the service imperative
DESCRIPTION
Key takeaways for service executives from the Oxford Economics report on manufacturing transformation. The service opportunity is now. Transforming service is key to driving profitable growth and competitive advantage. That’s what executives from manufacturing companies told Oxford Economics in a recent study commissioned by PTC. Inside you’ll find other key takeaways from the survey, specifically for service leaders.TRANSCRIPT
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Manufacturing Transformation for Service Executives
The Service ImperativeKey takeaways for service executives from the Oxford Economics report on manufacturing transformation
Manufacturing Transformation for Service Executives
Oxford Economics
Oxford Economics was founded in 1981 as a joint venture with Oxford University. Since then, they have become one of the world’s foremost independent global research firms.
Headquartered in Oxford, England, with offices throughout the world, Oxford Economics employs more than 80 professional macroeconomic and industry economists—one of the largest teams of economists in the private sector.
Get more information at oxfordeconomics.com
PTC
PTC’s technology solutions help customers transform the way they create and service products across the entire product lifecycle—from conception and design to sourcing and service—to create sustained competitive advantage.
Founded in 1985, PTC employs approximately 6,000 professionals, including 1,300 dedicated service professionals, serving more than 27,000 businesses in rapidly-evolving, globally distributed manufacturing industries worldwide.
Get more information at PTC.com
The service opportunity is now. Transforming service is key to driving profitable growth and competitive advantage. That’s what executives from manufacturing companies told Oxford Economics in a recent study commissioned by PTC. Inside you’ll find other key takeaways from the survey, specifically for service leaders.
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Manufacturing Transformation for Service Executives
0 5% 10% 15% 20% 25% 30% 35%
Aerospace and Defense
Automotive
Consumer / Retail / ApparelElectronics / HighTech
IndustrialEquipment 16%
17%17%
17%
16%17%Medical Devices
What is your firm’s industry segment?
What best describes your role? Which best describes your business function? Annual revenue
In which country is your company headquartered?
0 5% 10% 15% 20% 25%
59%
I report to a C-level executive
41%
I am a C-level executive
United StatesChinaJapan
GermanySouth Korea
Supply Chain / Manufacturing
Product / Engineering
IT
Service
Operations
Finance
Strategy
TaiwanFrance
DenmarkNorwaySweden
Finland
Large: $1.26b – $5b
Very large: over $5b
Medium: $751m – $1.25b
Small: $250m – $750m
21% 25%
25%29%
The complete findings can be found in the Manufacturing Transformation report. Click here to download.
Survey Profile
Oxford Economics surveyed more than 300 manufacturing executives early in 2013. The survey covered major industries and world markets. Respondents represented a range of titles and business functions, from companies large and small.
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Manufacturing Transformation for Service Executives
Survey Findings
What executives told us points to manufacturing industries and companies in transition. Their answers helped fulfill the survey’s objectives to:
ANALYZEhow external market forces are transforming manufacturing strategies and competitive positioning.
MEASUREthe impact of strategy and planning, service, and manufacturing operations on business performance.
PROVIDE INSIGHTinto how manufacturing firms will drive growth, innovation, and customer satisfaction in the future.
Flip through this e-book’s pages for the survey’s findings most relevant to service executives.
In Depth
To provide additional context for the research study’s findings, Oxford Economics interviewed executives from selected manufacturers in depth. You’ll see mini case studies on some of these companies, plus others, inside:
John Deere
Emerson Climate Systems
Boston Scientific
Ingersoll Rand
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Manufacturing Transformation for Service Executives
Waves of Change
Market shifts are reshaping the competitive landscape for global manufacturers.
What will have the greatest impact in the future? Executives overall identified the major trends shown at left. From the service executive’s perspective, these concerns take highest priority:
Technology—67%Technology advances make servicing products more complex.
Talent Shortages—70%Especially challenging: finding service managers with strong technical skills.
Suppliers and Partners—70%Navigating supply chains to support customers isn’t getting any easier.
Increased Regulations—63%Service is the main front for regulatory compliance and customer complaints.
External market shifts
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Economic realignment 66%
Technology change
61%
60%
Supplier/partner relationships
Global competition 59%
Increased regulations
46%
Changing customer behavior 45%
67%
70%
60%70%
63%
Service executives All executives
Talent shortages/labor costs
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Manufacturing Transformation for Service Executives
75% 82%62% 67% 59% 66%EuropeU.S. Asia
Today 3 Years
For many manufacturers, service is, in fact, the top driver of competitive advantage.
Fortune 1000 firms rank service as their most important competitive driver for the future. For manufacturers of all sizes, service is only slightly behind…and catching up fast.
High-tech and automotive firms see the “service as differentiator” trend most clearly.
Differentiator & Driver
In a time of profound change, manufacturers agree: Service is a key market differentiator.
C-level manufacturing executives place higher value on differentiating through service than their staff.
Europe’s manufacturers put more emphasis than others on differentiating through service.
Today In 3 years% of respondents
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
77%
68%
64%
60%
63%
56%
74%
72%
70%
65%
60%
High-tech
Automotive
Aerospace/defense
Medical devices
Industrial equipment
Consumer/retail
84%63%68%
67%77%C-Level Executives
Report to C-Level 0% 20% 40% 60% 80% 100%
Today In 3 years
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Manufacturing Transformation for Service Executives
Case in Point: John DeereJohn Deere—the world-renowned maker of equipment for farmers, ranchers, loggers, builders, homeowners, and all others linked to the land—continually innovates in service.
“What’s leading edge today,” says Pat Pinkston, vice president of global platform services,“ becomes standard tomorrow.” Example: Telematics—for sending, receiving, and storing information on product performance—was formerly an add-on option, but now comes with all John Deere products. Some data can be remotely monitored.
For John Deere, service innovation is not just about improving customer relationships and increasing service revenue. Insights gained from service performance feed back throughout the company to help improve current products and generate ideas for new products. John Deere uses the term “servitization” to describe this process. Each innovation cycle contributes to further differentiating John Deere products in customers’ eyes.
Priority of service innovation
Service Innovation
Given the growing strategic importance of service, manufacturers’ increasing focus on service innovation is not surprising.
High-margin manufacturers see service innovation as a higher priority than other industry categories.
Over half of manufacturers now place high priority on innovating in service strategy and execution. Over two-thirds will do so in the near future.
Among high-tech firms, 57% now focus on service innovation. This number will climb to 80% in three years—a rise of over 40%.
The number of automotive firms keying on service innovation will increase from 56% to 70%—a 25% jump.
Today In 3 years% of respondents
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
58%
57%
56%
69%
56%
54%
54%
68%
80%
70%
69%
68%
64%
56%
Total
High-tech
Automotive
Aerospace/defense
Medical devices
Industrial equipment
Consumer/retail
62%72% 10%
margin – +
10% or lower
0% 20% 40% 60% 80% 100%
10.1% or higher
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Manufacturing Transformation for Service Executives
Case in Point: Emerson Climate Systems
Charles Peters, vice president of service engineering for Emerson Climate Systems, believes that focusing on service innovation helps drive sales revenue even before service offerings have been specified and integrated into a product line. The reason: “Customers prefer working with innovative firms,” he says. Emerson has seen meaningful gains in market share for core products based on the promise of future service delivery.
Bottom-Line Impact
Innovation is shifting service’s primary benefit from cost reduction to revenue growth.
There’s consensus among manufacturing executives: By focusing on service, they’re raising their company’s revenue now—and will increase it even more in the future.
Through expanded use of remote diagnostics, customer self-diagnosis, and other service innovations, productivity is rising—as are company profits.
Profits get a turbo-boost when manufacturers place higher priority on service.
At lower levels of priority, service has more impact on costs than revenue. When service prioritization rises, costs reduce much more, while revenue rises even more sharply.
The bottom-line impact from shifting to high priority on service varies somewhat by industry, but is felt significantly in all.
0%
2%
4%
6%
8%
10%
-2%
-4%
-6%
-8%
-10%
0%
2%
4%
6%
8%
10%
-2%
-4%
-6%
-8%
-10%
7.1%9.5%
4.3%6.1%
9.3%
-5.5% -6.1%
-8.5%
Revenue increase
Low Moderate
Priority placed on serviceImpact over time
High
-6.9%
-8.9%
Cost reduction
Revenue increase
Cost reduction
Today In 3 years
Revenue and cost impact of a focus on service
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Service Strategies
These strategies, in particular, drive manufacturers’ service transformation initiatives:
1 Service as a Profit Center2 Remote Diagnostics3 Performance-Based Contracts4 Service Anywhere
Survey findings on the next few pages expand upon these specific service strategies, particularly from the service executive’s perspective.
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Manufacturing Transformation for Service Executives
Manufacturing Transformation for Service Executives
Service Strategies—Service as a Profit Center
Nearly half of all manufacturers operate service as a profit center. More will soon.
Industrial equipment and high-tech companies will remain furthest ahead of the trend. Automotive firms will be the fastest adopters of service as a profit center.
Smaller firms are ahead of larger firms in organizing service as a profit center. Firms with higher margins are ahead for now—but smaller-margin firms are narrowing the gap.
To improve results, more manufacturers will bring service in-house.
Medical equipment and high-tech manufacturers will lead the charge. Asian manufacturers are ahead on bringing service in-house—and will remain ahead for the near future.
29% 39%33% 39% 42% 60%EuropeU.S. Asia
Today 3 Years
Today In 3 years% of respondents
0% 10% 20% 30% 40% 50% 60% 70% 80%
45%
55%
52%
49%
37%
36%
42%
56%
66%
65%
59%
58%
46%
44%
Total
High-tech
Automotive
Aerospace/defense
Medical devices
Industrial equipment
Consumer/retail
Today In 3 years% of respondents
0% 10% 20% 30% 40% 50% 60% 70%
36%
44%
40%
39%
37%
32%
48%
58%
53%
51%
50%
42%
32%
Total
High-tech
Automotive
Aerospace/defense
Medical devices
Industrial equipment
Consumer/retail
22%
Firms operating service as a profit centerFirms bringing service in-house
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Manufacturing Transformation for Service Executives
0% 10% 20% 30% 40% 50% 60% 70%
Today In 3 years% of respondents
40%
47%
22%
34%
50%
47%
36%
56%
59%
42%
50%
63%
58%
66%
Total
High-tech
Automotive
Aerospace/defense
Medical devices
Industrial equipment
Consumer/retail
The use of remote diagnostics is growing
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Case in Point: Boston Scientific
Pacemakers from Boston Scientific monitor a heart patient’s progress inside and outside of the hospital. Remote diagnostics are thus practically inherent in the product—not just in the service of them. Sujal Bhakalai, the company’s vice president of operations, puts it succinctly: “Remote diagnostics are transforming medical device manufacturing.”
Service Strategies—Remote Diagnostics
Remote diagnostics are on the rise. They’re revolutionizing service delivery.
The use of remote diagnostics for service is increasing everywhere—in some industries faster than others, but in all of them significantly.
Smaller firms are catching up to larger firms in adopting remote diagnostics for service. Asian manufacturers are furthest ahead of the trend.
The size of a manufacturing company can make some difference in the use of remote diagnostics. Yet this will matter less in the future.
Manufacturing Transformation for Service Executives
Service Strategies—Performance-Based Contracts
Soon, nearly two-thirds of manufacturers will offer performance-based service contracts.
Aerospace and defense firms, along with makers of medical devices, will be practice leaders.
Manufacturers of consumer products will see the biggest jump in performance-based service contracts—almost doubling their use.
Now behind American manufacturers, Asian and European manufacturers will soon leap ahead in their use of performance-based service contracts.
Case in Point: Ingersoll Rand
Ingersoll Rand’s Trane division offers performance-based service contracts that allow a building owner to apply future energy and operational savings to financing of HVAC equipment upgrades.
The customer’s added value isn’t simply to predict a cut in energy costs—Trane effectively guarantees the savings through this innovative service option. And when you consider that energy is the largest single operating expense in most buildings (with A/C alone typically accounting for 40% of the total bill), the savings stand to be significant.
Today 3 Years
39% 65%52% 61% 34% 69%EuropeU.S. Asia
0% 10% 20% 30% 40% 50% 60% 70% 80%
Today In 3 years% of respondents
41%
49%
40%
45%
43%
36%
34%
65%
74%
70%
66%
62%
61%
60%
Total
High-tech
Automotive
Aerospace/defense
Medical devices
Industrial equipment
Consumer/retail
Performance-based service contracts becoming common
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Manufacturing Transformation for Service Executives
Service Strategies—Service Anywhere
Globalization’s challenge: staying close to customers, wherever they are.
Manufacturers are moving to tailor their offerings to regional needs, preferences, expectations, and standards.
Design, build, and service anywhere will grow a remarkable 125% in three years. Aerospace and defense manufacturers now lead in the practice—and plan to keep leading.
Industrial equipment manufacturers will be particularly ambitious. They’ll more than triple their efforts to design, build, and service anywhere.
Manufacturers with the highest revenue and profit growth will move decisively to design, build, and service anywhere.
Asian manufacturers will soon lead their European and North American counterparts.
C-level executives see more value than their staff in design, build, and service anywhere.
Europe 60%North America 40% Asia 70%
29%28%
69%65%High Revenue Firms
High Profitability Firms0% 20% 40% 60% 80% 100%
Today In 3 years
22%31%
55%64%C-Level Executives
Report to C-Level 0% 20% 40% 60% 80% 100%
Today In 3 years
0% 10% 20% 30% 40% 50% 60% 70% 80%
Today In 3 years% of respondents
26%
35%
26%
29%
26%
24%
16%
58%
67%
63%
60%
56%
54%
50%
Total
High-tech
Automotive
Aerospace/defense
Medical devices
Consumer/retail
Industrial equipment
Design, build and service anywhere
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Manufacturing Transformation for Service Executives
Service Transformation
Manufacturers aiming to transform service should recognize three current realities:
Not all parts of the company assign the same importance to service.Manufacturing, finance, and, as you’d expect, service executives believe that service will be a top driver of competitive advantage in three years.
But operations, R&D, and especially IT executives, see things differently as they look ahead.
Service leaders may wish to cultivate their peers in IT, in particular, to help realize their organization’s bold vision for service transformation.
Coordinating service with other functions is critical for success. Increasing the coordination of service strategy with R&D and manufacturing will grow increasingly important. This trend will continue across major industries.
Service strategy correlates to profits. Firms that focus more on coordinating service with other functions have higher margins.
Thinking horizontally about service—i.e., making it integral to strategy development across functions—leads to higher ROI for a manufacturer’s growth initiatives.
Feedback from service to other functions is becoming the norm. Manufacturers will increasingly use the product and service performance insights gained from service execution to help drive…
More than ever, service feedback influences product designs. This includes small enhancements, but also major innovations—such as the increased use of remote diagnostics to create smart products.
52%58%
65%71%…service planning
…product development
0% 20% 40% 60% 80% 100%
Today In 3 years
47% 59%…supply chain, manufacturing
Greater strategy coordination of service with other functions
54%59%
74%72%
0% 20% 40% 60% 80% 100%
Today In 3 years
With research and development
With supply chain and manufacturing
0%
10%
20%
30%
40%
50%
60%
0%
10%
20%
30%
40%
50%
60%
Service Manufacturing R&D
Service Manufacturing Finance
Operations R&D IT
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Manufacturing Transformation for Service Executives
(1) How is your senior management—across functions, including R&D, HR, and IT—addressing the critical role of service for gaining competitive advantage?
(2) How especially can you enhance coordination of service with R&D, the supply chain, and manufacturing?
(3) Does your organization have a closed feedback loop between service execution and service planning, R&D, and manufacturing and supply chain management?
(4) What organizational changes are you making to run service as a profit center and incorporate performance-based service contracts into your business model?
(5) How much are you able to service anywhere through partner and supplier networks, remote diagnostics, and other enabling technologies?
Want to know more?
Click here to download PTC’s ebook on Service as Strategy.
It’s one thing to talk the talk on the service imperative. Better to walk the walk.
Use this brief action checklist to assess your organization’s current status and future preparedness for taking full advantage of the service opportunity.
© 2013, PTC Inc. (PTC). All rights reserved. Information described herein is furnished for informational use only, is subject to change without notice, and should not be taken as a guarantee, commitment, condition or offer by PTC. PTC, the PTC logo, Windchill, and all other PTC product names and logos are trademarks or registered trademarks of PTC and/or its subsid-iaries in the United States and other countries. All other product or company names are property of their respective owners. The timing of any product release, including any features or functionality, is subject to change at PTC’s discretion.
J2669–Oxford-Economics-for-Service-Exec-ebook–EN–1013
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