The Role Of Service Culture In Driving Service Revenues

By Bill Pollock, chief research officer, The Service Council, www.theservicecouncil.com, wkp@theservicecouncil.com

Is your service organization operating in a way that drives revenue?

For those of us who have been in the services community for 15 to 20 years or more, we’ve already lived through the classic debate of whether service should be run as a separate line of business (i.e. as a profit center with its own P&L) or as a cost center in support of product sales. However, over the years, a majority of service organizations have finally realized that service is, in fact, a separate line of business, with its own attributes, features, customers, and — of course — ability to drive companywide revenues and profits.

The Service Council’s benchmark survey on “The Role of Service Culture in Driving Service Revenues” supports the claim that a majority of organizations now believe that moving away from the historical means of managing service as a cost center is a better way to go. However, they may have a rude awakening in that as many as a quarter of respondents also believe they have neither the resources nor management expertise to pull it off successfully.

For example, the preliminary results of the survey suggest the following topline results:

Roughly 50% of manufacturer/ OEM service organizations presently manage service as an independent profit center, compared with only about one-quarter that still manage service as a cost center in support of the company’s manufacturing and/or sales operations. While representing an approximate 2:1 ratio in favor of a profit center, these responses still suggest that there is a sizable segment of the service community that does not adequately leverage its services offerings to make a meaningful contribution to the bottom line — that is, in terms of increased revenues and profits.

Upwards of 50% of respondents presently cite service as a top priority within their organizations that are currently being well-managed by the executives in charge. This compares to only half as many that also cite service as a top priority, but one where they are lacking in resources to manage it effectively. While it is encouraging that more than three-quarters of respondents cite service as a top priority, it is still somewhat discouraging that as many as one-third of these respondents’ organizations simply cannot execute on it with their limited resources.

What is particularly alarming, however, is that as many as one-in-six respondents say that service is not a top priority at their organization, is not centrally structured or coordinated, or is used merely as a resource for the sale of products.

Can You Effectively Manage Your Service Operation?
While two-thirds of respondents claim the contribution of service to be extremely important to the overall profitability of the organization, only half currently believe their organization has the ability to manage it effectively. For some, this represents a major disconnect in terms of their ability to execute on a belief — and one that likely places them at a major disadvantage with respect to their more aggressive — and progressive competitors.

However, most respondents agree that a strong service culture can compensate for some (but not all) of these shortcomings in that it can be used to cultivate the following benefits over time:

• More satisfied customers
• Deeper partnerships with customers
• More consistent service performance and delivery
• Stronger competitive advantage
• Enhanced market image and reputation

These are the key elements that will ultimately differentiate a service organization that “gets it” with respect to service culture vs. one that simply “doesn’t get it.”

The preliminary survey results also reveal a number of preferred ways to maximize service revenue generation, including:

• Proactively marketing and promoting the organization’s services capabilities
• Developing more and/or improved services marketing tools and collateral
• Promoting higher levels of services cross-selling and upselling
• Increasing the number of customers under longterm service contracts
• Improving the service level agreement (SLA)/contract attach rate at the time of product purchase

Undoubtedly, other key findings will also be uncovered from the final survey results; however, the fact that a majority of service organizations are finally able to manage their own (and their respective customers’) destiny supported by a pervasive and strong service culture is a very heartening preliminary conclusion.