By Tom Paquin
Arguably the most high-profile trend in service management today has been the transition from traditional break-fix models towards outcomes-based contracts. This means that rather than treating service like an insurance plan, or charging for parts and labor only after service has been delivered, organizations are building contracts based on things like uptime, output, and time to resolution.
The benefits of this new approach are obvious—you’re creating contractual revenue, providing a value-add to your customer, and you’re turning service into an engine for business growth rather than a tabulation of expenses. You’re also benchmarking technician performance against the business, which means higher technician utilization, faster turnaround, increased predictive outcomes, and so on. That’s better than a win-win. It’s a win-win-win-win-win.
So why are only 28% of organizations currently employing outcomes-based service? According to research recently completed by Strategies for Growth for IFS, while only 28% of organizations have some variation of outcomes-based service today, an additional 32% plan to employ outcomes in their business models soon. Those 32% of firms are at some point of the journey, which for many, might be a surprisingly long road. What might be holding them up?
That same research gives us a picture of some of the challenges, and what was #1 on that list, cited by over a quarter of respondents? The lack of managerial will.
I’ll note that usually when I’ve asked about the biggest obstacle to any new initiative, #1 is always cost, which makes the fact that managerial buy-in is #1 even more significant (cost was a close #2). It makes sense, though, as businesses that lack a service-oriented mindset are quick to say, “Why would I upend my entire product catalog? Why can’t service be left where it is, as a necessary nuisance?”
Those questions ignore the powerful impact that service is having on the economy, which is worthy of a library of articles of its own. No matter what, though, the challenge remains the same—There is a disconnect between upper management and the evolving needs of the service business. So what do we need to do to bridge that gap?
I don’t presume to know all about the political, economic, and shareholder-fueled machinations of the modern enterprise, certainly, and your mileage will no doubt vary, but the question invariably becomes—How do you sell service?
You’re here, reading an article on our service website, so I’m not sure that I need to sell service to you, but perhaps you need to sell it to someone at your organization. The way I started when selling businesses on service was to show the average profit margin of a manufacturer that only offered products versus one that offered both products and services. Usually that gets someone to sit up straight.
Service is a no-brainer today. It’s saving brick and mortar retail, technology and mobility have put the barriers to entry in the basement, and straight down the line it improves business outcomes. If you have service today, an outcomes-based model simply puts it at the center of your business. So how do you pitch it to a management team, or a sales team, or even technicians, who are resistant to change?
The importance, of course, is emphasizing the cross-functional business gains. Sure, outcomes-based service might add a bunch of new SKUs and change the architecture of a sales conversation, but it’ll also add recurring revenue. It might emphasize specific service functions that may not have been priority before, like speed of repair, but in doing so it should actually improve your service business. You can sell outcomes-based service as a way of structure your business around a system that incentivizes better service performance. It’s as simple as that.
The last piece, as always, is the technology. Outcomes makes accurate, bias-free reporting a necessity. It’s the only way that you can offer accurate benchmarks to your customer in the first place. It may sound crass, but you need to dictate the terms of your ouctcomes, and own the system that reports them. The best companies put their own data right in their customers’ hands.
Outcomes-based service fundamentally shifts the nature of what constitutes a product, and this can really frighten a business leader, who is used to seeing something work one way for their whole career. Getting them on board is not necessarily a one-and-done task, but if handled correctly, it has the potential to take your business to new heights.