Bringing a Service Orientation to Manufacturing

Service professional Douglas Morse sees a need to transform manufacturing from a product-oriented endeavor to one focused instead on customer success.

Douglas Morse, Managing Principal and founder of the Services Transformation and Innovation Group LLC
Douglas Morse, Managing Principal and founder of the Services Transformation and Innovation Group LLC
Douglas Morse is a service professional with more than 30 years experience in leading all aspects of global service for Fortune 500 companies. He spent 19 years with IBM and was deeply involved in its services transition. Following his stint at IBM, Morse was sought by other global companies to help build and lead new service strategies. From 2002 to 2008, Morse was with Peoplesoft/Oracle, heading up service operations, service strategy and customer experience for a $7 billion global services business. Most recently, he founded Services Transformation and Innovation Group LLC, a boutique consulting partnership that is focused on transforming the services industry. Morse is currently writing a practitioners guide to the “Service Oriented Enterprise,” a book for operating in the new service economy. He recently talked with Automation World Editor in Chief Gary Mintchell to explain the Service Oriented Enterprise.

Automation World: You talk about a “Service Oriented Enterprise.” Can you describe what you are getting at with that phrase?
Doug Morse: The Service Oriented Enterprise is something that I write about in my upcoming book. The name is derived from the information technology industry term, “service-oriented architecture,” which is a structured methodology for communications between services. SOA defines how two computing entities, such as programs, interact in such a way as to enable one entity to perform a unit of work on behalf of another entity. I believe that for the enterprise (company) of the future to survive in the new service economy and continue to deliver ongoing value to its customers, it will need a new way to operate and organize.

Enterprises of today are largely organized around the Adam Smith theory of organization for the industrial revolution dating back to the 1700s. In his work, “The Wealth of Nations,” he theorized that work was much more efficient if every department specialized and focused on its core area. Hence, we have companies organized into silos that have little incentive to collaborate amongst themselves and even less incentive to collaborate on behalf of their customers. Organizations make decisions every day about how to meet their internal objectives that are vaguely tied to shareholder value or other vague high-level goals. Few, if any, make decisions based on what might make the customer more successful. If you make customers successful, and they feel that level of partnership, you build loyal customers and better brands.

The essence of the Service Oriented Enterprise is the way that organizations will learn to align and collaborate internally and externally to become partners in their customers’ success and to financially share in that success. A quick example might be what we see from jet turbine makers that are now starting to create new engines operating infrastructures—data exchange networks that allow them to offer the jet engines as “power by the hour.” An airline will pay only for the value that the engine provides, which is reliable thrust as needed. Essentially, they are selling a power service and not a capital good. The airline is more successful because the power is delivered as needed with greater safety and even better passenger satisfaction, as delays for unscheduled engine maintenance are greatly reduced.

AW: You discuss going from a “manufacturing-based enterprise driven by products” to a “services-based enterprise driven by customer success.” Sounds like you’re advocating a change in outlook or attitude.
Morse: I am pushing for greater business innovation focused on delivering value rather than just delivering goods that are assumed to have value. There is a current theory that a particular good only has real value when it operates in its intended use. You might buy the most expensive car in the world, but if the car does not have all that it needs to be able to transport you from point A to point B, does it really have any value? If it is too complex to operate or needs special fuel or specialized tools for service, is that a good thing?

Companies build technology because they can, and we see these large consumption gaps between what the technology is capable of doing and what the customer is capable of using. If you just manufacture something that is better, faster and cheaper than anyone else, you might have an initial market for your goods but still fail because the mass market cannot take advantage of all the great things that you built into the product. If you think about how the customer will use the products to make their lives or companies better and focus on providing the complete solution, you will deliver the products with or in a service context.

One example has been HDTV (high-definition television). The companies manufactured fantastic products with superior performance and lowering costs, yet for years, nearly 70 percent of all HDTVs purchased came back to the retailers. They were returned, not because they were defective, but because the consumer could not get the great picture without upgrading the cable or satellite box, the DVD player and other devices.

AW: What does this mean for the manufacturing executive readers of Automation World?
Morse: This means that their insulated world is changing. While quality and operating efficiency will still be important and manufacturing will continue, there is a larger picture to consider. The back-office functions within companies will become more deeply involved with front-office functions, and the traditional separations will get less distinct over time. They need to really understand the ultimate customer needs and the customer value chain in order to optimize their part of the business so that they can contribute to the customer value.

In the example of the jet engine makers, they have moved from making the engines and selling the engines to customers, to making the engines and managing a global fleet of the engines to ensure that the total economic life of the engine is maximized. In this case, the manufacturing portions of those companies are looking not only at Lean Manufacturing methods, but at how to extend that Lean process to and through complex partner and service networks.

The manufacturing process in a services economy involves more integration with outside suppliers and outside customers than ever before. In the HDTV example that I used, perhaps the makers of the TVs would need to partner and coordinate with the manufacturers of other devices to ensure easier plug compatibility with devices needed by the customer to enjoy the full HD effect. The key for me is the new complexity of the relationships required to deliver value not only to internal stakeholders, but also to outside suppliers and end-user customers. Like all business change, it will require changing people, processes and technology in synergistic ways.

Douglas Morse is the Managing Principal  and founder of the Services Transformation and Innovation Group LLC (www.servtrans.com). His experience and research has shown that the path to the future of services is through a unique new business model called "The Service Oriented Enterprise." This is also the title of his upcoming book that will reveal the secrets on how to transform, innovate and optimize businesses to deliver exceptional new value to customers.

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