Service excellence as a growth driver for capital goods makers

Posted on 4 Feb 2015 by Tim Brown

Many manufacturers of capital goods have extended the service side of their business and realised that the majority of profit is generated during the lifecycle of a piece of equipment.

Markus Pfeifer, competence center partner, Homburg & Partner
Markus Pfeifer, competence center partner, Homburg & Partner.

According to Markus Pfeifer and Daniel Antolin of Homburg & Partner, an international consultancy specialising in market strategy, sales and pricing, as a general rule, 25% of total revenues and slightly more than 50% of profit comes from after-sales business in the capital goods industry.

Despite this, many companies are yet to realise the earning potential in their businesses by failing to introduce what Homburg & Partner call ‘service excellence’.

Relevance for Corporate Success
A survey conducted among 57 of the top capital goods manufacturers showed that after-sales service is rated as a key domain to upgrade the company’s performance. This makes it a strategic success factor which needs to be dealt with as a management priority.

Daniel Antolin, principal at Homburg & Partner
Daniel Antolin, principal at Homburg & Partner

What are the critical service dimensions for “Service Excellence”?
Capital goods manufacturers should re-evaluate and develop themselves under the following five dimensions for achieving service excellence:

1. Service Strategy
Service strategy is not a mere deduction from corporate strategy, but an integral component of it. Any corporate strategy without services is incomplete. The development of service strategy is clearly a top management task which should at least define the service business model, long-term business targets and go-to-market approach.

2. Service Portfolio
Many companies have created a broad range of services over time. However, too many have neglected the fact that some services are not profitable or simply not required by the customer.
Moreover, a market-oriented services development can be successful when it is conducted systematically. Many companies are increasingly applying the so-called “Service Engineering”, which utilizes methods and software tools similar to new product development.

3. Service Pricing
Professional pricing in after-sales service represents a key earning leverage, especially when focusing on the spare parts. Distinguished spare-parts pricing works in a value-oriented manner, in which a set of criteria and scoring model are used to evaluate the portfolio. Resulting scores will then be used to set differentiated price mark-ups. Project experience shows that the pricing of machine repairs, field service and service contracts also provides a high potential for improvements.

4. Service Organisation and Processes
In recent years, many capital goods manufacturers have created independent service departments or established dedicated service companies. However, they must question whether it is more advantageous to have an independent service organization, or to set up integrated organization models. Some companies are heading towards reintegration, in which sales and services are growing together again.

To achieve excellence in after-sales, the design of service processes is especially important. They must be fast, stable and cost-efficient. This can only be attained through consistent orientation towards customer requirements, maximum reduction of unnecessary interfaces and optimal system support.5. Service Controlling and Key Figures

Marinating the highest possible transparency in relevant key figures is fundamental to service business excellence. There are four categories which should ideally be made available and reported to management on a weekly or monthly basis:

  • Business Success (Revenue, Hit Rates, etc.)
  • Processes (Processing Time, Availabilities, etc.)
  • Customer (Customer Satisfaction, etc.)
  • Employees (Occupancy, etc.)

After-sales service is a potential growth driver, especially during times of economic uncertainty. The five service excellence dimensions – Service Strategy, Service Portfolio, Service Pricing, Service Organization and Processes, Service Controlling and Key Figures – must be optimised. Due to its strategic relevance, this topic requires top management attention within the capital goods industry.