The current situation:
The current situation A major manufacturer and service provider for healthcare equipment concluded that if they wanted to increase their market penetration while maintaining their profitability, they needed to dramatically lower their cost of service delivery. This was particularly true in emerging, lower cost markets.
Their service delivery model at that time was rather traditional: customers would call in if they had a problem with their equipment and in most cases a field engineer was dispatched to go on-site, diagnose the problem and fix it. This service delivery model was the result of relatively high cost of the equipment, typically ranging from 700 K Euros and up per installation. The total cost of maintenance for most clients was relatively low when compared to the cost of depreciation and related operational costs, such as the cost of hospital staff needed to operate the equipment. Customers were expecting a personalized approach in service and they would find it normal that even for small problems, that could have been solved remotely a field engineer, would show up to fix it and explain to the staff what happened.
The company was already improving their capability to remote monitor, diagnose and fix equipment but the traditional way of working was hard to change.
Method:
In order for the redesign of the service delivery model; new methodologies, tools and coaching were necessary. You may find the steps in the handbook in Noventum’s Service Transformation Centre.
The challenge:
They were facing several challenges:
- The price points of equipment that was sold in high growth markets was much lower than the traditional market. The average equipment price was below 50.000 euros but could go as low as 2.000 Euros per device
- To provide field engineer services for such equipment would result in relatively high cost when compared to the equipment purchase price and cost of operation
- Healthcare equipment is highly regulated and in most cases mission critical, often lives could be at stake, and delays in treatment of patients could lead to high levels of frustration and financial losses for hospitals and doctors involved. Therefore, customers would expect the highest levels of service, especially in emerging markets where hospitals were often small and did not have more than one device
- Customers would not be willing to pay for higher levels of services and price premiums on service contracts were often not accepted, even though excellent service was certainly an expectation
- As a result, many customers would leave the maintenance and repair role with their own internal Biomed (internal maintenance services for medical devices) and were, generally, disappointed with the level of service
- Equipment failure could cause damage to the reputation of the brand, as customers expectation is fora very high standard of service
The company had limited understanding of how customers of medium to low priced equipment were currently experiencing their service. Traditionally, such equipment had not been a focus area for the service division of the company as the general assumption had been that the service business growth potential was limited and the possibility to earn good profit margins was low.
The Strategy
Firstly, taking inspiration from other industries such as the low-cost airlines that had stripped their services of all extras to the bare bone basic service requirements, simplifying and streamlining business processes, introducing high levels of automation and often asking customers to help themselves with self-service.
Other examples included business models such as Ikea’s knock-down furniture where customers are asked to transport their own furniture and assemble it themselves.
It is important to get the balance right such that increased automation and ease of use for customers, outweighs any perceived reduction in service caused by streamlining and process change. The objective is to increase the value of service for the customer while reducing the cost of delivery for the supplier.
Typical low cost, high value service delivery models are:
• Self-help: Whereby customers solve issues and conduct maintenance themselves without the support of their service provider, including the use of manuals, online FAQ’s and web videos
• Supported self-help: Whereby customers solve issues and conduct maintenance themselves with the support of the service provider, i.e.: via a helpdesk (phone, email, chat) or ‘look-overthe-shoulder service’, possibly with help of a remote connection for diagnosis
• Product exchange: In this instance, rather than repairing equipment, a service provider will arrange its replacement whereby the customer will either receive a new or refurbished product.
• Bench repair: Here, the product in need of repair will be shipped to the service provider’s repair shop, after which the product is shipped back to the customer. In the interim the customer may receive a temporary loan product
• Tech courier: Having determined which part or component needs replacement (via customer or service provider diagnosis), a low-cost courier with basic technical and product knowledge will deliver the component and conduct the swap. In this instance, products are designed for easy access and swapping • Low Cost Field engineer: In this instance a field engineer with limited technical skills is dispatched to repair the customer’s product, potentially conducting the diagnosis himself using diagnostics methods and tools that were created by very experienced field engineers
• Remotely using a machine to machine (IoT) connection: In this instance a service provider will access a system via a remote connection and not only detect and diagnose the issue but also execute the solution via the remote connection
• Predictive Maintenance Management: Using the data obtained from connected equipment the problems will be predicted in time so there will be no need to do any corrective repairs.
Preventive maintenance plans will be adjusted, often just in time, to reduce the chance of malfunction and reduce downtime and lower maintenance costs in the process.
In this project the following steps were taken to redesign the entire service delivery model:
1. An investigation was launched into customer’s expectations from the brand. Narrowing down the minimum expectation that should be fulfilled and the most important brand values that would have to be respected and built-into the customer experience
2. The current cost of the service value delivery chain was analysed and the main areas for potential cost reduction by changing the service delivery model were identified. All best practices and the latest trends in service delivery models from other industries were evaluated as well as emerging trends in technology that could help reduce the cost of delivery or improve customer experience
3. Pricing models were developed by benchmarking the equipment “street prices” with pricing of various levels of service. This was validated with various key markets in the world, in particular the markets where the highest growth of new equipment, at lower street prices, was expected
4. New service delivery models were designed and tested. Processes and enabling service information technologies were designed evaluating achievable cost levels, the impact on customer experience and the resulting service value proposition, often defining 2 or 3 basic services with a limited set of optional services to keep the complexity low
5. A multi-disciplinary approach was taken (including R&D, product marketing, manufacturing and service) which led to the conclusion that sometimes products had to be re-engineered to improve their serviceability. Lowering the cost of service did have a major impact on the total life cycle cost. Product engineers that may previously have had their focus on inventing new features and benefits to the product, now understood the profound impact on customer experience and life cycle cost it would have to design products from the ground up for their desired modes and levels of service
6. The IT team created a Service IT Solution Architecture that would leverage the connectivity of the products and use the data through intelligent applications that were now able to create predictive maintenance models. The data could also be used for process optimisation and designing enhanced services to customers
7. After the design phase the new service delivery models were tested in the markets and rolled-out country by country to allow for local deviations from the standard model.
The results of the low cost – high value delivery model
The result was that the new low-cost service delivery models have enabled the company to grow their service business, typically with double digit growth rates. The low-cost service delivery model allowed the company to sell equipment with a “street price” as low as 2000 Euros together with a service contract and still achieve gross profit margins worth of 50% percent.
A typical low-cost delivery model would be able to fix remotely any software problem or problem caused by the end user. The chances of such problems occurring would be reduced by smart predictive analytics capabilities. Users would receive “look over the shoulder” assistance often with remote agents taking control of the device and helping remotely. Hardware problems would no longer require a field engineer to visit the customer site. In the longer term, the mission critical components in a device would either be engineered with redundant components, or replaceable units that the user of the device could replace by themselves. Alternatively, a “tech courier’ a driver with a limited technical skill set would come on site to replace the unit. Field service, the most expensive element in the chain, had now become a service logistics operation often outsourced to third party logistics providers who had economies of scale and low-cost services.
Customers were educated on the new service delivery models and the benefits of self-service, such as the speed of resolution and being fully in control, were also perceived as valuable, on top of the higher reliability and lower life cycle cost.
Lessons learned:
The effort of changing your entire organisation from traditional service delivery models to low cost is not to be underestimated. A multi-disciplinary approach is required where service leaders work with marketing, product engineers, the IT team, the service supply team and many other roles. This requires high level sponsorship in the organisation, plenty of time, and considerable investment.
The intelligence that will be built-in the low-cost delivery models will define its cost-effectiveness as well as the value being experienced by customers. Adding low cost delivery modes to the existing service delivery model is not enough. The effectiveness of the entire delivery model depends on how well you understand customers’ service needs each time a customer has a service request. Clearly understanding the requirement will help to optimize the process execution by:
• Forecasting and planning the demand of the various types of service delivery models with proper segmentation of customers and mapping the service needs and customer experience expectations to the possible service delivery models. E.g. certain type of customers will not accept self-service models, even though they could use it, simply because they are not motivated by low cost and instead value convenience, saving their time, or value other factors. Cultural factors also impact which service delivery models are most effective in which country and these requirements need to be appreciated. A company that provides printing as a service in office buildings discovered that although office staff had the skill and time to change ink cartridges and add paper to the printers they were not willing to do so because they felt it was not their job and would distract them from their own responsibilities. Hence the service provider had to organize the replacement and supply of consumables without self-service elements in the delivery model
• Identifying the right skills to handle each service request so that the most effective delivery modus is chosen. For example: A customer of whom you know have limited skills available on- site to diagnose an equipment problem and to make repairs should not be directed to a selfservice channel
• Pattern recognition analysis can help to identify common combinations of problems, causes and solutions. Early detection of such patterns and making such knowledge available in support centres and self-help channels
• Study human behaviour to predict the economic results of certain service delivery models. For example a medical equipment company that would ship replaceable components of their devices to end-users of the device found out that only a low percentage of users returned the old components because they did not read any of the instructions given with the replaceable components and they did not know that the old components still had a significant value for the manufacturer
• Design the customer experience for each type of customer to make sure the customer experiences the value as they had expected from the brand promise. For example: a manufacturer of network equipment had defective routers replaced by a 3rd party tech-courier, but customers had deliberately chosen to work with them because of their premium brand promise and were willing to pay a premium price for the equipment and service contract. After receiving complaints from customers, the company decided to require all 3rd party tech couriers to wear a company branded jacket and cap each time they would deliver to their customers
Find out how your company can accelerate by making use of the Digital Service Transformation Centre (STC) to build a low cost, but high value service delivery model? Try it out yourself Find the steps enabled by methodologies, tools and coaching available through our Digital Service Transformation Centre