Services must be offered by a Certified FSE (whether from customer, third-party service provider, or company's CS).

Hardware upgrades for Field Change Orders (FCOs).

Spare parts.

Important Notes

1. All service programs listed previously are presented per product.

2. All product types at the same site are covered by the same service programs.

3. Value-added services (VAS), such as training or advanced application support, are not included in the service programs.

4. Pricing will be such that Basic Services, Limited FSE visits, and parts services are the most attractive choices. Extended and Complementing Services will deliberately be priced "out of range" but still made available.

Presenting the market with a range of options, priced in a way that minimizes current "abuse" of services is definitely a big step in the right direction. As we have learned from personal communications of CS managers, it alone can decrease up to half the expenses of the CS department. However, that is far from all that can be done to improve the CS contribution to the company's profitability.

At least four additional areas present significant potential for improvement (if improvement is defined as either a decrease of the operational expenses or an increase in the Throughput of the CS system). These areas are listed as other service offerings.

Other Service Offerings

Value-Added Services

These are knowledge-driven, high-end, high-margin activities, which enable the equipment user to derive much higher value from its use. Usually, companies turn to external consultants to provide this type of expertise. Often it has to do with better, smoother work-flow organization, better physical arrangement of the machines, and improving the interaction between various departments-all in order to improve the client's positioning in the market. Often it necessitates an in-depth understanding of the client's operation in order to correctly identify the constraints of the system, or more efficiently exploit them, or-and that is (according to our experience) the most common case-better subordinate the entire system to its constraint. As equipment makers, CS departments are often populated by people perfectly suited to perform such tasks; it positions the equipment maker as a better business partner, increasing the chances of future purchases. Furthermore, it transforms CS from its current "break and fix" mode to a consulting-like entity. And of course, such an activity can be amply remunerated, significantly higher than the standard service fees.

Launching of Expert Systems

Quite often large chunks of the expertise required to resolve customers' problems effectively and efficiently are not properly documented and readily available to the technical staff. Usually it resides in the memory of the service providers, and that is one of the main reasons CS is viewed as more an art form than a science. It is just one of the many facets of the problems involved in the organizational knowledge preservation and management. If, however, the organization makes the necessary effort to build a system to identify, assemble, create, catalog, represent, distribute, and enable adoption of the insights and experiences of its experts, the benefits can be huge to both CS and its clients. Such systems are called Expert Systems, and as such, they make the insights and experiences readily available to everybody in the service organization. They comprise the assembled knowledge, either embodied in individuals or embedded in organizational processes. The potential of having all that expertise readily available, without the need to experience a lifetime of CS work firsthand, can turn even a beginner into a valuable worker, almost from his or her first days on the job. Using a computer expert system to assist CS personnel can decrease even further the need to perform on-site visits. When coupled with good remote diagnostic systems, an expert system has the potential to improve service to clients significantly, while considerably decreasing the costs involved in providing it.

Third-Party Maintenance (or TPM)

Third party maintenance (TPM) is a name given to outsourcing of the CS activities to an external entity, which is capable of providing it in exchange for a price, which is lower than what it currently is when provided internally. We are not dissecting the benefits and dangers of outsourcing here; it is enough to say that it is a move to be considered carefully, as problems in this area can endanger future purchases. Quite often, the third party will require logistical support (like original spares and materials), knowledge transfer (upgrades and changes), and even personnel assignment in resolution of the most complicated cases. Nonetheless, it can considerably offload some constrained resources or create support availability in regions devoid of it, further increasing sales potential. Sometimes the outsourced work is performed by companies specializing in CS, the so-called Multi-Vendor Service Providers. These are companies that provide technical support to a wide range of equipment, produced by a variety of producers. Usually such companies have good presence in wide regions and due to their efficient usage of resources and very low overhead, they can provide their services at very competitive prices.

Installations, Implementations, and Projects

If there is an area in which TOC applications can drastically improve the performance of the CS staff, it is at the first stage of its involvement in the service of the equipment, namely at installation of the equipment or (at the so-called "turn-key" deals) implementations. Options such as bringing the equipment to the status of "up and running" is a multistage activity, usually designed as a project. Even the installation of a simple system is comprised of, at least, unpacking, installation of separate units, their integration, customer training on its operation and day-to-day maintenance, and performance of the acceptance tests. As it goes in projects, it usually takes longer than planned, delaying the start of the warranty period and preventing the team involved from moving to their next commitments. The TOC Critical Chain Project Management (CCPM) methodology provides a much better way to deal with the inherent uncertainty characterizing projects while significantly lowering the risk of exceeding the plan's confines.

An additional domain that can be addressed in order to improve the integration between CS and the entire company has to do with problems stemming from the current arrangement regarding the warranty.

Instead of allocating a fixed, time-proportionate amount from the sales to the service revenues as warranty revenues, a different method is recommended: 1. When a product is sold, some of the product revenues will be deferred-till the end of the warranty period. Those product revenues will accrue during the warranty period on a periodical (say, quarterly) basis. The amount to defer and the length of the warranty are 100 percent business decisions that are made by the product business entity. Of course, the longer the period of warranty, the slower the income accrues to CS.

2. CS will charge the product business entity a "readiness expense" for that product (a rather small amount that covers CS infrastructure expenses such as Response Center, Logistics, etc.) and a fixed amount per every warranty event. CS no longer receives any fixed warranty revenues. The warranty becomes an expense that will be charged to the product business entity on a quarterly basis. The fixed amount per event will be agreed to with the product business entity at the product launch or during the budgeting process. As with every "transfer price," which is arbitrarily set between two sister units within the same company, one should devote utmost care in setting it. For example, it should be structured in such a way that it will not push one of the units involved to prefer interaction with an external entity rather than the sister unit.

As mentioned already, in this approach there is no longer such a thing as "warranty revenues" as a subsection of CS revenues. Product revenues remain product revenues. This makes sense as, after all, customers refer to what they pay as an amount paid for the product and all that comes with it: the company name and reputation, the company expertise, the company R&D backing, and, of course, installation, training, and warranty. Why split the revenues at all?

At the same time, warranty expenses are mainly a function of service efficiency, the product quality, and the terms and conditions of the warranty (length in time, limited or full coverage, etc.). While CS determines the first one, the latter two have nothing to do with it. These are determined solely by the company's business entity, which designs the product and ensures its quality at the exit of the manufacturing gate. Now, all the warranty expenses are kept as expenses belonging to the product business entity, as part of all other expenses (bill of materials, manufacturing expenses, cost of delivery, etc.). The effect of such an approach on the product business entity should be dramatic, especially when the expenses charged in a certain quarter are higher than the product revenues accrued that specific quarter. The pain is sharp and is felt immediately and deeply. In that way, we prevent adding hidden (warranty) burden to the already heavy load of CS expenses. Each unit is measured accurately on what affects it the most.

How to Implement the Change3

As with every major change in an organization, there is no alternative to the managerial leadership. The kind of change needed here will require managerial ownership, as the move is clearly a top-down process. An effort to create a bottom-up process, lead by an ambitious well-wisher, rarely stands a chance of success, as the change may face a hostile reaction.

Key Decisions

Of the multitude of options presented previously, the most important one has to do with the future vision of the CS organization by the company's management. Will CS be an in-house operation or will it be outsourced? Maybe management should combine the elements of both, creating a unique combination, better suited to the particular environment.

If we keep CS internal, what type of support contract should be the preferred one?

If CS is outsourced, then to whom and how?

Is the current size and mix of support personnel suitable for the future structure? If it is not, what changes are needed?

The standard TOC tools to evaluate proposed solutions-Future Reality Tree (FRT) and Negative Branch Reservation (NBR)-can help quickly screen various solution scenarios. The screening process tries to assess whether the proposed solution can actually resolve existing problems (FRT), without creating even worse new problems (NBR). Only solutions to emerge from both such a screening with flying colors will advance to the implementation phase.

Policies and Measurements

True to the maxim, "Tell me how you measure me, and I'll tell how I'll behave," only if proper measures are adopted can we expect the desired changes to take place relatively fast. On top of the standard TOC measures of CS contribution to the organizational bottom line, through the channels of Throughput, Operating Expenses, and Inventory (Investment), we would like to use operational measures specifically tailored to the CS organization.

The standard measures used in CS relate to the use of different elements of the tech-support system.

1. From the point of view of CS, as usually the service event starts with a call to the Response Center (or Call Center), we would like to know what the Call Avoidance Rate (CAR) is-namely, what fraction of problems were resolved without even calling CS. The better we train the customer on our equipment, the more knowledgeable the customer is, the more available are computerized databases, and the stronger the financial incentives to avoid service calls, the larger this fraction will be. It is a measure not easy to gauge, and to get it necessitates close collaboration with the internal maintenance entity. Usually it will become visible when comparing statistical data regarding similar assemblies of comparable units of equipment.

2. Response Center Absorption Rate is the fraction of service calls that pass through the Response Center. Although undesired phenomenon, quite often customers bypass the call center and approach the FSE directly. It happens when it is a repeat call and they have a way to directly contact the FSE who took call earlier, the customer has a good, friendly relationship with one of the FSEs and the calls him or her directly, or (particularly in a large organization with a large installed base of equipment), a support person happens to be on the premises and can be approached directly. We would like the number of calls going through the Response Center to grow, as the smaller it is, the more it hints to a system that is not managed by its managers, but rather by the whims of its clients.

3. As this is tricky to measure quantitatively, it can be derived if the CS personnel are required to report their direct communications with the clients, especially those resulting in service tasks.

4. Response Center Close Call Rate (CCR) is the fraction of calls that are remotely resolved (closed) by the Response Center, without the need for dispatching an FSE to the client. The higher it is, the more efficient the system is. Of course, availability of a robust expert system and an ongoing education program of Response Center personnel can significantly assist the increase of this rate.

A system is needed for monitoring the changes in all these four factors-both the direction of the changes (does it grow, stay stable, or diminish), as well as the size of them and their trend. It will give both the management and the CS staff a feeling of whether the change is moving in the right direction.

Summary

Figure 30-9 presents the proposed changes in a schematic form.

In general, the changes advocated here, when applied together, are changing the very nature of the CS function; from the traditional and simple, yet expensive and with steadily declining efficiency, service organization, to a more differentiated system as shown in Fig. 30-9, which embeds various levels of expertise in its different elements, and that may involve additional parties.

FIGURE 30-9 Shifting CS to new environment.

True, the emerging CS system looks more complex, but it has one thing going for it: It stands a much better chance of continuing to contribute positively to both the company profitability as well as to its future sales than the system it is replacing.

When the changes advocated here are seen through the lens of a system approach, the contribution of CS to the overall success of the company, which is steadily becoming a thing of the past, gets a new lease on life. I hope that it is a long and productive life.

References

Klapholz, R. and Klarman, A. 2009. Release the Hostages: Unsing Goldratt's Theory of Constraints for Customer Support Management. Great Barrington, MA: North River Press.

Turban, E. 2002. Electronic Commerce: A Managerial Perspective. Upper Saddle River, NJ: Prentice Hall.

About the Authors

As the President of the Goldratt Institute (Israel), Alex Klarman, PhD, is leading the effort to introduce TOC to and establish it as the standard management approach in Israel.

His scientific background-that of a biophysicist interested in the evolution of complex systems-as well as his industrial and educational background, including teaching appointments at the Tel-Aviv University and the State Teachers' College, in addition to years of hands-on experience in industry, makes him exceptionally qualified for this demanding undertaking.

Dr. Klarman was in charge of manufacturing in a metal industry firm for 4 years. This hands-on experience gave him a unique perspective of operations and projects-production, logistics, planning, and material management.