I am Aly Pinder, and I am the Senior Research Associate for the Service Management practice here at Aberdeen Group. The key areas that I report on and research are tied to warranty and contract management. I also take a look at the broader parts management landscape within service.
Service organizations are no longer seeing themselves as just being a cost center within the overall business. They are looking at not only being able to cut costs and contain costs within the organization, but also looking at driving increased revenues when they better service their customers.
So there are three key areas that organizations need to look at when they are looking at better managing their warranty and contract management organizations, and that is tied to cost containment, profitability, and driving increased revenues through warranties and contracts, and obviously better serving their customers to increase customer satisfaction and retention.
Best-in-class organizations, which we consider to be the top 20% of performers, are outperforming all others when it comes to a couple key metrics tied to performance, the first of which is customer retention. Best-in-class organizations are retaining 90% of their customers year-over-year, as opposed to 50% for all other organizations. When you look at the revenue side of the business, best-in-class organizations are able to renew 90% of their service contracts year-over-year, as opposed to just over 40% for all other organizations. When looking at better warranty and contract management, there are some key capabilities that you need in order to perform at a best-in-class level.
One of the first capabilities you need is actually having insight across the service organization into warranty and contract management data. So you want to make sure the data that you are capturing from the field can be leveraged by your product engineering team, by your marketing team, by your sales team to be able to increase not only product quality, but also the overall service offering when you go into you customer engagements. So there are few required actions or a few key actions that organizations need to take in order to become best-in-class and move the overall service organization up the ladder so that they are a key differentiator in their business.
One of the first actions that you want to make sure that take place are integrating the service silos within your business with other aspects of your organization, whether it be your sales, your marketing, or your engineering team. You want to make sure that not only are you able to capture information from the service team in those key interactions with your customers to improve service, but you also want to be able to leverage that information to improve the product, your sales, your marketing team so you can actually show a differentiated product and service to your customers so they understand what is the value of coming to my organization. As more and more products are being commoditized, you want to make sure that you are able to differentiate with your service offering to your customers and show the value of your organization beyond just a commoditized product, but we can differentiate from this value added service that we are able to provide.
You also want to make sure that periodically your manufacturing team and engineering team review the product and warranty data that is coming back so they can improve the quality of the organization and the quality of the product. So it is not only that data is being captured and going into a database somewhere, but it's actually being leveraged to improve the overall product.
Another key action within the organization that you want to take and place is actually having a centralized knowledge base for all the data that is coming in. It doesn't make sense for you to capture the data and not be able to leverage it or have everyone have access or the key stakeholders have access to the real time, updated information that actually ties into what is happening in the field, how are we able to improve the overall service offering and the product by having this real time access to this knowledge base that you are keying into.
Then you also want to make sure that key areas, how are you going to sell service within your organization. So having a dedicated sales team that is knowledgeable of the service product offering, knowledgeable of the customer and how they can leverage that value-add to the overall customer base and actually sell into that. You want to make sure that you have a dedicated sales team that’s incented properly to sell service contracts and extended warranties and also be able to understand this is where the new revenue stream is going to come from in your organization. If you don't have a sales team tied to selling service, you are not going to get to that best-in-class organization where you are driving at an overall P&L, not only cost cutting and cost containment, but actually profitability.
And finally, you want to make sure that you are automating key service aspects within the warranty chain. So how are we able to leverage not only cutting out costs within the automated warranty chain, but actually being able to speed time of service delivery so you are ensuring that your customer is not waiting to have a product returned to them or waiting to have this defect taken out of their supply chain, but actually being able to resolve this issue quickly through automation and tying in the entire loop of having an automated warranty claim process to close claims quickly, get the unit back out to the end user, and actually have that data stored quickly within the overall business.