Service Transformation starts at the Head
Having organized the Aftermarket Business Platform for the past 4 years (and currently working on the upcoming 9th edition), I’ve sat through many exciting case studies from manufacturers, been in numerous insightful conversations with service leaders, and conducted plenty of detailed studies on the topic of service management. And always the same answers, the same conclusions.
The most recent survey I conducted shows that close to 75% of manufacturers generate less than 30% of their company’s turnover from service sales.
However, close to 50% of these same manufacturers generate 30% or more of their profit margin from service sales. Quite a significant number, which shows that if service is conducted wisely and properly, it can be a very profitable part of the business. In fact, it already is. For some.
Why not all, then?
The problem, and the reason why our conference continues to grow year after year, is the lack of guidance in the Service Transformation Journey most manufacturers have embarked on. A staggering 43% feel that the Service Business is not prioritized enough by Top Management. A lot of the conversations I’ve had with service leaders have touched upon the fact that most Board of Directors from manufacturing companies have a background in production. This means that when strategic decisions are taken about the company’s future, there is no advocate lobbying for the role and importance of Service.
What Lies Ahead
Although the future does look bright – a staggering 97% of respondents have a somewhat or extremely positive view on the future of the Service Business in Europe in the next five years – there are some factors that might limit true opportunities in the aftersales sphere for manufacturers not willing to change their standard ways of working. Declining product sales in many industries mean that installed bases are continuously shrinking. Add to that pirated parts companies that are getting more and more sophisticated and able to offer larger volumes, greater options, and with perfect logistics, across multiple platforms like growing e-commerce channels, and the Spare Parts Business, usually a strong revenue-generator, is under mounting strain. In addition, Chinese companies are getting more and more competitive on the European market due to strong products and quality service offerings at a cheaper price due to lower production costs.
All in all, for a successful service transformation to happen Top Management needs to commit, otherwise change management efforts are futile. At the Aftermarket Business Platform this October, we will have a dedicated panel discussion looking precisely at what Service Leaders can do to influence and persuade Top Management to give service the importance it deserves.
I would love to hear your thoughts on this.
Editorial Content Director