Dr Michael Provost’s short story provides pragmatic perspectives of the journey towards a service-based business. Based on his own experiences, Mike brings to life how companies and individual leaders can make change happen. As story telling is such a powerful tool in any leaders approach to driving change, we thought that this adventure would be interesting for our readers. It provides a very different perspective from the case studies we read in books or are presented at conferences. It’s far more centred on people and personalities, which at the end of the day have the greatest influence on the success of change. We hope that Mike’s story gives you an easy-to-read appreciation of the key ideas and thought processes that underpin servitization.
Dr Michael Provost has worked for nearly 40 years in the areas of modelling, simulation, analysis, condition monitoring and management of physical assets, as well as making contributions to the business transformations that servitization involves. At Rolls-Royce, he developed some of the predictive condition monitoring technologies that now support that company’s Power by the HourTM offer. Later, at Bombardier Transportation, he led the development of condition monitoring systems in the train industry. Most recently, he led the development of asset management at Intelligent Energy, a designer and developer of fuel cells. Mike now manages his own consultancy, Michael Provost Consulting Ltd, and can be contacted at email@example.com.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Service in Industry or its owners.”
From Struggling Systems Manufacturer to a Flourishing Power provider:
Anna Edwards* was a very happy woman. It was her last day as Managing Director of Precision Powerplants* and she was looking forward to a few months of rest and relaxation on the sunny Côte d’Azur with her husband Chris* while she pondered her next move. She knew that she was leaving the company in good shape for her successor (whoever that happened to be: there were several candidates from both inside and outside the organisation who were being put through the on-going ‘beauty contest’) and felt very satisfied with the progress that the organisation had made on her watch and the transformation that she had overseen.
How different from the situation a decade ago, when she had taken over from the previous incumbent (now long forgotten) who really hadn’t understood the business and was forced to retire early. Sales and profits were falling, the share price had flat-lined for several years while the rest of the market soared and the City was muttering that the company had lost its way. A scathing analyst report entitled Always Jam Tomorrow: Beware of Perpetual Promises had ruffled a few feathers and made the Finance Director really angry. Competitors were offering deals that even the company’s most loyal customers couldn’t refuse and the organisation’s reputation for well-engineered power units just wasn’t being reflected in profitable sales. Great products (as even the writer of ‘that’ analyst report had acknowledged) but a lousy business, competing on nothing but price… Anna had taken on the job knowing that she was placing her professional reputation on the line. What should she do? She was starting to get worried.
She decided to bring in Peter Carpenter*, an old friend from university whom Anna admired for his out-of-the-box thinking, no-nonsense tell-it-how-it-is approach and excellent people and communication skills. She sent Peter home to have a ‘big think’, telling him to stay away from HQ and the alpha gorillas all trying to outdo each other with short-term slash-and-burn fixes which Anna felt were the painful road to corporate oblivion. Peter’s brief was simple: produce a plan for getting out of the ‘commodity trap’ that the company had fallen into and do it quickly before the inevitable crisis came and the whole organisation would be brought to its knees.
Peter had been musing about how to save the company for a few weeks when Sara* burst in to his study as he was casually doodling on a notepad. “The boiler’s broken yet again, Peter!” she fumed. “I’ll have to cancel my day in town while I wait for the man to turn up to fix it. I bet he won’t even have the right parts in his van either! Why couldn’t the thing let me know that it was going to break, so I could arrange the repair at my convenience? Why can’t it tell the repair man what’s wrong? I don’t give a damn about boilers: all I want is hot water and a warm house! Looking after it is nothing but hassle!” She stormed out, clearly not at all pleased.
Just then, Peter had his ‘eureka moment’. Were customers thinking like this about power units? After all, they had businesses to run and their own customers to serve and didn’t want to worry at all about power sources. Were the units that they had bought just an irritating distraction to them, requiring time, effort and expertise to look after that they really didn’t have? What if Precision Powerplants used its expertise to look after the units it made (after all, the company had designed and built them, so no-one else should know them better) and charged for the power delivered, not the physical units? Would this idea get the company out of its death spiral?
Peter’s mind began racing as his thoughts kept flowing. Customers would probably be happier making regular payments for guaranteed power, which would smooth out ‘lumpy’ cash flows and could add up over time to more than anyone would pay for ‘bare’ units. The company could shut out the ‘cowboy’ sales and service providers who were beginning to eat into its aftermarket business. It could also build up expertise that could be used to make the next generation of power units currently under development more attractive to the market. The organisation might even be able to offer this service to the owners and operators of competing products (after all, the laws of physics were identical for everybody and there were plenty of staff that the company had ‘poached’ with experience of competitor offerings) and thus eat its competitors’ lunches as well. After a few sleepless nights, Peter had even come up with a name for his new initiative: Megawatts, when and where wanted, or MW4 for short. Perhaps Helen*, who had just graduated from that incredibly expensive art college in Venice, could help him design a logo…
Peter began to ask questions and research his idea in more detail and discovered that many of the capabilities needed were already in place: they just weren’t being brought together into a coherent whole. Peter found people in the organisation who had, despite some management objections and hostility from other co-workers, devised ways of mathematically modelling unit performance and creating actionable information from the data that could be gathered and transmitted from equipment in service: there were also experts in Spares and Repairs who knew how the units should be looked after. All this valuable and unique knowledge had been ignored by Engineering and Manufacturing who just wanted to design, make and sell units before pushing them out of the door ASAP. Something would have to be done to move the organisation from a product to a service mindset, Peter decided, if his idea was to succeed.
Peter managed to book some time with Anna and they met two weeks later. Over coffee and sandwiches in Anna’s office, Peter went through the thinking he had been doing and showed Anna the ‘elevator speech’ that he had quickly put together during the train journey to HQ.
Anna stared at this for a minute or two before turning to Peter with a broad smile on her face. “I think you’ve cracked it, Peter!” she exclaimed. “I can see it now: our customers want what our power units do, not what they are. If we sell reliable power, not units, our customers will come to us rather than the competition to get what they really want and will pay us a fair price instead of ringing me up at all hours of the day and night demanding yet more concessions.”
“You realise, Anna, that this will mean the company will have to change its thinking, from top to bottom.” said Peter. “For example, we won’t be able to rely on profits from spares sales to offset any losses made on unit sales because spares usage will appear on our books, not the customers’. Our units will have to consume fewer spares than they do now. Engineering and Manufacturing will have to listen to inputs from Spares and Repairs and we will need to put comprehensive and robust systems in place to gather, store, process and output information about how our units are working in the field. It’s a whole different mindset and some of the current managers won’t get it.” “Don’t worry, Peter!” retorted Anna. “Those that don’t buy into this will either have to change their thinking or leave. I’ll need a plan, a budget and a list of the people you think you’ll need to help you for the next Board meeting, to which you are invited.”
“Would you like to be the Director in charge of this?” Anna added. “Of course, Anna!” exclaimed Peter. “This looks like a real challenge and, with your backing, we can build this into something that will completely transform the organisation. It will also get me away from all the jobs that need doing at home.” They both laughed. “What do you think of Helen’s design for a logo?” enquired Peter, as he turned to leave. “I thought it showed real flair and imagination.” “That could be your first decision.” replied Anna. “Let’s discuss it with Marketing before the meeting.”
The Board poured cold water on Peter’s presentation, but Anna insisted that Peter’s initiative had to be pursued, made Peter the Board member responsible and gave him her full support. The next few years were hard, but genuine progress was made by Peter and his team and even the most sceptical Board members couldn’t brush aside the company’s much improved financial state. Peter set up a subsidiary to ensure that the initiative grew without being stifled by the old guard, who saw their power and status threatened and pushed back hard. As predicted, those who didn’t fit into the new culture either left voluntarily or were asked to go. MW4 grew rapidly: many managers and employees saw it as an opportunity to escape from the limitations imposed by existing corporate structures, the company was able to recruit many good people with the skills it required and those involved relished the chance to contribute fresh ideas. Eventually, as the market responded positively to the new way the organisation conducted its business and built more constructive relationships with its customers, sales and profits rose, the City started to take notice and the share price began to rise rapidly. Anna knew that she had turned the corner when she overheard a long-serving manager talk about product sales as the entry ticket to the true market, which was satisfying real customer needs rather than merely selling clever bits of metal. Customers began to ring Anna up with fulsome praise rather than complaints and the press and investment analysts began writing long, glowing articles about the ‘new’ Precision Powerplants, which began to be seen as a model company that pointed the way to the future rather than a relic of past glories. Peter and Anna were in great demand to speak at industry and government events as other companies sought to emulate Precision Powerplant’s success. Marketing even produced a very concise summary of MW4, inspired by Japanese Haiku poetry.
Anna was just finishing off her last cup of ‘canteen cappuccino’ when Peter breezed in. “The Oracle has spoken!” he exclaimed. “I am the new boss! It wouldn’t have happened without your unwavering support over the last ten years, Anna. Thanks for everything!” Anna stood up to shake Peter’s hand, knowing that the company would grow and prosper under Peter’s wise guidance. As she left for the last time, a thought struck her as she turned on the windscreen wipers: perhaps she should use the proceeds from selling some of her share options to buy that villa near Saint-Tropez that Chris had seen advertised in the FT. It would make a good surprise birthday present for him and provide a much-needed bolthole from the atrocious UK weather.
You can download the story as a PDF using this link A short story on servitisation_M Provost_June 2015