service centric biz model china final english
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Service centric ModelTRANSCRIPT
© Copyright IBM Corporation 2006
IBM Global Business Services
Transforming to a Service Centric Business Model: The Path to Sustainable Growth for Chinese Enterprises
March 2009
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IBM Global Business Services
© Copyright IBM Corporation 2006
Acknowledgements
� Michelle Kam, IBV China Research
Director
� Chee Hew, Managing Consultant, IBV
� Li Zhi, Senior Consultant, IBV
� Yi Wei Jiang, Consultant, IBV
� Steven Davidson, AP S&C Leader
� Xu Yonghua, GCG S&C Leader
� Andrew Davidson, Americas S&C
Managing Consultant
Acknowledgments
� Mary Keeling, Managing Consultant, IBV
Ireland
� Luo Yi, Consultant Trainee, S&C
Authors Project Advisors
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IBM Global Business Services
© Copyright IBM Corporation 2006
Executive summary
� The global financial crisis is making it even more urgent for Chinese manufacturers to seek sustainable paths for growth. Product to service transformation is a viable strategy for Chinese companies and those who make the transformation successfully will be in better position to survive the crisis and be positioned in the longer term
� There are two major opportunities to move from product to services focused: product and non product related
� Offering value added services (VAS) around products is the most realistic path to enhance value in the next few years. Chinese companies can identify VAS opportunities by taking a customer centric perspective how to resolve key issues around product usage and ownership
� The key to successful product to service transformation is to have a differentiated business model. Chinese companies also need to align their operational model and build up strong people capabilities
� As Chinese companies gain additional experience and expertise, they can move to offering service led solutions, offering increased customer value
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IBM Global Business Services
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Key Messages
� Service driven transformation provides path to differentiation and
sustainable growth
� There are two paths to achieve the ultimate goal of offering services led solutions- Product related value added services presents high potential for majority of
Chinese manufacturers to increase value by improving product ownership
experience - Selected manufacturers with strong functional and/or operational excellence can
offer non product related services
� Services led solutions offer comprehensive products and services that meet
clients’ needs and require increased level of complexity and integration
� Chinese manufacturers need to address three key components to become more
service oriented: 1) differentiated strategic model 2) aligned operational model, and 3)
people & culture
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IBM Global Business Services
© Copyright IBM Corporation 2006
Three factors drive Chinese manufacturers to transform from product to service centric
Declining profitability
Consumer
heightened demand
Commoditized
product
� Global financial crisis has shrunk global and domestic demand, worsening profitability of Chinese manufacturers
�Strong renminbi (RMB) and rise of raw material costs are further eroding the profit margin
Lack of product differentiation among manufacturers, resulting in low customer loyalty
Customers want better experience of using the product and solutions to their problem
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Reductions in global and domestic demand from the current economic crisis has further threatened the already “paper thin” profit margins of Chinese manufacturers
Source: CEC-CEDA China Top 500, http://www.cec-ceda.org.cn/c500/chinese/ ; IBV analysis
• Export orders has decreased 30% in 2008 in Wenzhou, 30% firms will close down and the number will increase to 40% by April 2009 - Mr Dewen Zhou,
President of Wenzhou Association of
Small and Medium Enterprise
reported in the 2009 China Small and Medium Summit
• A recent survey by the China Cotton Textile Association found that 49.2 percent of firms in 17 Chinese provinces were considering shutting down, and 44.4 percent were trying to sell export-oriented products on the domestic market
Performance of China’s Top 500 Companies in 2007
Most manufacturing companies have low profitability with profit margin under 5%
0%
2%
4%
6%
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10%
12%
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16%
0 20 40 60 80 100 120 140 160 180 200
Operating Revenue (RMB billion)
Pro
fit
Ma
rgin
Manufacturing
Service
Electronic Household Appliance
Automobile
Black Metal Mining & Processing
Construction
5%
Communication Equipment
0%
2%
4%
6%
8%
10%
12%
14%
16%
0 20 40 60 80 100 120 140 160 180 200
Operating Revenue (RMB billion)
Pro
fit
Ma
rgin
Manufacturing
Service
Electronic Household Appliance
Automobile
Black Metal Mining & Processing
Construction
5%
Communication Equipment
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IBM Global Business Services
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Consumers are becoming more demanding, looking for more individualized and “total solution” services when making purchases
82
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45
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Product performance
Service
Presence In channels
Brand
Price
Recommendation
White goods Black goods Cell phone
Consumers regard service as a key purchasing criteria in Consumer Electronics industry
Source: IBV 2008 Consumer Survey on China Consumer Electronics, IBV China analysis
Consumers are becoming more informed and demanding:
Look for customized products tailored to “my” specific demand
Look for services along the full purchase cycle to provide more convenient and comfortable user experienceFor instance, an Ipod is not just a cellphone. It provides non-stop entertainment and other accessory services (enabled by the entertainment and other software download services)
Look for “total solution” services instead of individual productsFor instance, consumers look for companies to provide consultation on how to design kitchen and which appliances will best meet needs instead of just selling individual appliances such
as stove, fridge etc.
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Commoditized products offer minimal product differentiation, making it difficult to provide an unique value proposition to lock in customers
Commoditization of product
It is time to change!
Poor value proposition cannot lock in consumers
“The new functions like color screen lack true differentiation and it is becoming increasingly difficult to attract and lock in consumers. Consumers now have higher expectations on mobile features and they require truly ‘differentiated’ and ‘unique’ cell phone to meet their personalized demands”
Zhang Zhengyu, CEO, Hitech Wealth*
“The commoditization of device is increasing and getting worse due to commoditization of cell phone chip developed by mobile phone chip makers, fewer and fewer Chinese cell phone makers are willing to take efforts on …Price wars have become the main trait in this era”
Wu Ping, CEO, Spreadtrum
2008 Spreadtrum China Telecommunication Industry Forum*
Chinese cell phone manufacturers need to change their mindset and transform themselves from cell phone maker to consumer service provider, competing based on product differentiation”
Xu Yong, Managing Analyst, Gartner
Example of Commoditized Products in China’s Handset Industry
Note: Spreadtrum and Hitech Wealth are local handset manufacturers
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Global players are ahead of Chinese manufacturers, having started the service transformation since late 1980s
� Facing declining profit margins and intensifying competition, Nokia started to transform towards higher value-added internet services since 2000. Transformation activities include offering increased value added internet services, making acquisitions to gain internet service solutions, making internal organization and culture change
� Nokia launched a series of services including on line game download services and on line music download services. To better emphasize on services , Nokia introduced OVI in 2007—the new Nokia internet services brand
� Nokia was able to lock in consumers, achieving a market share of more than 30% globally and profit
margin of over 20% while other players suffered from loss
� Facing escalating growth challenges, GE started to transform from product to services since late 1980s and pursued growth from financial, information and product services
� For instance, GE Aircraft Engines (GEAE) launched “Power by the Hour” model where they charge not for the engine itself, but for actual usage. It reduces customers’ pressure to accurately determine upfront how many spare engines to purchase. For those who prefer to own the engines, GEAE also offers “spares”insurance, guaranteeing that a replacement can be delivered to any airport within 24 hours. GEAE thus won comprehensive engines service contracts and solidified its role in customers’ value chains by offering
real value for its customers
� The transformation has been profitable: GE outperformed average S&P performance by 4 times, with services contributing 70% of total revenues
“In 2007, Nokia officially positioned itself as internet company. Nokia will now focus on providing comprehensive mobile internet lifestyle to customers” Nokia Vice President, 邓元鋆 , 2006
“Our vision for the next century is a GE that is a global service company that also sells high-quality products.” Jack Welch, Chairman & CEO, GE Corporation (1996)
Source: Product provider to customer value provider: Escaping the service maze, IBV global
Nokia annual report, 2006, 2007 , IBM IBV analysis
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0
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US
Fin
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Mala
ysia
Germ
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Indonesia
Japan
Chin
a
Manufacturing Combined service
Compared to peers globally, Chinese manufacturers have much lower focus in services
Chinese manufacturing firms have the lowest levels of servitization, with 97.8% of
firms in China being exclusively manufacturing oriented
Source: Neely, 2007, The servitization of manufacturing: An analysis of global trends
Focus of Manufacturing Firms by Country
Note: The study evaluated publicly listed manufacturing firms in each country and classified each firm as pure manufacturing, service firm or combination
Pe
rce
nta
ge
of
Firm
s
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IBM Global Business Services
© Copyright IBM Corporation 2006
Key Messages
� Service driven transformation provides path to differentiation and sustainable
growth
� There are two paths to achieve the ultimate goal of offering services led
solutions- Product related value added services presents high potential for majority of
Chinese manufacturers to increase value by improving product ownership
experience - Selected manufacturers with strong functional and/or operational excellence can
offer non product related services
� Services led solutions offer comprehensive products and services that meet
clients’ needs and require increased level of complexity and integration
� Chinese manufacturers need to address three key components to become more
service oriented: 1) differentiated strategic model 2) aligned operational model,
and 3) people & culture
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Transforming from product to service centric requires fundamental change in how Chinese companies provide value to customers
Service CentricProduct Centric
� Long term, continuous revenue stream
through “customer lifecycle management”
� One-off transaction and revenue
� Innovative and differentiated service� “Must have” services
� Greater customer intimacy as interact
throughout entire product lifecycle and integrate with customer business/lifestyle
� Limited customer interaction once the
product is sold
� Have a holistic view to meet customers’
needs & requirements
� A partial view to meet customers’
needs & requirements
� Compete on service innovation/ quality in
addition to traditional dimensions
� Compete on price, product features
and brand perception
� Sell services in addition to product, or sell
a “solution”
� Sell products
Source: IBV analysis, 2008
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There are two paths to achieve the ultimate goal of offering services led solution, with product related services being the more feasible option for Chinese companies in the short term
Degree of change to business modelLow High
Potential Value to Customers
Most Chinese companies will move through this path to leverage strong manufacturing base and ease of implementation
Selected Chinese companies with strong operational/ functional excellence can pursue this route concurrently or by spinning off business
• Service Led Solutions: Meet unique needs of customers through business ecosystem and making substantial changes to business model
• Product Focused: Provide commoditized “services” centered around product usage and product failure
Product related value added services
Launch and manage differentiatedofferings to enhance full product ownership experience, whereby
customers have higher preference for products and/or willing to pay for
added value brought about by service (either separately or together for
product service bundle)
Non product related services
Launch new “pure services” to new and/or existing customers
leveraging operational strengths e.g. outsourcing
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IBM Global Business Services
© Copyright IBM Corporation 2006
Key Messages
� Service driven transformation provides path to differentiation and sustainable
growth
� There are two paths to achieve the ultimate goal of offering services led solutions- Product related value added services presents high potential for majority of
Chinese manufacturers to increase value by improving product ownership
experience- Selected manufacturers with strong functional and/or operational excellence can
offer non product related services
� Services led solutions offer comprehensive products and services that meet
clients’ needs and require increased level of complexity and integration
� Chinese manufacturers need to address three key components to become more
service oriented: 1) differentiated strategic model 2) aligned operational model,
and 3) people & culture
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Companies can identify product related value added services opportunities through understanding customers’ key concerns throughout the product acquisition and ownership life cycle
Source: IBV analysis, 2008
Supply Chain
Pre Sales Sales Post Sales
• Real-time replenishment
• Parts logistics
• Vendor managed inventory
Value
Chain
• Financing/ leasing services
• E-procurement services• Category
management& in store promotionfor retailers
• Customer experience center
• Personalizationservice
• Warranty management
• Upgrade service
• Remote monitoring and diagnosis
• Goods recycling
• Popular products are often out of stock
• Inventory costs are too high
• Shortage of key parts lead to long downtime
• Need cost effective way of completing transactions
• Lack of sufficient finances to acquire major purchase
• (Retailer) Need to create higher demand
• Lack of knowledge or uncertain about the function and quality of products sold
• “Off the shelf”products do not meet specific needs
• Concerned about potential downtime during product failure
• Desire to reduce costs in maintaining in-house repair/maintenance team
• Desire to have updated/new versions of products at low costs
• Product lagging behind in fashion/ technology
Customer
needs/
concerns
Service
Opportunity
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Manufacturers could provide supply chain services to their downstream business customers to help reduce costs and better serve end customers
Product Related: Supply Chain
Potential Service Opportunities
Vendor Managed Inventory
Manage the raw material and parts inventory for downstream customers to help reduce inventory cost , shorten parts order fulfillment time thereby shortening the product order cycle
Real-time replenishment
Real time replenishment through data sharing to help downstream business partners (for example, retailers) improve product availability and hence enhance consumer satisfaction
Parts management
Shorten repair and down time by automating parts ordering, real time logistics services and allowing data sharing and collaboration
Source: IBV analysis, 2008
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ChangAn Auto Group provides optimized logistics service to downstream partners in its supply chain
Source:柴凤伟,中国汽车物流:步入发展新阶段, 现代物流报, 2006-3-10;王长富、徐家强 ,长安民生物流争行业第一,文汇报,2007-12-02; IBV analysis
Drivers to transform
� In China domestic auto industry, average logistics cost accounts for more than 15% of total manufacturing cost, while in Japan it’s only 5%. ChangAn Auto Group needed to optimize logistics to increase profit margin
� Changan’s distributors/ retailers found it difficult to get vehicle produced on time and monitoring the car ordering status was too complicated, impacting vehicle sales
Target customer
� Auto distributors
Value proposition
� Distributors/retailers are able to be more efficient in car collection and responsive to demand shifts in the market
Outcomes/ Benefits
New services/ solution introduced
Founded subsidiary company Changan Minsheng APLL Logistics Co (CMAL) to provide logistics service for distributors/retailers:
� Enhanced service quality by door-to-door service, including order resource management, storage yard management, transportation service, visible on-passage monitoring, etc
� Expedited the process of car collection by leveraging advanced technology, e.g. Bar Code, Global Positioning System and Electronic Data Interchange
� Reduced transport cycle by optimizing transportation route with highway, railway and waterway alternatives
� For distributors/retailers, optimized supply chain reduce transportation time, increase their satisfaction with service quality & simplification to allow them to focus on promoting sales
� For ChangAn Group, reorganized unit decrease inventory costs by RMB 21 million, transportation costs by 28 million and labor costs by 2Million annually
Product Related: Supply Chain
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Chinese manufacturers can offer value added services in pre-sales and sales stages to promote sale of its products
Potential Service Opportunities
Source: IBV analysis, 2008
Product Related: Pre-sales & Sales
Personalizationservice
Customer experience center
E-procurement services
Provide online services e.g. customized web portal offering individual customers to check product offerings, track historical transactions, delivery and payment status, allowing effective management of procurement
Category management & in store promotion
(for retailers)
Financial & Leasing Services
Fulfill needs of top customers who have highest demands and willing to pay premium for individualized products that meet their specific needs
Provide customer a platform to experience using product, contributing feedback on services and products to further enhance product ownership experience
Provides attractive financial options and purchase planning to resolve issue of insufficient funds to purchase larger items
Define category strategies based on consumer needs and work with retailer to maximize profitability and sales by determiningappropriate product categories, optimal price, promotion tacticsand product placement
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Increasing customization can meet customer requirements, bringing about product differentiation and increased revenue opportunities
Degree of customer integration model
“Engineer to order” is considered a “value added” manufacturing practice as it provides the highest degree of customisation through individual consultation to address specific needs
Source: IBV analysis, 2008
Engineer-to-orderAssemble-to-orderBundle-to-orderMatch-to-order/
locate-to-order
Degree of customer integration
Selection of existing (standard) products orservices according to customer requirements
Bundling of existing products/services tocustomer-specific requirements, typically at slightly discounted price
Assembling of products/services fromstandardized components/process blocks
Customer co-design product/service through in-depth consultation service, followed by customized made-to-order product
Model of Customization
Cover more customer segments and increase switching costs of customer to increase sales volume
Target VIP customers who has most critical demand and willing to
pay premium
Service Opportunity
Benefit
Product Related: Pre-sales
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SoVital combined consultative services with make-to-order highly personalized products, winning in the highly competitive health wellness market
Background & Drivers to transform
� A German company that offers consumer health products such as vitamins and minerals, SoVital encountered intensive challenges from competitors. It noticed an emerging trend where customers were tired of taking numerous pills daily and were looking for more individualized treatment
Target customer
� VIP customers who demand personalized and healthcare service and food auxiliary products
Value proposition
� Enjoy more effective healthcare service by individualized pharmacy consultant and customized treatment. Customers find convenience in taking one vs. numerous pills
Outcomes/ Benefits
New services/ solution introduced
� SoVital introduced a new service offering called “MyMix” whereby customers fill up a specific questionnaire through the internet or face to face pharmacy consultation. SoVital then produces highly individualized pills of vitamins and minerals upon consideration of the individual’s health requirements and personal nutrition habits.
� By addressing the increasing desire for individualized treatment, SoVital succeeded against competitors in the growing health wellness market. The company was also able to capture the high end customer segment at more profitable margins.
Source: Mass Customization in Process Industries, Prof. Dr.-Ing. habil. Hans-Jörg Bullinger, Dr.-Ing. Wolfgang Schweizer, 2007
Product Related: Pre-sales
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Offering financing solutions to customers could bring benefit to a wide range of industries; the auto industry illustrates the potential of doing so
� Offer more
attractive financing
deals, e.g. zero
interest and flexible
repayment plan
� Expand end
consumer market
� Provide more
comprehensive
services e.g.
insurance & leasing
�Can increase to
70-80% (Europe
& US level)
Opportunities
� Higher interest
rate than bank
loans
Financing
options
� End consumers
account for
only 30% of
business
volume, rest
targeted
towards
distributors
Scope
� 10-15%Market
penetration
Auto Financing
in China
Financing Opportunities in China’s Auto Industry
Ford has doubled its financial services business in China, helping to build customer loyalty
� As of 2007, 40% of a total 170 distributors offer loans to individual consumers. The aim is for 80% of distributors to provide individual auto loans in the near future.
� Ford’s financial services doubled in 2007, from 5000 cars in 2006 to 10000 in 2007.
� This service has helped Ford build customer loyalty, especially in the Western part of China, where consumers are buying cars for second or third time.
� In particular, 60% of S-MAX sales was achieved through Ford financing services
Source: www.fordcredit.com;. 中国众多厂商押宝汽车金融,南方日报, 2008.8.15; 中国各大公司逐鹿汽车金融市场, 东亚经贸新闻报,2008.7.17; 福特汽车金融7月份零售贷款合同数量突破1000 ,中国汽车新网China Auto News, 2007.8.15
Product Related: Sales
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Whirlpool provided top-notch service to members of its selling chain and cuts per-order costs significantly with its online trading portal
Source: IBM reference, http://www-07.ibm.com/hk/e-business/case_studies/manufacturing/whirlpool.html, IBV analysis
Drivers to transform
� As the world’s leading manufacturer of major home appliances, Whirlpool had a huge base of middle-tier trade partners—which comprised 25 percent of its total partner base. Without connection systems, partners found it inefficient (in time and costs) in placing orders, typically had to submit orders by phone or fax.
Target customer
� Middle-tier trade partners
Value proposition
� Partners are able to be more efficient in placing orders and tracking product delivery. They are also able to preserve transaction data for accounting purposes
Outcomes/ Benefits
New services/ solution introduced
� Introduced innovative enterprise model to provide business-to-business (B2B) trading partner portal that enables business partners (e.g. retailers) to order online. Through the WhirlpoolWeb World portal, the company allowed trade partners to place orders from a full and constantly updated virtual catalogue of the Whirlpool family of home appliances, track delivery from factory floor to their stores' floors, check billing, and submit credit inquiries. These and other services are available 24/7
� Able to lock in trade partners by offering differentiated service. Within a three-month period, the portal service helped Whirlpool to generate $100 million in revenue.
� The trading portal cut the cost per order to under $5--a saving of at least 80 percent.
Product Related: Sales
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Chinese manufacturers can offer value added services in post sales to promote product ownership experience and longer term customer loyalty
Potential Service Opportunities
Source: IBV analysis, 2008
Product Related: Post-sales
Warranty management
Provide reliable product access and usage to customers through sales of extended warranties and related products
Upgrade serviceProvide upgrade services of new versions/models in addition to applications and software update services to ensure customer haslatest version of products
Remote monitoring and
diagnosis
Improve product reliability and reduce downtime of product by remotely monitoring and diagnosing of problems
Launch the goods recycling program (for e.g. old for new program, second-hand goods recycling and selling , etc) to provide customer care and services throughout the entire product life cycle and environmental friendly disposal
Goods recycling
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Volvo provided comprehensive safety services, such as safety driving assistance services to enhance “safe” brand image
� Consumers are increasingly concerned on safety, not only in product but also during actual driving experience
Target customer
� Customers who value safety as an important criteria in automotive purchasing and driving experience
Value proposition
� Consumers enjoy a total experience of feeling “safe”’; not only in purchasing a “safe” product but also in experiencing comprehensive post sale services when driving the vehicle
Outcomes/ Benefits
� Volvo enhanced the remote tracking system and provided a series of safety driving assistance services
� Automatic SOS function in the event of an accident: Volvo operator collects a whole range of information simultaneously e.g. the condition and position of the vehicle, door locking, amount of fuel in the fuel tank to provide appropriate and real time assistance
� Provides breakdown assistance, available 24 hours a day and accessible by directly pressing the Volvo On Call button
� Vehicle tracking system in the event of theft.
� Driver Alert: a warning system for tired drivers
� By enhancing the remote tracking and conducting serial of safety driving assistance services, Volvo successfully built a very unique position and image of offering a “safe” driving experience among its peers, successfully locking in consumers
Drivers to transform New services/ solution introduced
Source: Worldauto , 2006
Product Related: Post-sales
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IBM Global Business Services
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Key Messages
� Service driven transformation provides path to differentiation and sustainable
growth
� There are two paths to achieve the ultimate goal of offering services led solutions- Product related value added services presents high potential for majority of
Chinese manufacturers to increase value by improving product ownership
experience - Selected manufacturers with strong functional and/or operational excellence
can offer non product related services
� Services led solutions offer comprehensive products and services that meet
clients’ needs and require increased level of complexity and integration
� Chinese manufacturers need to address three key components to become more
service oriented: 1) differentiated business model 2) aligned operational model,
and 3) people & culture
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IBM Global Business Services
© Copyright IBM Corporation 2006
Selected Chinese manufacturers can consider non product professional services by leveraging operational strengths in value chain and business admin functions
Source: IBV analysis, 2008
Business Admin Function
R&DSupply Chain
Sales & Post sales
Value
Chain
• Small companies lack skills & bargaining power in non strategic procurement
• Inefficiency in supply chain for instance in logistics
• Many manufacturers lack resources and expertise to conduct cutting edge development
• Product design needs to be improved and validated
• Lack in-house expertise in setting up/maintaining IT infrastructure/applications/data
• Inefficient and costly to manage non core operations for instance HR and call centers
• Seek increased costs savings and reduction of down time
• High costs in building and maintaining sales distribution channels and sales force
Customer
needs/
concerns
• Application/transformationof technology
• Design service
• Trial production testing
• Procurement outsourcing
• Logistics professional services
• Reverse Logistics
• “Brand –neutral”maintenance service
• Sales agent service
• IT outsourcing
• HR outsourcing
• Call center outsourcing
Service
Opportunity
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For instance, Chinese manufacturers can leverage own supply chain operations to provide third-party services in selected areas of the supply chain
Non product related service : Supply chain
Source: IBV analysis, 2008
Potential Service Opportunities
Source: IBV analysis, 2008
Reverse logistics
� Provide proficient reverse logistics service to other manufacturers to allows quick, efficient and cost-effective collection and return of merchandise
Logistics professional
services
� Serve partners or other manufacturers who wish to outsource their logistics functions, leveraging existing logistics networks and logistics management experience
Procurementservice
� Provide professional procurement services e.g. supplier identification, supplier selection, order placing for other manufacturers on typically commoditized products procurement by leveraging existing supplier networks and supplier management experience
Reverse logisticsLogisticsProcurement
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Haier Group reduced supply chain operation costs by 10-25% and generated significant revenues through providing
logistics services to other manufacturers
Non product related service: Supply chain
� To penetrate into additional city markets in China, Haier had to build an extensive logistics network across China. This, however, created increasing cost pressures for Haier.
� At the same time, Haier had to conduct the logistics activities by themselves due to lack of qualified 3rd party logistics service providers
� Considering the increasing market demand for the 3rd party logistics services in China, Haier decided to leverage its existing experience and network to provide 3PL services
Target customer� Business customers in 6 major industries: Auto,
IT, telecom, Fast moving consumer goods, electronics, Retail.
Value proposition
� Customers enjoy cost effective, just in time logistics services, reducing total operation costs by 10-25%. Customers were also able to redesign their logistics strategy and optimized their logistics management
Outcomes/ Benefits
� Routine logistics services : Shipping, distribution services, transportation, clearance services etc
� Logistics management services: Warehouse management, Vendor managed inventory, Point KPI management
� Logistics strategy services: Logistics strategy Logistics planning, logistics optimization
� Decreased procurement costs 6%, warehouse space 90%, logistics costs 10-15%, saving internal supply chain operation costs by 10%-25%
� Haier Logistics is ranked as one of the “Top 10 3rd Party logistics provider in China” and high profile clients include GE, P&G. IKEA, SGMW (Shanghai GM-Wuling), DOW etc.
Drivers to transform New services/ solution introduced
Source: The 6th Survey Report on China Logistics Supply and Demand, China Association of Warehouse and Storage, 2005
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Chinese manufacturers can also leverage its own sales and post-sales resources to serve customers on third party basis
Non product related service: Sales
Potential Service Opportunities
HR serviceBrand-neutralmaintenance
service
Sales Agent Service
Provide one-stop maintenance service that is “brand-neutral” (i.e. not only own but other products) to customers (enterprises or consumers) who have acquired various equipments from different vendors
Leverage internal sales and distribution channels to sell other manufacturers’ products. For instance, Lenovo leveraged its strong distribution channel to help Lexmark, the second largest international printer maker, sell inkjet printers. As a result of the business transfer, Lexmark concentrated on core business capability, including product manufacturing and warranty management.
Sales & post sales resources such as existing channels, post-sale services can be leveraged for third party services. However, efforts should be made to avoid internal sales conflicts
Source: 郑凯,电脑商情报,联想成另类总代理利盟喷墨业务“易主”, 2006-10-16; IBV analysis
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There is large potential for professional “business support service” to develop in China
Non product related service: Business support services
IT outsourcing service
HR service
Call Center service
HR outsourcing service
Call center outsourcing
service
Manage back-office functions such as payroll, benefits, tax administration, risk management, recruiting and training
Manage call center functions such as in and outbound call service, training sales staff, supervising sales and legal, administrating technical infrastructure & telephone network, thereby removing management and fixed costs associated with call center investment & operation
Manage IT function such as infrastructure & application outsourcing, data hosting & management allowing smaller cost in setting up and maintaining infrastructure, applications and data
Source: Gartner (IT Service); Equaterra (HR outsourcing); http://www.chnsourcing.com/article/news/2/237920080728140402.html,Hewitt Associates website
;IBV analysis, 2008
We define “business support service” as managing and operating the non core service of another company .
This may involve taking up the company’s existing assets and staff intended for providing such non core
services. Benefits to customers include lower cost through economies of scale, no investments required for
facilities, headcounts and training, and scalable services to support business growth.
Potential Service Opportunities
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FAW-Qi Ming has moved from an internal support function to become a leading third-party IT service provider in China
Non product related service: Business support services
• Founded in Oct 2000, FAW-Qi Ming was formerly the IT department within FAW. It now provides software, product and service for auto industry.
• FAW Qi Ming recognized the emerging demands for information service in the rapidly growing automobile industry
Target customer
� Primarily FAW Group and other automobile manufacturers, as well as manufacturers in other industries
Value proposition
� Allow customers to have effective business operations that utilizes advanced & leading technology and qualified technical services, without having to make heavy investments in technology infrastructure and administration
Outcomes/ Benefits
Provide comprehensive information technology service to support customers’ business operations:
• Offer information technology service, e.g. information management consulting, information system outsourcing and technology training.
• Offer GPS real-time monitoring service for over 150 business customers who need to track logistic delivery status
• Offer a third-party online procurement platform, serving 6853 suppliers and clients;
� Ranked as top 30 largest independent software development companies in China and rated as the top 10 innovative Chinese software enterprises in 2006, 2007, 2008
� The profit in FY2007 is RMB46.84 million, around 65% of which is gained from external customers.
Source:打造汽车IT第一品牌--启明信息技术股份有限公司巡礼, 2008, http://www.qianjia.com/html/2008-03/39076.html;启明双手赢天下,2007,
shttp://www.cnr.cn/jlfw/cyzh/200711/t20071105_504611651.html;2008现代制造服务业专题工作研讨会会议文集,科学技术部高新技术发展及产业化司, 2008
Drivers to transform New services/ solution introduced
| 32
IBM Global Business Services
© Copyright IBM Corporation 2006
Offering product related value added services is a more viable option for majority of Chinese companies, compared to non product services
� In summary, product value added services is appropriate for Chinese companies as it enhances value to customers by improving product ownership experience, allowing manufacturers to move to higher value business
� Few companies in China currently have the critical mass or operational capabilities to offer non product services effectively- Prerequisites typically include having strong internal operations that are big enough
to enjoy economies of scale- Most Chinese companies are now focusing on improving internal operations- They will need to first raise it to effective levels e.g. shared services, before moving it from a cost center to profit center
� Chinese companies will need to increase capabilities and maturity in offering services, to eventually move to services led solutions
| 33
IBM Global Business Services
© Copyright IBM Corporation 2006
Key Messages
� Service driven transformation provides path to differentiation and sustainable
growth
� There are two paths to achieve the ultimate goal of offering services led solutions- Product related value added services presents high potential for majority of
Chinese manufacturers to increase value by improving product ownership
experience - Selected manufacturers with strong functional and/or operational excellence can
offer non product related services
� Services led solutions offer comprehensive products and services that
meet clients’ needs and require increased level of complexity and
integration
� Chinese manufacturers need to address three key components to become more
service oriented: 1) differentiated business model 2) aligned operational model,
and 3) people & culture
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IBM Global Business Services
© Copyright IBM Corporation 2006| 34
Service led solutions address the underlying, real needs of customers and excavate further hidden needs
� Service led solutions attempt to address the underlying and further hidden reasons of customers
acquiring individual products/services, which customers may or may not be aware of, or currently
trying to solve the problem themselves through using a combination of different products and services provided inhouse and/or by various vendors
� The solutions can integrate additional products/services to address customers’ potential
broader/deeper concerns and provide additional value with dynamic capability to solve various further
hidden needs
Perceived needs Real needs(addressing the underlying
reason for buying the product)
High performance data storage media
Storage products
Reliable, secure way to store and manage enormous amount of data
Data centre hosting service
Further hidden needs(Offering additional value by
excavating further hidden needs which the customer has not
realized before)
Maximise value of the data through integrating heterogeneous data into
uniform view and formatEnterprise information integration
service
Customer needs
Offerings
Hierarchy of customer
needs
Illustrative Example
| 35
IBM Global Business Services
© Copyright IBM Corporation 2006
Service led solutions involve a new approach to product/ service provision
� “Ownership” of the product is no longer relevant –the key is customers can have access to the functions delivered by the product on demand
� The solution provider plays an important role of selecting, acquiring and integrating products and services to address customers’ real needs, and customers primarily care about the outcomes of the solution (i.e. whether their problems are solved to their satisfaction, rather than how the problems are solved)
� Service led solutions may require fundamental changes to business and operating models, e.g. new approach to the sales contract and performance measures, new forms of partnership for customer access and delivery, and new pricing models, etc.
� As a result, service revenue becomes increasingly important and major component of total revenue
In the short term, we believe that value added services is a fast and effective way for most Chinese manufacturers to solve the immediate need to gain competitiveness. As providing
services led solutions involves higher risks due to changes to business model, Chinese companies will need to develop the capabilities and experience while testing customers’
acceptance of the new business model
| 36
IBM Global Business Services
© Copyright IBM Corporation 2006
GE was driven to move towards becoming a service business in thelate 1980s
• Profit margin of manufacturing industries declining in US, with underperformance of more than two-thirds of industrial companies
• 80% of GE’s business was in manufacturing industries
• Profit margin of manufacturing industries declining in US, with underperformance of more than two-thirds of industrial companies
• 80% of GE’s business was in manufacturing industries
• Competition from Japanese manufacturers was intensifying, as they provided good quality but at much more competitive prices
• Competition from Japanese manufacturers was intensifying, as they provided good quality but at much more competitive prices
• GE realized its core competency was in its advanced research skills but not in labor intensive manufacturing
• GE realized its core competency was in its advanced research skills but not in labor intensive manufacturing
• Leveraged its competency and expertise to provide total solution to customers, creating higher value creation and customer satisfaction
Declining profitability in US manufacturing
industries
GE’s competencyIntense competition from
Japanese manufacturers
A service led company
Source: Robert Slater: Jack Welch and the GE way : Management Insights and Leadership Secrets of the Legendary CEO ,
Case study 1: General Electric
| 37
IBM Global Business Services
© Copyright IBM Corporation 2006
GE now offers service led solutions in many of its core businesses
A new service-driven business ecosystem providing professional services and product embedded total solutions to consumers and business
A new service-driven business ecosystem providing professional services and product embedded total solutions to consumers and business
Appliance CE
SecurityAviation
Energy Healthcare
Oil&Gas Water
Appliance & CEWarranty extension,
upgrade service etc
AviationCharge by hour service
Energyoffers services in support
of power generating and
transmission and
distribution equipment
Healthcaremedical technologies ,
maintenance, training,
system integration etc
Oil&GasDrilling, production, LNG,
transportation, pipeline
integration etc
Watercooling water solutions,,
water recovery to boiler
water solutions, etc
SecurityProvide customized security solutions by integrating new
security technologies with existing equipment and IT
systems
Financial-Business
Financial-Customer
Media&Entertainment
Rail
Before Transformation: “Equipment” Focused
Horizontal moves to new service industries
Vertical transformation to provide product and service bundling solutions A NEW GE after transformation
Case study 1: General Electric
| 38
IBM Global Business Services
© Copyright IBM Corporation 2006
GE healthcare serves as a good example of this transformation
Education service: provide customers with the
knowledge and skills to optimize equipment usage, clinical practice and patient care
Healthcare Equipment
Series of medical technologies
services to support clinics and hospitals better serve patient e.g. GE patient information center provide consultancy service regarding forthcoming
diagnostic examination.
Financing services: provide customers with
equipment purchase financing plan, even help customer corporate financing
System integration:Provide customized system integration services that best fits clinical needs and budget
Performance management:Leverage GE’s expertise to provide performance management services to customer including, six sigma, leadership system Culture-driven performance etc
Equipment/
TechnologyMaintenance
Total Solution
A customer focused problem solving: Integrate variety of services with
equipment to allow hospitals clients to improve clinical practice and patient care
Source: GE Global website
Product related services
Professional services
Case study 1: General Electric
Integrated Care SolutionsProvide clinics and hospitals an overview consultancy of the technology, layouts and business metrics relating to specific care areas.
Equipment purchase
planning
| 39
IBM Global Business Services
© Copyright IBM Corporation 2006
This transformation required multi-dimensional changes in process, culture and organization in the past decades
Work-out/Town meetingsTeam-based problem solving
All about Changing Mindsets & Changing Culture
Productivity /Best practices:Benchmarking-Looking outside GE
Process improvementProcess mapping
Bullet train approachTo improve productivity and shoot for big change
Change acceleration processIncrease success and accelerate change
Key strategy initiativesProductivity , Globalization
Making Customer Winners
Six Sigma
E-Business
Intensity of Change
Low
High
1989 Present
Source: Robert Slater The GE Way Field book: Jack Welch's Battle Plan for Corporate Revolution
Lean Six Sigma04-Present
99-03
95-96
96
94-96
92
92
91
89
Case study 1: General Electric
| 40
IBM Global Business Services
© Copyright IBM Corporation 2006
IBM has a long history of renewing itself in response to shifts markets, technology, customers and competitors
Accounting Machines
The First Mainframe
Personal Computers
On-Demand Solutions &
Delivery
IBM’s Revolutionary History
The Services Transformation
Case study 2: IBM
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IBM Global Business Services
© Copyright IBM Corporation 2006
Market trends indicated that the future of the computer industryneeded to move beyond hardware and software
Market trends indicated the need
for computer industry to move
beyond hardware and software
� Erosion of margins in core markets
� Hardware and related services
became commodity with strong
competition
� Trend to large and complex
business solutions
� Customer demand for integration –
tired of unique, stand-alone
technologies yet majority of product
providers provide stand-alone,
disconnected offerings
IBM also faced internal
management issues
� 3 years of consecutive
financial losses
� Unpredictable revenue and
unacceptable margins from
service contracts
� Service portfolio did not reflect
the needs of the marketplace
� Limited and often inaccurate
knowledge of the customer
Case study 2: IBM
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IBM Global Business Services
© Copyright IBM Corporation 2006| 42
A key element of the transformation was to offer integrated solutions, providing higher value to customers
Routes to MarketValue IBM Delivers
Business Value
Component Value
Infrastructure Value
Source: IBM GBS analysis
Solution Definition
Products
Focused
Product Related Value
Added Services /
Non-Product Related
Services
Services Led
Solutions
Key CustomerNeeds
Resolve business problems directly impacting the value drivers of the business� Revenue growth, margin reduction,
working capital reduction, capexmanagement, etc.
� Refocusing on core business through outsourcing of application & infrastructure
Resolve specific problems related to individual productivity, e.g. desktop management service
Resolve specific technical problems related to IT features/performance, reliability, or cost, e.g. Network management, recovery and SOA service
Provide information regarding solution delivery in a format that customers’ existing processes can easily integrate; Financing & Renting service
IT Management
End User
Executive Officers(CEO, COO, CFO)
Line of Business General Manager
Purchasing/Finance
Case study 2: IBM
| 43
IBM Global Business Services
© Copyright IBM Corporation 2006
IBM now offers a full range of services, positioned as the transformation partner of companies
Infrastructure and technical services
Application Management Services
Managed Business Service
Business Value –Business Consulting & System
Integration Outsource Management, Operational and Support Proc.
� Finance & Accounting� Human Resources� Procurement� Customer Care
Infrastructure� Servers� Web Hosting� Network� Desktop� Storage� Disaster Recovery� Security
Application Management Services
� Custom & Legacy� Packaged� Application Effectiveness� Rapid Development
� Strategy & Change � Human Capital Solutions� Customer Relationship
Management� Financial Management� Supply Chain & Operations
Management
Case study 2: IBM
| 44
IBM Global Business Services
© Copyright IBM Corporation 2006
IBM’s services transformation roadmap was multi-dimensional and took over a decade to execute
Key Milestones In IGS’ Evolution
Develop
Offerings &
Capabilities
Ensure
Leadership
Commitments
Strategic
Alliances/
Acquisition
Launch Services
Organization
Launch & Manage
Services Brand
Close Large
Deals
IBM Spins off its Systems Services Division (SSD), into a wholly owned subsidiary ISSC
D Welsh is named President of ISSC
First American National Bank, signs first outsourcing agreement
ISSC brand is launched
10-year agreement with Hook-SupeRx (HSI), the retail drugstore chain
Inks two dozen outsourcing contracts worth more than $2 billion (incl. Eastman Kodak Co., Zale Corp., and Continental)
Loss to EDS of the coveted multibillion-dollar Xerox Corp. deal
AmEx signs $4BB outsourcing deal
Visteon signs a $2 billion outsourcing deal with IGS under the 10-year agreement
United Health Group chose IGS and Synergy to handle HR administrative support for its 29,000 employees
Vendor neutral maintenance contractsApplication Development Outsourcing
IBM Consulting Group offers IT planning services
IBM Consulting Group brand is launched
IBM Consulting Group is started as a unit within Sales & Distribution Group
Launches remote monitoring & diagnostics services for network monitoring- to offer 24X7 support and counter threats from low cost Indian IT firms
Launches On-Demand offering: Outsourcing of entire business processes
Lotus acquisitions creates channel confusion with resellers in SMB space
Acquires ChemSystems, boutique Chemical & Petroleum strategy firm
Acquires Mainspring, a boutique strategy firm
Acquires PwCC to brings expertise in areas like business-process outsourcing and as well as industry-specific solutions
Folds IBM Consulting Group into IGS business units
Launches IGS brand
Launches BIS brand
Morphs BIS brand into BCS
Industry sales groups created by adding consulting group to the sales force
ISSC folded into IBM. New unit is called IGS
IGS is organized into 3 BUs: SO, ITS and Learning Services. Consulting is organized by National Practices
Separates app development from SO and launches AMS; All IGS BU are aligned by industry
Creates BIS to consolidate all consulting services, as a fourth unit under IGS
Morphs BIS into BCS with PwCC
IBM Consulting Group offers process transformation related services
IGS forms strategic alliances with SAP, JDE, Peoplesoft and Siebel.
IBM announces it is pulling out of business application development market
D Welsh is named Group VP of IGS
Gerstner acknowledges OS/2 is a lost battle, diverts investments
S Palmisano is named Group VP of IGS
S Palmisano is named IBM CEO
IBM Tata, a JV is launched to position IGS to leverage Indian resources
IBM India is launched, IBM dissolves Tata JV
IGS hires 15K new employees for past 2 years in a row
Gerstner commitment for Open Standards, services benefits the most
1 Product Agnosticity
2 Separate Services Org
Services SVP becomes CEO
4
Large Scale Acquisition
3
5
Sales Channel Transformation
Case study 2: IBM
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IBM Global Business Services
© Copyright IBM Corporation 2006| 45
Services now contribute to over half of IBM’s revenue, up from only a quarter back in 1994
software
18%
services
26%hardware
51%
financing
5%
services
56%hardware
19%
software
22%
financing
3%
1994 IBM revenue structure 2008 IBM revenue structure
Case study 2: IBM
| 46
IBM Global Business Services
© Copyright IBM Corporation 2006
Summary of Gerstner’s Lessons Learned
“I have worked in services companies
and product companies. I will state
unequivocally that services
businesses are much more
difficult to manage …the skills
required in managing services
processes are very different …the
business model is different. The
economics are entirely different.
This is the kind of capability you
simply can’t acquire. The bet you’re
really making is on your own
commitment to invest both the years
and capital, then build the experience
and discipline it takes to succeed”
-Louis V. Gerstner,“Who Says Elephants Can’t Dance”
Case study 2: IBM
| 47
IBM Global Business Services
© Copyright IBM Corporation 2006
Key Messages
� Service driven transformation provides path to differentiation and sustainable
growth
� There are two paths to achieve the ultimate goal of offering services led solutions- Product related value added services presents high potential for majority of
Chinese manufacturers to increase value by improving product ownership
experience - Selected manufacturers with strong functional and/or operational excellence can
offer non product related services
� Services led solutions offer comprehensive products and services that meet
clients’ needs and require increased level of complexity and integration
� Chinese manufacturers need to address three key components to become
more service oriented: 1) differentiated business model 2) aligned
operational model, and 3) people & culture
| 48
IBM Global Business Services
© Copyright IBM Corporation 2006
Chinese companies transitioning to become more service oriented should align three major components: business model, operating model, people & culture
• Business model is the most important part as it determines the differentiating factor for success
• Execution of the strategy requires alignment of the key operational elements considering processes, governance model, performance management and technology
• The foundation of a services centric business is having the right people and culture. This is enforced through right organization structure, training and development program, etc.
Business Model
People & Culture
Operating Model
Revenue model Innovation
Industry model Innovation
Enterprise model
Innovation
Processes
CultureTraining &
Development
Governance Model
Organization Structure
Performance Management
Systems
| 49
IBM Global Business Services
© Copyright IBM Corporation 2006
Industry model Innovation
Enterprise model Innovation
Revenue Model Innovation
Chinese manufacturers can consider different levers within three major types of business model innovation
Business Model
Each lever is not mutually exclusive i.e. Chinese companies can adopt and execute more than one to achieve success
� Asset transfer: Leverage
differentiating expertise/
experience/ assets (for instance operational
excellence and unique
technology) to comparable
part of another industry or
customer
� Direct to customer: Provide
services to customers more
effectively by removing
intermediaries, changing
role of players within industry chain
� Product/service bundling:
Bundle offerings to increase
value to customers by offering attractive pricing (less than sum
of component products and
services)
� Innovative pricing: Move
away from flat, free, transactional based pricing by
adopting subscription, usage
based, value based pricing, etc
� Integrate the enterprise:
Enhance internal
collaboration by integrating key processes and
operations to provide better
service to customers
� External collaborative
service network: Extend sales and delivery service
capabilities by forming
partnerships and alliances
with multiple partners
| 50
IBM Global Business Services
© Copyright IBM Corporation 2006
Companies should consider its unique position when selecting theappropriate strategic lever for its service strategy
Business Model
� Lack of sufficient resources (for instance finances, sales or delivery human
resources) to sell and deliver new and existing customers efficiently
�Need to access customer relationships and contacts to reach targeted customer segments
External collaborative
network
�Have multiple lines of businesses providing services and products to the
same customerIntegrate the enterprise
�Existing channel partners lack ability or resources to execute service strategy
�Able to leverage new technology e.g. Internet to cut out intermediaries
Direct to Customer
�Have diverse offerings targeting same customer
�More appropriate for companies offering value added services
Product/Service
Bundling
�Possess strong brand, unique technology, management capabilities or
operational excellence that can be transferableAsset Transfer
�Offer customer flexibility while ensuring reliability in service; allows
variability in customer usage
�Allows increasingly integration with customer needs (e.g. behavioral,
temporal, etc.), often used by services led solutions
Innovative Pricing
When is it effective? Lever
| 51
IBM Global Business Services
© Copyright IBM Corporation 2006
Subscription
Pricing services gets increasingly sophisticated as it provides customers with greater flexibility and risk sharing
Value
Utility
Volume
Incre
asin
gly
co
mp
lex a
nd
inte
gra
ted
with
cu
sto
me
rs
� Replace traditional pay per transaction by selling periodic use or
access to products and services. This ensures a steady base of
revenue over a longer period of time. For e.g. an engine manufacturer charge airlines a flat fee for warranty or maintenance
services, billed on monthly/yearly basis
� Charge customers based on unit number of transactions completed
during service. This model allows customers variability in usage while
ensuring reliability. For instance, the manufacturer will charge airlines for servicing engine by the number of hours the engine is in the air
� This pricing model also charges customers based on actual usage of
resources but it incorporates behavioral usage of customers.
Performance indicators might be incorporated into service contracts.For e.g. the engine manufacturer charges the pricing of servicing the
engine based on how many hours the engine is in the air, with a
premium charge during peak hours and discount off if engine is not
fixed within 3 hrs
� Charge customers based on value created by services rendered,
allowing risk and profit sharing, showing tight integration with and
commitment to customer. For e.g. engine manufacturer owns and manages engine maintenance for airlines, charging airlines based on
percentage of costs saved in reduce maintenance costs
Business Model: Revenue Innovation
Value
Added
Services
Services
Led
Solutions
| 52
IBM Global Business Services
© Copyright IBM Corporation 2006
Companies can enhance and extend their service capabilities by forming and managing collaborative partnerships
Product development
� Enhance product and service offering development using joint resources
� Gain access and incorporate customer and market insight from partners
Sales
� Utilize partner sales force to expand customer coverage
� Cross sell related products and services, strengthening product offering
� Bundle products and services to meet comprehensive customers needs
Service Delivery
� Gain access to expanded delivery team to cover wide geographical area more effectively
� Gain access to lower costs resources to reduce overall costs to customers
� Gain access to specialized resources and skillets not available in-house
Business Model: Enterprise Innovation
A well executed partnership service
model should include how to:
� Identify and recruit leading partners
� Resolve possible channel conflicts
� Maintain consistent level of service
quality
� Define and agree on role and
responsibilities in interfacing with
customers
� Train existing/new partners to align with
new service-led strategy
� Incent/award “high performing” partner
performance
Advantages of Partnering in Different Business Areas
| 53
IBM Global Business Services
© Copyright IBM Corporation 2006
Broad Air Con has used both industry and revenue innovation as it moves to become a service provider
� Industry innovation: Changed from air con vendor to “temperature control”
provider - Broad gained success in China with the invention of the technically strong product,
the non-electric air conditioner which is more environmentally friendly than traditional
air conditioners. It gradually added maintenance and after sales services to better
service customers - Broad realized its customers who own major residential or commercial complexes did
not want to own and maintain air conditioners - Broad started to transition out of selling air con but instead now selling “heat or cold”
whereby customers “outsource” heating and cooling needs to Broad, eliminating
need for maintenance staff
� Revenue innovation: Innovative pricing based on utility - Instead of standard monthly subscription fees for maintenance charges, Broad now
charges customers “heating” and “cooling” services by square meter of space- Deals typically tend to be for several years (e.g. 5 to 10 years) guaranteeing longer
term revenue
Business Model: Industry + Revenue Innovation
| 54
IBM Global Business Services
© Copyright IBM Corporation 2006
An effective service operational model should consider the key elements required to execute the strategic plan
Governance Model
Processes
Performance Measurements
Systems � Define new and
appropriate measures for instance services as a percentage of revenue, customer satisfaction level, etc.
� Link incentive systems to performance metrics
Increase operation efficiency by having
� Integrated sales systems to present consistent view of customer
� Information systems to capture and share client knowledge
� Tools such as project management systems to support delivery
� Strong executive sponsorship of services with high visibility and control
� Integrated delivery organization to manage across different business units
� Conflict resolution mechanisms to address channel/ partner/ customer conflicts
� Flexible processes to allow quick response to customer needs
� Processes encourage collaboration across company
Source: IBV Analysis, 2008
Operating Model
| 55
IBM Global Business Services
© Copyright IBM Corporation 2006
As companies move to deliver more services, they need to consider the major issues in developing and managing people
� Skilled people to understand customer
painpoints and to successfully deliver solution
� Product and production technology Key
Differentiator
� “Innovating to meet customers needs”� “Innovating the best product”Required
Culture
ServiceProduct
Ways to
Increase
Productivity
How to
Manage Costs
Key Factors
for Customer
Satisfaction
� Improve efficiency of delivery
personnel, which depends on
knowledge, experience and motivation
� Improve efficiency of production
process and facilities
� Management of human resources
(number of people, level of expertise,
people utilization and delivery time)
� Production costs (e.g. cost of
goods, etc.)
� Skill sets of staff
� Proper management of service delivery
� Product features (e.g. design) and quality
Source: IBV Analysis, 2008
People & Culture
| 56
IBM Global Business Services
© Copyright IBM Corporation 2006
Are you ready to embark on services transformation?: The first step is to assess the opportunity potential of services strategy
� To what degree can service provide a competitive advantage to the
firm’s overall success?
Confirm strategic
importance of services
� To what extent is there an opportunity to materially impact top line
growth with new services?
� How can new services enhance customer value proposition and/or
enhance product ownership experience?
� Are customers demanding these services or sourcing them from
competition?
� If service market already exists, what is the size/potential and how
competitive is it currently?
� Are customers willing to pay significant premiums or additional fee
for services separately?
Assess opportunity
size of services
Assessment QuestionsObjective
| 57
IBM Global Business Services
© Copyright IBM Corporation 2006
Are you ready to embark on services transformation?: The second step is to assess readiness of current business model
� To what extent does current staff have the required skillsets to execute services
strategy?
� What plans are in place to acquire new or train existing staff with the required
skillsets?
� To what extent are current incentive systems aligned to promote effective selling
of services?
Evaluate readiness
of people & culture
� How aligned is the service’s value proposition with the core enterprise business
strategy?
� How differentiated and competitive is the defined services strategy?
� To what extent have the risks of changing pricing models (for instance one off vs.
steady stream, etc.) been considered and managed?
� If pursuing partnership approach, what type of experience and expertise in
partner identification and management exist currently?
Evaluate ability to
execute business
model
� Can current channel (internal or partners) support desired sales and delivery of
services?
� How integrated are the processes, data, tools, and management of he entire
service operations?
� How well does current key performance indicators measure performance and
impact of services?
Assess operational
readiness
Assessment QuestionsObjective