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Andy Jones, director of Xerox’s European outsourcing operations.
"we have developed software which allows us to monitor what our customers are doing"
Xerox has enjoyed such success in making copiers that the company’s name has become a verb. Yet when the US group filed its first quarter results last month, it was not printers and copiers that were driving revenues; for the first time, Xerox’s services accounted for more than half of sales.Instead of focusing on selling clients as many printers as possible, Xerox now seeks to help customers manage their entire printing operations and the associated costs as efficiently as possible.“All our printers are connected to our service delivery centre, and we have developed software which allows us to monitor what our customers are doing, orchestrate the delivery of supplies, tell the customer how to reconfigure their equipment in order to save costs, and so on,” says Andy Jones, director of Xerox’s European outsourcing operations.
For manufacturers, such a strategy of selling not just products but also services tightly linked to them offers significant benefits. It provides an extra revenue stream, as well as a closer relationship with customers, which in turn, can make it harder for rivals to steal business.
The British government in 2010 set boosting manufacturers’ exports of advanced services as a priority and some British manufacturers are already ahead in this: Spectris, which specialises in making precision instruments, has added a second string to its bow by signing contracts to use its creations to monitor the noise caused by planes at Heathrow and the vibrations resulting from work on the Crossrail project.
Rolls Royce, in addition to making aircraft engines, rents them out to airlines and guarantees their functioning under its Total Care programme. The group already garners just over half its revenues from services.
Yet beyond such stand-out examples, argues Tim Baines, professor of operations strategy at Aston business school, too few British manufacturers are adopting this approach.
In the US, according to research by Barclays, 59 per cent of manufacturers offer services as well as products; in Singapore, the figure is 49 per cent; in Britain, it is less than 30 per cent. Prof Baines says that among smaller companies, the figure is lower still.
The reason, suggests Stephen Bird, chief executive of Vitec Group, which provides equipment and services to the broadcasting, entertainment and photographic industries, is the difficulty in changing the mindset of an organisation from one focused on products to one that also sells services.
“Manufacturing companies are often run by people with an engineering background who are brilliant at designing products, but don’t necessarily have the skills to look at the broader model,” he says.
Mr Jones agrees. A consequence of Xerox’s new strategy was that it sold its clients fewer products: some big industrial customers went from having 50,000 to 22,000 Xerox-made devices. “That was counter-intuitive for a business built on selling more and more products,” he says.
No less counter-intuitive was the realisation that, since it was offering to take complete responsibility for its customers’ printing needs, Xerox would have to support printing devices made by its rivals.
“That was a difficult internal transition. But you have to change your mindset and start thinking about the long-term opportunity,” says Mr Jones, pointing out that as old devices supplied by rivals wore out, Xerox was able to replace them with machines of its own.
There are certainly risks for manufacturing companies that venture onto the turf of their service-peddling rivals. “Everything is different,” says Mr Jones “The business model, the financial measurement of performance, the levers you use to control the business, the way risk is shared in contracts.”
On such unfamiliar terrain, it is easy for manufacturers to slip up. “If you get it wrong and deliver a bad service, you’re toast,” says Des Evans, chief executive of the UK subsidiary of the German truckmaker MAN, which in addition to making trucks provides its customers with a variety of fleet management services.
Yet, Professor Baines argues that manufacturers retain some advantages in competing with service companies to provide services linked to their products.
When a product breaks down and needs repairing, he argues, services companies are good at getting it fixed and returning it, and can probably do so faster than the manufacturer. But, he points out, the manufacturer can re-engineer the part so that when it comes back, it does not break again.
Despite the risks, in some cases, argues Mr Evans, manufacturers have no choice but to branch out into services if they want to survive.
“If you look at what has happened in trucking: ERS, Ford, Foden – they focused too much on the product and not enough on the service. And as a result, they’re out of the game,” he says.
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