News: Articles
Service Outlook for 2005 and Beyond
By
Michael R. Blumberg
For some reason, the month of September always
seems to be a time to take stock in where we are on a professional
and business level and to determine where we are going in the
months ahead. This tradition may be rooted in our educational
system heritage, which conditions us to work hard through most
of the year, relax in the summer, and begin work again in the
fall. Perhaps, it is simply because the third quarter is winding
down and organizations are now using the fourth quarter as a
time period to reassess where they are from a financial and
market perspective, evaluate where they are heading as a company,
and make plans to change or modify their direction in the future.
Nevertheless, the weeks before and after Labor
Day (in the United States) represent a time where we can look
back at what we have done over the last nine months, determine
what worked well, and identify what needs to change to improve
in the future. This time has always been one of uncertainty
on the one hand, since organizations must decide whether they
are on the right track for success, and one of optimism on the
other hand, since organizations can look toward the future and
implement strategies they believe will lead to optimal business
success. This year is no different for most organizations within
the high-tech service industry. However, what makes things different
this year are the issues facing the industry and the opportunities
for the future.
All industries operate in cycles, and the high-tech
service industry is no exception. Industries also operate on
the basis of paradigms (i.e., models, ways of doing business),
and these paradigms are subject to change. The challenge is
that most industry participants are never quite sure when a
paradigm will change for good, or more importantly, how to successfully
respond to a new, emerging paradigm. It is a learning process.
A paradigm shift occurs when the underlying structure of an
industry has changed so much as a result of trends, business
practices, and market conditions that the industry is no longer
recognizable as the industry that it once was. Spotting and
responding to a paradigm shift is difficult because it requires
a change in perspective, and change can be a “difficult
pill to swallow.” Our perspective can be hard to change
because we refuse to admit there is a problem, because we can’t
“see the forest for the trees” since there are still
those who do things the old way, or because the change is not
really change at all, but rather “white noise” fallout
from other things or events that are happening around us.
Indeed, the high-tech service industry is undergoing
a paradigm shift, and these factors are at play as well. The
paradigm shift within the industry cannot be disputed as we
observe the nature, role, and value of service changing in a
broad array of market segments as a result of technological,
market, regulatory, and general industry trends. Yet, few organizations
are willing to concede that they have to change the way they
conduct business to succeed in this new paradigm. Organizations
in segments that were once considered to be fairly low-tech,
such as building controls and material handling, are now beginning
to realize that field service can be a strategic and profitable
business, but few are willing to make the required investments
in technology, training, and process optimization.
Traditional high-tech segments like information
technology are beginning to perceive hardware break-fix services
such as field service and depot repair as commodity businesses.
Few service organizations have been able to reinvent themselves
into commodity-oriented service organizations and/or have been
able to push revenue growth on a profitable basis. Furthermore,
many independent service organizations in this segment are now
for sale since the entrepreneurs who started these companies
twenty or thirty years ago are approaching retirement age and
have little or no future growth strategy for their management
teams to pursue. Others are betting on high-margin, higher growth
professional service businesses as their salvation, but the
market for these services is extremely competitive, and the
transition from break-fix to professional services is no “walk
in the park” either.
Other segments, like telecommunications, energy
and utilities, and manufacturing, that seemed to be growing
like “gang-busters” but “tanked” after
the events of 9-11, the Enron scandal, the Patriot Act, and
Sarbanes Oxley, are now poised for future growth. However, this
future growth outlook is balanced and constrained by political,
geographical, and economic uncertainties the world over, resulting
in low double-digit growth forecasts for these industries as
opposed to exponential like growth that was achievable just
a few years ago.
So now, as we enter into the fourth quarter of
2004, what can we do to respond to the paradigm shift that has
occurred in the high-tech service industry? First, we must admit
that the industry has changed—it is no longer the same
industry that it once was. Technology is more reliable and dependable;
it is software-driven and network-based. Service requirements
and the value that customers place on these requirements has
changed. Hardware maintenance has become a commodity while professional
services can be offered at a premium. We must also realize that
we cannot continue to employ yesterday’s solutions to
solve today’s challenges. New skills, processes, and tools
are needed. This requires an investment in time, resources,
and capital. It also means that we have to be proactive in obtaining
these new assets; it won’t happen unless we make it happen.
We will have to cooperate and collaborate with our customers,
suppliers, and even our competitors to make change happen since
we all have a vested interest in keeping the high-tech service
industry alive and well for decades to come.
Basically, it comes down to employing strong and
solid but basic management techniques and business discipline
to running a service business. This means balancing short-term
financial objectives with long-term business goals. This requires
a strong emphasis on meeting short-term performance metrics
through benchmarking and productivity and efficiency improvement
initiatives while simultaneously planning for and delivering
against long-term business objectives vis-à-vis market
research and strategic planning.
The old adage “know the trend and make the
trend your friend” applies to high-tech service as well.
Invest in new service productivity tools, implement new processes,
or build a new service footprint (i.e., new capabilities) if
you are in a commodity market; if not, find new growth markets
that support your existing service capabilities; buy capability
through mergers or acquisitions if you can’t respond quickly
enough through organic strategies; consider exiting the business
if neither a commodity or premium service businesses is optimal.
Even then, make sure that you can develop a sustaining value
for your business if you expect to receive a high payoff from
selling it.
These generic recommendations represent practical
directions that many high-tech service organizations are now
taking to respond to the new paradigms. We believe that the
high-tech service industry is now turning the corner in terms
of its growth outlook. Service businesses that have employed
sound basic management principles and business techniques have
in effect broken the code to understanding the current paradigm
shifts within the industry, providing them with the ability
to survive in difficult times and to transition toward future
growth. We strongly encourage all participants in the high-tech
service industry to follow this example.
© Copyright 2004 D.F. Blumberg Associates,
Inc.
___________________________________________________________
Michael R. Blumberg, MBA, CMC, an authority on marketing research/strategy
formulation in the high-technology service market, is president
of D.F. Blumberg & Associates, Inc, a Fort Washington, PA
based management consulting firm that provides client services
in strategic planning, market research, productivity improvement,
and management systems design and implementation. You may reach
him at michaelb@dfba.com
or (215) 643-9060.
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