Copyright © 2003 Americas’ SAP Users’ Group

Making a Profit withCustomer Service

David Baethke, Vice President, The Baer Group

Wednesday, May 21, 2003

Agenda

Underlying Principle – Service Operations is and should be a line of business

The business Plan will have multiple dimensions

Act on the plan, invest in the business

Principle

Business is a Game

Score is kept in dollars and share holder value Drivers to the score

Customers Needs satisfied Happy

Employees Empowered Trained Happy

Product Innovative Serves market need

Customer Satisfaction

A customer ‘Very Satisfied’ is SIX times more likely to buy again as compared to the customer who simply reported ‘Satisfied’

Clear goal is to have ‘Very Satisfied’ customers From Harvard Business Review

Customer Satisfaction – How it is Delivered

People work with people People talk to, spend time with, buy from people they

like and respect

Sales gets initial contact and sales concluded

Service spends a lot of time with customers Pre-sales - understanding and shaping solution

Initial Installation – ensuring good initial usage

Post sales – supporting and maintaining the solution over time

Profitability vs. IT Spend in Service Operations

24%45%

20%

76%55%

80%

0%

20%

40%

60%

80%

100%

120%

Revenue Profit IT Spend

ProductService

From: AMR August 2002

Profitability vs. IT Spend in Service Operations

Budget

Revenue

Independent

Dependent

Strategic Line of Business

Profit Center

Contribution Center

Cost Center

Provides a service to someone else; does not stand by itself but in support of another; runs against a budget; creates no revenue

Provides a service to someone else; does not stand by itself but in support of another; may generate a small amount of profit

Managed independently for the purpose of a business by itself; has most or full revenues

Run by an executive, making their own choices and decisions regarding the abilities to best support products and generate revenues and profits directly from sales of services

From: Service Innovations, Inc.

Evolution of Service Business

Dimensions

Typical Service Operations World Inadequate senior executive representation

A multitude of disparate systems

Numerous customer databases

Data integrity issues with installed base

Must support a number of differing business processes

Outsourcing of certain operations is common

Under investment in technology

Typical Service Operations World

Business Unit Dimensions – Service Operations

Revenue growth

Cost optimization

Service product portfolio

Functional areas required to support a world class service operation Sales, marketing, delivery, logistics, financial and

organizational elements to consider

Service Operations - Big Picture Items Growing service revenue

Service vs. product sales – support and execution

Determination of service offerings

Move into professional service offerings

360 view of customer

Controlling service operations costs Improve first time fix rates

Optimize field operations

Optimize spare parts supply chain

Service Operations - Big Picture Items

Service Revenue Drivers

Customer NeedsCustomer BudgetsNew ProductsDelivery of Service ProductsMarket ChangesNew Technology Trends

Contract CostsParts CostsLabor CostsTraining CostsSystems CostsMargin Requirements

ServiceRevenue

Sales ProgramsSales Compensation ModelProduct Marketing ProgramsService Products

Product PricingInstalled BaseProduct Quality

Major Service Processes

Four major process areas comprising 20 individual processes Sales And Marketing

Customer Support

Logistics and Operations

Product/Configuration Management

Scope of Customer Servicefor a Product Based Service Offering

Cost Cost

Revenue Revenue Revenue Revenue

•New product support•NPI/strategy definition•Feedback/Improve quality•Joint product development

DesignEngineering& ProductMarketing

Pre-Sales&

Order Entry

Pre-ProductDelivery

ProductDelivery

&Install

PostSupport(Issues)

Post AfterSales

•Network Consulting•Technology education•Product training•Scheduling commissioning

•1st – Call Center Support (FE+ Vendor+etc.)•2nd – Fld Engineer•3rd – Engineering/Mfg.

•Selling of service•Trade-show support •Limited demo support

•Product commissioning•Product training•Workflow consulting•Call Center help

•Contract sales•Service products•More education/training•Networking services/tools•Preventative maintenance

Scope of Customer Servicefor a Product Based Service Offering

Service Lifecycle

Short service lifecycle – 0-2 years ex. Personal Computers, Consumer Electronic, Semiconductors

Moderate service lifecycle – 2-7 years ex. Cars, Medical Equipment, Business Servers, Office

Telecommunications Equipment

Long service lifecycle – 7+ years ex. Aircraft Engines, Industrial Equipment, Telecom Switching

Equipment

Service lifecycle differences will drive the priorities of the IT investments

Act

Services

ConsumerElectronics

HeavyEquipment

High TechMedicalDevice

Software

Importance of Service Offering to Industry

Tech Support:Phone and Internet

High /Medium

High /Medium

High /Medium

Medium/Low

High /Medium

Warranty /Extended Warranty

High /Medium

High /Medium

High /Medium

Medium/Low

Low /Medium

InstallationLow /

MediumLow /

MediumHigh /

MediumMedium/

LowHigh /

Medium

Spare PartsHigh /

MediumHigh /

MediumHigh /

MediumHigh /

MediumLow /

Medium

Repair DepotHigh /

MediumLow /

MediumHigh /

MediumHigh /

MediumLow /

Medium

On-Site RepairLow /

MediumHigh /

MediumHigh /

MediumHigh /

MediumLow /

MediumConsulting /Projects

Low /Medium

Low /Medium

High /Medium

Medium/Low

High /Medium

Industry SpecificSerial numbertracking

Rental/leasemanagementFleetmaintenance

Serial numbertracking

FDA validationSerial numbertracking

License keymanagementMastercontracts

Common Investment Areas by Service Lifecycle Length

Short lifecycle Inventory/Parts Planning

Warranty/Claims Management

Channel Management

Moderate lifecycle Demand Visibility

Service Order Management

Customer Intelligence

Long lifecycle Customer Intelligence

Product Technical Documentation

Inventory/Parts Planning

Common Investment Areasby Service Lifecycle Length

Challenges Shaping Services Industry

Real-time enterprise through digital convergence Mobile business going wireless Value chain integration, organizational alignment Strategic sourcing – collaboration with partners CRM – remote diagnostics and monitoring Data storage, data mining and knowledge

management Security Aggregating/brokerage of services, delivering

complete solutions

From AFSMI Sbusiness Journal Mar/Apr 2003

Call for Action

Principle - Drive to a service line P&L (play the game)

Plan - Analyze and understand underlying product and service drivers and opportunities Develop a plan of attack Execute

Act - Invest in the tools and technologies needed to support the service line business plan Links to customer care initiatives Learn all SAP has to offer its customers for service

operations