1 the reaction to external pressure
TRANSCRIPT
-
7/28/2019 1 the Reaction to External Pressure
1/38
From Products
to Services
The reaction to external pressure & the
different types of service strategy.
This presentation explores the macro-market pressures which
seem to prompt manufacturers to consider services.
Laurie Young(Updated 2012)
-
7/28/2019 1 the Reaction to External Pressure
2/38
From Products
to Services
Profitable manufacturing
Margin Service
Product
PRICE
Service is often lost in themargins of the business
and largely ignored.
-
7/28/2019 1 the Reaction to External Pressure
3/38
From Products
to Services
The strategic dilemma
PRICE
Product
Margin
External Pressures
Cost of service is exposedand comes under scrutinyfor the first time
-
7/28/2019 1 the Reaction to External Pressure
4/38
From Products
to Services
Boardroom discussion
Can we reduce costs?
Do we need to invest in new machinery?
Can we push costs down to our suppliers? How much can we outsource?
Can we reduce failure costs by increasing productquality?
Can we differentiate with service ? Can we productise our services ?
-
7/28/2019 1 the Reaction to External Pressure
5/38
From Products
to Services
The product companys response
PRICE
Product
Margin
Product
Margin
External Pressures
TO PRODUCT
Note: this is a valid strategy.
Experience shows that some thrive
by staying as manufacturers & not
moving toward service.
-
7/28/2019 1 the Reaction to External Pressure
6/38
From Products
to Services
The move to production efficiency involves:
Reduce cost of manufacture.
Significant productivity improvement.
Investment in new techniques (eg just in time orsix sigma).
Reduce overhead (e.g. cheap labour)
Outsource or franchise service.
-
7/28/2019 1 the Reaction to External Pressure
7/38
From Products
to Services
Response to Margin Pressure:change to a service orientation
PRICE
Product
Margin
Service
External Pressure
TO SERVICE
Margin
Product
Margin
Product
-
7/28/2019 1 the Reaction to External Pressure
8/38
From Products
to Services
Response to Margin Pressure:
change to a service orientation
PRICE
Product
Margin
Service
External Pressures
TO SERVICE
Margin
Product
Margin
Product
Service
Margin
Note:Experience suggests that firms which do not change, or handle change poorly, suffer.
-
7/28/2019 1 the Reaction to External Pressure
9/38
From Products
to Services
Industries which have experienced this:
Computing. Aircraft manufacturing.
Medical diagnostic equipment. Telecoms equipment Manufacturing. Office equipment. Heavy engineering. Construction (e.g. lighting)
-
7/28/2019 1 the Reaction to External Pressure
10/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
-
7/28/2019 1 the Reaction to External Pressure
11/38
From Products
to Services
Relationship of GDP per head to service
employment.
Ethiopia
Bangladesh
NetherlandsBelgium
.
Mexico
Greece
PortugalIreland
Spain
Australia
UK
CanadaUSA
0
10
20
30
40
50
6070
80
90
100
0 5 10 15 20 25 30 35
GDP per Capita ($US)
%W
orkforceemployedinservices
Note: Manufacturing can have same value, but productivity means lower % of GDP.
It seems to be about balance, not an inevitable move to service dominance.
-
7/28/2019 1 the Reaction to External Pressure
12/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
-
7/28/2019 1 the Reaction to External Pressure
13/38
From Products
to Services
Rising standards prompt demand for services in
developing economies
Education. (people want a betterchance for their children)
Healthcare. Housing
Quality of life.
Previously unavailable products,
needing service support.
-
7/28/2019 1 the Reaction to External Pressure
14/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
Rising prosperity and increased leisure.
-
7/28/2019 1 the Reaction to External Pressure
15/38
From Products
to Services
Rising Prosperity stimulates innovation in newservice concepts.
Vacations.
Fitness.
Hospitality
Leisure.
Service as an experience, as opposed to
product purchase.(e.g. the Vodka bar)
Rise in disposable income and leisure causesmove to service economy
-
7/28/2019 1 the Reaction to External Pressure
16/38
From Products
to Services
For example:
China & consumer services.
Due south of Miyun County, 62 km from Siyuan Bridge, Beijing. Offers skiing, water skiing, grass skiing, sliding and gliding. Largest of its kind in North China with the most advanced facilities. 12 trails for: beginners, intermediate and advanced skiers, The first snowboarding park Chinas first Moguls advanced trail A childrens snowmobile route. Equipped with a hi-tech snowmaking system, 12 snowmaking
machines, 2 snow groomers, a quadruple chair-lift, a double chairlift, 11 beginners drag lifts and a 1,318 meter toboggan run.
There are also the snow amusement such as the Cable Hang-glider, snow sledges from Canada, etc.
3 million skiers in China.unavailable a few years ago
-
7/28/2019 1 the Reaction to External Pressure
17/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
Rising prosperity and increased leisure. Government policy.
-
7/28/2019 1 the Reaction to External Pressure
18/38
From Products
to Services
For example:
Chinas intent to grow service % of GDP.
China is planning to increase incentives and financial aid to boostservice companies in a bid to increase the sector's contribution to thecountrys economy to 50% by 2020.
The State Council said incentives such as land approvals and capitalbailouts would be given to service companies engaged in logistics,information technology, software, electronic commerce, industrialdesign, law and accounting.
This underscores Beijing's eagerness to lessen its reliance on the
manufacturing sector, which now represents 50% of the countryseconomy. Manufacturing has led to problems such as energyshortages and pollution.
The Mainland would also encourage these firms to list their shares inthe domestic and overseas stock markets to raise funds for futuredevelopment, the State Council said.
Press announcement 2010.
-
7/28/2019 1 the Reaction to External Pressure
19/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
Rising prosperity and increased leisure. Government policy.
Changing business policy
-
7/28/2019 1 the Reaction to External Pressure
20/38
From Products
to Services
Costs
Time
Position of supplier
Position of clients in house team
Costgain
The experience curve and outsourcing
-
7/28/2019 1 the Reaction to External Pressure
21/38
From Products
to Services
China & international services outsourcing. The global outsourcing industry is worth about $150bn. The Indian outsourcing sector has 51% global share. Chinas top 5 outsourcing companies have been growing at
about 20% annually, but slower than their Indian peers.
Beijings incentive package was a clear sign that it was aimingto encroach on Indias $60bn IT services market.
The mainland government is investing in the sector andpushing out English education much earlier.
Egidio Zarrella, KPMG partner and IT adviser, said China waslikely to become a global leader in IT outsourcing, serving
domestic businesses and swathes of the Asia-Pacific region.
China is on the ascendancy. Not on ly are they learningEngl ish , bu t they are also training in Japanese, wh ich is avery p rof i table market where the Indians have beenstruggl ing.
-
7/28/2019 1 the Reaction to External Pressure
22/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
Rising prosperity and increased leisure.
Government policy.
Changing business policy
International opportunity in service markets.
-
7/28/2019 1 the Reaction to External Pressure
23/38
From Products
to Services
The UNs report on service exports.
1980 1990 2000 2006
Millions of
dollars.
Source: United Nations conference on trade and development
UNCTAD Handbook of Statistics.
-
7/28/2019 1 the Reaction to External Pressure
24/38
From Products
to Services
Cambridges findings of those who have
changed.
0
10
20
30
40
50
60
USA Singapore Netherlands Germany UK China
Source: Professor Andy Neely, Cambridge University.
-
7/28/2019 1 the Reaction to External Pressure
25/38
From Products
to Services
The reason for international growth in
services.
Growth in service markets in different countries. Forexample: tourism.
The spread of ideas and policies in businessmarkets. For example: outsourcing.
New technology makes communication andinternational co-operation easier. For example: law.
Government policy supports service exports.
-
7/28/2019 1 the Reaction to External Pressure
26/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
Rising prosperity and increased leisure. Government policy.
Changing business policy
International opportunity in service markets.
Market maturity.
d
-
7/28/2019 1 the Reaction to External Pressure
27/38
From Products
to Services
Note:
At maturity, there can be a tendency to
offer the product benefits through
innovative services.
Market maturity.
Industry
sales
Time
d
-
7/28/2019 1 the Reaction to External Pressure
28/38
From Products
to Services
For example: shaving
F P d t
-
7/28/2019 1 the Reaction to External Pressure
29/38
From Products
to Services
For example: shaving
F P d t
-
7/28/2019 1 the Reaction to External Pressure
30/38
From Products
to Services
For example: shaving
Royal Shave$55Traditional Shave$35
Head Shave$35Traditional Shave & Head Shave$55Haircut$40Haircut & Traditional Shave$65Haircut & Royal Shave$80Scalp Treatment$35
Aromatherapy Skin Treatment$45Beard or Goatee Trim with Shave$35Moustache Trim$15Shaving Consultation No Charge
F P d t
-
7/28/2019 1 the Reaction to External Pressure
31/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
Rising prosperity and increased leisure. Government policy.
Changing business policy
International opportunity in service markets.
Market maturity.
Changed customers.
F P d t
-
7/28/2019 1 the Reaction to External Pressure
32/38
From Products
to Services
Changed customers Rising standards prompt expectations of better
service.
Different end users prompt more exactingperformance demands.
Different environments demand technical integration-sometimes with competitors products.
Changed buying patterns demand different offers anddifferent relationships.
F P d t
-
7/28/2019 1 the Reaction to External Pressure
33/38
From Products
to Services
Is there a difference in buying?
Purchasing Acceptance/Transition
ImplementationInvestmentPlanning
Strategic &
OperationalPlanning &
Analysis
F om P od cts
-
7/28/2019 1 the Reaction to External Pressure
34/38
From Products
to Services
Is there a difference in buying?
Purchasingdecisions requireproducts orpackagedservices.
Purchasing Acceptance/Transition
ImplementationInvestmentPlanning
Strategic &
OperationalPlanning &
Analysis
From Products
-
7/28/2019 1 the Reaction to External Pressure
35/38
From Products
to Services
Is there a difference in buying?
Business decisions
require analysisand debate.
Purchasing Acceptance/Transition
ImplementationInvestmentPlanning
Strategic &
OperationalPlanning &
Analysis
Purchasing
decisions requireproducts andpackagedservices.
From Products
-
7/28/2019 1 the Reaction to External Pressure
36/38
From Products
to Services
The forces shaping service demand.
Rise of service; manufacturing decline.
Rising standards.
Rising prosperity and increased leisure.
Government policy.
Changing business policy
International opportunity in service markets.
Market maturity.
Changed customers.
Competitors offering services to customers.
Note;
It is sensible to understand which of these are affecting the market, using scenarios
From Products
-
7/28/2019 1 the Reaction to External Pressure
37/38
From Products
to Services
Ericsson industrial networks uses
scenarios to understand macro forces.
A Swedish company one hundred years old.
Manufactured large communication switchesfor huge telecommunication companies.
Their customers were changing.
Their industry was experiencing demand for
services.
Used scenario planning technique.
From Products
-
7/28/2019 1 the Reaction to External Pressure
38/38
From Products
to Services
Ericssons scenarios.
Service Mania: all end users(customers of their customers)would turn to brokers for help
Gran traditizione: end customerwould rely on traditional networksfor service.
Up and away: access toadvanced communication would bevirtually free of charge.
These three stories were used to plan strategy and direction.