service manufacturing framework

A conceptual framework for hybrid strategy (‘Customer Intimacy’ & ‘Operational Excellence’) implementation in service environment

Service Manufacturing Framework

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• Service organizations are gaining importance, rather than getting treated as only cost centers service organizations are evolving to become profit centers

• Service is getting looked as key differentiator and a key way to retain customers

• Improving Customer Satisfaction & Increasing Customer Loyalty are the top two important objectives for service organization while focus is still their on cost reduction

• From outsourcing service providers perspective, market has become more matured, customers are looking beyond cost & labour arbitrage

• While value discipline based strategy suggests that only one value discipline is to be focused to excel, having a hybrid strategy (Operational Excellence & Customer Intimacy) is more relevant academically as well as from practical perspective

• Success of implementation of a hybrid strategy in service environment, depends on resolving the inherent challenges of conflicting focus & complex business model as well as challenges around inherent service characteristics.

• Service Manufacturing’ is a conceptual framework for implementation of hybrid strategy in service environment. ‘Service Manufacturing’ framework resolves the ‘dilemma of opposites’ inherent to hybrid strategy and enables service organizations to overcome constraints of inherent service characteristics to attain differentiation & efficiency objectives, with precision & agility as available in manufacturing environment, through its components which are aligned to ‘Customer Intimacy’ (vertically) and ‘Operational Excellence’ (horizontally), within a grid/matrix structure, reinforced by enablers.

Abstract


Changing Market Dynamics

• Service organizations are gaining importance, rather than getting treated as only cost centers service organizations are evolving to become profit centers

• Service is getting looked as key differentiator and a key way to retain customers

• Improving Customer Satisfaction & Increasing Customer Loyalty are the top two important objectives for service organization while focus is still their on cost reduction

Survey Results (Wipro Technologies & OUTSOURCINGCENTER), 2013: Response of 112 executives (President to Field Engineers) from manufacturing organizations across automotive, computing, consumer electronics & high-tech industries to understand the evolving role of service organizations within manufacturing companies.


From an outsourcing service provider’s perspective, Mr. Scott Mullarkey, Chief Growth & Innovation Officer, Aditya Birla Minacs, identifies future growth drivers as capability to provide intellectual arbitrage. Customer expectation has been drifted from traditional labour and cost arbitrage to the ability of manage business risk, customized & agile solutions, as he identifies.

Changing Market Maturity


Strategy Landscape – Hybrid StrategyTreacy & Wiersema (1993): Three Value Discipline: Strategy adopted by Minacs: Hybrid Strategy

As ‘Discipline of Market Leaders’, it was suggested that to be successful, any one of the three value disciplines is to be chosen as focal point and business should strive to attain leadership on that while maintaining industry standards on other two.

However the changed external environment clearly indicates that having one generic strategy will not help to grow .

While academia on strategy also supports a hybrid strategy adoption basis the situation, the hybrid strategy adopted by Minacs, is not only theoretically valid but also practically viable.

However when it comes to implementation, hybrid strategies have some inherent challenges which need to be taken in to account and the success depends on overcoming those.


Challenges of Implementation

1. The strategic focus is internal for Operational Excellence while it is external for Customer Intimacy. This might create contradiction ofFocus and confusion.

2. Customer Intimacy demands decentralized structure with focus on Value Capturing while Operational Excellence focuses on Value Creation and demands control. To manage both, might need a complex business model & organizational structure

3. More over the inherent characteristics of service, makes it more complex to implement Operational Excellence in combination with Customer Intimacy. It is quite simple for manufacturers to drive efficiency through automation, process standardization and implementation of proven and tested improvement methodologies. Similarly well formulated & structured R&D function helps to design and manufacture innovative/customized products. However service being intangible, produced and consumed at the same time, heterogeneous & perishable, it becomes challenging to make differentiation visible as well as drive efficiency.

Contradiction of Focus

Uniqueness of Service Environment

Complexity of Structure


‘Dilemma of Opposites’ & Service EnvironmentAs value discipline based business model suggests, the focus for ‘Customer Intimacy’ & ‘Operational Excellence’ are in extremely opposite pillars & building blocks & so is the orientation. Handling this ‘dilemma of opposites’ is complex task and demands for a multi-dimensional org. structure, as in flat structure, these opposites are bound to create conflict and confusion.Moreover being in a service environment, it makes the tasks of creating differentiation & driving efficiency difficult due to the inherent characteristics of service

Orientation: Outside In:

Orientation: Inside Out

Business Modell: Custom

er Intimacy

Business Modell: O

perational Excellence

Key questions:

How do we bring the agility, discipline, efficiency & economy of scale of manufacturing atmosphere to service environment?

How do we effectively differentiate and efficiently enhance bottom line?


Service Manufacturing - Structure

An analogy of ‘Car Manufacturing Atmosphere’. Different product line (models) will have different features for all components, however components will be manufactured by specialized production units (body shop, engine shop, door makers etc.), while assembly lines are vertical/product/model wise.

In service environment, market segments will be verticals and would focus on ‘value capturing’ while specialized operational units will be aligned horizontally and would focus on ‘value creation’.

Differentiation will be achieved by domain specific solutions and offering through the verticals while efficiency will be driven by operational expertize through horizontals


Service Manufacturing - Components

Vertical Components:Base: Knowledge of Target MarketsPillars: Segmentation, Solution & RelationLayers/Enablers: People & Customer Experience Management

Horizontal Components:Base: Process Orientation & Visual ManagementPillars: Elimination, Standardization, OptimizationLayers/Enablers: Quality Control, Innovation & People


‘Service Wastes (Bicheno & Holweg-2009)’:

Delay: Customer being waiting for service, in queues, on hold, for a promised response. This not only wastes customers time but also inflates the time required to provide the service hence reduces service bandwidth.

Duplication: Repeat details (both from customer & provider perspective), re-enter data, copy information in different and multiple places, answer queries from several sources within the same organization.

Unclear Communication: Not all possible implications of a particular communication/instruction explained, resulting waste of time in multiple clarifications.

Lost Opportunity: An opportunity lost to serve/retain/win a customer as well as opportunities lost to maximize revenue & profit. Non-standard Service Pathway: Lack of standard design of sequence of activities to deliver service

Poor Ergonomics of Service Encounter: Customers going through several queues, lack of a single window

Non-standard non customer facing processes: Service interaction should always be different for different customers (due to heterogeneity) however processes those are non customer facing, like pulling up information/non customer facing transaction are non standard, creating huge performance variance.

Incorrect Inventory: Unable to get exactly what is required when it is required

Over/Under Production: Produce over or under the requirement level

Failure Demand: Unlike ‘Value Demand’ which is actual demand for service from customers, ‘Failure Demand’ is the result of failures in the system upstream, caused by a failure to do things right first time for customers.

Eliminate

StandardizeOptim

ize

Operational Excellence - Elimination of ‘Service Wastes ‘


Segmentation:

Target Market Selection: Selection of target market, basis existing knowledge, skill & ability.Creation of Market/Domain/Industry Specific verticals: Specific verticals for target markets to spearhead domain expertize.Identification of Domain specific Key Growth Drivers: Capturing trend & evolution of the target market.

Solution:

Identification of Key Customer Need: Basis the industry the customer is in and customers growth plan, customers key needs & objectives (stated & unstated) to be precisely identified.Customized Solution: Solutions to be build exactly around the needs identified.Designing VAS: Basis providers knowledge of market, VAS to be designed to enhances customers growth plan in line with the trend & future of customers industry.Packaged Offering: Solutions built around the basic customer needs and VAS to be offered as a package with flexibility of choice to the customer.

Relation:

Building Trust: Through transparent, participative governance & knowledge sharing.Personalized Relation: Through Strategic/Key Account Management approach

Customer Intimacy - Making Effective Differentiation


Service Manufacturing - EnablersProcess Orientation:All activities, barring direct interaction with the customer (client/end user), has to follow structured & pre-defined & well documented sequence. Standard Operating Procedure has to created and followed & strict adherence to be maintained for all activities.

Visual Management:Outcome (business, function, process, activities) and behavior of impacting variables (factors) are to be visually displayed against benchmark in a pre-defined frequency to create visibility at every level to ensure efficient management & prompt decision making. To create a common language on performance management, visual management would be based on a standard data model which would map performance outcomes to its impacting variables along with topographic & demographic dimensions and standard visuals to depict each interaction.

Continuous Improvement:Entitlement: Business, functions, processes & activities should be associated with defined performance entitlement, and would strive to attain that.People should be encouraged & recognized to make their day to day activities simpler & efficientProcesses should be periodically revisited to identify opportunities to eliminate wastes and initiatives with well defined action plan to be taken to remove wastes with clear timelines and deliverables. Each successful initiatives should be recognized to culminate the culture of continuous improvement.Performance variation at each level should be continuously studied for identification of opportunities to reduce the same through well defined initiatives, each successful initiatives to be recognized.All outcomes to be periodically monitored against respective entitlement benchmark. Wherever the benchmark is achieved, underlying processes to be revisited for possible design enhancement to take the performance to next level. Each successful initiatives to be rewarded

Quality Control:Quality of an outcome is always defined from consumers stand point. For each outcome, elements critical to quality have to clearly understood, defined, documented & mutually agreed with consumer wherever possible. Outcomes should be then monitored to ensure quality, This should get extended to partner’s/supplier’s processes as well to ensure adequate input quality.


Service Manufacturing – Enablers contd..

Customer Experience Management:It is critical to understand & manage customer expectations to ensure that service creates desired level of experience. Few essential elements of customer expectations, in B2B scenario, revolve around ‘Predictability’, ‘Cost’, ‘Flexibility’ & ‘Choice’. However it is also important to understand end user (customer’s customers) expectations as well.With clear understanding of customers stated and unstated expectations & needs, all interaction touch points are to be designed & monitor to ensure delivery of desired level of experience. Delivered experience is a key differentiator.

Knowledge Management:Knowledge is key to success in an industry widely considered as knowledge industry. Any segmentation approach is impossible without having thorough knowledge of the target segment. It is essential to not only absorb knowledge but also to ensure retention and dissemination, evaluation and up gradation of the same. This clearly demands for defined process, technology & and trained people.

Culture:A culture that encourages to identify, expose and remove the source of inefficiencies is key to drive excellence. Moreover, matrix being the most advanced organizational structure, ‘the challenge is not so much to build a matrix structure as it is to create a matrix in the minds of…managers’. Hence culture is crucial to reinforce a matrix.

Leadership Support:Strong leadership support in terms of involvement, guidance & traction on implementation is imperative to ensure success.


Service Manufacturing Framework

Framework:Center of Gravity: People, Innovation & TechnologyGrid: Vertical & Horizontal PillarsEnablers: Customer Experience Management, Leadership, Culture, Knowledge Management, Process Orientation, Visual Management, Continuous Improvement & Quality Control

www.minacs.adityabirla.com

Thank you!

Santanu Basu

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