Will the services department become the sales team of the future?

Profile picture for user ddpreez By Derek du Preez November 16, 2014
Summary:
VP of customer transformation at ServiceMax, Dave Hart, argues that services margins tend to be around 11% higher than product margins. But margins aren't the only thing to consider.

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As diginomica has noted previously, there is growing momentum in the services applications market. With Oracle having recently acquired TOA Technologies and with ServiceMax (which runs natively on the Salesforce.com platform) raising over $70 million in funding earlier this year, it seems that everyone is ready to take a slice of the services pie.

Whilst field service management might initially seem like a dry subject area when compared to the likes of CRM or analytics, its growth in popularity indicates that enterprise buyers are taking it seriously. So seriously in fact, that ServiceMax estimates that the service management software industry could be worth a not too measly sum of $15 billion.

I attended the European leg of ServiceMax's user conference in Paris last week and the arguments from the executive team for investing in the services department rest on the idea that services can become a 'profit powerhouse' for the enterprise. This is partly being driven by the 'servitization' of the economy, which involves the idea that companies are shifting towards leasing products with wrap around services, instead of selling them, driving the need for better service management tools. As well as better tools and data via mobile apps allowing field service agents to up-sell products and services to customers on the go.

This piece isn't going to debate the validity of this argument – as it is safe to assume that these trends are evident in the market – but it is rather going to look at the pros and cons of the services department becoming the enterprise's next sales team.

Sales 2.0

I sat down with Dave Hart, ServiceMax's VP of Customer Transformation, to discuss the idea of sales 2.0 – where the services team becomes the new sales team. Hart argues that during the economic downturn and the prolific cost cutting measures suffered by many organisations, service leaders have begun to realise that they can no longer be the 'necessary evil' and they need to turn their department into a profit centre. He said:

The problem with cost centres right now is that they have had pressure from the CEO, especially during the economic downturn, to reduce budgets drastically. They are constantly being paired back. And of course that leads you down a blind, dark alley where you have got nowhere else to go. So effectively you are not cutting fat out of the organisation, you are cutting out the muscle.

So a lot of service leaders have said there's no way I can take things down any further, there needs to be a critical mass, otherwise we just break. So they have started to say, why don't we try to become a profit centre? That's when they start to realise, if I'm going to drive efficiencies and drive revenues, I'm going to need systems around me to help me try and do it. How do I make efficiencies in my business? Well if I can't measure anything right now, that's almost impossible. They want to be in control of their business, to understand what is going on and really know which levers to pull.

Okay, so that makes sense – get your services team selling to their customers on the job and you will begin to bring in the revenues. And it certainly does ServiceMax no harm in terms of pitching their products.

But whilst I was having the conversation with Hart, a few concerns sprung to mind when I considered what it actually meant for the services organisation to become a sales team.

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ServiceMax VP of Customer Transformation, Dave Hart

For example, should field service engineers – which have spent years positioning themselves as a 'trusted advisor' – take advantage of this role and be selling products to customers? Equally, will field service engineers be comfortable having to become a sales person? What if they are not comfortable with the new responsibilities? Also, if a company is shifting its focus from services to products, what does this mean for innovation?

I put these questions to Hart and he was very diplomatic in his answers. For example, Hart admitted that there is a risk of turning the services organisation into a full blown sales department – which shouldn't be the desired outcome. Hart said:

It's a very fine balancing line. A lot of people come up to me and ask if I'm endorsing the service engineer, who is a trusted advisor, to become a sales person? I'm not saying that we should ever put a service person on some kind of sales incentive where they have a target to meet each month, that's absolutely not the case.

But I used to be a service engineer and I know the power that we wield. Customers would listen to a service engineer, they are trusted advisors. I would have customers over four or five years, whereas they might have five sales people in the time. I was the only constant.

And on the point of whether or not service engineers will be comfortable or not with their new found sales responsibilities, Hart said:

I think if you get service engineers to recognise the value that they might have, and how important they can be in a sales cycle, and to make them understand that with growth comes investment that safeguards everybody's role in the organisation – if you can make that link, then I think you start to understand that you're not asking them to go out there with a target. You're asking them to be the confident, the trusted advisor.

It's not about putting them through an intensive sales programme, but making the connection for them so that they see the value.

I don't say to service leaders it's important you get 100% of everybody using that trusted advisor status. Some will never change, they think it's not their job to sell anything, and that's fine. But I think about 60 to 70 percent of service engineers, if you give them some training and you give them some skills, I think that can work really well in organisations.



Hart also highlighted that transforming the services organisation creates new challenges for service leaders, which when start generating revenues and profits for the enterprise, and have a more prominent and influential position within the business. Hart is finding that service leaders are either having to adapt in this role, or companies are hiring ex-sales people into the position to drive the transformation.

The CEO has recognised the value of the services business and really wants to commercialise it. I am seeing more sales people entering those sorts of roles.

It's tough because you become the focus of an organisation. We are seeing that service margins tend to be 11% higher than product margins and because the recession has been tough, product volumes have declined somewhat and CEOs have been looking around the organisation to figure out ways to drive growth. They have now seen their service leaders and service leaders are in the spotlight.

And some of them are very uncomfortable with it by the way. Because now all of a sudden instead of the five minutes on the agenda, they've now got an hour on the agenda to talk about the service business. Some revel in it, some find it fascinating and an exciting place to be, but others are wilting in the limelight because they are finding it tough.

More and more organisations are also hiring CSOs (Customer Service Officers), according to Hart, because they want someone in the C-Suite – someone

Cloud service management
who can influence R&D and make the company further standardise on products, to make them easier for service. However, with this 'servitization' model, what does that mean for product innovation? Companies focusing on product sales have typically invested R&D budget into the product development teams – if service is the focus, does innovation take a backseat? Hart disagrees.

I think it's important that they don't [stop investing in product innovation]. I think you can drive huge incremental revenue through your services organisation, but for me great organisations plough that back into great product design and it becomes self perpetuating.

I would caution any organisation to do that, because the innovation is where a lot of your growth is going to come from, from a product perspective. If there's no product out there, there's nothing for service to service.

My take

I do not dispute that there is a huge opportunity here for companies to drive revenue through their services organisation. I have heard a few of ServiceMax's customers talk about how they are going through this transition and it certainly seems a viable opportunity.

I also don't dispute that organisations can get the 'balancing act' right – in that they make sure that their services organisation doesn't just turn into a sales powerhouse. However, what does worry me, is that some will get carried away with this new revenue stream opportunity.

The idea that a 'trusted advisor' should now also be thinking about profits and sales unnerves me. Whilst one should always be wary of what a sales person says, I wouldn't want this to be true of a services engineer. Yes, their position of power could be influential in the sales cycle, but it should also be used responsibly. Let's hope companies recognise that.