Customer Lifecycle Management

With these changing business dynamics, leading companies are rethinking their approach to the after sales business, as the same cannot be taken for granted any more.

1. Customer Lifecycle Management
Changing Business Dynamics of Sales and Service
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2. Introduction
One of the profound changes for com -
panies in a past decade have been out-
sourcing the operations such as physical
creation of product, supply and logistic
while keeping the service, customer sup-
port in-house. The reason, after sales
operation is the main experience for the
customer over a life cycle of a product
along with the massive opportunity in
terms of revenue, brand reliance and
customer loyalty over a period of time for
any organization.
The greater the life of product the larger
is the spread of the potential revenue
from the after sales service and main-
tenance. It is also been known that the
customer spends 5 to 20 times the initial
sales price on subsequent service and
consumables. On other hand, the com -
petition and higher customer demands
are challenging companies in maintain-
ing margins in direct sales and custom-
er satisfaction levels in the service busi-
ness.

With these changing business dynam -
ics, leading companies are rethinking
their approach to the after sales busi-
ness, as the same cannot be taken for
granted any more. Main business get -
ting affected are Aerospace and De -
fense, High Tech, Automotive and other
industries that have significant service
business.
Hence, the need is to not just to focus on
product lifecycle but to devise a strategy
for the Customer life cycle Management
comprising of Sales and After Sales cy-
cle with a holistic viewpoint. These two
parts of the product traditionally have
been dealt and thought separately, but
these today need to be integrated with
the common objective of building cus-
tomer base, increasing market share,
improving after sales margins and maxi-
mizing revenue during the complete life
cycle of the product.
AMR research found the following for
the service business

1. As competition heats up, companies
will loose high margins in after sales
business if they continue to spend
60% less on information technology
(IT) for their service business.
2. After sales strategy starts with foun-
dation of customer knowledge that
leads to operation efficiency and
proactive managed service
3. Tactical automation can cut the cost
by 5% to 15% within specific opera-
tions: strategic automation can im-
prove margins by 25% and gain 60%
in share.
4. Success requires a dedicated tech-
nology strategy beyond Enterprise
Resource Planning (ERP).
AMR Research survey of 125 compa -
nies revels the aggregated spending of
the companies have a great inequality
in IT spending that’s favors the product
business over the service to the tune
of only 20% of the overall spend being
directed towards service.
The spending and focus gap is be-
cause the service business is always
been considered as a cash cow of
the business. But with changing busi-
ness dynamics and service business
contributing 40-50% of profit (20-25%
of revenue), achieving the operational
efficiency, improving customer profit-
ability and building customer loyalty has
become the key.
For companies that make durable
products, developing a more effective
services business boost profits in the
short term and provide different sourc-
es of competitive differentiation in the
long term.

3. Today the cost of acquisition of each new customer is increasing exponentially,
making retention of current customer is imperative, selling him value added servic-
es and new line of products, i.e. making customer for the life.
Customer Lifecycle Management (CLM)
Customer life cycle management is the future of Product life cycle management. It
is a unification of “Sales and after Sales” Business Management in holistic view. The
sales business has been the focus across the industries leaving the after sales busi-
ness to compete with independent service providers, losing the potential revenue
and the opportunity to build the foundation of customer knowledge.

Figure: Customer Life Cycle
Today when the margins from the direct sales are in extreme pressure and reduc -
ing each year, the revenue should not be considered per sale only, but in a whole
life cycle of the product usage.
Novoally Software from the extensive study of business process, potential/op-
portunities in after sales markets, have derived the possible approach companies
looking into after sales business should consider how IT can be used effectively
to achieve the objective of the Customer Life cycle Management. Below is a brief
overview on essentials.

4. Foundation: Customer Knowledge
CLM integrate the initial product sales
lifecycle with the customer service and
experience lifecycle in order to align the
business objective of maximizing the rev-
enue opportunity from customer. Without
CLM companies are only considering
tactical investments (like separate CRM)
and decision for the after sales business
that only improves the ability to respond
to the customer requests, missing the
two crucial link of the after sales market.
1. Treating the customer requests as
detached events, losing the opportu-
nity to leverage them further.
2. Assuming customer will request for
the service, missing the 50%-60% of
the opportunities until it was too late.
Fixing these missing links between
various processes in after sales market
along with the proper integration of after
sales processes with sales processes
will make the organization proactive
and protective to the customer provid-
ing the ability to look a head and man-
age the customer life cycle.
CLM objective is to provide organiza-
tion an ability to forecast and plan for
customer demand and suggest value
added high margins services and not
wait for customer to come for service
and new request.
Building on foundation
Organizations need to start with orga-
nizing the collections of process in after
sales business and integrating the uni-
fied after sales business with the product
sales business.
The after sales business can be divided
into four-macro process:
1. Customer: Service and support
2. Parts: Logistic and operations
3. Product: Services and Configuration
4. Sales and Marketing
Within these 4 categories there are
around 15-20 different business pro -
cesses. The objective of these process-
es is to use the customer information
and insight to lock in the customer and
reduce the lost revenue opportunities.
It is estimated that the margins on the
selling parts and service are around 50%
and on service contracts (AMC) or ex-
tended warranty often exceeds 70%.
Thus, capturing and providing the cus-
tomer information across the organiza-
tion (business processes) becomes the
most important area of automation. This
customer information is the foundation
for the organization customer relation-
ship pyramid. Adding layers of offering/
ideas/values on foundation provides or-
ganization the platform to serve the cus-
tomer for his lifetime. Each time a layer
is added customer become more diffi -
cult for the competition.
Figure: After Sales Service Offerings (Cus-
tomer relationship Pyramid)
CLM helps and direct the companies to
segment the customer based on the of-
ferings and need and not based on the
size, providing the platform to be pro-
active by incorporating the customer
information through the life cycle of the
product. Another advantage from CLM
is closer interaction with customer, to
identify the true economics of service
and calculate the service cost pricing for
different level of service offerings.

5. Stakeholders in CLM
The transformation in the service delivery has to be brought
about with change in business objective and processes, with
the help of information technology (computers, software, net-
works that tie it all together) enhancing the ability to under-
stand, communicate with and evaluate the markets, and to
anticipate and respond to the customer needs as never be -
fore.
Every stakeholder will have a role to play. We can categorize
them as:
• Manufactures (OEM’s)
• Components Manufacturers (Parts Supplier)
• Retailers and Distributors
• Independent Dealers
• Company Owned dealers
• Service Delivery
• Dealers
• Independent Service center
• Franchised Service center
• Mobile service center
• Sales and Marketing
Traditional relationships between each of the above stake -
holder are of a disintegrated player supporting the business
objective. The players do not have collaboration in terms of
common framework of sharing same information to make
better decision. Each entity use a part of information with a
mix of individual experience and guts feeling, for production,
demand forecast, customer needs, new potential services
etc.
The need today is to redefine the roles of each player in the
delivery chain and bring them to a common platform to share
information and resources, along with personnel experience
across the domains.
Mckinsey & company estimated that service networks in only four US
industries—consumer electronics, personal computers, power tools, and
vacuum cleaners—could generate revenues of $6 billion to $8 billion a
year from after-sales service, parts, and ancillary products. Today, only a
fraction of this potential is being realized
Raising revenues
from after-sales ser-
vices ought to be at
the top of the man-
agement agenda for
companies in matur-
ing industries.

6. Recommendations
1. Organization Realignment
Companies failing to establish clear business goals cannot de-
cide among the dozens of possible initiatives. Companies that
fail to choose mostly implement ‘big-bang’ approach intended
to cover every conceivable business contingency. The basic
process for troubleshooting goals for a company should start by
looking at the four areas in the specified order.
1. Organization (corporate focus/philosophy, level of collabora-
tion among stakeholders)
2. Process (Responsiveness to customer needs, field service
metrics in place)
3. Knowledge (Visibility into technician, inventory data, etc and
accuracy of data)
4. Technology (Scope of service automation, productivity tools)
The changes in the above areas have to be thought of, consid-
ering conflicting interest within players (dealer, distributor, sales)
along with new and changing market (geography) regulations,
safety and environmental issues
Business owner should be responsible for bringing about the
changes in the processes across the stockholders, focusing
on collaborative goals and objectives among them. IT own-
ers should work in tandem with the business owners to provide
systems and integration at each point of change harnessing the
relationships and information. IT owner should not strive towards
complex and big systems overriding the bad process and prac -
tices. In that case the systems will only integrate bad information
and knowledge.
The systems should complement and enforce new practices
and approach of the organization. The systems should be in
place in tandem with the each new practice over a period of
time with the final objective of integrating all point of information
collection to a central repository. Each system should serve the
purpose/objective of the users/ stakeholders in terms of usage
experience, information capturing and retrieval.
The objective should be a close knit of systems or a big system
(developed in pieces over a period of time based on various key
functions point ) where each system covers a business process
(function) in itself, along with receiving and providing key infor-
mation to other business systems as per need.
In case the organization has already invested in lot of diverse
system with no expected benefits and returns, they should re-
draw the pieces of the IT puzzle to fit together and to help tighten
the links between IT and Business. On this new architecture the
missing pieces or functions should be build.
It is always better
to start with a lean
architecture, aim-
ing for systems and
tasks to be accom-
plished in steps,
with saving from
each helping to fund
the next. Overhaul-
ing IT architecture
may take 3-5 years
to complete; the
saving can start
in less a year with
other intangible
benefits resulting
into sizeable payoff.

7. One major manufacturing company faced a daunting chal -
lenge for its service delivery (after market operations) in the
emerging markets. There was no common process and
practices and big system installed were not been used as
per requirement. As a result Business owner and IT owners
collaborated closely to redefine the process and approach.
Business owners: responsible for process implementation.
IT owners: responsible to build smaller and simpler sys-
tems.
Each installation in the market were in steps; staring with
training of new processes and practices with next step
installing and training of the system build on the process
and a follow up on the same for a period of 6-8 months to
reach the performance goals that’s determined the returns
on the investment and time. The key here is that the com-
pany hadn’t invested heavily in putting big systems, but
invested in building skills along with smaller and leaner sys-
tems that support the skills, slowly adding new functions in
systems as confidence grew among users in the markets.
Thus, by been focused the company managed to spend
less and deliver more.
The virtuous cycle – more customers, more productivity,
and better economics – generates bona fide opportunity for
value players to move into new product and service cate-
gories. Companies in other sector like E*Trade, DELL, Wal-
Mart, Southwest and Ryanair airlines thrive on impressive
cost and its relentless execution with smart use of Technol-
ogy. These advantages are typically years in making and
so difficult to emulate that rivals lacking them find hard to
compete on price and quality of service.
2. Systems (Information Integrators)
To succeed in after sales business, companies must have
right part at right place, with right pricing at right time.
Once this is in place, companies should start looking be-
yond the basic service and technical support towards op-
timizing warranty cost, designing and selling more service
contracts, tracking and segmenting customer based on
need to measure economy of the offered services.
Service delivery centers can also act as a valuable labo-
ratory for developing new products and services, provid-
ing information about customers’ needs, and for showing
where products have failed to meet them.
Start with small,
focused initiatives to
achieve quick wins at
minimal risk and then
build on the success
as they evolve.

8. For some basic systems are in place and the need is to move to next step to evolve
your business and capture new market. Below is a solution map for after sales
business. The automation and linking of the information points between all business
processes is filled with risk and potential rewards. They should be clearly selected
and implementation monitored over a period of time to get the reap reward (cus-
tomer satisfaction). Aftermarket systems data also need to be linked to the produc-
tions systems (ERP) and financial systems to complete the full integration of data.
For example, one midsize industrial-products manufacturer, for example, is decid-
ing whether to rent products, start a mobile repair service, and offer service con-
tracts and extended warranties—all as a result of insights gleaned from the com-
pany’s service network.
Figure: After Sales Solution Map
Today the IT investments for companies are generally concentrated in business
process automation (production side) and sales/ marketing improvement. Service
side of business is underinvested resulting in the imbalance in service provided to
the customers. It is estimated that 4-5 times of IT spending is made on delivering
product as on delivering services. It has become imperative for companies to look
at their IT spending and balance the investment to improve competitiveness and
customer satisfaction.
Across industries the service business contributes to 20%-30% of revenue, but the
profit is disproportionately earned at 45%-50% as compared to 55%-50% from new
product. Any increase in service revenue even marginally (10%) and reduction in
cost (10%) can increase the profit from aftersale business by approximately 40%.
It is these figures along with the other competitive benefits that justify the required
investment in service part of business.
The choice is clear-cut – focusing and investing on service business can dramati-
cally improve profitability and bottom line driving customer loyalty while gaining
competitive advantages.

9. References
1. AMR Research: Service lifecycle management (part 1): The approaches and technologies to
build sustainable competitive advantage
2. The Mckinsey Quarterly: How to make after-sales services pay off (Russell G. Bundschuh and
Theodore M. Dezvane)
3. The Mckinsey Quarterly: The secret life of factory service centers: For a lucrative new source of
revenues, profits, and market information, manufacturers need look no further than their own
repair shops. (Whitney L. Alexander, Sandeep Dayal, Jack J. Dempsey, and Jonathan D. Vander
Ark)
4. Source IRI: 2002 Mckinsey survey of customer and channel management.
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