The days of the service function (i.e., field service, parts operations, call center) as a cost center which is solely the result of a product sale is over. The importance of service has transcended the service operations and is now on the radar of senior executives across the enterprise. There are a few reasons why the C-suite and senior leaders are looking and depending on service now more than ever:
Profit Margins: Not What They Used to Be
In Aberdeen’s recent State of Service Management: Outlook for 2013 report, sampled organizations stated that on average service margins were 10.7% higher than those from products. Many organizations are finding that their products are being commoditized and the recurring revenue opportunity of service is not only profitable but also necessary to bolster top line growth. As margins from service continue to outpace those of products, executives can no longer dismiss service as a non-strategic aspect of the operation.
The #1 (and #2) Goal for Service: Drive Revenue
Three-fourths of top performers (72%) in Aberdeen’s research run their service operations as a profit center as compared to half of all others (56%). Managing service with a profit-centric view creates an environment of accountability to not only cost containment but also the revenue implications of the service operations. Despite this focus on revenue, top-performing organizations are keen to ensure that these revenue goals do not come at the expense of the customer relationship. In order to balance these sometimes conflicting goals, top-performing firms have built a strategic roadmap for service with a long-term view and not one that prioritizes short gains.
Service Revenue: A Larger Piece of the Pie
More than half of the respondents (53%) stated that service revenue will generate a larger proportion of overall revenue in the next 12 months (only 28% stated service wouldn’t generate a bigger proportion). Organizations are beginning to find new services to provide to customers (i.e., training, installation, consulting) and thus establish more lucrative partnerships with these valuable stakeholders. These additional services are another channel to exceed customer expectations and differentiate the service business from competitive forces.
The revenue impact service can have on the overall viability of the enterprise has focused attention on service, but companies must be mindful to not lose sight of the most important factor in driving that revenue: the customer. Top-performing organizations have created an environment of service where all business functions (i.e., sales, marketing, operations) have the customer in mind and work with the service operations to create, support, and improve offerings for these customers.
The service story is more and more important to customers and senior executives. If you would like to read more, please download the full Aberdeen report here.