Globalization of Service and Support Operations
(Originally published in the October 2000 issue of AFSMI's The Professional Journal.)
By Leo A.P. Moerkens
During the past couple of months, at least three of our long-term client contacts have called our firm for consulting assistance because they had been asked by their respective organizations to assume global responsibility for service and support operations. In each of these cases, global referred to "total service and support operations responsibility on a worldwide operational basis". Everyday, it looks like more and more businesses are looking at service and support "globalization" as an opportunity to improve historical levels of customer satisfaction and, at the same time, improve their overall operational productivity and efficiency.
In the subsequent discussions with these individuals, issues such as culture, language and local requirements were quickly brought up as potential arguments to prove the case that "globalization" would be impossible, or at least extremely difficult, to implement. However, after careful and objective consideration, this has not been the case.
Although all those arguments may have had some merit from certain perspectives and should not be totally ignored, it is too often that they are used primarily as excuses, for the wrong reasons, in a veiled effort to protect local business interests and prevent any possibility of otherwise avoidable power struggles between local and global management. For these reasons, we strongly suggest to our clients that they step back and allow us to help them take an "unbiased look" at all of the key issues.
The services industry is inevitably moving toward globalization
It is inevitable that globalization will become the norm in the services industry. Globalization is a business trend that has been going on for quite some time now, first evidenced by a growing number of businesses that have historically operated in more than one country who have since "evolved" their business practices and, in many cases, their business model to embrace a global marketplace. The continuing advances in information and communication technology (ICT), and the integration between the two principal components, will lead to even faster market evolution because they will be responsible for opening new and expanding possibilities for services businesses to improve their service and support operations.
For example, as a result of this trend, we have seen a growing customer demand for global service agreements that result in uniformity in the delivery of service to customers all around the world. In many cases, the unique local or regional service and support needs are rapidly disappearing for many customers who no longer wish to deal with local organizations anymore but, instead, are looking for consistency in global service and support performance, as well as (relative) uniformity in pricing across regional territories based on single contract negotiation. Whether providers in the services like it or not, one thing has become increasingly clear - services vendors now must be able to define their value propositions on a global basis if they want to keep these customers. However, there are many key functions that will need to be consolidated into a global organization (Figure 1).
William K. Pollock, President of Strategies For GrowthSM, and a long-time consulting partner to Hands-on Management Consultants, Inc., has stated that, "Customer requirements for service and support will never be the same from one country to another, any more than they will be the same from one customer to another. However, one thing remains very clear - the requirements for service are becoming increasingly standardized, even on a global basis." We too have seen evidence that a growing number of businesses are going global each year in terms of sales, marketing and services capabilities, supported not only by the proliferation of new Internet-based tools and multinational strategic partnering, but also by the increasing demand for global services and support as evidenced by the market as a whole.
Another factor supporting the movement toward globalization is the ability to improve internal efficiency. In a typical decentralized organization, many functions are duplicated and performed independent from each other, which leads to increased communication efforts and differing ways of operating. We have seen organizations where product support documentation was developed by at least three different regional organizations, in some cases, providing conflicting information. For these organizations, operating on a more global basis would serve to both improve efficiency dramatically and, at the same time, provide a higher level of consistency in the way in which certain activities are performed. Through improved information and communication technology, new opportunities are also being created that allow services organizations to perform certain business functions more efficiently at a global level, while maintaining local control over their individual market segments.
A third factor supporting the case for globalization is the ability to reduce costs while maintaining or improving service level. The biggest area of opportunity involves the logistics operations where local policies have historically resulted in high investments in inventory, especially for slow moving items. Based on what we have seen in the industry, it makes sense to elevate certain of these functions to a global level in an effort to:
The details of each of these functions obviously will vary by company, but the basic functions do exist in virtually all of the companies in the services sector.
- Meet the customer requirements
- Increase efficiency
- Improve consistency
There are many functions that may be offered on a global basis
The best way to determine which functions can be performed on a global basis is to evaluate them from both an efficiency and consistency point of view. However, this does not mean that all tasks must be performed at global level. Dependent on the individual situation, certain tasks may still be outsourced, or executed at the regional level. A good example is training, where the training programs and material should be consistent all around the world, although the courses can be given at regional or local training centers to reduce travel cost. Still, according to Pollock, "there will be increasing pressure on services providers to ramp up to their customers' increasing global needs by offering a full range of global service and support solutions". Among our client base, we have seen that happening already.
Among the principal functions that may be offered on a global basis are:
The Service and Support function is critical for all businesses and has to be an integral part of the overall business strategy. For this reason, it is important to be actively involved in the planning activities that result in the development of a Service and Support Business Development Plan that addresses:
This business function is most critical at the global level because it ties everything together and establishes a framework for setting the goals and objectives for the other parts of the organization.
- Service and Support product portfolio
- Global marketing plans
- Global Customer Care and Sales
The Product Management function is also critical at the global level. Historically this function has been highly technology-oriented, and tied very closely both to the business' development and manufacturing environment as well as its regional and local operations. With the implementation of global systems, this function can now be most efficiently managed at the global level. The function includes tasks such as:
As stated before, the information and communications systems presently available allow for a faster and more reliable information flow to be managed at a central point, thereby requiring the need for only minimal additional investments in research and communications tools to support a global operation.
- Life cycle management
- Product documentation
- Product analysis
- Sustaining engineering
The Logistics function is probably the biggest opportunity from a cost reduction point of view. Historically each segment of the organization was responsible for its own planning and execution, which generally led to the implementation of multiple independent logistics systems requiring additional safety stock and a huge risk for obsolescence. Based on our consulting experiences, and supported by information from many of our colleagues, creating a Global Logistics System, supported by the right automation systems, commonly reduces the inventory requirement by 20% - 30% without jeopardizing the customer service levels. At the same time, the risk for obsolescence is reduced which also creates additional cash for a company because of lower reserves in the books. Dependent on the situation, most of the specific operational aspects of the logistics function may be outsourced to logistics service providers, which ultimately changes the focus of this function from one of execution to basically managing the function. At a global level, the Logistics function should include:
The benefits of a global operation are obvious through the elimination of safety stock at all levels, automatic replenishment based on planning and forecasting, alliances with global parts and services vendors, etc.
- Forecasting and inventory planning
- Repair management
- Inventory control
- Vendor management
Training needs to be consistent on a global basis. However, the development of good training programs and tools requires specific knowledge besides product knowledge. For this reason, it is most efficient to develop training programs at a global level, which will allow for specialization where required, and will improve the quality of the individual courses and material. This would be valid for:
The new developments in training techniques via automated systems and the Internet is just an extra motivation to centralize this function at a global level.
- Customer training
- Technical and Partner training
- Licensing (if services are outsourced to other companies)
Regional and local functions must also be carefully integrated
Because of key factors such as cultural differences, language barriers and local presence, certain functions may still be best performed on a regional or local level. Although the trend is typically more toward the centralization of certain functions at a regional level (e.g., Pan-European, ASEAN) some cultures still require a local presence to do business. The challenge is to determine which front-line functions are absolutely necessary at the local level, and which can be combined at a higher geographic level.
Principal regional and/or local functions may include:
Although some customers will do business on a global basis, the majority of Sales will still occur at the local level, dependent on the culture of the region or country. Some markets might even have local requirements that point to a local sales function. However, all local sales functions supporting the business' service and support products should be in line with the global programs.
The Field Service function should also be managed on a regional or local level. The principal reasons are that labor restrictions and language barriers are still important issues in many countries. The challenge is to determine what the appropriate service level should be from a management and support perspective (i.e., second/third line support). In most situations a hybrid model may be developed where first-line support is provided at the local level, while second- and third-line support are concentrated at the regional or global level. Dependent on the specific type of business, the availability of new technology and expanding Internet capabilities may offer opportunities to increase operational efficiency in an environment where the location of the actual support person becomes less important.
The Customer Support function is a front-line function that is very dependent on the regional and local situation. Similar to the field service function, the level of centralization will be dependent on the local situation and culture. It remains important, however, to link all of these functions together via centralized automation systems and rolling out the appropriate communication systems to allow for local optimization.
How does your organization get there?
Looking at each of these business functions and determining which can more effectively and efficiently performed at a global level is easy - you simply take a step back and apply some common sense, and the conclusion is almost the same for every business.
However, in most cases, managers have to deal with an existing organization that has historically grown to where it is now on a non-global basis, and the change to a global environment is likely to greatly impact both the organizational structure, and all of the people in the organization. In addition to these more tangible effects, there will also usually be many underlying issues that have to do with other, harder-to-define issues, such as emotional and political factors, changing roles and responsibilities, new reporting structures, etc. To address these issues, a careful approach will be necessary, and it might take some time.
Based on our experiences, we recommend a stepwise approach in (Figure 2):
- Strategy development
The Assessment Phase
The Assessment Phase focuses on Strategy Development, and consists of the following:
Develop the strategy
The strategy needs to be developed with senior level people from the different parts of the organization to ensure that all aspects are taken into account, and to create high-level acceptance for the new situation. External assistance might be necessary to facilitate the process as well as to inject external views.
Assess the existing situation
After the development and acceptance of the strategy, you need to assess where the organization is at the present moment. Based on our experiences we recommend both an internal and external assessment.
Together with our consulting partner Strategies For GrowthSM, we have conducted several of these assessments for our clients, and it is amazing how the combined results of the internal and external assessments clearly identify the gaps between where the organization is today, and where it must be to operate effectively under its new global business model. These assessments also serve to identify specific areas for where the organization must reorganize and reposition itself to most effectively compete in a global marketplace. As a result of these assessments, an improvement plan can then be developed that focuses in on the key gaps and business opportunities that represent the greatest market opportunities for the business. This plan would also include strategic recommendations for taking advantage of the identified opportunities, as well as guidelines for setting the appropriate goals and objectives for implementation.
- The Internal Assessment deals with a review of the existing business processes, organizational structure, ICT environment and performance indicators.
- The External Assessment should include a verification of customer and market requirements, a competitive analysis and a best-in-class definition.
The Development Phase
The Development Phase focuses on the path to Implementation, and consists of the following:
Develop the new business processes
Following the internal/external assessments and the resulting strategic recommendations, a review of the organization's business processes will also need to be conducted in order to identify how best to close the gaps internally and capitalize on the most attractive opportunities. Via a short series of interactive workshops with the organization's "process owners" to ensure accuracy and create buy-in, this step will focus on the identification of:
Develop the organizational and information and communication technology (ICT) requirements
- New processes
- Functional requirements to perform the processes; at what levels each of the tasks should be performed; and which, if any, can be outsourced
- High level ICT requirements to support the processes, and reduce costs
- Key performance indicators to measure performance and success
Once the high level requirements are developed during the business process re-design, a detailed gap analysis can be conducted for the organizational and ICT requirements. This will result in a detailed ICT plan to close the gaps, and an organizational plan to implement transition via re-training and hiring or outsourcing.
Create an implementation plan
Based on the recommended alternatives, the implementation plan can be developed, including planning and budgeting for investments. The detailed implementation plan will serve as the "blueprint for change".
Execute the implementation
Obviously, each implementation will be dependent on the specific business situation; however, following these steps will guarantee that all reasonable alternatives are considered, and that the best solutions are developed together by the key personnel in the organization. This will create a strong "buy-in" from the organization, which will ultimately make the implementation easier.
The transition from a regionalized to a globally-managed operation is not easy. There will be a lot of roadblocks that require attention, and the sensitivity of certain solutions will require a careful approach. For this reason it is generally helpful to seek assistance and support from an external party to manage the overall effort and ensure the objective development of the most appropriate design.
About the Author
Leo A.P. Moerkens is president of Hands-on Management Consultants, Inc. (HoMC), an international management consultancy firm that assists clients in developing and implementing operational business improvement programs. Leo can be reached at 203-888-1671, or via e-mail at LMoerkens@Hands-onMC.com. HoMC's website is accessible at www.Hands-onMC.com.