Building off of the creation of recent special report The Service Centricity Playbook: 7 Phases of Morphing from Product Provider to Trusted Advisor, Sarah and Hilbrand Rustema, Founder and Managing Director of Noventum, discuss the five most common areas where companies go wrong on the Servitization journey.
Sarah Nicastro: Welcome to the Future of Field Service podcast. I'm your host, Sarah Nicastro. Today we're going to be walking through the five most common Servitization fumbles. I'm excited to welcome back to the podcast today Hilbrand Rustema, managing director and founder of Noventum. Hi Hilbrand, how are you?
Hilbrand Rustema: Hi Sarah, I'm good. Thank you for having me back.
Sarah Nicastro: Absolutely. So Hilbrand and I met a few years ago and I've really enjoyed his insights. Noventum works with a lot of different organizations on their service transformation journeys, and having experiences with companies in different industries and in different phases of transformation, he has a wealth of insights. Hilbrand and I recently paired up to create The Service Centricity Playbook: 7 Phases of Morphing From Product Provider to Trusted Advisor. That special report is available now, both on futureoffieldserviceref.ifs.com, as well as noventum.eu. And of course, we would love for you to check it out. We are not going to be redundant in this episode with the content that's in that report, but instead, we're going to talk about the five most common fumbles playing off of the playbook title, but the areas in which that this Servitization journey is most likely to go awry. So with that said, let's go ahead and dig in to the first one. So the first area, Hilbrand, that is an area of potential challenge and concern is looking at services from the inside out. So let's talk a little bit about what that means and how that can be problematic.
Hilbrand Rustema: Yeah, so it is a very common one where companies look at what they can do or what they are used to do, what their own capabilities is, and then they start to imagine all kinds of services that they can provide. Maybe, of course, looking at other companies. But an essential element that is often forgotten in that process is to listen carefully to your customers and to have a good, hard look at your capabilities, your abilities to deliver any type of service, if that is a real good fit with what your customers really need. And when I emphasize these last two words, what they really need, the challenge here is, very often, if you ask your customers, what do you want? Nine out of ten, a customer will not have a very good idea. They may not be able to articulate what they need or even what they want.
Hilbrand Rustema: And that is because it's a process whereby you have to investigate, what are your customers' challenges? Not just the technical challenges of using your equipment, but more like the business challenges. And then to try and figure out how can you, with your products, obviously with your equipment, your technology, but also with your knowledge and maybe your network of partners, how can you create a better answer to the challenges that your customers have? And that involves usually a lot of knowledge, not just technical knowledge, understanding of the processes, of the business model of your customers, of the industry. And that's how you then create services. And while you are identifying possible new services and when you are developing those, it's highly recommended that you do that as a co-creation process with your customers. And the emphasis is on customers, not just a customer, because there's no such thing as the customer.
Hilbrand Rustema: I think you would have to start with developing a reasonable segmentation along these different service needs, so you say, "Hey, these are, whatever, a do-it-yourself customer. And this is a customer that is a strategic thinker and buyer or a value buyer or whatever you want to call them," and go along those categories or segments of customers, and then try to work through their needs together with them. And we do that a lot with workshopping, in-depth interviews, showing them maybe prototypes of, let's say, the business model, and then eventually go through a pilot process whereby, yeah, you really sort of keep on trying, keep on getting it right until your customer or customers tell you you've got it right. And then the last step in there is making sure that you have created a scalable service, so it's not just uniquely fitting for one customer, but it's for a whole group of customer that you can scale it, preferably on a global basis.
Sarah Nicastro: Right, okay. That makes sense. And I think, the key to Servitization is delivering outcomes that your customers find imperative to their business. And it's just not possible to do that if you don't lead with what those outcomes are that they need from you, so that makes sense.
Sarah Nicastro: Yeah. Okay, so that makes sense. So outside in versus inside out is the first important point. The second point or the second fumble is overlooking the need to master the basics. So looking at really getting ahead of yourself in terms of your transformation before you have put tools in place to kind of build a strong foundation. So talk about this.
Hilbrand Rustema: Yeah, so what we see a lot now is that a company sort of got the digitalization bug and started experimenting with the most fantastic digital services and sometimes ignoring a bit those basics. And what we mean by that is delivering very smoothly your basic services, like, let's say, getting a field engineer locally, on time, when it was agreed upon, with the right skills and the right parts in his hands, is something that looks easy to do because many companies do it. But yeah, unfortunately, there's also still a lot of companies that think, okay, well, that's more or less fine with us, so we can move on. The problem is that your customers have a certain reason to do business with you.
Hilbrand Rustema: And very often, it's not the product you sell or it's the service even that you offer, that's usually very similar to what your competitors do, but it is a certain intangible value that you have in your brand, yeah? And if you wonder what that is, well, try asking around why customers really do business with you and you will find a reason and they may say, well, you're, whatever, the leader in the market, or you really are flexible, or you understand... These type of, yeah, sometimes very intangible reasons to do business with you. Now, you want to make sure that you deliver on those basic promises. And if you cannot, if it's too often that you cannot deliver that spare part on time, there is a certain continuum in what your customers are willing to buy from you as a next stage in the evolution of the relationship that you have with them.
Hilbrand Rustema: And if you don't do these basic things right, so if the expectations of the brand of your company are not being fulfilled, you can absolutely forget that they're going to buy more sophisticated services whereby a higher level of trust is needed from that customer because they're going to be a lot more depending on you for these more sophisticated services. So, yeah, one element before you embark on these outcome-based services, the more sophisticated services, do you have all the basics working very well? And not just on your own opinion there, but what do your customers say about that? And if they are, say, generally very positive, you get good marks on that, then you can continue.
Hilbrand Rustema: There's a second reason to have those basics right that when you start with the more sophisticated services, they're typically more knowledge intensive. And if you don't have your basic processes and systems in place, you don't gather, you don't harvest, the type of knowledge and data that you need. For example, if you go from preventive services to predictive services, your knowledge management processes have to be top-notch, otherwise it's not possible to start with predictive services. So that's another reason why you need to look at the basics and start with those. And it's okay to do some experiments, but just remember that those experiments won't scale if you don't have the basics right.
Sarah Nicastro: Right. That makes sense. I always say that trying to skip over some of those basics is like building a house of cards, right? So you want to make sure that you have a really strong foundation from which to build otherwise it could all fall apart at any given moment. Good, okay. So fumble number three is either thinking too small or thinking too big, so the need to balance pragmatic versus big picture thinking. So let's talk about this.
Hilbrand Rustema: Yeah, so I think that there's a lot of companies that are very good at execution. For example, they want to implement a new system, they really focus on it, they do that very well. But if you don't have that big long-term vision, if you have no unifying, energizing vision whereby everybody understands what you are aiming for in the long-term or what your business stands for, it's going to be very difficult to stay focused. So you can do all kinds of successful short-term projects, but if that is not helping you to get closer to achieving that long-term vision, why are you doing it? So you often see that well-intentioned projects, let's name some examples, a drive to standardize your global service operating model, is really going well. And at some point, whatever, after one or two years, the company achieves it, but then it has taken so much effort and time and sometimes pain that people have forgotten why they're doing it. And they're done and then it sort of plateaus while this was only a prerequisite to implement a bigger vision.
Hilbrand Rustema: And very often, and it's unfortunate, there are companies that have this sort of quarterly-based focus, they just live from one quarter to the next. And maybe sometimes, yeah, managers are not in a role long enough to achieve anything like a long-term vision. So I think that is a balance that you have to find. What I would say is that pragmatism and achieving short-term goals is obviously driving success, but without that bigger picture and not just a picture for the service business, but for the entire business and understanding what is the role that your service organization plays in the bigger strategic vision of the company, without that, it's very difficult to be successful.
Sarah Nicastro: Yeah. So execution is obviously important. I mean, that goes back to kind of our second point, which was building that strong foundation, right? I mean, you have to be able to execute. You have to be able to be on time and have good first-time fix rates and all of those key things. So execution is important, but innovation is equally important. And I think what you just said about the fact that this vision for service and this strategy for, where are you taking the company over the next two, three, five years? It has to be company-wide, not just within the service function. I mean, that's one of the biggest challenges I see within organizations that are trying to sort out their outcomes-based service or Servitization journey is they're trying to do so within a silo of the service function, not at the company level.
Sarah Nicastro: And unfortunately, there's just no real way to... Maybe you can make some incremental changes and improvements, but to really seize the opportunity that's here, it has to be done at the company-wide level. So you need people that can do... In some ways, service leaders have it tough right now because, typically, people as human beings are geared toward either being more pragmatic or being more innovative and big picture thinking, right? And to a certain extent, service leaders need to be able to force themselves to do a bit of whichever doesn't come as natural to them. But from a company perspective, you also need to make sure that you're looking at putting skill sets in place that can accomplish both of these functions in a way that can drive the business forward to meet that strategy and those growth goals.
Hilbrand Rustema: Yeah, I would add to that, Sarah, is that one of the interesting challenges that service leaders always have is when they have that vision clear for themselves on where they want to be in a couple of years' time, let's say they want to go to these outcome-based services and maybe, whatever, offer their equipment as a service or managed services or whatever they want to do, it is so challenging to get all the other functions of the organization along with your own vision. So therefore, there is a role here for the C-suite, and normally, I would say they are really driving it. And as a service leader, to get where you want to be, you need to interact with all these other functions. You need them all, yeah?
Hilbrand Rustema: Like let's talk about sales. If you have a very strong sales force that is good in selling products or projects, they need to be really aligned with that portfolio of services that you are trying to sell along. And at some point in time, it may join together, where you're really selling solutions.
Hilbrand Rustema: Let's look at marketing, doing product marketing is a different discipline altogether than if you would want to do something that I would call service marketing.
Hilbrand Rustema: Look at the finance function. The finance function, particularly if you're going to do as a service propositions, they need a lot of new skills in terms of asset finance management, financial risk management, which don't come natural to any manufacturing organization.
Hilbrand Rustema: Let's look at the supply chain organization, that may be very good at the traditional Ford manufacturing supply chain business, but when it comes to parts management, it's almost the opposite dynamic, yeah? So you're not trying to manage large quantities of the same products in a few directions. No, parts management is trying to move to many different delivery points very small quantities. And your objective is not to lower inventories, but to have the right service level, whereas traditional manufacturing or supply chain organizations look more at the inbound manufacturing part.
Hilbrand Rustema: So, it's all these different disciplines that have to develop an understanding of what your new service business model means to them. And there is a very big educational component in that. And it's simply a, yeah, if you want to have people doing different things, it takes time. And that vision, that common vision, that unites everybody is only the starting point.
Sarah Nicastro: Mm-hmm (affirmative). Yep. Okay, good. So moving on to fumble number four is the inability to combine ambition and agility.
Hilbrand Rustema: Right. Yeah, I sometimes find the term "agility" very confusing. We see obviously a lot in the IT organizations, yeah? So meaning the agile development of new IT applications, which is a good thing. It is definitely very successful as a discipline. But if you want to try to work in an agile way in other disciplines, it often gets misinterpreted. And that is that making small incremental changes is something different as developing an agile application. I think agile is a bit of a fashionable term right now.
Hilbrand Rustema: If you do not have a clear understanding, if your project, if you're running that with agile methodologies, if your project is really contributing to achieving that strategic goal, which is part of that vision, then you probably are just using an advanced project management technique called agile. But it may not really help you to get into the right direction. You can have very successful, agile organizations developing completely in the wrong direction, if you know what I mean. And it is tempting to say everything is agile and confuse that with only short-term views and short-term results and to get into an iterative mode whereby if you contrast that with, yeah, more long-term, let's say, strategic view of the business whereby, according to a plan, you are achieving bigger milestones, that will bring you much further than just always do that small iterative change.
Sarah Nicastro: Mm-hmm (affirmative), mm-hmm (affirmative). So that's why we're saying you have to combine ambition and agility, so the ambition is, what is your ambition for the company around service? Where are you trying to go? And it's okay to make iterative changes to get there, but you need to be working towards those bigger objectives.
Hilbrand Rustema: Yeah, agile is a tool.
Sarah Nicastro: Right. Yes, good point, that's a good way to put it. Good. All right. And the last number, fumble number five, is prioritizing IT-driven change rather than business-driven change.
Hilbrand Rustema: Yeah. Ooh, I could probably talk another half hour about this, but we only have a few minutes left. Yeah, I would say, IT-driven change is one whereby there's a lot of focus on implementing a certain tool and a certain application. And usually, under the name of we have to keep it standard, we have to stick to the IT strategy, this is what you have to live with, you see that a lot of limitations are imposed on the business, particularly the service business, for example, companies that try to promote ERP systems in service organizations, they find that very challenging, rather than customer-centric IT solutions. So business-driven change is the situation whereby, at the end of the day, if some decisions on change have to be made, the one and only final criteria is, are we going to improve our business with this? And not, are we going to comply with our IT standards, our IT strategy? And continuously looking at the business goals, how are we going to achieve those? And if that sometimes means that you have to sacrifice your ideal IT strategy or your ideal IT landscape, I would say so be it.
Hilbrand Rustema: In terms of mentality, I would say there's people that fully understand business-driven change. Usually, it's run by people that have a lot of business experience. And you have people that are put in charge of maybe large service transformation initiatives that have a very strong IT background. And I clearly see the differences in outcome. So in the end, you have with the IT-driven approach, you have a working system, yeah? The system works. But is anybody using it? And is it delivering the right results? That's the question. No. And with the business approach, it's quite the opposite. So are we achieving our results with this solution? If not, let's change it, let's tweak it. And I'm not saying this is the blank check to just start all kinds of customization of your IT solutions, no, in the contrary, I would say most, let's say, mature IT platforms, they can deal with most of the, I'd say, the requirements that are out there nowadays.
Sarah Nicastro: Sure.
Hilbrand Rustema: But yeah, the challenge is the attitude and the type of background of the people.
Sarah Nicastro: Yeah, that makes sense. And I think, as digitalization has become a path to growth, then IT needs to support that growth, rather than just, to your point, serving as a means for compliance and just operational. So that makes sense. Okay. So those are the top five fumbles that we see people make on the journey to Servitization or outcomes-based service. Again, the report that we just published is The Service Centricity Playbook: 7 Phases of Morphing From Product Provider to Trusted Advisor. And these are the five most common fumbles, but that report outlines those seven phases and it provides not only Hilbrand and I's perspective from our years in the industry, but also the real-world perspective from some of the companies that are on this journey. So certainly check it out. Hilbrand, thank you so much for coming back and spending some time with me today and for working with me on the report, it's been really fun and I'm hoping that people will find it very useful.
Hilbrand Rustema: Yeah. Thanks a lot Sarah.
Sarah Nicastro: All right. You can find the report and more information by visiting www.futureoffieldserviceref.ifs.com. You can also find us on LinkedIn as well as Twitter at The Future of FS. The Future of Field Service podcast is published in partnership with IFS. You can learn more about IFS service management solutions by visiting www.ifs.com. As always, thank you for listening.