• Choose a category
• All
• Classic-Fiction

By Root 2692 0

to normal. Of course, like in any binding contract, there are plenty of details outlining what service clients are entitled to (called Service Level Agreements, or SLAs for short). Nevertheless, the very structure of these contracts leads to a very inefficient operation—from the point of view of the service provider—of the service organization. The most common form of equipment service contract is that called a “full service contract,” which provides full coverage, without regard to the effort or expenses involved in providing it. However, unlike in insurance, there are no “deductibles” and “copayments,” and there are no discounts to customers with no (or less) claims. It creates an inherently abusive situation, because:

The customers have every incentive to call for help, even if the problem is minor and can be solved by them. “The customer is always right” is the slogan that rules here.

So what we face here is a situation in which the revenues (a fixed fraction of the purchase price of the equipment) are controlled by the cutthroat competition between producers and generally decrease with time, while the expenses are an open-ended and mostly increasing proposition.

All that means only one thing: If CS is to refrain from becoming a bottomless pit, relentlessly swallowing the revenue generated in other parts of the organization, it must reinvent itself. The improvement methodology of TOC provides a proven path to achieve this ambitious feat.

The problem is a tremendous one, as it is clear that both preconditions of the dilemma (Fig. 30-3) are truly mutually exclusive:

Having good CS; satisfying customers’ needs is diametrically opposed to the demand: Ditching the CS ASAP.

What to Change to

The TOC approach calls for a clear visualization of the basic conflict, which prevents the resolution of the core problem. If we realize that good CS is a must, our question isn’t whether or not we want to have it, but rather what is needed to change for it to contribute what it should to the firm’s overall profitability.

That means that the D’ want of the “cloud” in Fig. 30.3, stating “Ditch the CS ASAP” is unacceptable. This, in turn, translates into the question, “How do we make sure profitability remains high (need C), while providing good CS, and satisfying customers’ needs (want D)?”

The Evaporating Cloud in Fig. 30-8 shows the inherent conflict between what CS sees as waste (providing unnecessary services), and what its clients regard as their paid-for right, almost a birthright (all services are provided upon request). It stems from both sides of the profitability equation (as the objective A is to increase profitability); increasing the efficiency and effectiveness (need B) by lowering the unnecessary expenses (want D), but still preserving the revenues from service contracts (need C) by providing services clients want.

FIGURE 30-8 The dilemma of CS: what service to provide? (Source: Klapholz and Klarman, 2009, 74.)

So how is one capable of providing all services needed by the customer, while refraining from providing what is unnecessary? What change in the existing service providing arrangement could be of value in both the eyes of the service users and the service providers at the same time? How can both sides benefit from it? Let’s have a look at the assumptions underlying this chronic dilemma in Fig. 30-8.

A—B

AB1: Efficiency and effectiveness bolsters CS contribution to the company’s profitability.

AB2: Efficiency saves time and expenses, thus adding to CS contribution to the company’s profitability.

AB3: Effectiveness saves time and expenses by eliminating unnecessary activities, thus contributing to the company’s profitability.

AB4: Effectiveness increases Throughput, thus contributing to the company’s profitability.

A—C

AC1: A significant part of a company’s revenues comes from the renewed service contracts.

AC2: Providing free services hurts the company’s profitability.

AC3: Paid-for customer service has a significant impact on the company’s profitability.

B—D