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The 56 Group, LLC

Field service is vital to a company’s sales and marketing mission – either as a direct profit producer or product differentiator – and provides the opportunity to increase customers’ feelings of stability and security.

I’m sure that most of you remember the 1970s and 1980s, when the late actor Jesse White played his most memorable role: the Maytag repairman. You also remember that most of the Maytag commercials consisted mostly of Jesse White sitting around and doing nothing at all. One of the few times that doing nothing is memorable.

Obviously, the purpose of this enduring commercial was to show that Maytag appliances were so good that they never needed repair. While it made the point, there is an entire business service that is devoted to the fact that this is wrong. Field service is performed by the anti-Jesse White, the technician who maintains, repairs, or replaces equipment or provides some other needed service in a timely fashion. Until recently, field service was viewed as a necessary evil - the cost center. Hey, we sell heating and air conditioning units; they need to be repaired or replaced or at least maintained. In order to keep selling the equipment, we need to assume the cost of doing that repair or replacement. In the words of the singer Avril Lavigne, “Life’s like that. It’s the way it is.”

Or so it seemed.

But the world changed and, as of 2003, field service is coming into its own as both an important factor in customer retention and as something near and dear to the hearts of corporate executives - a profit center.

In this paper, we’re going to look at how it got there, what it is, and how it is an important customer “touch point” (not physical) and a profitable venture if done right. Plus, we’ll look at some head-scratching numbers.

The Business Ecosystem Transformation

In order to understand why field service made this transition from a cost center to a possibly profitable venture, you need a view of the bigger picture. You need to consider the change in the business ecosystem from its long time posture as a product manufacturing machine to a marketplace that aims at supporting customers. From product-centric to customer-pivotal.

Product-Driven Corporate Ecosystem

In the ’50s and through much of the late -’80s, there was little change in the business ecosystem. It was driven by Madison Avenue-created product demand. The business processes that governed industry were focused around manufacturing and goods creation. This was the era of the conspicuous consumer, the status-conscious customer who was willing to wait until hell froze over to get a newer model heat-lamp for the thaw. Manufacturers were focused on the constant improvement of the internal manufacturing process. They were producing goods based on a forecasted demand and a model that improved internally focused manufacturing. The division of labor and related “blue-collar” models such as time management had been around for 100 years. Post-war affluence was the hallmark of the era, and Madison Avenue advertising was its bellwether. The consumer, to get information on a product, had to depend on TV, radio, and the salesperson. The information was limited to 30 to 60 seconds for the communications media or whatever the salesperson knew about the particular product that you hungered for - a hunger created and fanned by the scions of advertising. According to some (not me), Satan at his finest. Product demand was pushed into the souls of acquiescent, patient customers - paying clients - who were highly tolerant, had low expectations, and low volatility. It was a common practice to simply extend delivery times when a popular product’s demand exceeded supply. By the late-1980s, in the world of strategy, forecasting, and planning, manufacturing resource planning (MRP) and its younger sibling MRPII, and its cousin enterprise resource planning (ERP), had been created as a big technology-driven strategic system to help improve the product-creation process, driving efficiencies and production knowledge to new levels.

Customer-Driven Corporate Ecosystem

That changed in the mid-’90s. What had been incrementally improving for decades, but had fundamentally stood pat, underwent a revolutionary transformation with the ascension of King Web - the Internet. The Internet, not the dot-com company, empowered the customer. All of a sudden, customers, who previously had to submit to whatever products had been released and pushed into the marketplace and had to get these products from their parent companies, were free. They had global reach and the ability to shop anywhere in the world. They had information at their fingertips to compare different brands of the same product. If they didn’t like Company A, Company B was a mouse click away. Not only did they have global reach and easily available information, their thinking on the subject mattered and it could happen in real time. Sites like Epinions, where customers - paying clients - could tell their real-life experiences with products and their thoughts on those products, were golden assets. Internet buzz could do what Madison Avenue couldn’t. The Blair Witch Project movie in 1999 was a perfect example of this. No budget, a no-name cast, and no distribution. But it became a major success when the movie’s producers created a loud Internet buzz around it. At the time, it was the most successful money-making independent movie by far.

Foresighted companies understood this. They began to change the way they operated and tried to learn more about this neo-customer. The empowered purchaser, with all of these newfound weapons, could afford to have high expectations, low-tolerance levels, and high volatility. Imagine, today, waiting patiently for a package, or for anything for that matter. Two hours late in delivery and you’re mad. You know I’m right.

But even the nature of the customer changed. Not only was the customer the individual who gave you money for goods and services - that good old-fashioned paying client - but now it was anyone or any group that you exchanged value with. So your employees and, even more germane, your business partners and suppliers played a part as customers.

This is where CRM came in. Companies like Siebel, Vantive, Scopus, and Clarify entered the scene as the entities with the technology to provide you with a glimpse through a portal into paradise, nirvana, or Las Vegas, depending on your theology. But there was more to go. Because at this point, customer-focused companies began to transform the way they thought about business, but not as much the way that they did business. Field service in the mid-’90s straddled the fence of the product-driven and customer-focused. It was still seen as a way to support the goods, not the gods.

Customer Ecosystem

Things changed again as we moved into the new millennium. According to many analyst firms, more than 98 percent of businesses either saw themselves as customer-focused or becoming that. But by early 2003, only 45 percent of those businesses had actual CRM initiatives under way. And there were other moves afoot. Businesses were recognizing that everything had become a customer issue in this newly customer-focused business ecology. For example, logistics and schedule planning were no longer either just supply chain issues or field service cost center support operations. They were major customer issues. Imagine if a field service technician is scheduled to arrive between 8 a.m. and 11 a.m., a big window, but doesn’t show up until 1 p.m. Even with a call, you are minimally irritated about the late arrival, since you are a highly volatile, relatively intolerant, empowered customer. Making sure that they arrive, by using scheduling best practices, is one answer for this field service-related CRM problem.

The customer has become the pivot point of the new business matrix. That is not surprising. Those customer-loving companies that proclaim their customer-centrism are merging their supply chain practices with their customer-facing processes. They are collaborating with their competition because of the need to satisfy this information-consuming customer with the high expectations of quality and breadth of offering. The business bionetwork is now a customer ecosystem that demands real-time satisfaction or, “Hey, your competitor is just a mouse click away and I will leave you if you don’t provide me with what I want. You, and your partners, and your suppliers, and your employees. Do what I want. Got that?”

Field Service and the Customer Ecosystem

How does this affect field service? In a tight economy, your company wants to retain its customers. It is four to 11 times cheaper to retain customers than to acquire new ones. Not only that, but incremental increases in retention (e.g., 5 percent) can lead to significant increases in profitability (e.g., anywhere from 28 to 50 percent) according to both Bain and Accenture. On the other hand, when the economy is uncertain, customers want the best deal. They are inclined to stick with the known quantities - given that they can plan for what they need more easily, with both the relationship and with a CRM initiative - the tools to handle their own planning. Plus, customers want to expect the best deal, knowing that you want their repeatable revenue. That means saving for them. But customers are volatile, so two things become important: stability and flexibility. If you can provide a stable environment, meaning customers know they are going to get the care they need, they will remain a source of repeatable revenue for a long time. If you are flexible in providing them deals because they are who they are - meaning you are treating them individually and making them feel special - they will continue to do business with you.

Field service offers the opportunity to increase customers’ feelings of stability and security by providing a timely solution to whatever problems they may have with personnel (who both solve the problem and project that stable aura). Field service offerings, such as service level agreements (SLAs) or warranty renewals, can be significant sources of incremental income and profit if planned and executed appropriately. But that means understanding that the customer is now the hub, and your field-service model needs to revolve around that hub.

The Components of Field Service

I’m going to look at the components of field service that could turn your field service operation into this customer-conscious profitable revenue generator.

Field service is feature-rich - trump-level feature-rich. Let’s consider a couple of the broader considerations. There are three areas that your field services operations need to be concerned with in order to utilize the features of field service that can generate the ROI you’re looking for:

• Process optimization and standardization. This is a major factor in cost reduction, customer satisfaction, and the introduction of best practices for changing company-specific business processes. These processes include parts inspection and replacement, order to cash, or scheduling and routing processes. The results of applying best practices and optimization can be extraordinary.
• Sales management. Opportunity management such as renewing warranties or upgrading an SLA; increased pipeline visibility for improved forecasting and for margin management to make sure that deals are profitable - a substantial issue when it comes to SLAs. Also, compensation planning that ties bonus or income to customer satisfaction can have a major effect on the business culture.
• Customer relationships. Most of us know field service personally from things such as the Dell technician who comes to our houses to replace the failed hard drive and the HVAC field service representative who does maintenance on our water heater, only to discover it’s more than 10 years old and springing leaks. Needless to say, these are not good news events. Unfortunately, in our minds the field service technician is the problem, not the equipment that has the difficulties. It’s hard to be irritated at a hard drive or water heater - mostly because inanimate objects just don’t care. But people do. The field service technician gets the brunt.

Ironically, from the standpoint of CRM, field service technicians are the customer-facing individuals who can either make or break the relationship that the customer has to the company. In the world of business-to-business, that can be a huge issue. Imagine being an HVAC equipment provider losing a 1,000-store customer.

Customers can be lost due to the lack of attention or even the lack of manners or grace and, of course, poor skills or lack of knowledge. To overcome that, make sure information available to your technician is current and easily accessible so that problems can be resolved quickly.

On to the details.

Contract Management

Contract management, as boring as it can get sometimes, is actually quite important for its role in providing incremental improvements in your top and bottom lines.

SLAs, warranty management, pricing, and delivery fall under contract management. We’ll concentrate on SLAs because of their important role in profitable field service.

SLAs are tailored to the individual customer. Their elements include services provided; metrics that are associated with the services provided; acceptable (and unacceptable) service levels; liabilities on the part of the service provider and the customers; and specific actions to be taken in specific situations.

A well-managed SLA is a revenue producer for the providing company. Even to execute the SLA contractually indicates pre-existing dynamic knowledge of objects, processes, and events at a customer site that allows the service provider to build-in appropriate costs and profit. That means that problems or events can be anticipated, planned, solved, or scheduled. The costs of service are controlled. Since the SLA is a proposition for managing risk, sharing pain, and mutually benefiting from success, it can be a solid incremental revenue producer. For example, if a customer that provides auto maintenance for corporate car fleets (remember them?) has a provision in the SLA to provide successful service within three hours of the problem, they can also have built into the SLA that if the service is successful within two hours or less, they get a reward benefit (e.g., 110 percent of prebuilt fees). Both companies benefit - less auto down time for the company under the SLA and reward for excellence built into the SLA.

Well-managed SLAs also reduce the cost of service because wasted time and service redundancies are wiped out. Thus, they increase profit margins for the company and improve the customer’s quality of service, which keeps them a customer.

Dispatch and Scheduling

The tasks involved in dispatching and scheduling are complicated and benefit greatly by well-designed optimization strategies and automation. Optimizing field service calls is one of the most complex and difficult undertakings. For example, consider what it would take to get a Dell technician to your house.

A call center representative looks up your customer record and sees what the status of all your agreements (warranties, SLAs) is with Dell and looks at your past history with Dell support.

Once it is decided that you need a service call, the dispatcher has to find a field service technician among the multiple companies that service Dell. The criteria and processes that involves include:

• Geographical proximity;
• Specific skills to deal with your problem effectively;
• An optimal route for the technician, who has to have available time that fits your schedule; and
• A parts replacement shipped and delivered according to your needs and the service tech’s schedule.

So we have priority, location, parts availability, skills, and technician availability all involved in scheduling this single visit. When the schedule involves hundreds of technicians, errors can be disruptive and costly. Since companies like Dell outsource and subcontract much of their technical labor, mistakes mean lost dollars (at the rate of about $70 per hour, according to Dell sources). Optimized and automated dispatching and scheduling with route planning and automated prioritization attached to contractual agreements can be a significant time and cost savings.

But there is also significant cost savings in automated dispatch and scheduling optimization. Three models are used most ­frequently to optimize these sensitive schedules. In order from least to most effective:

• Decentralized scheduling. Call center representative (CCR) receives the call; another CCR or a ­system that has a good workflow allocates the job ticket to a field technician; the field technician reviews the request; the field technician calls the customer and schedules the visit.
• Centralized scheduling. The CCR receives the call; the request is entered into a centralized system; the dispatcher picks up the request from the system (based on geography); the dispatcher reviews the request, makes the scheduling decision, and chooses and sends the technician based on location, time, and skills.
• Optimized scheduling. The CCR receives the call and the request; all other customer information (including that in existing customer records) is accessed and entered into a centralized system; the job is booked and a technician visit is scheduled by the software system.

The latter approach provides cost savings that can be extensive in large field service environments. The technician is concentrating on the execution of the job, not the scheduling, saving labor time and optimizing billable use. Human contact is minimized to the first calls. The next human appearance is when the technician shows up. The central dispatcher can handle multiple technicians’ schedules simultaneously with a minimum of disruption, keeping the number of dispatchers to technicians very low. It also increases the productivity of engineers by about 10 percent, according to various accounts. So overall, this can be good for cost control and margin.

Inventory and Logistics; Parts Planning

The broken delivery promise is one of the most debilitating failures for the relationship between the customer and the company. Logistics and delivery have become a value chain issue that affects top and bottom lines. Managing shipping and receiving costs, automating parts replenishment and parts ordering, having Web access to parts availability, controlling inventory costs, and the use of analytics can determine which parts are chewing up costly shelf space and which parts are important to stock. In a study done by D.F. Blumberg Associates and the Association for Services Management in 2002, best-practices companies that used parts planning and service logistics improved 21 percent in total calls per repair completion, and the repair turnaround days went from 5.8 for companies not using best practices to 3.2 for best practices firms (45 percent improvement).

Service Lifecycle Management

This is a significant additional feature of a value-added strategy for field service. Its leading purveyor is AMR Research, but it has been rapidly gaining industry-wide support as a strategic approach to capturing revenue opportunities within a service cycle that were formerly left untouched. It is a proactive affair, with the field service purveyor actually suggesting or performing services, not necessarily waiting for a service request. What that means is that planning is essential to this field service management system.

The idea is that a model for the customer is constructed that identifies different pieces that will mean something to the field service customer. That means it captures information and develops a plan for contracts, upgrades, parts, technical assistance (repairs, etc.) and usage among other factors. It uses elements of CRM such as analytics, call centers, and business process integration to see how to best utilize the model for a particular customer, which means it examines processes and determines the best intersection points for measuring both risk and reward in these processes. These processes are common to field service and include:

• Inventory planning (high risk, high reward);
• Product defect management (low risk, high reward);
• Logistics (middle risk, middle reward);
• Dispatch and scheduling (middle risk, middle reward);
• Customer intelligence (high risk, middle reward);
• Warranty/claims management (middle risk, mid-high reward); and
• 12 other related processes.

The value of this strategic approach can be seen in its results:

• Siemens Medical Solutions optimized scheduling and increased engineer utilization by 10 percent, reduced travel time 15 percent, and decreased overtime 10 percent. Substantial cost savings.

• Optimizing parts management by using Servigistics, a computer manufacturer reduced gross inventory by 26 percent and saved about 1.5 percent on storage costs for those parts.

Onsite Service and Mobile Communications Devices

Obviously, the direct customer interaction is with service technicians when they are on-site. However, because communications are remote in many instances, it is also the area most fraught with potential failure. Technical issues become customer issues quickly when there is a problem to be resolved and contact is via cell phone, laptop, ruggedized PDA using voice, or email or SMS or some other form of exchange. The room for human error and technical difficulty is frighteningly wide. Even if the scheduling is optimal, the downtime for the technician is minimal, and all parts are available, a simple technical transgression such as a PDA that can’t remotely synchronize with the office or the inability to access a knowledge base can lead to a disastrous result with the customer.

Other Things to Keep in Mind There are other ROI-related field service practices to consider:

• Remote diagnostics;
• Analytics;
• Cost tracking;
• Asset management; and
• Repair management.

A Quick First Take on ROI

Field service ROI is very visible. It is profitable, if done well. There are numerous corroborating studies from multiple sources showing the clear benefit. Let’s investigate a few.

Profitability and the Revenue Stream

• The Association for Services Management (AFSMI) issued a report in 2003 that shows an average gross margin of 30 percent for service operations (as opposed to 21 percent for sales).
• AMR: Field service divisions of manufacturing companies that provide parts, maintenance, and other post-product sale services account for 40 to 50 percent of the company’s profits and 25 percent of its revenues.
• In 2002, Gartner Group CRM Vice President Michael Maoz wrote: “Profit margins can be improved by 20 percent to 60 percent through improvements to field service operations and field logistics.” (Customer Service and Support Strategy Key Issues, Gartner Group, 2002).
• In 2002, D.F. Blumberg Associates, a field service authority, and AFSMI looked at what they called “High-Tech Service Business Optimization.” They benchmarked industry averages against best-in-class service parameters. The best-practices companies had a mean improvement of 23 percent as a result of field service implementations.

These numbers are unambiguous. If you develop an effective field service CRM strategy, you have yourself a profit center. This makes field service executives ecstatic, right? Wrong.

Field Service Executives - What Are They Thinking?

In November 2002, Astea, a field service software vendor, did a study of 1,900 field service decision-makers and their commitment to field service. You would think that the results would have shown that since field-service is crucial to our customer retention, product sales, and both revenue and profit, we are investing in it.

Wrong. Boy, are you wrong.

• Of all CEOs interviewed, 56 percent saw field service as vital to their sales and marketing missions - and thus revenue - either as a direct-profit producer or product differentiator. So far so good.
• Only 42 percent of the CEOs were going to increase their field ­service budgets in 2003. What?
• Of the 42 percent, 40 percent of those will do nominal spending of less than $250,000, which is tantamount to no spending at all given the high costs of parts and labor maintenance and associated processes. Double what?

Now, look at the next set of results.

• Aberdeen Group estimates that corporate executives are unwilling to spend more than $6,000 per year per field service-related mobile user. That’s $500 per month for the hardware, software, support, service, and airtime. Hopefully, that doesn’t include salaries!

More numbers. Only 5 percent of the employees involved in field service operations are automated. Yet 28 percent of all employees in the United States are equipped for mobile operations. Of all departments, you would think that field service would be equipped to be in the field.

What Does This Tell You?

What it tells me is that lip balm sales must be up this year, given the extraordinary level of lip service and nothing else that field service executives are giving its importance. If 56 percent of them recognize the value of field service to sales, marketing, and profit, why is it that most of them are not increasing their budgets, those of them that are spending anything are barely spending and, all told, the ennui level for investing in this highly profitable venture with actual discernable ROI is amazingly high?

Because, in the days where budgets are tight, myopia reigns. The immediate gratification of the bottom line is rule of law, and executives are worried about their results that quarter, not that year.

If this doesn’t change quickly, then field service as a profit center will give way to field-service executives as unemployed because of the return to the Neanderthal field service cost center. On the other hand, with a clear-cut ROI and a well established body of practice and function, there is good reason to think that field service can be a marvelous area for profitability and revenue. But you have to spend a little to make a lot here. So executives, be smart. Do it.