Leadership & General Management

Managing international service operations: One size fits all doesn’t cut it

Most discussion regarding geographic or international expansion for industrial companies has traditionally been centered on products. Usually a company starts by positioning a sales force in a territory, either directly or through channel partners, such as dealers, distributors or agents, and, as orders come in, exports from its engineering and production base. At a later stage, as its international presence grows, it considers alternatives for optimizing footprint, cost structure and geographic configuration of its supply chain.

After sales and other related service has mostly a rather different trajectory. Initially it’s considered a support activity for sales to increase attractiveness of the product offer and some services are usually given away for free. As products are sold in new markets, some (basic) support capacity is positioned locally to liaise with customers/users and take, filter and pass on enquiries, orders and problem reports. Spare parts, technical training for customers and expert problem solving are exported from the company’s main engineering and manufacturing locations. As the “amount” of installed base in a geography increases however, and the market starts to come more into focus as a target for growth, investments are made to increase presence and local capabilities, particularly in service. Continued expansion over time results in companies having large international footprints, serving many diverse markets. As businesses mature and the installed base becomes substantial, focus shifts to service for generation of additional revenue streams and profits from the installed base. At this point companies often re-organize their service activities as a profit center or a business unit somewhat independent from product and assign to it ambitious top- and bottom line growth targets. Service managements must now develop and deliver on strategic plans and try to integrate often disparate local service units in diverse markets, usually operating under very different conditions and with very different starting points and capabilities.

The situation international service managers find themselves in is not easy and it is quite different to product business. Products are usually developed, engineered and manufactured centrally (where the bulk of value added is produced) and marketed globally. Oversight and strategy are fairly straightforward. Services by contrast, are developed, produced and sold locally and as such are very sensitive to local conditions and must be highly responsive to local customer requirements and behaviors. If a product line manager is leading a large coherent army, a service manager is trying to oversee many small campaigns occurring simultaneously on different fronts with different intensities and with varying degrees of success by people who often have little in common. Obviously how to go about this must be different, yet most companies provide to service managers the same tools as to product managers and expect them to go about their business in the same way. The problem is further compounded by the fact that many service managers do not really recognize that it (the problem) exists and try to manage (strategize, organize, supervise)  with “one size fits all” approaches. The results are almost always sub-optimal.

Let’s look at some of these points:

 

Different Strategies

Levels and growth of service revenues are highly dependent on the “amount” and growth rate of the installed base (however defined, e.g. capacity, units, value, etc.). Other factors also play a role, such as average age, utilization or operating conditions, but they are secondary: Potential service revenue is driven by the installed base at a (delayed) derived rate. However, at any point in time markets (countries) are at different phases of development regarding the installed base. For example, in many western markets the levels of installed base for many industrial products are high, but the rate of growth is low or even negative (if plant closures or mothballing exceed new installations), while in emerging markets levels may be low, but growth rates high. Such segmentation is also possible for asset types or classes: For example in many markets wind power or solar PV installations may be rapidly increasing, while installations of paper machines, printing machines or steam boilers may be gradually declining. Depending therefore where a market is on its particular development curve, it has differing degrees of attractiveness and competitive conditions and strategy needs to build precisely on that.

Intnal_1

Intnal_2

 

Service strategy determines which markets and services to focus on, levels of investment and allocation of resources. “Star” or “???” markets often require significant investment to capture growth -in resources, capacity and knowhow- often before demand materializes. Dogs and cash-cow markets require a completely different approach: limited investment, possibly consolidation and eventually gradual disengagement. This of course must have an impact on budgets and top- and bottom line growth targets and requires a differentiated approach in setting them. Otherwise deserving businesses may be starved of investment and unattractive ones might receive an undeserved surplus. This has also implications for assessing the performance of local managements, levels of motivation and ability of service units to marshal resources. Exercises therefore of ranking and comparing markets and performance of local units must make sure they’re not comparing apples with oranges and must go beyond ranking market attractiveness purely by notional size.

 

Different Offerings and Sales approaches

In markets where installations are relatively new, customers have different problems and consequently, requirements and behaviors, than in markets with mature industrial bases. For example, a central concern of customers building major industrial plant in emerging markets is to recruit, train and retain an initially inexperienced workforce. Conversely in developed markets (depending on the industry) it may be to find ways to retain knowhow as an experienced workforce retires. Oftentimes, depending on surrounding market conditions, emerging market customers place emphasis on performance and output, while developed market customers place emphasis on cost containment. And the differences may be even more nuanced, subtle and complex. For example, many customers in emerging markets view industrial OEMs as process and operations knowhow providers effecting some form of technology transfer, whereas in developed markets the same vendors may be viewed as equipment/technology suppliers with limited access to process knowhow; Or in some markets contracts have different enforceability than in others and relationships and trust are built up in different ways. This must influence service offerings content and design as well as sales approaches. Offerings developed for a set of customers with particular requirements cannot easily be sold to (imposed on) customers with different requirements. The key of course is finding the relevant “scarcities” and customer “hot buttons” in particular markets and developing the capabilities to address them. This presupposes sales personnel with strong customer contacts, organizations skilled in value based sales approaches and local managements able to take action. From a general management point of view it speaks for a bottom-up rather than a top-down approach in offerings design, or at least for a healthy mix, and providing considerable leeway in decision making.

 

Different supply chains and operating systems

It is quite evident, at least in theory, that when markets are different –leading to different strategies, offerings and sales approaches, configurations of local service supply chains must be different as well. Depending on market and competitive conditions and customer demand, local companies will and should take different decisions on many aspects of local supply chain configuration -from depth of value added and “make or buy” questions to size and positioning of service assets, suppliers, required capacities, resources, knowhow and training.

 

Management pointers

Given therefore the highly distributed nature of service operations and the need to adjust strategies and approaches to local markets, how should these businesses be integrated or managed by the central service “line-authority” in an international company?

Here are some pointers:

  • Organize in a matrix, but with a stronger regional (market) line. Create sizable x-country market entities (local/regional units) by amalgamating similar smaller markets around a bigger one. However do not permit further geography based structures under these market entities
  • Manage by objectives rather than by actions; But differentiate significantly in target setting according to local market conditions
  • Follow the lead of the Israeli army and put the best people in the infantry (not in central staffs) and the front line (local managements) and give them considerable decision making authority within a framework. Distributed organizations cannot be well managed by grand central plans nor by central staff
  • Allow offerings to emerge in different places according to local conditions and requirements, though vet for risks and coherence.
  • Create information and best practice hubs and organize easy flow and exchange of information. Invest significantly in training (technical, methods, management)
  • Set and manage by global standards (quality, productivity) and provide uniform excellence in support functions (parts logistics, information systems, reporting)

 

Titos Anastassacos is Managing Partner at Si2 Partners, a consultancy helping clients leverage services to win in industrial markets

Further articles on this and other topics can be found in the Si2 Partners Resources Page and the Si2 Knowledge Center

 

If you are a Service professional (manager, practitioner, consultant or academic) in an industrial setting join our group Service in Industry on Linkedin

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