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HOW’S YOUR SERVE?Learn how product-centric companies can grow profitably through new service offerings
December 2009
2
Tim
Ogilvie
is
co‐Founder
and
CEO
of
Peer
Insight
and
a
recognized
leader in service innovation and business model design.
Tim
founded
and led
the
global
benchmarking
practice
at
Price
Waterhouse,
conducting
site
visits
in
13
countries.
He
was
the
founder
and
CEO
of
Brivo
Systems, a software company focused on security and access control. Prior to
his tenure at Brivo, Tim was a partner at Kaiser Associates, the global strategy
consultancy.
Tim
is
a
Visiting
Lecturer
at
the
Darden
School
of
Business
Administration,
where
he
teaches
customer‐centered
design. He
holds
a
Masters degree in Computer Integrated Manufacturing Systems from
Georgia
Tech and a BA in English from the University of Virginia.
Kimberly Campbell
is a Sr. Director of Consulting at Peer Insight and
a service innovation leader focused on designing new business models.
Prior to joining Peer Insight, Kimberly led corporate innovation
initiatives at
Johnson & Johnson and advised both Fortune 500 and new venture clients
with Accenture and the Wharton Small Business Development Center.
Kimberly has over 9 years of experience including client work in
the
pharmaceutical, medical device and cosmeceutical industries. Kimberly
earned an MBA from the Darden School of Business at the University of
Virginia and a BSBA in Business Management from the American University
in Washington, DC.
3
3
Peer Insight is an innovation strategy
consultancy with deep roots in service design and business model exploration.
Get to know Peer Insight
“We help our clients identify growth platforms, design new customer experiences and develop innovative strategies to address adjacent markets, audiences and opportunities.” - Tim Ogilvie, CEO
4
GE: From manufacturing jet engines to providing a service: “guaranteed thrust”
GE Aircraft P2S Transformation
•
1995: Highly sophisticated product …
but with
commodity
margins
•
1996: Jack Welch says, “We have become a socket
company to a fault.”
Focus shifts to services.
•
By 2000, GE Aircraft Power was a P2S success
•
Leasing engines from any
manufacturer
•
Providing MRO services for entire fleets
based on guaranteed up‐time (or GE pays)
•
Result: Market share rises from 23% to over 40%,
profitability in double‐digits
5
York: From manufacturing “big iron chillers”
to remote
services, turnkey services, guaranteed cost services, etc.
York P2S Transformation
•
2002: commodity pressures result in
unprofitable financial year
•
2003: York sets goal to double
the services
business in three years
•
Began to experiment aggressively with new,
services‐based business models
•
By mid‐2005, firm had nearly doubled services
revenues, increased overall top‐line by 20%,
and restored profitability
6
J&J: From pressing pills to supporting a smoking-free lifestyle
Nicorette
P2S Transformation
•
Poor sales performance and weak
customer outcomes in 2004‐05
•
Internal team formed to “partner with
smokers who want to quit”
•
Framed a product+services
experience
called (“Pavlov”) including
•
Nicorette
product
•
Phone‐based behavior modification
coaching
•
Online support network
•
By 2007, ActiveStop
service was launched
in over a dozen countries, restoring growth
and profitability
2005:Product
2007:Product + service
7
POLLHow would you describe your organization’s transition to services?
1.
Just getting started
2.
Process is underway, but we need to accelerate
3.
Process is stalled, need to restart
4.
Making great progress, want to stay on top
Key Findings From P2S Strategy Research
Recommendation for Developing Successful P2S Strategies
How‐to Tools for Applying the Best Practices
9
Key Findings From P2S Strategy Research
10
There are 10 types of innovation1
Customer experience
OfferingCore process
Process.Enabling process
Product/Service performance
Service system
CustomerService
Channel
DeliveryBrand
Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999)
Business model
FinanceValueNetwork
how the enterprise makes money
enterprise structure and value chain
Inside-out Outside-in
assembledcapabilities
proprietary processes that add value (including IT)
basic features, performance, and functionality
extended system that surrounds an offering
how you service your customers
how you connect your offerings to your customers
how you express your offering’s benefit to customers
how you create an overall experience for customers
11
Most competitive activityin the jet engine industry was focused here
Six Sigma5-axis
machining
Consider how the jet engine market engaged in “feature warfare”
during
the early 1990s
Minimal / none
Some activity
Moderate activity
Frequent activity
Non-stop activity
Business model
Finance
ValueNetwork
Channel
Delivery
Brand Customer experience
Offering
Core process
Process.
Enabling process
Product/Service performance
Product system
CustomerService
Source: Peer Insight analysis, Mar 2007
JIT deliveryDepot repair
Staged spares
Thrust-to- weight ratio
Modular design(LRUs)
12
Where is the “white space”?
Minimal / none
Some activity
Moderate activity
Frequent activity
Non-stop activity
Six Sigma
JIT deliveryDepot repair
Staged spares
5-axis machining
Business model
Finance
ValueNetwork
Channel
Delivery
Brand Customer experience
Offering
Core process
Process.
Enabling process
Product/Service performance
Product system
CustomerService
Thrust-to- weight ratio
Modular design(LRUs)
Source: Peer Insight analysis, Mar 2007
13
GE Power became #1 by leasing jet engines to airlines, getting paid only for uptime …
in effect, they sell “guaranteed thrust”
Minimal / none
Some activity
Moderate activity
Frequent activity
Non-stop activity
Six Sigma
JIT deliveryDepot repair
Staged spares
5-axis machining
Business model
Finance
ValueNetwork
Channel
Delivery
Brand Customer experience
Offering
Core process
Process.
Enabling process
Product/Service performance
Product system
CustomerService
Source: Peer Insight analysis, Mar 2007
Thrust-to- weight ratio
Modular design(LRUs)
Your most trusted
source for aircraft thrust
Procure and repair competitor
engines, too
Lease any jet engine
If engine is down, you don’t pay
14
Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999)
Hi
Lo
good
s
goods
Volume of innovation efforts:
Business model
FinanceValueNetwork
Core process
Process.Enabling process
Product/Svc performance
OfferingProduct/Svc system
CustomerService
Channel
DeliveryBrand Customer
experience
Product-centric innovation focuses on the offering, but results in feature warfare and …
… commoditization
15
In 2005, Peer Insight decided to study this area of white space
Hi
Lo
good
s
goods
Volume of innovation efforts:
Business model
FinanceValueNetwork
Core process
Process.Enabling process
Product/Svc performance
OfferingProduct/Svc system
CustomerService
Channel
DeliveryBrand Customer
experienceBusiness model
FinanceValueNetwork
Core process
Process.Enabling process
Product/Svc performance
OfferingProduct/Svc system
CustomerService
Channel
DeliveryBrand Customer
experience
Outside-in •
How do firms
innovate from
outside in?
•
How can product
firms transition to
compete through
service offerings?
1AARPADTAppleARCADISBank of AmericaBaxter HealthcareCEMEXChase CardsCrowe ChizekDieboldEnterpriseElsevierGE FinanceGE HealthcareGM OnStarGood SamaritanHallmark CardsHarrah'sHewlett‐PackardIntelJohnson ControlsLloyds TSBMayo Clinic
McDonald’sMedtronicMicrosoftMotorolaNASDAQNavistarNetFlixPfizerPitney BowesProcter & GambleProgressiveRIMServiceMasterSiemensStandard & Poor'sStarwood HotelsSun MicrosystemsSwisscomSyngentaThe HarfordTiVoUPSVirgin
2005
The Discipline of Service Innovation
Device -Enabled Services Initiative
March 2006Peer Insight
Device -Enabled Services Initiative
March 2006Peer Insight
2AARPADTAppleBaxterDieboldEatonGE MedicalGMIntelHPMedtronicMicrosoftMotorolaPfizerRIMSiemensSunStarbucksTiVOVirginYorkXM Radio
Device-
Enabled Services Initiative
2006
3
2007
American GirlBank of AmericaBrivo
SystemsCrowe ChizekIngram MicroLRA WorldwideMyBizHomePageNine SigmaServiceBenchSitoaThe HartfordTotal Quality Logistics
Innovative Service Concepts in the United States
Lessons from the Fast Lane
Insights about “Innovating with Speed,” acollaborative research program conducted
in partnership with the Batten Institute
October 2008
Peer Insight
4
2008
AARPAHRQCelesticaChase CardsCSCConvergysGood Samaritan SocietyHarris CorporationHewlett‐PackardKaiser PermanenteKelly ServicesMcDonald’sMicrosoftOPX GlobalPfizerSiemensStarwoodSwisscomThe HartfordUPSYork
Lessons from the Fast Lane
20
Recommendation for Developing Successful P2S Strategies
21
Note 2: From Peer Insight study of 45 global 500 firms (2005)
… services in back2
services average
serv
ices
services
goods in front1
Note 1: “Ten types of Innovation”, by Larry Keeley/Doblin Inc. (1999)
goods average
Insight: …
Comparing the goods era to the services era
Hi
Lo
good
s
goods
Volume of innovation efforts:
Business model
FinanceValueNetwork
Core process
Process.Enabling process
Product/Svc performance
OfferingProduct/Svc system
CustomerService
Channel
DeliveryBrand Customer
experience
22
Note 1: From Peer Insight study of 45 global 500 firms (2005)
services
serv
ices
Hi
Lo
Business model
FinanceValueNetwork
Core process
Process.Enabling process
Product/Svc performance
OfferingProduct/Svc system
CustomerService
Channel
DeliveryBrand Customer
experience
Formula for success in the services era
create a compelling cX
and biz modelembed it
Using IT
Reframe customer needsto find the white space
23
P2S Transformation Model“Innovating the Demand-Chain”
P2S success is built upon four pillars
24
Brand Intent
Customer
Selection
Strategic
Boundaries
Top Priorities
Appetite for
risk
Business
Model
Possibilities
Open
Innovation
Business
Model
Exploration
Protocols
Learning
Design
Feedback to
strategic
opportunities
Rapid
prototyping
Affordable
loss learning
Ethnography
Unmet Needs
Journey
Mapping
Co‐creation
P2S Transformation Model“Innovating the Demand-Chain”
25
POLLWhich of these Four Pillars represents the biggest challenge for
your
organization?
1.
Determining your Strategic Intent
2.
Understanding new Business Model Designs
3.
Learning Customer-Centric Methods
4.
Embracing a Rapid Learning Design (overcome a culture of debate)
How‐to Tools for Applying the Best Practices
27
Brand
Intent
Customer
Selection
Strategic
Boundaries
Top
Priorities
Appetite
for risk
What types of
customer problems are
central to our identity?
Which customers are we
committed to serving
and growing with?
How much are we
willing to risk to capture
those opportunities?
Which P2S opportunity
areas are top priorities?
[see next three pages]
28
Clear strategic boundaries are the foundation for a successful P2S transformation
Adapted from McKinsey Quarterly (2006, Volume 1), Peer Insight analysis
How-To
IBM AS/400
servers (1990)
IBM network
configuration
services (1995)
IBM Data CenterOutsourcing (1999)
IBM Global ServicesSystems Integration(2004)
29
Few firms can choose all four
quadrants; Companies face a critical
decision point when they arrive at step 4
Adapted from McKinsey Quarterly (2006, Volume 1), Peer Insight analysis
How-To
servicegive‐aways
fee‐based required
services
(installation, break/fix)
fee‐based non‐required
services
(e.g., financing, operator training)
1
2
3
add‐on services as true
adjacencies (e.g.,
configuration)4
customized value‐
added services 5
independent
customized
services7
6independent
transaction‐
based services
30
Different circumstances call for different strategies
Adapted from McKinsey Quarterly (2006, Volume 1), Peer Insight analysis
How-To
J&JActiveStop
GEAircraft
York
York Source
YorkMSCS
separate
services P&L…………
……………………...separate
services P&L
31
Business
Model
possibilities
Open
Innovation
protocols
Business
Model
Exploration
Protocols
In which parts of the value
chain is there “stretch
potential”
for us?
How will we engage the IP
of others? What will we
build ourselves, what will
we merely access?
[see next three pages]
32
Unmet Needs
Control Points
Customer Experience
Offerings
Value Capture
CREATING VALUE (EXTERNAL)
GETTING PAID
(INTERNAL)
Our business model diamond provides a framework to think about the implications of embracing a services strategy
How-To
33
Unmet Needs
Control Points
Customer Experience
Offerings
Value Capture
We see 13 hallmarks for modern business models that must be considered when designing a product-to-services solution
How-To
2.
Target a psychographic
need
1.
Focus on the future
customer
…….
…….
6.
Invite customer to co‐create
5.
Easy on‐ramp
for tryout
7.
Leverage third party
capabilities
…….
…….
…….
10.
Defensible lock‐in
that
strengthens over time
8.
Use information
flows to
create value (esp. analytics)
…….
…….9.
Front‐line
workers empowered
by info + incentives
…….
3.
Compelling experience
that satisfies a latent need……
.
4.
Simple narrative element……
.
11.Monetize information
value
…….…….
…….
IT infrastructure
that scales profitably
Multi‐channel
delivery model
12.
13.
34
J&J smoking cessation solution addresses 11 of these 13 hallmark
attributes
The Hallmarks of Modern Business Models
How-To
1.
Focus on the future customer
2.
Target a psychographic need state
3.
Compelling customer experience
4.
Narrative element
5.
Affordable on‐ramp for tryout
6.
Configurable by the customer
7.
Leverages third party capabilities
8.
Uses information flows to create value
9.
Empowered front‐line workers
10.
Defensible lock‐in (control points)
11.
Monetizes information value
12.
Scales through IT platforms
13.
Multi‐channel delivery model
The self‐confident younger smoker
Sees smoking as lifestyle choice (not addiction)
End‐to‐end experience, with support cohort
Build your personal support network online
Uses a third party for behavior mod coaching
Online + mobile device support messages
Behavior modification coaches
Data shows which methods work best
Customers buy info‐based service (+ Nicorette)
Behavior modification hosted application
Pharmacy + online + phone‐based
35
Ethnography
Unmet
Needs
Journey
Mapping
Co‐creation
[see next four pages]
How do customers behave
in their day‐to‐day life?
What unmet, unarticulated
needs do we perceive?
How can we enroll them to co‐create a better experience?
36
In ethnography, you learn to walk a mile in the customer’s shoes …
even
when they have to take them off for work
How-To
37
Observe …
go deep, not broad …
use a beginner’s mind
How-To
38
a journey
a touch point
a moment
1 2 3 4 5 6 7
2
A journey map helps to isolate the unmet needs and moments of truth in the customer experience
How-To
39
Journey mapping can look like this
blind spotsmoments of truth
customer: backstage(what you don’t see)
customer quotes(positive/negative)
customer priorities(underlying business need)
you: backstage(what they don’t see)
shared touch points(what you both see)
[this map is created BEFORE we generate any ideas]
How-To
40
Feedback to
strategic
opportunities
Feedback to
P2S program
architecture
Rapid
prototyping
[see next five pages]
How can we establish an
“affordable loss”
mindset
to enable risk‐taking?
What elements must we
add to our architecture to
increase our success rate?
41
Why do successful P2S programs require a “rapid learning design”?How-To
Someone is already meeting many of
your customer’s services needs.
Product‐based firms start out with a
knowledge gap.
Option 1: Get stuck in a culture of
debate.
Option 2: A rapid learning design that
closes the gap by placing small bets fast.
42
Hardware/ Software Mock-ups
Service prototyping is a great learning method; There are different prototyping approaches for different contexts
How-To
43
Co-creation can occur using low-fidelity visual prototypes like these single-panel concept sketches
…
How-To
44
Or this scenario storyboard
…
How-To
45
Or this card-sort
interactive prototype …
How-To
Summary
Brand Intent
Customer
Selection
Strategic
Boundaries
Top Priorities
Appetite for
risk
Business
Model
Possibilities
Open
Innovation
Business
Model
Exploration
Protocols
Learning
Design
Feedback to
strategic
opportunities
Rapid
prototyping
Ethnography
Unmet Needs
Journey
Mapping
Co‐creation
P2S Transformation Model“Innovating the Demand-Chain”
Key tools for P2S Transformation
UnmetNeeds
ControlPoints
CustomerExperience
Offerings
ValueCapture
UnmetNeeds
ControlPoints
CustomerExperience
Offerings
ValueCapture
UnmetNeeds
ControlPoints
CustomerExperience
Offerings
ValueCapture
Hardware/ Software Mock-
ups
Hardware/ Software Mock-
ups
Hardware/ Software Mock-
upsCustomer experience
OfferingCore process
Process.Enabling process
Product/Service performance
Service system
CustomerService
Channel
DeliveryBrand Business
model
FinanceValueNetwork
how the enterprise makes money
enterprise structure and value chain
Inside-out Outside-in
assembledcapabilities
proprietary processes that add value (including ICT)
basic features, performance, and functionality
extended system that surrounds an offering
how you service your customers
how you connect your offerings to your customers
how you express your offering’s benefit to customers
how you create an overall experience for customers
Customer experience
OfferingCore process
Process.Enabling process
Product/Service performance
Service system
CustomerService
Channel
DeliveryBrand Business
model
FinanceValueNetwork
how the enterprise makes money
enterprise structure and value chain
how the enterprise makes money
enterprise structure and value chain
Inside-outInside-out Outside-inOutside-in
assembledcapabilities
proprietary processes that add value (including ICT)
assembledcapabilities
proprietary processes that add value (including ICT)
basic features, performance, and functionality
extended system that surrounds an offering
how you service your customers
basic features, performance, and functionality
extended system that surrounds an offering
how you service your customers
how you connect your offerings to your customers
how you express your offering’s benefit to customers
how you create an overall experience for customers
how you connect your offerings to your customers
how you express your offering’s benefit to customers
how you create an overall experience for customers
1 2 3 4 5 6 7
2
1 2 3 4 5 6 7
22
questions?
51
Thank You!
To contact us for more information:
Timothy Ogilvie: [email protected] Campbell: [email protected]
811 North Royal Street, Alexandria, Virginia 22314 | 703.778.5543 | www.peerinsight.com