Overview
This case study explores how a leading global manufacturer of scientific diagnostic devices transformed its service operations in a challenging Southeast Asian market. Known for holding the number-one market share and enjoying widespread brand respect, the company’s devices are significantly more expensive than competitors’. Faced with the task of integrating a recently acquired channel partner that operated with highly reactive service practices and informal business methods, the company implemented strategic changes in service delivery, training, and customer engagement. This shift from a reactive model to a proactive, reliability-centred maintenance (RCM) approach resulted in improved efficiency, increased customer satisfaction, and enhanced profitability—all achieved within a remarkably short timeframe.
The Challenge
The company acquired a channel partner that had been successful through carefully managed local business practices, which included:
- Highly Reactive Service: The service team was constantly busy, claiming to be understaffed and in dire need of more field technicians. There was no dedicated workshop; service activities were conducted in shared spaces alongside sales and administrative staff.
- Cost-Based Service to Promote Sales: Services were provided at a cost to encourage instrument sales. Parts were sold at a significant markup, aligning with the “Spares Model” common among channel partners.
- Resistance to Change: The former owners remained in the building post-acquisition, undermining efforts to implement new policies and practices.
The mandate was to establish a framework that aligned future business operations with global policies. This required transitioning the service, sales, and finance teams to new ways of working, all while managing the existing team’s resistance to change.
Immediate Actions
Recognising the need for swift action, the company initiated several key steps:
- Standardising Compensation
- Established a standardised pay structure for the service team to ensure fairness and transparency.
- Addressed concerns about pay equity, acknowledging that some team members felt they deserved more due to experience or performance.
- Relocating to a New Facility
- Moved to a new building equipped to support service operations, training, warehousing, and other business needs.
- Designed the facility with RCM principles in mind, providing a solid foundation for proactive service delivery.
- Establishing Service Processes
- Implemented clear processes for all service activities, leaving no room for ad-hoc methods.
- Secured warehousing with controlled access and introduced a min-max inventory system to manage spare parts effectively.
- Training and Development
- Provided comprehensive training to improve service standards and enhance sales capabilities.
- Introduced advanced troubleshooting techniques to the service team.
- Established weekly training sessions to address issues from the previous week and prepare for upcoming challenges.
Overcoming Resistance
Despite these changes, significant resistance was encountered from the existing team:
- Attachment to Old Practices: Team members believed that the only effective way to provide service in this country was the way they had always done it.
- Challenges with SLAs: Introducing comprehensive Service Level Agreements (SLAs) was met with scepticism. Even the CEO of the parent company expressed doubts that customers in Southeast Asia would accept them.
To address these challenges:
- Communicating the Benefits
- Explained how the new SLAs would lead to improved reliability and overall cost savings for customers.
- Emphasised transparency in pricing and the value provided through comprehensive coverage.
- Engaging with Customers
- Invited customers to visit the new facility to see the improvements firsthand.
- Conducted joint visits with sales and service teams to address customer concerns directly.
- Focusing on Training
- Used every significant part change as a training opportunity.
- Encouraged a culture of continuous learning and development.
Implementing the SLAs
A small set of tiered SLAs was designed to be comprehensive in coverage:
- Transparent Pricing: Set clear pricing structures
- No Special Exceptions: Applied the same terms to all customers, regardless of size or history, to ensure fairness.
- Proactive Maintenance Focus: Shifted the emphasis from reactive repairs to scheduled maintenance, aligning with RCM principles.
Customer Response
- Positive Reception: Once provided with clear explanations, 90% of open to discussion customers understood the value of the SLAs and signed on. The rest came along as the reputation of service improved in the region.
- Long-Term Benefits: Customers began to experience fewer breakdowns and improved device performance, reinforcing the advantages of the proactive approach.
Expanding Service Reach
A pivotal moment occurred when a senior service engineer who consistently obstructed changes decided to leave. This allowed the company to:
- Improve Hiring Practices
- Brought in new talent willing to embrace the new service model.
- Focused on under-supported regions with a high number of sold instruments but minimal service activity.
- Increase Service Coverage
- Within a year, 60% of previously unsupported customers were reintegrated into the service programs.
- Enhance Efficiency
- Despite significant travel distances, service engineers supported double the number of instruments without additional hires.
- Improved methods of operation led to higher efficiency and reduced downtime.
Results
By the beginning of the third year, the transformation was evident:
- Profitability
- The organisation became extremely profitable, with service operations a consistent and major portion of the business cashflow.
- Customer Satisfaction
- Customer satisfaction levels were among the highest globally.
- Customers appreciated the transparent pricing and proactive service approach.
- Employee Satisfaction
- Employee morale improved rapidly, outpacing other service organisations within the global network.
- The team began to see themselves as part of a family, with strong partnerships between service and sales.
- Instrument Reliability
- Achieved instrument reliability that significantly outperformed global averages.
- Breakdown incidents were reduced to no more than one in every six maintenance visits. The impact is clear when you have some instruments requiring only a single maintenance visit per year.
- Operational Efficiency
- The service centre became the most efficient globally on all metrics of efficiency.
- Added a service administrator and workshop support without increasing the overall budget through the cost savings and growing active base.
- Provided significant pay rises to the team, recognising their contributions (which was a concern that good work would not be recognised).
Challenges and Lessons Learned
Throughout the transition, several challenges were faced:
- Pay Structure Concerns
- Some team members were unhappy with the flat pay structure, fearing it wouldn’t reward hard work or exceptional performance.
- In reality, the opposite occurred. The entire team rose to the highest level of work and performance, often being their own harshest critics.
- SLA Pricing and Flexibility
- Resistance to the fixed three-tier SLA structure, with calls for more flexibility in pricing and terms were desired.
- Yet the SLAs were never designed to be sales tools, but to drive RCM methods into the actively supported instrument base.
- After the RCM methods had good foundation, flexibility was able to be reintroduced on a case by case basis to maintain the reliability focus.
- Strict Service Processes
- Pushback against rigid processes and policies, especially from those accustomed to making exceptions for key customers.
- A lack of structure allowed some customers to receive outsized service attention, while others to be lost completely.
- Once rules were put in place, and followed by the team and applied to the customers equitably, customers adapted to accommodate the improved levels of service.
- Communication was critical to ensure that people understood the why of the processes, not just the what.
- Transparency Issues
- Discomfort with transparent policies and pricing, moving away from previous practices where charges varied and were kept confidential.
- Customers appreciated the transparency, and the company appreciated the ability to be open and not have to track individual cases and prices.
Strategies for Success
- Accelerated Transition
- Took advantage of the organisational change to implement broad changes quickly, effectively condensing a potential three-year process into one year.
- Unified Vision
- Maintained a clear focus on shifting from reactive to proactive service.
- Ensured that building design, team structure, and policies for sales, service, and warehousing were all aligned with RCM principles.
- Team Engagement
- Fostered a culture where service and sales teams collaborated closely.
- Encouraged open communication and feedback, helping team members feel valued and heard.
Conclusion
This case study demonstrates that even in markets unaccustomed to proactive maintenance models, significant transformation is possible. By committing to a comprehensive strategy that included facility upgrades, staff training, and transparent customer engagement, the company:
- Transformed Service Delivery
- Moved from a reactive, cost-based model to a proactive, value-driven approach.
- Enhanced Customer Relationships
- Built trust through transparency and demonstrated value, resulting in high SLA adoption rates.
- Improved Organisational Performance
- Achieved high levels of profitability, customer satisfaction, and employee engagement.
- Set New Standards
- Outperformed global benchmarks for service efficiency and instrument reliability.
When asked if the intense change and workload were worth it, both customers and staff expressed unequivocal support. Knowing the positive outcomes achievable, they embraced the transformation and would do so again.
Key Takeaways
- Embrace Comprehensive Change
- Organisational transitions can provide an opportunity for rapid, broad-spectrum improvements.
- Prioritise Training and Development
- Investing in staff skills leads to significant improvements in service quality and efficiency.
- Foster Transparency
- Clear, honest communication builds trust with customers and within the team.
- Adopt Proactive Service Models
- Shifting to RCM and proactive maintenance results in improved reliability and customer satisfaction.
- Align Teams Around a Common Goal
- When service and sales teams collaborate closely, the entire organisation benefits.
If you would like to discuss how to transform your service business, contact Creekline Consulting.