HIGH TECH SERVICE
S-BUSINESS OPTIMIZATION:
A STRATEGIC OVERVIEW
By
Donald F. Blumberg, CEO - BAI
and
Michael R. Blumberg, COO - BAI
D. F. Blumberg Associates, Inc.
Ft. Washington, PA
The growing need for significant
productivity, profitability, and quality improvement in service
business most often takes the form of marginal (and often
expensive) management systems infrastructure, making use of
computers, office automation technology, telecommunications,
and other related electronic mechanisms to support the typical
field service operation. Extensive research into the mechanisms
that influence service productivity and performance, coupled
with a new understanding of service in terms of the customer's
perception and the market environment, as well as new technology,
has led to a strategic identification of the key factors that
help to manage and improve service productivity and performance
and reduce or eliminate "pain" in service management.
These factors can play a great role in improving, and, in
fact, optimizing service productivity and performance. This
subject was recently studied in depth by D. F. Blumberg Associates,
Inc. (BAI), and the Association for Service Management International
(AFSMI).* This paper provides an overview of the results of
that BAI/AFSMI project.
THE SERVICE MANAGEMENT
BUSINESS MODEL
Typically, service organizations in the S-Business industry
operate either in support of a product business (such as an
equipment manufacturer or product dealer) or in the role of
an independent (third-party or multivendor equipment) service
provider. However, some organizations operate in both roles.
No matter which role is assumed, the overall objectives of
these organizations remain the same:
- Generate revenues and profits directly from service
- Provide added value
- Provide market control
The emphasis on these objectives
varies as a function of the role of the service organizations
from a adjunct support of a product business to a standalone
service provider operating as a separate line of business.
In this framework, a customer or client contacts the service
organization to describe service need(s) or problem(s). This
results in the assignment and dispatch of labor and/or material
to complete the service requirement. To develop a better understanding
of issues faced in managing service businesses, we must examine
the following issues:
_______________
* See "S-Business Optimization" report by D. F.
Blumberg Associates & AFSMI
| A. |
There are real
differences between the typical product-oriented business
model and the new service model. In a product business
two resources (manpower and material) are used in an "engine
of production" to produce units of goods that are
sold to the market. The resulting revenue, less the cost
of the resources and engine of production, represents
the profits. If the products are not sold immediately,
they can be inventoried or stockpiled for later sale.
In contrast, in a service organization, there are three
sets of resources; not two. In addition to labor and materials
(as in the case of the product business), data or information,
particularly in real time, as either resources being sold
or as a control mechanism for service optimization; in
the service business environment, the data is as important
a resource as labor and materials. The
most significant difference between the two business
models is the impossibility of stockpiling or inventorying
services in the same manner as a product-oriented business.
Because of this, service organizations must deal with
both time and perceptions. In essence, the inability
to stockpile requires the service organization to have
both the ability to produce service and the ability
to demonstrate that the services will be provided at
the level and quality desired within the timeframe desired.
This ability to perform represents a second "engine
of production" which creates a general feeling
of perceived and anticipated customer satisfaction not
generally present in the product business. The effect
is that the market purchases both the actual service
and the "ability to perform satisfactory service
in the future. The profit is determined by subtracting
the costs of labor and material as well as data and
the two engineers of productivity from their revenues
to generate profits. To illustrate this point, a customer
can buy a service contract, which is never used; in
this case the customer is paying only for the ability
of the service organization to perform sometime in the
future. Therefore, there are significant differences
between product and service businesses, which, in turn,
lead to differences in optimization strategies and factors.
These differences lie in:
- The need for a strategic vision
and service oriented plan
- The critical value of real-time,
accurate data in support of allocation decisions.
- The need to manage perceptions,
as well as reality, in terms of the capability to
serve customers in the external marketplace, particularly
when dealing with time-related events, such as response
times.
|
| B. |
Strategic direction
is required to optimize service operations. The second
major issue is that, with respect to optimizing service
revenue, profit, and market objectives, strategic direction
and vision is required. As shown in Figure 1, strategic
direction in service requires the consideration of both
internal operations (through benchmarking) and external
market needs and requirements (through customer satisfaction
and market research). Explicit consideration of both the
internal and external data, in light of overall goals
and strategic vision, will lead to an optimized allocation
of general staffing levels by location and logistics investment.
|
| C. |
Optimization
requires careful and explicit calculations and control.
The final issue is the need to understand that a variety
of strategic allocations of labor, material, and data
resources, in light of long term and real time market
requirements and competition, are possible, but only
one strategy is optimum . The difference between viable
strategic solutions and optimum/optimal strategy could
be quite significant. An increasing number of analytical
planning and decision support tools for manpower and
logistics support are now available to determine the
optimum and optimal solutions, given the right data.
Clearly, one class
of mechanism deals with factors similar to those faced
by a product-oriented business. These include issues
dealing with internal productivity and operational efficiencies.
In addition, an important element in improving service
productivity is the need to recognize that service output
is as much dependent on the customer's perception of
service performance, relative to external market requirements
and needs, as it is on the service organization's internal
activities themselves. Thus, research into the understanding
of customer/market service perceptions, particularly
with respect to customer satisfaction levels, service
performance requirements, and willingness to pay, can
help to achieve further improvements in service quality
and productivity, making service optimization an attainable
goal.
Given these basic
ideas, we now can proceed to a discussion of strategies
and tactics for optimization, and demonstrate the successful
approaches, mechanisms, and solutions for doing so. |
OPTIMIZATION ISSUES
As indicated above, service optimization requires a very serious
consideration of goals, objectives, and tradeoffs. To drive
forward, we need to start with the primary "pain"
problems encountered by service executives. These tend to
deal with the issues of:
- Balancing resources to maximize
both the customer's satisfaction and the service organization's
profitability in a rapidly changing market environment.
- Controlling (in both the long term
and in real time) the allocation and scheduling of individual
resources.
- Dealing with both managers and customers
perceptions and reality.
- Operating under business rules and
models designed for a product environment that do not appear
to fully fit the service business, dynamics, and structure.
- In broad terms, the solutions are related to:
- Strategic systems infrastructure design and implementation,
to obtain accurate data in real time and link it to specific
models and calculations.
- Benchmarking of internal operations vs. competition.
- Market research into customer satisfaction, requirements,
and needs.
- Importance of density in service optimization.
These solutions are outlined
and discussed below.
| A. |
Strategic
systems infrastructure.
As indicated above, data is one of the critical resources
in service management. Full optimization requires the
right data to be available accurately and in real time.
With this data, and the proper calculations and decision
support calculations, it is possible to optimize the
allocation of labor and material (parts) to meet changing
customer requirements. The basic systems infrastructure
that has emerged is the full Service Management System
(SMS) as described in Figure 2. This integrated system
can be implemented on a standalone basis or as part
of a fully integrated CRM/ERP solution. The key elements
of this systems infrastructure are:
- Call management and
control including diagnostics, call avoidance, and
work force scheduling
- Logistics management
and control including forecasting
- Database Management
- Field Communications
|
 
| B. |
Benchmarking and customer
satisfaction/market research. As shown in Figure
1, optimization-based service strategies can be developed
by two parallel mechanisms:
- Benchmarking-
Benchmarking provides the capability to measure internal
performance against industry averages and the best-in-class
for specific parameters. The key steps to benchmarking
are to (a) determine the correct parameters to measure
and then to (b) determine the actual, real-life metrics
through either limited single-shot surveys or in-depth
survey research.
- General benchmarking studies (carried out by
BAI), comparing industry averages to best-in-class
(for both service personnel and logistics parameters)
demonstrate the significant potential for improvement
through optimization. To be useful, this data
needs to be specifically compared to compatible
firms, using the externally developed benchmarks,
and then analyzed against existing internal data.
- Customer satisfaction/management benchmarking
and market research
- External measurement is also very valuable.
By measuring customer satisfaction, particularly
with respect to the same or equivalent benchmarks,
it is possible to directly measure service performance
based on customer perceptions. Extending the market
research also provides information on competing
positions, unmet requirements, willingness to
pay for improvements, and other factors that can
be very useful in dealing with the development
of an optimized strategy.
|
| C. |
Importance of customer-installed
base density in service optimization. Finally, one
of the most critical tools available for service optimization
is based on the density of the customer base. Extensive
studies have shown that the customer-base density is
the single most important parameter in driving service
productivity and efficiency. For example, if an organization
were servicing 1,000 units that were randomly distributed
around the country vs. the same 1,000 units contained
in one building in one city, the ability to manage,
and deliver service in the same building is much greater
than that of servicing units randomly distributed across
a much large geographic area. This has been demonstrated
clearly in studies conducted on the impact of density
on profitability, in which different levels of density
produce significantly different levels of profitability
. In addition, these studies identify that systems infrastructure
becomes increasingly more powerful in affecting service
profitability as density decreases.
In essence, increasing the density of the customer-base-through
either critical or proactive selection of customer-base
geography or expansion into multivendor equipment service
(MVES) to build increased density-can generate higher
levels of economies of scale. The more service of a
consistent nature that is required in a given geographic
area to reach a high-density customer base, the more
efficiently the service can be provided. Thus, increasing
density creates more options for workforce scheduling
and logistics assignments. On the other hand, decreased
density limits scheduling and assignment options and
alternatives. This also means that a company servicing
computers can gain productivity by servicing other computer
like information technology in the same customer site.
With the dramatic increase in the use of microprocessors
in markets such as office automation, communications
networks, plant and building automation, healthcare,
etc., the opportunities for increasing density through
the expansion of service provided through MVES is high.
|
These broad issues of systems infrastructures, benchmarking,
customer satisfaction measurement, and customer-base density
improvement are the initial building blocks leading to service
optimization (Figure 3).
RESULTS OF LARGE SCALE SURVEY AND BENCHMARKING
OF SERVICE ORGANIZATION OPTIMIZATION EXPERIENCE
As part of a major research program on service business optimization,
a number of service organizations were surveyed. The participants
primarily represented Original Equipment Manufacturers (OEM's)
and Independent Service Organizations (ISO's) that are operating
nationally or internationally. Three-quarters operate their
service organization as a strategic line of business or profit
center and therefore tend to be focused on maintaining and
increasing their net profit. Other participants in the survey
include dealers and distributors, using service in support
of sales.
Overall, participating organizations indicated that the concept
of optimization is important to their service business. The
majority of respondents indicated that their key optimization
goals focus primarily on growth of earnings and income generated
by their service organization and increasing / maintaining
customer satisfaction (Figure 4). More than half of the respondents
indicated that the performance of their field service operations
exceeds or meets that of their best competitors.
When asked which strategies they found most
effective for maintaining high levels of field service performance,
the majority of respondents placed most emphasis on creating
and implementing the strategic service vision and plan and
dissemination of this through education and training of personnel.
Other approaches included process re-engineering and deploying
technology and application solutions. This suggests that companies
are less likely to accept technology alone as the remedy for
all of their problems.
Over half of the organizations defined as "best
practice" companies by BAI (i.e., are utilizing optimization
technology) equate the deployment of such technology with
high levels of field service performance. Overall, these organizations
indicate they have
experienced an average (mean) improvement of 23% in field
service performance as a result of implementation.
Organizations defined as "best practice"
(by BAI) had a much higher incidence of tracking specific
aspects of their field service operations such as revenue
per service employee, profit margin as a percent of revenue,
average customer response time, and the efficiency of their
field force, than the typical firms (Figure 5). This demonstrates
the value of benchmarking measurement and customer satisfaction
management, the requirement for these more sophisticated measurements
in support of decision process in turn, can be attributed
to the functionality of the systems and applications being
used by these organizations. Typically, these systems include
such functions as workforce, scheduling, tracking of customer
calls, account management, sales history, billing, and help
desk functionality, and logistics forecasts and planning.
The survey also clearly showed that service
optimization is also linked to incremental revenue. As indicated
above, not only does economics of scale increase with increased
market density (i.e., market penetration), but it also provides
efficient scalability to take on more work without increasing
costs. The survey respondents credited optimization technology
with increasing top line revenues (Figure 6). Their experience
also demonstrates the impact of increasing density on bottom
line profitability (Figure 7).
An important finding was that experience in
optimization improvement varies as a function of industry
or technology service (Figure 8). This could be the result
of different levels of density, or due to different levels
of optimization investment or both.
Another finding from the survey was that many
organizations that believe they are "best in class"
are not. A comparison of respondents self responding as "best
in class" compared to an objective independent analysis
demonstrates that many service organizations still have a
significant improvement potential simply because they have
failed to quantify the performance through benchmarking and
customer satisfaction audits.
These limited findings are presented mainly
to demonstrate the wealth of data and findings from the completed
study. The full report provides a comprehensive look at all
of these issues and more.
SUMMARY & CONCLUSIONS
We have identified the importance of new optimization paradigms
facing the service executive. Our survey of users clearly
demonstrates that optimization oriented systems, technology,
and infrastructure works in terms of real improvements in
key benchmark parameters (see Figures 9 & 10). It is also
very clear from the technology survey that the state of the
art is also moving forward very rapidly in the area of optimization
functionality. An evaluation of the current state of the art
indicates that there is a number of commercially available
systems on the market today that provides optimization for
a number of different service functions and processes including,
but not limited to: optimized diagnostics and call analysis,
scheduling and work force management, spare parts optimization,
manpower planning, business analytics, and field communications.
Our experience working with service organization
to harness the benefits of optimization tools suggests that
service productivity and efficiency can be improved by 20%
to 25%, or more, by utilizing a combination of new technologies
and processes and marketing approach along with a focused
strategic vision and plan, and increased density/top line
revenue to address economies of scale. The complete study
report fully documents these findings.
This first comprehensive study of S-Business Optimization
shows that by making internal improvements in call management,
logistics support management, and field communications, a
service organization can experience significant improvements
in efficiency and customer satisfaction. These gains, to be
translated into bottom line profitability, are achievable
as long as the organization is also making a concerted effort
to increase its customer base density. In essence, increases
in customer base density can leverage internal improvements
in systems and operations and vice versa.
The keys to service productivity and quality
improvement and optimization lie in the establishment of a
formal, optimized business strategy, plan and model that define
a) the role and importance of service, and b) the general
service business model to increase customer base density.
This plan and vision must be given to all participants in
the organization through training and orientation sessions.
Our research suggests the highest payoffs in service performance,
as measured by financial and operational metrics, can be achieved
vis-à-vis adoption of a strategic approach to service
optimization. While the strategic route is the best approach
to achieving significant, gains in service performance its
overall success is dependent on making a significant commitment
in management attention and resources at the top level.
In summary, we believe the results of our initial
optimization research effort validate that optimization of
Field Service processes is achievable and the payoff is quite
significant. Despite the benefits of optimization, Managers
and Executives responsible for Field Service can face many
obstacles and challenges in achieving their optimization goals.
These challenges can stem from a lack of buy-in, at all levels
of the organization, and/or a lack of knowledge within the
organization about how to achieve these goals.
The complete BAI/AFSMI optimization report (
over 450 pages) is available from BAI or AFSMI; price is $995
for members and $945 for non members. Please contact BAI at
215-643-9060 or dfba@dfba.com.
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