State of the Market for Service Organizations

State of the Market for Service Organizations

State of the Market for Service Organizations

(Aberdeen: Sumair Dutta)

I'm Sumair Dutta. I'm the Research Director for the Service Management Practice at Aberdeen.

Essentially, my research covers really what service leaders and service organizations are doing to drive better customer value and essentially convert that value into profitability. So we look at research around the state of the market, and then we talk about a functional area, such as field service, customer support, service parts logistics, and things such as warranty and contract management as well.

With the state of the market, we've just completed some really good state of the market for 2012 research, and there are some really interesting findings and it continues to track along what we've seen around service organizations becoming more and more like profit centers as opposed to cost centers.

We've talked about this and we've tracked this over the last couple of years. What we're finding, about 70% of organizations, and it's usually about 80% to 90% of the best-in-class, which of the leading performers manage service as a profit center. What that means is it's not just about having a profit and loss goal in place but actually having a leadership structure, an autonomous service unit, an individual budget as well. But they're treating service as a profit center more and more, and we see that trend has occurred over the last couple of years and continues to recur now as we look into the future.

2012 is going to be an interesting year. The economy is a major concern for a lot of the service businesses that we talk to, and it's also a big driver for these businesses. From a consumer point of view, the economy is causing a reduction in customer spending, at least a tightening in customer spending, whether that's an end consumer or a business. So service organizations are looking to find new ways to differentiate themselves to combat that and satisfy their customers, retain their customers, and ultimately drive revenue and profitability.

So the top goals for organizations in 2012 really revolve around better revenue, increased revenue streams, better customer satisfaction, and better customer retention. And they're all essentially linked. If you satisfy customers, you're much more likely to retain them, and then they're much more likely to spend more with your organization. We've seen that track really for organizations that are able to satisfy 90% plus of their customers, they tend to see a 90% plus retention level, which tends to see double digit revenue growths as opposed to those who retain perhaps 50% of their customers see a reduction in revenue over the last couple of years.

We really see that it's a combination of customer satisfaction, retention, and revenue being the major objectives to combat the economic pressures.

A lot of best-in-class companies, from an actions perspective, especially for 2012, to combat some of the economics and the customer, some of the competitive pressures, I think the actions that they're taking fall into five different areas.

One is the investment in leadership within the service business. So that's tied to having what we like to call a CSO or Chief Service Officer, really to oversee the entire business. We're also seeing an investment in new services, at least the discovery of new services. It's not just about providing service and support. It's actually providing a solution to your customers, an end-to-end solution to your customers, and that ties into a revenue objective. It's being able to monetize that.

We see investments in technology from an upgrade and from a maintenance perspective. If you look at it from a point solution perspective, it's analytics, mobility, self-service, asset management. Those are the four areas that come to the top, and I'd probably include a broader bucket around knowledge and information management as well.

And then we see two other categories around performance management and collaboration, and these really, I think, form the essence of what we're seeing this year is, and it's something that we're terming called the "Science of Service." We're beginning to see more and more organizations kind of structure themselves around performance management criteria and what that means is it's not just about analytics. It's about a structured approach towards having processes tied to performance capture, to its management of the data that is stored in the organization, actual use of that. It’s stemmed to different people in the organization. So from a C-level perspective, that's financial, operational, customer data. From the other groups within the business, not just tied to service, you're thinking about sales, marketing, and product development. There's asset specific data, customer specific data.

You take the example of service and product development. There's a lot of service information that can be fed back to your product development to improve quality, service procedures, improve resolution rates, and then finally improve profitability. We talked about the C-level. We talked about different functions, but we're also seeing that come down to functional business managers. Within service, you think about field service, call center, how they can collaborate to drive better customer value. And then, finally, what we're seeing best-in-class companies really move towards is empowering the front line. So providing, whether it's the technicians, the call center agents, people working in the parts depot, with better information to aid in the resolution of the particular service issue and with better analytics and performance management tools to understand how they're actually impacting, to empower them to understand how they're impacting their value to the business as well. We really see it's a focus on leadership, to have a cross functional view of the business, to look at it as a whole as opposed to functional service business, to improve collaboration... across the enterprise. That service leader or CSO becomes a lot more important, but then providing that leader with the science, if you will, the tools necessary to support and to empower the entire service business. These are the key actions that we are seeing best-in-class companies take.

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