.
Aligning service initiatives with overall business strategy is becoming core to business success. Chart 1 shows which strategic initiatives respondents to the survey regarded as most important.
The top four strategies were:
As Chart 1 illustrates, the most important strategy was increasing service revenue in the current product/service mix. Three areas that are key to this are:
- Increasing the proportion of service revenue in the service/product mix
- Increasing revenue from preventive maintenance
- Benchmarking performance in the service management industry
- Using information technology to help analyze the business
Seventy-seven percent of companies in the survey reported that benchmarking the service management business is an important strategy. Benchmarking requires well-managed databases and useful analytical tools, so it is not surprising that 75 percent of companies said using information technology to analyze their businesses was important.
- Increasing preventive maintenance services (important to 77 percent of the survey respondents)
- Growing the sales role of service technicians (important to 72 percent)
- Increasing fee-for-service maintenance (important to 60 percent)
Acquiring other service management companies is the strategy that respondents to the survey identified as least important. Current tightness in North American capital markets makes it difficult to leverage acquisitions, so it is not surprising that acquisitions are taking a back seat.
A number of tactics is vital to achieving revenue and profit growth. The two can be managed independent of one another and are analyzed separately below.
Chart 2 shows the relative importance of each of the five revenue growth strategies the survey researched.Surprisingly, selling to new customers rated highest as a strategy to increase revenue with 96 percent of respondents rating this as important. Selling to current customers also rated highly at 95 percent. In our experience at JWB Research we have asked many companies in a variety of settings the relative importance of selling to current customers versus selling to new customers. Findings have shown that opening new accounts is always important, but is most often relegated to second place behind growing
- Revenue. The most often cited strategy for revenue growth can be summarized as, “Taking the services we have and selling them aggressively.” That is, companies reported they are hoping to increase revenue from services they already offer rather than expanding to provide new services or packaging them in new ways to sell them in bundles.
with current customers and increasing their loyalty. Selling to new customers is also generally more expensive than selling to current customers. Placing equal importance on opening new accounts with generating revenue from the existing customer base, could be a reflection of the current economic cycle. When customers are growing, it is easy to grow with them. When customers are struggling with increasing costs of energy, freight and logistics, and employee benefits, their customers are also struggling with the same challenges and growth becomes difficult for everyone. Opening new accounts then takes on a new urgency. Another revenue growth strategy that rated important to more than 60 percent of respondents is expanding the range of equipment services. Over half of the respondents viewed increasing the role of service technicians in the sales process as an important strategy. While these other growth initiatives are implemented more often, companies that succeed believe they will be led by their existing sales forces selling the current services and opening new accounts.Bringing service technicians into the organization as a whole is a strategy that is being implemented more frequently. Increasing their sales roles will sometimes feel like “squeezing a square peg into a round hole.” However, the most effective business-to-business sales people are usually the people who customers see as the most insightful and effective problem-solving partners. Service technicians are the eyes and ears of the marketplace, yet increasing their sales role has become a lost opportunity for decades.Analysis of services used in the field and how they are naturally packaged will help keep service technicians in a comfortable environment as they learn the skills required to build the bridge between solving customer problems and growing sales revenues. Making the “paperwork” of sales easy and immediate for field-service technicians can be aided by linking the field to sales administration. This link will also enhance learning and the implementation of new tasks.
Chart 3 shows the relative importance of each of the five profit growing strategies the survey researched. Doing any one of the five well requires increasing our understanding of costs through measurement and analysis. The most important strategy in the survey – improving operations – requires the most sophisticated measurement and analysis of all.Operations can be effectively improved through better planning, increasing asset productivity, reducing costs, identifying and eliminating wastes and improving quality. To be fulfilled, these initiatives must be aligned with the overall business strategy.Cost-cutting – or changing the cost-to-income ratio – is also complex. Costs that appear to be “low-hanging fruit” can be cut with ill effects. The harder to find solutions – interoperable information technology systems, ruthless management of data storage or inventory, the effective consolidation of processes – are much more likely to have the intended and longer lasting effects.When considering cost-to-income ratio improvements, many think first of reducing costs. Revenue enhancing strategies, however, are the other side of this equation. The most effective ways to increase incomes must be well-targeted to bring the organization together in the selling effort. Timely tracking of sales opportunities and precise understanding of an organization’s sales efforts will lead to more confident decisions and better business outcomes. Simply raising prices on parts and services can obviously have a negative impact on business. Finding more work for the same amount of people through bundling of services can be effective and lead to increased sales of seldom-used services if customers see that the new services are valuable. Technology that helps segment customers is helpful in knowing where bundled services might be well received. Packaged selling was the least important profit growth strategy in the survey but still important to 63 percent of respondents. Effective packaging requires knowing which services “lead” a customer’s decision making process. To deliver optimized packages, the following questions must be answered:
- Profit. Growing profitability is a challenge requiring thorough understanding of costs in the supply chain, cost of equipment ownership, employee costs and others. Improving operations was the only strategy that over half of all survey respondents said was “very important” to increasing profitability.
- Which services will the customer refuse to live without?
- Which services have high cost of sales, but have proven to be valued by customers who benefited from them?
- Which services are expensive to deliver when delivered alone, but delivery costs drop dramatically when bundled with other services?
There are some differences in the perceived barriers managers reported facing in achieving their growth objectives. According to the survey, four barriers stand out as more challenging than the others:
- Monitoring the supply chain
- Sales tracking
- Tracking up-sell and cross-sell opportunities with new customers
- Tracking the pipeline of new customers
- Monitoring the Supply Chain. Monitoring the supply chain – or more realistically, the supply network – is easier when information technology systems are integrated between the back offices of equipment service providers and parts suppliers. Suppliers are responsible for effective, timely communication with their customers. Customers must have systems that report supplier communications to the right decision makers – and those decision makers are often the service engineers in the field who depend on mobility solutions to connect them to critical information.
Integration of sales processes with an organization’s back office is key to increasing the volume of business an organization can handle. (See “cost-to-income” ratio above.) It will also position sales or customer service professionals to respond to customers much more quickly and accurately, helping companies overcome barriers their competitors will find difficult to get past.
- Sales Tracking. Ineffective lead qualifying and poorly defining sales stages are barriers that an organization’s sales-tracking system can help eliminate. Effective sales tracking will be especially useful to organizations that believe it is important to increase the sales role of their service technicians. Service skills and sales skills are often not aligned. An organization that can keep track of sales opportunities and support people in closing deals or otherwise pushing them forward will be more likely to help technicians adapt to this new role.
Chart 4 shows the relative importance of all barriers queried in the survey. In North America, the challenges of managing multiple currencies or multiple languages is not prevalent. When these challenges occur, however, they appear to take on increased urgency as noted by the proportion of respondents who say it is “very important” to address them as opposed to just “important.”Measuring Success in Equipment ServiceThere are three characteristics of useful organizational measures. The measures are efficiently gathered, reported in a timely manner and relevant to the decision maker they are intended to support. All of these strategies can be implemented and barriers can be overcome with more confidence and increased likelihood of effectiveness if an organization has and uses appropriate measures.
In the survey, respondents were asked whether they gathered information on six characteristics of the equipment service business:
According to the survey results, many equipment service businesses are not gathering these measures.
- Uptime and equipment availability
- Mean time between failures (MTBF)
- Mean time to repair (MTTR)
- Cost of down time
- Time to respond
- Customer satisfaction with solution.
Chart 5 shows that approximately half of survey respondents said they measure customer satisfaction with the quality of a solution. The next most commonly measured activities are the time it takes to respond to a need and overall equipment uptime and availability. Both of these measures are gathered by between 40 and 50 percent of respondents.
It is notable how many of the respondents are not gathering data on the other three measures in our survey. Two-thirds of respondents do not measure the cost of down time. Three-quarters of respondents said they do not gather data on the mean time to repair (MTTR) and more than 80 percent do not gather data on mean time between failures (MTBF). Companies that do not measure these things do not know them. Companies that do not know these things cannot talk specifically with their customers about the effect that repairs have had on their customers’ cash flows and revenues. Companies that do know these things can. It is that simple.
Being able to describe a business quantitatively is key in being able to manage it. Only by knowing whether improvement efforts are generating the intended results can an organization modify or resource them appropriately. Reporting the data to decision makers and analysts who will use it is the only way to give meaning to a company’s data gathering efforts. To expand on this concept, survey respondents were asked which data they report internally and which data they report to customers. Reporting Data to Customers
As Chart 6 indicates, more than 60 percent of the companies in the survey do not report the data they gather – even within their own organizations. And approximately 90 percent or more of the companies in the survey do not report performance metrics to their customers.
At JWB Research, we believe that one of the most frequently missed opportunities to generate loyalty among workers and customers is to report service and satisfaction metrics back to them. Many organizations fear sharing their report cards because they are not living up to what they think are the equipment users’ standards. These professionals, however, often value dialog more than the achievement of certain standards.
It is the dialog between a provider and a customer – whether internal or external – that grows profits and revenues. Sharing report cards makes that dialog more open and meaningful and draws the supplier and the customer into a partnership. The opportunity cost of not reporting may be measured in actual dollars.
Reporting data is often more resource-intensive than gathering it. Data must be aggregated and reduced for various audiences – and each audience has its own reporting
requirements. This is a challenge that can be addressed with appropriate business intelligence applications that allow each audience to sculpt reports according to its own particular needs.
Companies With 95 Percent Uptime
We identified differences between companies that reported at least 95 percent uptime of serviceable assets and companies where uptime of serviceable assets fell below 95 percent. These companies were the same in size and had the same proportion of service engineers that were depot- or field-based. The companies with 95 percent uptime were somewhat more likely to identify themselves as industrial rather than as construction/mining/farming.
Companies with 95 percent uptime of serviceable assets were more likely to gather all six measures asked about in the survey than companies that do not achieve the 95 percent benchmark. Table 1 shows these differences.They are also more likely than companies below the 95 percent benchmark in serviceable uptime to report these measures within their organizations, although the reporting differences were less dramatic. Fewer than 20 percent of all organizations, regardless of their achievement of uptime, said they reported any of these measurements to their customers.
Companies achieving the 95 percent benchmark were also more likely to report growth in their labor margins and in their overall service margins in the last year and to say that they had their parts and services records integrated with their back office systems.
While these relationships in our data do not show that gathering information leads to increases in equipment uptime, the correlation between having and using business process measures is significant. Companies that invest resources in gathering and using these measures will increase their potential to successfully implement the strategies or overcome the barriers discussed above.Conclusions
As this report confirms, aftersales equipment service is a vital source of revenue, customer satisfaction and competitive differentiation. Executives need a transparent view of the business as they streamline their service operations and align their initiatives with their overall business strategies.
One of the most significant findings from the survey is that heavy equipment managers are looking to new customers for growth. This requires that all organizational resources be used efficiently and that energy for the sales process not be used in anemic or untimely ways. The organization must be brought together around sales opportunities through effective and timely communication.
Results from this report also show that best-in-class companies realize the value of integrating their service engineers with their back office functionality. They are empowering their service personnel with up-to-the-minute information that allows them to successfully cross-sell and up-sell in the field.
We also see that the barriers to success are often barriers in communication. Organizations want more information faster from their network of suppliers. They want better ways to bring the whole organization together to focus on sales opportunities at the right times. These barriers are heady as well as challenging and are made smaller by integrated systems that arm users with timely information that is not just relevant, but precisely relevant to their needs.
Too often, organizations become repositories of “data” and yet find they don’t have enough “information” to make knowledgeable decisions about how to grow their businesses. This study shows that service management organizations that actually use information about their performance create more equipment uptime than organizations that gather service metrics, but never use them. The right technology solution offers the tools companies need to not only gather data, but to use it effectively.
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