Service Design and Delivery

8  A Multi-organisational Approach to Service Delivery 127

the shift as one where moving from a traditional goods centred or ‘product-
dominant logic’ to an emerging ‘service dominant logic’. In the former way of
thinking, the customer was seen as the passive recipient of goods, whereas
recent thinking has recognised that the customer is co-producer or co-creator of
value. Prahalad and Ramaswamy (2000, 2003) argued that companies should
encourage the customer to be proactively involved in co-creation of value. They
describe customers as being ‘co-opted’ into the design and delivery of services.
Indeed, they suggest that the co-creation of value has shifted our ways of think-
ing about products and services and the boundaries between provider and
customer.

Boundaries for multi-organisational service enterprises are set to get more com-
plex! (Prahalad and Ramaswamy 2003, 2004; Prahalad and Krishnan 2008) high-
lighted that providing an active role for customers in the co-creation of value went
beyond simply allowing customer access to a technology base or input in new
product or service development. They argued that the ‘centre of gravity’ needed to
shift from the provider to the customer’s experience and the consumer community
as a source of innovation. They illustrated this shift through the example of a busi-
ness selling pacemakers. Rather than simply selling the pacemakers, this business
could focus on the patient’s experience.

The value of the pacemaker to the patient could be significantly enhanced if it could be
remotely monitored and if the patient and doctor could be simultaneously alerted to any
deviations from the norms jointly established for that patient. Further, if the patient is
travelling and he experiences any abnormality, his doctor could suggest a nearby hospital
to go to. His doctor could establish a conference with the doctors in the remote hospital to
develop a treatment modality. All these additional steps would be very welcome to cardiac
patients

(Prahalad 2004, p. 171)

However, as Prahalad points out, this would require all parties to be connected over
a network, the entire experience would require multiple organisations and individuals,
and experience would be influenced by the quality of all the interactions in both
provider and consumer communities. The increasing involvement of consumer and
broader external communities in product and service development and delivery is
evident through the concept of ‘open innovation’. Within this model of innovation
businesses are open to both the outward and inward flow of entrepreneurial ideas
and technologies from both customer communities and other institutions and sectors
(Chesbrough 2006).

In the world of networked video gaming, increasingly it is the customer com-
munity who create the worlds the characters explore and link together to form
teams. The service providers give the customers the tools for them to build their
worlds or additional gaming levels, and the IT platforms for communication, but
the forums and groups that link the communities together are frequently created by
the user communities, co-creating value (Fig. 8.5).

The challenges involved in achieving value delivery in such complex and ever
expanding service enterprises are explored in the next section.

128 V. Purchase et al.

Fig. 8.5  Moving beyond customer to consumer communities in service delivery

8.5  Case Study: A Complex Multi-organisational Service
Enterprise in Action

In the case study which follows, the co-creation of value is ably demonstrated as
public and private sector partner organisations work together to deliver value in
terms of support services for the Tornado aircraft fleet to ensure availability for the
Royal Air Force. The case study demonstrates how multiple organisations and
sub-organisations are required to work together in various complex patterns to
deliver value.

ATTAC: Supporting Tornado Availability
The UK Ministry of Defence is increasingly opening the support of military
systems to private companies, and working in partnership with multiple
organisations to deliver support. One example is ATTAC (Availability Trans-
formation: Tornado Aircraft Contracts), a 10-year, whole-aircraft availabil-
ity contract where BAE Systems take prime responsibility to provide
Tornado aircraft with depth support and upgrades, incentivized to achieve
defined levels of available aircraft, spares and technical support at a target
cost.

The support contract is delivered through a complex ‘multi-organisational
service enterprise’ comprising a variety of on-base organisations at RAF Mar-
ham, supported by off base organisations acting in partnership (Mills et al.
2009). The drivers for the adoption of this partnered approach was the need

(continued)

8  A Multi-organisational Approach to Service Delivery 129

(continued)

for reductions in cost of providing this service and the belief that the service
could be more effective through closer working between public and private
sector partners. In this case study, a simplified version of the service is
described and the main organisations, their role in service delivery and their
interdependence are illustrated.

From the time an aircraft is recalled for servicing, to the time it becomes
available again for further duties, a wide variety of organisations and sub-or-
ganisations have collaborated in providing this ‘availability service’.

BAE Systems are the prime service provider and perform many key roles
either directly or through managing RAF personnel to deliver their services.
Managed by BAE Systems, a ‘Fleet management’ organisation provides the
planning activities that translate the RAF Squadron requirements for Tornado’s
into the schedule of aircraft through the maintenance hangers. BAE Systems
then manage the hanger activity, staffed by both BAE Systems and the customer
RAF Air Command personnel, where the operational services are delivered.

Engineering support is managed by BAE Systems based at both RAF Mar-
ham and their other sites. This activity resolves technical queries and safety
issues and is similarly staffed by RAF and industry personnel.

The Defence Equipment & Support managed Tornado IPT (Integrated
Project Team) contains solely RAF staff covering administration, engineer-
ing, logistics, and commercial support of ATTAC on behalf of the Ministry of
Defence. This organisation is responsible for airworthiness and procurement
and monitoring of contract performance.

Following maintenance, the aircraft may need to be repainted. A third
party company provides a painting service, one of the later inline processes in
the delivery of maintained aircraft and therefore a significant dependency.
None of the support services would be possible without the a variety of sub-
organisations within RAF Air Command who both provide and are responsible
for the hangars themselves, and their electrical / hydraulic power and
­information technology infrastructure.

A number of the supply chain organisations are also a critical part of this
multi-organisational service enterprise. Spare components and systems are
provided by both the prime and sub-tier supply organisations which may
deliver to the prime, to the customer or directly to the RAF squadron for air-
craft on duty. Finally, a further organisation, the Defence Storage and Distri-
bution Agency, is the sole provider of transport and off base storage of Tornado
parts.

Clearly the ATTAC services are co-created by a complex and inter-depen-
dent multi-organisational service enterprise, which must align and coordinate
activities to support delivery of the service for the RAF. Managing such com-
plex interactions is a significant achievement needing to overcome a range of
challenges highlighted in the next section.

130 V. Purchase et al.

8.6  What Are the Challenges in a Multi-organisational
Approach to Service Delivery?

While there are a number of clear drivers for multi-organisational collaboration in
delivering services, adopting such an approach is not without significant challenges
for all parties involved. This section will address some of the identified challenges
in a multi-organisational enterprise approach including risks, obstacles and the
need for a series of new capabilities.

8.6.1  Risks Encountered

As we have seen in the case studies outlined, in order to collaborate across multiple
organisations to deliver value, there is a need for greater openness, transparency and
coordination. This creates an external dependency and hence risk, caused by the
firm’s limited control over the resources it needs to operate but which come from
third parties, such as specific parts, products or services, land, labour, capital, and
information (Parry and Roehrich 2009). A firm’s key resources are related to their
critical or core competence(s) and are often discussed in the context of outsourcing
decisions to try to ensure they are not undermined. In developing closer supplier
relationships that facilitate outsourcing the exchange of proprietary information
becomes more likely and hence also the potential loss of core competences (Parry
et al. 2006). As a result, outsourcing has become an increasingly complex and vital
issue for many organisations, offering significant benefits whilst posing potential
future risks. In opening their operations to multi-organisational collaborations,
companies can run the risk of losing control of critical and versatile resources and
competences (Mills et al. 2004). Hence, the need for organisations to understand,
maintain and protect their core competences is even greater in a ‘service enterprise’
environment.

Yet despite these challenges services enterprises are expanding to involve ever
greater openness and innovation across a wide spectrum of parties. As outlined
earlier, companies are looking to the consumer communities for innovation in ser-
vices and beyond their service delivery partners to other sectors and research insti-
tutions for transferable ideas and technologies. This brings new challenges
including competitive, intellectual property, and communication issues that must be
addressed (van de Vrande et al. 2009).

8.6.2  Potential Obstacles

Obstacles to effective enterprise collaboration include the strength of the single
company perspective and practices. Organisations may see themselves as indepen-
dent entities in a chain, separate from customers, suppliers and other external

8  A Multi-organisational Approach to Service Delivery 131

stakeholders. This can also be reflected in performance measures and reward
structures which tend to be company- rather than enterprise-centric, and therefore
not conducive to strategic alignment for the deliver of customer value. Some writers
have also highlighted that traditional supply chain management precepts of vantage
point and customer superiority, appear to contrast with enterprise concepts of col-
laboration and transparency (Lamming 1996; Spekman and Davies 2004). It may
therefore be difficult to forge new relationships that call for awareness of interde-
pendency and joint responsibility for service quality.

8.6.3  The Need for Enterprise Level Management

The challenge for companies within a multi-organisational service enterprise is the
design and redesign of organisational solutions for service delivery from an enter-
prise rather than single company perspective.

Delivering services through multi-organisational enterprises requires organisa-
tions to move beyond their own narrow concerns and efficiencies to take an enter-
prise wide perspective. Brandt (1998) describes enterprise level management as
focusing on the whole process regardless of ownership and includes consideration
of all customers at all levels within the service value chain.

8.6.4  Managing Multiple Values and Communication

As the examples presented in this chapter have illustrated, service enterprise part-
ners often differ in terms of their strategic interests, motivations and status within
the service enterprise (Keyton et  al. 2008). Yet little attention has been paid to
understanding and improving communication and collaboration which are key
business enablers. Both communication and collaboration are impacted upon by
relational power differences, situational manipulation and self-interest by the part-
ner organisations involved (Hardy Lawrence Phillips 2006). Multi-partner value
systems can be especially complex to co-manage in the Defence, Health and
Construction sector where the value system involves both public and private sector
partners with different needs, goals and power (Klijn et al. 2008).

All of these challenges require intensive interaction that needs to be effectively
managed especially as the multi-organisational enterprise learns to work as interde-
pendent partners. Recent research has also shown that communication plays a criti-
cal mediating role in high performance, not only in individual organisations, but in
complex multi-organisational enterprises. However, while the need for more effec-
tive enterprise communication has become evident, there is little detailed under-
standing of appropriate roles, processes and forms of communication to bridge the
organisational gaps (Paulraj et al. 2008).

132 V. Purchase et al.

8.7  Conclusions

In this chapter, we have explored the ways in which organisations come together to
collaborate in delivering customer value. There are many drivers for such collabo-
rations including the growing requirement of customers to have holistic solutions;
the trend for organisations to narrow the scope of their activities and outsource all
non-core activities; and the need to work collectively with others in the value chain
to both reduce costs and improve performance. Information Technology develop-
ments have opened up huge possibilities for inter-organisational and supplier/cus-
tomer interaction. Companies, their supply chains, customers and consumer
communities can now network more effectively and this is leading to service
innovations.

The development of multi-organisational service enterprises has also created
many challenges for the participant organisations and the individuals within such
organisations. The preceding sections have highlighted that organisations cannot
operate alone in a service environment, yet there are risks and significant inter-
dependencies which need to be managed effectively. Perhaps the most critical chal-
lenges lie in supporting multi-organisational service enterprises to take a holistic
perspective and to move away from the adversarial relationships of provider/cus-
tomer to a true partnership for value co-creation.

There is therefore an urgent need to better understand service enterprise level
design, implementation and management. Whole value system business tools are
required to support leaders of multi-organisational service enterprises in co-orientating
the interdependent partners for improved value delivery.

Have a go at the following exercises to test and help embed your learning from
the chapter.

Exercises

Identify examples of other services that are delivered by ‘multi-organisational
service enterprises’

What are the key drivers for their multi-organisational approach?
What challenges are faced by this ‘multi-organisational service enterprise’ and how

have these challenges been addressed?

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Chapter 9

Through Life Costing

Linda Newnes, A.R. Mileham, W.M. Cheung, and Y.M. Goh

9.1  Introduction

This chapter introduces the issues of Through Life Cost (TLC) Management.
The industrial example used to illustrate the challenges of providing cost estimates
for the total life of a product/capability will focus on the aerospace and defence
sectors, where in general the products produced are highly complex, long-life and
of low volume. The challenges faced to predict the TLC for these products/services
will be introduced.

To develop a product there are a number of life cycle phases that occur, for
exaple; concept, assessment, development, manufacture, in use and re-use/disposal.
Furthermore, it is common knowledge that in each phase of the development of a
product, a company spends money and also incurs a set of costs (Ullman 2002). The
cost of a product is typically related to its technical performance, in other words
‘cost’ is a design factor. Indeed, when the design of a product is complete, although
only 20–30% of the total cost has been spent, 70% of the costs will have been com-
mitted (Ullman 2002). This is depicted in Fig. 9.1, in the cost-commitment curve
from Rush and Roy (2000).

The more the project is advanced the greater the difficulty of reducing the final cost
because of the high costs of modification and change (Kawauchi and Rausand 2002).
It is thus essential to understand the value of these design parameters as early as pos-
sible in the design cycle and preferably in the conceptual design stage. However, this
is also the point in the design process where there is very little concrete information
and data available to perform accurate cost estimation. This is particularly the case for
innovative low volume products where insufficient statistically significant data could
reduce the level of accuracy of the estimation (Newnes and Mileham 2006).

An area of activity that is of interest to many industries is Through Life Costing
(TLC). Estimating the TLC of products encompasses predicting the cost of a prod-
uct from the initial concept stages until it is re-used/disposed. This enables one to

L. Newnes (*)
Head of Costing Research, University of Bath, Claverton Down, Bath BA2 7AY
e-mail: [email protected]

M. Macintyre et al. (eds.), Service Design and Delivery, Service Science: Research 135
and Innovations in the Service Economy, DOI 10.1007/978-1-4419-8321-3_9,
© Springer Science+Business Media, LLC 2011

136 L. Newnes et al.

Fig. 9.1  Cost commitment curve (Rush and Roy 2000)

assess whether this is the correct product, is it at the right cost, what is the most
appropriate concept to select/product design which will meet my customer require-
ments as well as reduce the overall cost through the whole life cycle.

Hence, the question to ask yourself is – Why should I be interested in the TLC
of a product? The example below illustrates why this is something you should be
interested in.

9.1.1  Example: How to Provide an Armoured
Vehicle for Soldiers

What happens if you have been asked to design a new product such as a vehicle for
army use to transport soldiers in freezing and wet conditions? Your boss states
that you want to make a 50% profit. So,

What costs do you need to calculate and why?
If you have a number of concept designs – which design do you select and why?
Would you select the concept which is cheapest to manufacture, or would you

select a design that is more expensive to manufacture but would last longer?
The answers to these questions depend on how you are planning to sell the
vehicle to the Army. Imagine a few scenarios.
( a) You wish to sell the vehicle outright.
In this particular scenario you sell the vehicle to the customer and that is the only
transaction you have. To make a 50% profit you would need to estimate the
amount you could sell the vehicle for and then calculate the cost for manufacturing

9  Through Life Costing 137

the product and apply overheads to cover costs such as design, administration, raw
materials ordering parts, manufacturing yield etc.

To do this you could use a cost model that adds all the costs together such as
manufacturing time, raw material, assembly etc. Assuming this could provide
you with an estimate that is close enough to the final cost of making the vehicle,
you could then use this model to compare alternative designs.

The aim of the model would then be to use it as means of selecting the vehicle
design which meets the customer requirements and provides you with the maxi-
mum profit. This could then be optimised (e.g. by redesign, outsourcing,
improved processing) to provide your 50% profit. You may also build into the
model expected spares, consumables etc and the profit you may make on this. In
some cases the spares and consumables markets are where companies make
their money. A good example of this is inkjet printers – cheap to buy as most of
the money is made from the consumables – the ink cartridges.

(b) You wish to lease the vehicle.
For this scenario you design and manufacture the vehicle, but, rather than sell it
you charge the customer a monthly fee over a set time period (e.g. 5 years). For
this monthly charge your company provides all the maintenance as part of the
monthly charge. The agreement would also involve e.g. a repairer arriving
within 24 h of a breakdown occurring, repairing or providing another vehicle if
for example the vehicle could not be fixed within seven working days. So the
costs you would need to calculate are the costs of manufacture, overheads
(design, administration, yield etc.). However, you will also need to ascertain the
costs of planned maintenance, unplanned maintenance (i.e. breakdown, repair),
retrieval, re-use/disposal over the 5 year period.
The difficulty with this model is you have to predict events that may happen
such as a breakdown and undertake a trade-off between using more reliable parts
within the design. The challenges here are that you would not want to have the
vehicle costing too much as you may not be able to charge a high enough
monthly fee to make adequate profit. In modelling this, you also use for exam-
ple, probability analysis. In other words you cannot say that every 6 months the
vehicle will break down; this would be a random event.

(c) You wish to manufacture the product and be paid for availability.
For this scenario, the army just needs the vehicle to be operational and ready when
they need it. An example may be that the army requires ten vehicles to be available
for use at anytime and they must be able to undertake journeys lasting 24 h.
In this particular scenario if the army try to use all the vehicles and they are
not ready then you do not get paid/incur a penalty –resulting in loss of profit. So
the costs you would need to calculate are the costs of manufacture, overheads
(design, administration, yield etc.). You would also need to understand in detail
criteria such as; the expected running time of a vehicle, repair, breakdown etc.
This differs from scenario (b) as the agreement is that a set number of vehicles
must always be ready for use when required. However, in scenario (b) you have
agreed that the vehicle can be repaired within a time frame. Although much of

138 L. Newnes et al.

the modelling would be similar to that of (b), you have to have a model that can
assess the reliability, repair times and so forth with confidence.

So, the task of designing and selling a product to make 50% profit is no longer
simple. It all depends on the business process model you are using and how you
intend to sell the product. Is it a straight sale, are you leasing or are you providing
availability? To further complicate the decision, some markets will set a price.
In other words the army may only wish to pay £35,000 to buy the product outright,
scenario (a). For scenarios (b) and (c) there may be an upper monthly/yearly price
they are willing to pay. Hence, not only do you have to work within a market buy-
ing price, but you then have to use this as the upper limit, still make your 50% profit
whilst maintaining reliability and so on.

To help explain how important this is, the following sections will describe what
this means in terms of the aerospace and defence sectors; the challenges these
approaches provide for designers and cost modellers; and how they try to predict
the ‘real costs’ of such activities so they can maintain profits and still meet the
customer requirements.

9.2  Industrial Context: Defence and Aerospace

The defence and aerospace sector has a turnover of £20 billion with the UK
Government committing 5.8% of all its expenditure on defence in 2006/7 and allo-
cating over £16 billion for defence procurement activities in their 2007/8 expendi-
ture plans (MOD 2009). Unfortunately the National Audit Office (NAO) has
highlighted major issues with large MOD projects, such as late delivery and over
budget (NAO 2007) as well as stating that for 20 of the largest projects the average
delay was 96 months and an average of over £205 million over budget. To add to
this current challenge Deloitte have also identified that cost overruns in the defence
and aerospace sectors may increase to 46% (up 26%) in the next 10 years. However,
these challenges are also evident in many projects including construction such as
the Scottish Parliament Building where the outturn costs increased to £430 million,
compared with the initial cost estimate of £40 million and the 2012 Olympics
which are already three times the estimated costs (BBC 2008).

To further complicate the challenges of estimating the TLC of a product, indus-
trial business processes have moved from delivering spares and parts to total care
packages through the whole lifetime of the product, i.e. to provide a service. The
in-service costs for the Defence Equipment and Support arm of the MOD was £10
billion in 2007–08 excluding new equipment (UKMoD MOD Accounts 2008).

In effect products such as aircraft are now being leased and the customers pay
per hour of flying time. Rolls Royce used to refer to this as ‘Power by the Hour’
but it is now branded as Total Care packages. For example, in aerospace engines,
55% (£4.265 billion) of Rolls Royce’s sales were from aftermarket service in 2007
(Rolls Royce 2007). They have estimated that by 2028 the after sales market for
civil engines will be worth US$550 billion and for military engines US$300 billion.

9  Through Life Costing 139

Hence, ­modelling through-life costs and making a decision at the concept design
stage to save 1% on in-service costs would save taxpayers US$3 billion – just on
military engines.

With these changes in business processes, the question that many companies
are attempting to address is how they estimate the TLC for their products. In par-
ticular how do they predict the in-service costs for the products at the concept
design stage to enable informed decision making? The major challenges for esti-
mating the TLC of a product include; limited/dispersed information on current
products, estimates have to be made before the product is in-service, with the
further challenge being that these estimates often occur years before the aircraft
are in-service.

These are some of the major challenges for cost modellers. The traditional mod-
elling used to predict the cost of a product (i.e. in general the design and manufac-
ture of that product), are no longer suitable. With this change and the importance
being placed on TLC there are a plethora of acronyms to describe cost modelling,
commercial packages are continually being introduced and industry have been
focusing on building their own cost models, with many being based on excel files
(ref industrial survey) (Cheung et al. 2007a, b).

The next section will describe the definitions of TLC and the many acronyms/
views that are used in this domain. This will enable you to ascertain what these
acronyms mean and the commonality between them.

9.3  Definition and Terminology of Through Life Costing

This section summarises the different definitions of TLC across a number of indus-
trial sectors. By the end of this section you should:

• Be aware of the varying definitions/names of TLC.
• Understand what categories are used to make up a TLC.
• Be able to discuss TLC in terms of a sectorial vision.

The term Life Cycle Cost (LCC) is used across many industries such as ­aerospace,
oil and chemical, railway systems and construction (Followell 1995; Ehlen 1997).
However, Cheung (2007) found that LCC is identified by numerous names such as;
Whole Life Costing (WLC), Through-Life-Costing (TLC), Total Cost, Total-
Life-Costing, Total-Cost-Of-Ownership, Costs-In-Use and Ultimate Life Cost. Due
to the number of different terms that are used this section will describe the most
commonly used terms.

Cole and Sterner (2000) summarised LCC as ‘a set of methods that consider not
only product life cycle costs but also the environmental and social aspects in the life
cycle’. This however is not the same as the definition used by others such as
Bradley and Dawson (1999). In their view the term WLC encompasses the whole
cost of owning the product i.e. from its initial conception all the way through to
disposal/reuse. Bradley and Dawson take all cost categories into consideration for

140 L. Newnes et al.

their modelling e.g. design, manufacture and training. Within the military sector the
cost of ownership is presented by the Ministry of Defence (MOD 2009). The MODs
definition of TLC is the aim of identifying the total Cost Of Ownership (COO) i.e.
what will it cost them to own an aircraft, tank etc. Their particular approach is simi-
lar to that used in the construction sector where the COO consists of various levels
of cost such as the in-service but also the training, staff, and energy costs.

In the USA, terminology definitions in reporting cost data is a standard practice
and legally binding process for defence contracts. The UK construction sector
(National Audit Office 2005), has relied on recognised standards for capital costs
in procurement for many decades. One of the challenges here is that there are no
construction industry accepted standards for TLC, neither does the construction
industry have the regulations to perform TLC consistently in practice.

It is not surprising that one of the key barriers identified by the National Audit
Office to transform construction procurement to include TLC is that, ‘the first
hurdle to overcome must be eliminating confusion over terminology and providing
a common data structure and method for predicting and reporting TLC’.

Although TLC standards are now more established in the construction industry
in the UK (ISO 2007), this is not the case in other areas of product development
such as electronics, mechatronic or mechanical products. ISO standards in this area
have been developed mainly for life cycle analysis in a variety of different applica-
tions such as Product Lifecycle Management (PLM) Weber (2003) and Standard
for the Exchange of Product Model Data (STEP) Eurostep (2008).

In summary, terms such as Through Life Costing, Cost of Ownership, Life Cycle
Costing are used interchangeably. The key difference between them depends on
how they are used and what factors they consider. The construction industry is mov-
ing towards attempting to provide standards, although there is no ‘common/stan-
dard’ approach used between companies. So, when discussing TLC, WLC, LCC,
COO etc., you should ensure that the boundaries of what is included in the cost are
identified.

However, identifying what you should model and what is the most appropriate
approach to use for modelling has achieved much attention in academic research
and commercial systems.

9.4  Cost Modelling Research and Commercial Tools

There are various ways in which cost can be modelled. These range from spread
sheets to neural networks. However, deciding what to use and when is an answer
all cost modellers would like to have! To achieve this ideal situation many researchers
have examined different modelling approaches and there are many commercial
software packages for modelling cost. Within this section we will present some of
the current research activities being undertaken today and describe some of the
commercial cost modelling systems on the market.

9  Through Life Costing 141

9.4.1  Research on Cost Modelling

As with the previous sections when modelling TLC for a product, researchers have
different viewpoints, use different terminology and there is no standard approach
which everyone agrees on. This is evident from the work of Sandberg et al. (2005)
who conclude that if companies are moving from supplying products to supplying
a service such as total care there is a greater need to model the lifecycle of the
product from concept to end of life. Within the research they presented, a jet engine
was used as their exemplar, hence they focussed on the aerospace industry. Nicolini
et  al. (2000) examined the use of target costing, for estimating TLC within the
construction sector. The main aim of the work they were undertaking was to pro-
vide innovative approaches within the construction sector to improve the value-
chain management for the design and delivery of e.g. a building. Within their
approach they proposed the use of target costing through the whole value chain and
reducing the TLC whilst maintaining quality, reliability etc. In the oil and chemical
sector, Kawauchi and Rausand (2002) propose an approach that can be used for
TLC. In their proposed model Markov chains (Susova and Petrov 1997) are utilised
as well as probability distributions to ascertain the TLC. Their model proposed
three levels for the analysis component, sub-systems and integrated systems. If one
was modelling an intergrated system you could for example plug and play different
subsystems and examine the costs of different intergated systems.

Davis et al. (2003), have a particular view of LCC in that it should provide an
overall cost of the product. This overall cost should, in their view, include all the
costs such as health and safety, energy etc. Their main aim was to provide a model
which would enable users to follow a structured approach to provide a cost versus
benefit comparison. Within their work, Davis et al. (2003) classified the LCC into
phases and then presented these under three categories (see Table 9.1) namely:

• Producers (those that make the product/provide the service)
• Users (e.g. people who use the product e.g. the MOD for a fighter jet)
• Society (waste disposal, recycling, fumes)

Researchers such as Ugwua et al. (2005) have focused on the need to predict the
maintenance requirements of a bridge. For their research, their aim was to predict
the requirements at the concept design stage so they assessed alternatives in terms
of TLC, in particular the choices of materials, construction methods and durability.
Although their research focused on the construction sector, the same processes can
be applied in the aerospace sector for providing through life support. For example
if your company was asked to design and maintain an aircraft engine and you were
paid by flying hour, you would want to know maintenance costs, reliability and so
on. You would then use these predictions/models to help you select the most appro-
priate solution to minimise the TLC.

Although the industrial sectors the researchers have focused on in this section
are varied, the common theme that underpins all their activities is to provide reli-
able and robust models/rules/methods to undertake TLC from the product/system

142 L. Newnes et al.

Table 9.1  Life cycle phases and example costs (Adapted from Davis et al. 2003)

Life cycle phase Cost to the producer Cost for the user Cost for society

DESIGN (concept, Market recognition, Contract Technological
development & Research & negotiation, development,
assessment) Development, Design Design Grants and other
stages, Legislation, requirements/ support
legal requirement market need
Health and safety, Sales analysis

MANUFACTURE Facilities, Process Health and Safety,
development, Logistics Employment.
design, Energy, Environmental
Legislation waste, energy
usage etc.

OPERATION Service support, Warranty, Parts and Storage, Emergency
(in-use/ Spares, Production Maintenance, services, Waste
in-service) and Distribution Support, Managements,
Operations Environment Health

END OF LIFE Buy-Back, Recycling/ Decommissioning, Waste Management,

(recycle, Disposal Recycling/ Environment Health

disposal, re-use) Disposal

inception through to in-use/disposal, in particular to enable the estimation of these
costs at the concept design stages enabling informed decision making and design
selection.

Table 9.2 summarises some of the research presented in this section in terms of
the aims of the research, the industrial focus of the research and the functional
characteristics of the research activities.

9.4.2  Commercial Cost Estimation Systems

To be successful in business one has to make a profit. Hence, being able to model
the cost of products/services and compare alternatives is important and can enable
you to make the most appropriate decision at that point in time.

This section introduces some of the commercial systems on the market at the
time of this review. These are summarised in Table 9.3.

The systems were identified and analysed using the following criteria:

• Literature from the software vendors describing their systems.
• On-line web searches of the software applications and the vendor websites.
• Analysis of the software systems identified that the majority of the commer-

cially available packages focused on the design and manufacturing aspects of
TLC Acquisition Operating Framework (2008). What was not evident was any
clear modelling of the in-service costs and looking at alternatives on how to
model and manage the in-service costs.

9  Through Life Costing 143

Table 9.2  Research summary

Research works System characteristics Functional characteristics

Nicolini et al. To addresses of whether target Development of innovative practice
(2000) costing and whole life costing within the construction industry
can be applied in the construction to improve supply-chain
industry management in the design and
delivery of major capital assets
El-Haram et al. A generic approach to minimising
(2002) WLC in the Construction industry Development of a WLC
breakdown structure
Kawauchi and A system to support production for a building
Rausand regularity assessment in LOC
(2002) analysis for oil and chemical The approach is based on Markov
process industries modelling and probability
Seo et al. (2002) distributions throughput
A system using ‘learning algorithms’ capacities of subsystems
Hochschorner to train to use the known
and Finnveden characteristics of existing Aritificial neural networks are
(2003) products to estimate the life cycle trained to generalise product
cost of new products during the attributes and life cycle cost
Sandberg et al. conceptual design phase without data from pre-existing LOC
(2005) the overhead of defining new studies
LOC models
Using existing LCA data or create
A paper presents preliminary new LCA data coupled with
suggestions of how to integrate life- databases technology to achieve
cycle assessment in the acquisition the assessment
process of defence material
A parametric cost estimation
A methodology uses in design technique is utilised with a
support of jet engine components knowledge-based engineering
that can simulate LOC in early approach to couple the
phases geometry definition process to
the cost estimation on activity
Ugwua et al. A framework for integrating
(2005) durability factors and facilitates An object-oriented (OO) framework
achieving the objectives of in decision-making for design
durability design that account for for durability to achieve the
LOC and sustainability of design objectives of durability and
options in the bridge domain minimum maintenance costs at
project level

However, a few systems do model some of the in-service and maintenance costs.
Two systems, namely, LCCWare and Relex LCC, offer modelling capability
through the whole lifecycle of the product.

LCCWare. This software was developed with the aim of providing a package
that could undertake life cycle cost modelling. Within this model the cost elements
are represented in the form of a tree structure that is created interactively. The
objects at the bottom level of the tree represent cost functions that can comprise
both local and global variables and constants. Libraries of frequently used cost
functions allow rapid development of the model.

144 L. Newnes et al.

Relex LCC was also developed to calculate the cost of a product over its lifetime.
Relex is also capable of utilising user-defined cost breakdown structures, net pres-
ent values calculations, inflation factors, calculations of over multiple time interval
and sensitivity analysis.

However, although these packages are designed for through life cost modelling,
there is little emphasis on modelling in-service costs at the concept design stage to
enable you to make a decision that will minimise the through life cost of the prod-
uct. Although the packages can be adapted to include these they require further
enhancement to meet the challenges required in for example costing for an aircraft
from concept to disposal under an availability agreement.

Of the thirteen systems shown in Table  9.3, SEER-DFM, SEER-H, from
Galorath (Golorath 2008), and PRICE-H from PriceSystems (PRICE 2008) are the
commercial models that appear to be dominant in the market. Both SEER and
PRICE utilise historical data and are particularly good at estimating costs for simi-
lar products. In other words they are very useful for costing product families and
products with incremental changes in their design. In terms of details they do not
focus on the non-recurring costs (e.g. to set up a service, design time) and life cycle
costs. However, they do take account of the costs for disassembly and re-use.

9.5  Acquisition Cycle: Low Volume, Long-life,
High Value Products

As described in Sect. 9.4, there are various models and approaches that can be used
to estimate the TLC for a product. Estimating these costs is becoming even more
important to sectors such as aerospace and defence due to the move to product
service systems, where the product is effectively leased to the end user (similar to
the vehicle example – but a lot more complicated!). In these cases the end user pays
for product availability, such as number of hours of flight etc. This creates further
challenges for the cost modelling, especially if you have noted how the majority of
the commercial cost models and the current research activity focus on the earlier
stages of the design and manufacturing focus. Very few have detailed in-service and
design for in-service capabilities, although some are now attempting to enter this
domain and provide in-service cost models.

When you are selling a product your aim is to reduce the cost of the product
through to in-service. In general you are not optimising the in-service part of the
process because this is where you can also make your profit. For example, this
could be through the selling of spares, upgrades etc (vehicle scenario (a)). However,
the move to PSS may mean that the seller may be responsible for the product
through its whole life. In this case you want to spend less on spares and mainte-
nance whilst being paid for providing the capability, service (vehicle scenario (c)).
To understand the impact of this and how it can be modelled the following section
will describe the acquisition cycle for low volume, long life products such as those
used in the aerospace/defence sector and the modelling that you need to undertake
in each phase.

Table 9.3  Commercial costing system – application domains and stages Manufacturing Operation End of life
Design Disposal and
Facilities, process Service and recycling
System providers and product name Domains of applicability Concept Detailed and logistic maintenance –
http://www.galorath.com/SEER modules Electronic and SEER-H SEER-H –
PRICE-H PRICE-H SEER-DFM – –
http://www.pricesystems.com/PRICE-H Mechanical Hardware COSYSMO COSYSMO
Electronic and PRICE-H PRICE-H –
http://www.valerdi.com/cosysmo/ DFMA DFMA –
COSYSMO (2007); Isograph Mechanical Hardware – – COSYSMO – –
LCCWare (2007) Aerospace Cost Cost
DFMA – –
http://www.dfma.com/Boothroyd and General Design and Advantage Advantage –
Dewhurst (DFMA) Manufacturing – FIPER CAPPe –
– ACEIT 7.0 Cost Advantage – –
http://www.t-systems-ts.com.br/CAPPe Automotive –
http://www.cognition.us/products/ca_ Standard Manufacturing – – FIPER –
– – ACEIT 7.0 ACEIT 7.0 –
proddesc. htm Cost Advantage Processes and –
Electronic Assembly – KAPES DeccaPro DeccaPro 1ccWare
http://www.engineous.com/product_ Aerospace – – Relex
FIPER.htm FIPER 1ccWare 1ccWare FasTrack ABM TM FasTrack ABM TM
Aerospace and Defence – Relex
http://www.aceit.com/(Automated Cost KAPES –
Estimation Integrated Tools) ACEIT Any Industry
Family IT organisations to Pulsar Pulsar
1ccWare 1ccWare
http://www.deccansystems.com/DeccaPro manufacturing and
http://www.mevatec.com/FasTrack distribution Relex Relex
Electronics, Aerospace
ABMTM and Automotive
Construction and Building
http://www.kapes.com KAPES Building, Ship, Weapon
system and Power
http://www.estimatingsystems.com Pulsar Any Industry
http://www.isograph-software.

com/1ccWare

146 L. Newnes et al.

Fig. 9.2  CDDMIP cycle

The acquisition cycle for defence products consist of six stages, CADMID
(http://www.aof.mod.uk/aofcontent/tactical/ppm/content/lifecycles/cadmid.htm) as
summarised in Fig. 9.2, namely:

Concept – At this stage a user requirement need is acquired i.e. what is it that the
customer wants the piece of equipment to do? This can be expressed in terms of
capability e.g. to have access to remote desert locations. In the concept stage prom-
ising technological and procurement options are considered and planning is made
for the development/assessment phase. The cost modelling at this stage is normally
at a high level (i.e. based on e.g. cost estimating relationships such as overall
weight). Paradoxically, this is where the available information is limited, yet where
the majority of the costs are built in. Due to this, accurate cost models are usually
extremely difficult. The other challenge at this stage is misunderstandings/clear
requirements being specified. In some of the large defence contracts the early stage
decisions/understanding of requirements were attributed to causing later delays and
cost overruns.

Development/Assessment – Here the concepts may include solutions to meet the
customer requirements which could be via, air, land vehicles etc. The key require-
ment being for the concept to meet the military need (capability) within an accept-
able cost and a reasonable time frame. As part of this due to the long life of
products where some sub systems may include for example new technologies, risk
is also considered and a procurement strategy decided upon. At this stage the cost
models can incorporate greater detail, as some of the technologies have been
selected and prototypes examined.

Demonstration – At the demonstration phase the cost models can utilise proof of
concept costs and future manufacturing expectations for the solution. Here the risk
is being reduced as a demonstrator of key technologies and interfaces is produced.
These findings can also enable the cost models to incorporate actual results/costs
and not just theoretical expectations. The emphasis is on demonstrating the inter-
faces to illustrate that the solution’s ability to produce an integrated capability.

Manufacture – When the manufacturing phase is underway the emphasis is to
maintain delivery on time and on budget, whilst ensuring the capability is delivered.
At this stage the cost models can be very detailed as the design is complete, the
manufacturing process selected and the volumes known.

9  Through Life Costing 147

Fig. 9.3  Balance of cost expenditure for the lifecycle phases

In-Service – The In-Service phase of the lifecycle is when the capability has been
passed to the customer, e.g. land vehicles to operate in cold and harsh terrain. It is
at this point that the predicted in-service costs and reliability are compared with
what actually happens. The cost models will also be used to ascertain ways in
which the in-service costs can be reduced. The cost models can utilise maintenance
expertise, feedback to the concept design for failure and real in-service data to
inform future concept designs and cost models.

Disposal/Re-use – This stage is where the safe and efficient re-use/disposal of
equipment occurs. The cost models on actual re-use/disposal will enable feedback
into the concept design to assist in future decision making. For example, design for
re-use/disassembly/disposal at the concept stage may reduce the costs encountered.
Cost models can incorporate expected costs for disassembly etc.

However, this cycle assumes that the outcome is a product and not a service. To
overcome this, the defence community have examined the use of a cycle called
CADMIT. Where the ‘M’ is described as migration and the ‘T’ means termination.
http://www.aof.mod.uk/aofcontent/tactical/ppm/content/lifecycles/cadmit.htm.

So, how would you model the cost of a service. In at Fig. 9.2, everything appears
well spaced out and equal. However, in reality much of the costs associated with a
defence capability are at the in-service stage (Fig. 9.3) up to 75% (Clark et al. 1999;
Asiedu and Gu 1998).

The next section presents a scenario for you to assess and decide how you would
predict the service costs for a product.

9.6  CADMID

How would you model the cost for avionic displays?
Figure 9.4 depicts an example of an avionic display. The displays are used by

pilots to assess the status of the aircraft e.g. altitude, speed, fuel. The display units
consist of both mechanical and electronic components and naturally have to be
readable and in working order. Your company supplies one of the display units,

148 L. Newnes et al.

enlargened in Fig. 9.4 and is proposing to enter a service contract with the c­ ustomer.
Scenario C, in Sect. 9.1 ‘You wish to design and manufacture the product and be
paid for availability’. The questions to be addressed are

How would you predict the cost of such a unit? What should you charge?
Some of the issues you will need to consider are that the cost estimate may have
to include the management of these long-life low volume products, which have a
through life of 30+ years (both civil and defence) and various sub-systems. Based
on what we know about these systems how do you predict the expected through life
cost and in particular how do you estimate the cost of in-service?
The key features and challenges include:
• Limited data at the concept design stage relying on best ‘guesstimates’ for cost
predictions.
• Due to long-life of the products many design changes occur – how can you pre-
dict these at the concept design stage?
• Impact of technology refresh on the system/artifact – how do you predict the
cost of these for a long-life product?
The three previous bullet points all relate to uncertainty in terms of design, technol-
ogy etc. An example of how the technology has changed in the last 20 years is
described by Monfret (2009). He describes the use of Cathode Ray Tubes (CRTs)
and how the avionic systems have, since the early 1990s been upgraded to Liquid
Crystal Displays (LCDs). These are now incorporating LED backlights to improve
reliability, colour etc. Currently research is investigating Organic Light-Emitting
Diode (OLED) technology. Kopp (1998, 2005) also describes trends in display
technology, illustrating how the market is driven from innovation and advance-
ments in the display sector such as televisions.
From these trends you may decide that:

Fig. 9.4  Avionic display sub system

9  Through Life Costing 149

• You can predict when technology will be ready for use within avionics.
• You can estimate when design refresh will occur.
• Based on historical data, you can estimate expected repairs.

Using historical data you can undertake trade-off analysis in terms of increasing
reliability and initial costs to availability costs/repairs required.

9.7  How Do You Model This Uncertainty?

For all of the information provided the results are still uncertain. Some will be alea-
tory uncertainty (i.e. part of the system and not changeable unless you alter the
system) and others will be epistemic uncertainty mainly due to the lack of knowl-
edge, complexity and imprecision. To model this in your cost models you may
place weightings to represent technology readiness ranges to indicate a range of
costs (Cheung 2009) or probability analysis to represent Mean Time Between
Failure. Many people use three point estimates, most likely, best and worst case
scenarios. However, this is not always enough and some researchers are proposing
the use of probability bounds analysis (Goh 2010) to represent the imprecise prob-
abilities that occur. This would allow the decision maker to have further detail to
assist in their decision making. For example with a standard PDF, you may calcu-
late that there is a 90% probability that the cost will be less than £20 million.
However, using probability bounds you may know that there is a 90% probability
that the cost will be between £19 and 21 million.

9.8  Conclusions

This chapter has presented some of the challenges for modelling through life costs.
A review of the current approaches to TLC have been described as well as an intro-
duction on the impact of costing in terms of providing a service.

The main points to understand about estimating for long life products are that
the design always changes; technology is refreshed; capability demands change
over time, obsolecense occurs and you have to try and account for all of these things
when predicting costs.

In summary, know your data and assumptions, understand the strengths and
weaknesses of your model and build in uncertainty.

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wwwwwwwwwwwwwwww

Chapter 10

The Practitioner View

Ian Smart, Stuart Bestwick, Neil Jarrett, Richard O’Conner,
and John Gurnett

Several leading practitioners who are currently helping organisations transform to
successful service providers have created the following chapter. They have exten-
sive experience between them in the public and private sectors and offer excellent
insight into the ‘how to’ for effective sustainable, service imple­mentation.

10.1  Creating the Message1

The burning platform shows us why we need radical change and the blueprint
shows us what it looks like.

The challenge is so big that it’s beyond what we as leaders can change on our
own. Everybody needs to understand it and get behind it. We need to communicate
all the time so that we maintain a shared vision of our future; one that will sustain
us through the tough decisions that we will need to take. We must also make our
organisation ready for change. We must understand and then build the capacity and
capability to succeed. Only then can we mobilise to deliver.

Often when we think about transformation we do what we have mostly done before.
We think about new structures and infrastructures – shared management, shared ser-
vices, outsourcing, new computer systems. We want to jump straight on the vehicle for
delivery. We should remind ourselves that it is easy to create these new structures with-
out changing the thinking and behaviour we need to make the change sustainable.

In real transformation, collaboration is just one ingredient in the recipe. The full
menu will require change to the way people think about, design and provide ser-
vices. We must mobilise all the intellectual assets across our organisations to create
services that focus on prevention, reduce demand and provide only what our com-
munities need and value, right first time, every time.

1 Smart

I. Smart (*)
Alexander, 5 London Road, Southampton, Hampshire, SO15 2AE
e-mail: [email protected]

M. Macintyre et al. (eds.), Service Design and Delivery, Service Science: Research 153
and Innovations in the Service Economy, DOI 10.1007/978-1-4419-8321-3_10,
© Springer Science+Business Media, LLC 2011

154 I. Smart et al.

Change to organisational structures and ICT will still play a big part, but it will be
how our people think, work and behave that will underpin the coming transformation.
Our decisions about what and how to do things must follow a deep understanding of
what our communities and service users most need us to do. This type of change
means that we must use all the intellectual resources we have to achieve more with
much less. We will need our people to be active and willing participants. To make
this happen this we will need to help our people to understand and share in the owner-
ship of the problems we all face, so that they have a reason to change what they do.

Leaders will need to create a shared vision of the future, one that is based on com-
mitment not compliance. Your shared vision will need describe a detailed picture of
who the organisation will serve and what it will look like. Being ‘excellent’ is great
ambition, but it’s not a clear enough description for most people to grasp and make
real. A shared vision will only be sustained if you make it clear for everyone who
needs to understand it and continually reinforce it with enthusiasm and commitment.

In periods of radical change, only those organisations and people that think and
behave flexibly, are adaptable and more productive will excel. To be successful we
need to tap into our people’s ability to understand the problems they experience and
to allow them to innovate and develop solutions. Our current management struc-
tures, with their historic and cultural roots in command and control, will not serve
us well in the future.

In the old world managers did the thinking and staff did the doing. In the new
world leaders will need to develop a more enabling style, less inclined to want to
be on the pitch and more inclined to stand on the side cheering their side along.
Empowered people and teams will be essential in tomorrow’s police services.

But, and it’s a big but, many of our managers and staff do not have the tools and
the guiding principles to deliver what we will need. We have developed and invested
in talented professionals who understand the technical aspects of their work but who
may lack the necessary understanding of managing productivity. And increasing pro-
ductivity will only help us if we are rigorous about realising the gains – ‘cashing’ the
efficiency through redeployment of people to do more in areas of higher priority for
our communities and service users, or reducing the numbers of people we employ.

In the future we will need to shift people’s thinking from seeing just their part
of the organisation to seeing the whole. In a public sector environment social prob-
lems are rarely within the gift of one organisation to solve and therefore our chal-
lenge is to better understand the customer and see our organisations in the context
of their life events and journey.

Systems Thinking will be another driver of transformation in the future. The chal-
lenge with our current thinking and approach is that we often think that cause and effect
are close. We should try to stop short term thinking because it always costs more in the
long run. Part of the problem is the sort of performance feedback loops we create. The
performance management compliance frameworks, in which we have invested heavily,
could be of little use in the future because they are focused on outputs. We need to
understand the cause and effect relationships that link activities with outcomes and
remove any delays in reporting. We need performance management frameworks that are
decentralised so that our people have their finger on the pulse of what they do locally.

10  The Practitioner View 155

The best organisations understand this. In one global technology company the
business analysts have developed a system model that shows, amongst other things,
the statistical relationship between staff satisfaction, operational productivity and
the resulting customer satisfaction. Business intelligence and knowledge manage-
ment of this kind should become a core competence.

10.2  Leadership During Service Transformation2

Whenever an organisation embarks on a fundamental redesign of its services, the
role of leadership plays a significant part in the successful implementation, as it will
inevitably involve a degree of transformation. If you are introducing new ways of
working or principles such as Lean it will usually challenge existing management
styles, culture and performance management as well as requiring different relation-
ships between suppliers, customers, management and staff.

Many organisations overlook this and embark on a programme that is flawed
from the beginning. The Executive Board of the organisation often appoint some-
one to ‘Lead’ the programme and then try to manage the transformation from the
comfort of their office. In doing so they underestimate the size of the challenge and
absolve themselves of their responsibility in making the change happen.

The challenge is so big that it’s beyond what the leaders can change on their
own. Everyone involved needs to understand the reason for the change, the impact
on them and their role in making it a success. Approaches such as Lean involve a
bottom up approach to redesign, based on direction and support from above. In a
growing market, where the improved efficiency is redirected to improved quality or
capacity, this virtuous circle is easy to sell to the staff involved. They can see the
benefits of improved customer service through better use of resources.

In the current environment getting buy in to the transformation is particularly
difficult. Both for the public and private sector, improved efficiency is inextricably
linked to the need to reduce cost and in service industries this will mean jobs. The
staff involved need a compelling reason to contribute to a bottom up approach of
service redesign that puts themselves or colleagues at risk.

Although not an exhaustive list, I have set out below some common issues that
can have a significant impact on successful transformation.

10.2.1  Provide the Vision

I believe the role of the Leader is to provide a vision for the organisation that sets
out what it is trying to achieve, why it is necessary, what the journey will be like,
how the organisation will change and what the impact is likely to be. The vision

2 Bestwick

156 I. Smart et al.

provides the route map and reassurance for people and allows them to see their role.
If there is likely to be an impact on people’s jobs it should also set out how the
oranisation will support those involved. As it says in a certain book ‘Without a
vision the people will perish’ (Proverb s 29 v 8).

10.2.2  Make Sure You Are Visible

It is often said that people judge their leaders commitment to change 10% by what
they say and 90% by what they do. The role of Leader is to inspire and empower
and in doing so they release talent from those around them. This cannot be done
from behind a desk and so they should commit the time to be involved, to com-
municate the vision and reinforce the change by demonstrating the right behav-
iours. Tim Leahy of Tesco understands this all too well:

Leahy makes all his senior staff do it. Last year, 1,000 store managers worked in other stores
and 1,000 staff from head office did the same … Leahy takes trading places to a different
level. Each week he swoops on Tesco stores, wandering around, talking to staff and custom-
ers. ‘I don’t go to check on things. I talk to people – I can smell how things are’ he says.

10.2.3  Focus on the Priorities

I often see organisations embark on transformation without weeding out some of
the existing projects, activities and service responsibilities. It is an ideal time to take
stock and weed out those activities or projects that do not contribute to the vision
and as such will divert valuable resources.

If change to the culture is required then you need to understand how the existing
structure and systems reinforce it. In most organisations Budget = Power and if you
start to apply systems thinking to the way services are provided then many budget
holders will feel their power base is threatened. The existing performance manage-
ment system, including how people are rewarded, will also need to be aligned to
reinforce the right behaviours.

10.2.4  Communicate

It is essential to communicate all the time so that you maintain a shared vision of
the future; one that will sustain the organisation through the tough decisions that
will need to be taken. There is too much reliance on passive communication such
as Newsletters, email and intranet. These can only support face to face communication
that allows discussion and feedback. Although this requires a significant investment
of time, without it the message will not be heard.

10  The Practitioner View 157

Communications is often seen as a separate activity and a plan is duly drawn up.
It should be seen very much as part of the day job and included in every interaction.
In this way you begin to live and breathe the message and it becomes part of the
actions by which your people judge your commitment to the transformation.

10.2.5  Empower

An easy thing to say, but more difficult to realise. Especially in an organisation that
is used to the old fashioned command structure. One where managers think it is
their responsibility to come up with the ideas and then tell people what to do;where
those managers will feel exposed and threatened if they allow others not only to
provide solutions but also have full ownership of implementation.

Creating an empowered workforce is a two way street. It requires managers and
leaders who are willing to allow and nurture it and people who are willing to try
and exercise their freedoms. The managers must be prepared to give people the
space to make mistakes and, in a risk adverse culture, do not themselves revert to
type and impatiently interfere. That is why the performance management and
reward systems are designed to encourage the new culture and behaviours associ-
ated with it.

10.3  The Essential Tools for Transformation3

The current drivers in public spending all relate to Value for Money. The Building
Schools for the Future Programme, Public Housing and Highway Maintenance are
all affected by the drive to reduce cost at the same time as maintaining quality and
improving customer satisfaction. This means using less resource and money to
achieve more and it can only be achieved through an integrated programme of con-
tinuous improvement.

The Lean Sigma approach is a development of tried and tested methodologies
from other sectors and provides a structured approach to an ongoing programme of
change. It is a new concept to construction and it has taken some years for CWC to
integrate these processes with the principles of Open Book Cost Management so
that savings based on real costs can be identified. Quality management theory has
existed in one form or another for a century (see Fig.  10.1). Historically the
Japanese led the world in process improvement and ‘Lean’ manufacturing has led
to principles that are employed throughout the world today.

The construction industry has only really embraced quality theory in the last
generation and the drive to change, pioneered by Sir Michael Latham, led to the
establishment of CWC as a leading organisation in construction industry thinking.

3 Jarrett

158 I. Smart et al.

Fig. 10.1  The progression of quality

Bringing together leading academics and process improvement experts from the
retail and manufacturing sector with a team of senior construction professionals has
enabled CWC to create a unique model based on the tried and tested theories of
‘Lean’ and ‘Six Sigma’ but with the key added elements of cost management and
involving people in change.

The methodology is straightforward and involves working with a core team
through a series of logical stages. By working collaboratively with Client staff there
is a natural transfer of knowledge and Clients’ own staff will develop skills that may
ultimately lead to formal qualifications; this can be a great incentive for participants.

A lot of hard work and commitment is needed to make sure that the right things
are being measured and analysed at the outset so that when improvements are made
through a wide range of techniques the outcomes can clearly be seen.

After a programme of several months a savings register identifies where and
how processes have improved and shows their value. Ultimately the development
of in-house capability and the continued commitment of staff makes the process
sustainable so that public services continue to improve.

10.4  Engaging Teams for a Transition4

My perspective stem from the experience I have gained over 15 years of working with
teams at all levels of a business and throughout the value chain when carrying out
improvement activities ranging from redesign of the extended value stream through
to ‘local’ process improvement. This has been across the range of business sectors.

4 O’Conner

10  The Practitioner View 159

First thing to say is that there is ‘more than one way to skin a cat’. In other
words, one approach doesn’t fit all situations. Whilst there are many methodologies
and structured approaches that can be followed, and in fact I give an overview the
basic PDCA structure below, it must be realised that a key success factor for sus-
tainable improvement, is how well the people in and around a process or system,
are engaged in, and buy into the process of change. People are different and moti-
vated by different things. When leading an improvement or transition activity you
have to be prepared to flex your approach. Being too rigid in approach and not flex-
ing approach to accommodate the softer people and psychological aspects of
change, can often lead to a situation of disengagement.

My comments therefore centre on the key factors related to ‘engaging teams for
a transition’, and apply to teams engaged in change at any level of an organisation
or position within the value chain.

The following points are important factors to consider:

10.4.1  Team Composition

It is important to involve staff from the process which is the focus of the improve-
ment activity, as well as representatives from other processes or functions which are
either a supplier to, or a customer of the process. A multi-discipline team (and
multi-organisation if considering a supply chain improvement activity or extended
value stream transformation), should be established, as this will enable any
improvement or transition activity to be considered from multiple perspectives.

Team organisation needs to be considered. Roles and responsibilities within a
team must be clearly defined. Typically a team lead or ‘champion’ will help plan,
co-ordinate, facilitate and manage an improvement team. If team roles are not clear
and/or the team is not effectively led, then engagement in improvement activities
may faulter.

10.4.2  Clarity of Purpose

The need for change must be clearly defined. The transition or improvement activ-
ity may be part of an overall transformation programme where the organisation has
defined a vision for the future, and/or it may be in response to a failure in the pro-
cess, poor performance or changing market conditions that has created a ‘burning
platform’. Whichever, it is important to clarify the purpose of the transition – why
is it necessary, how does it fit into the overall strategy for the business, what are the
objectives and expected outcomes, how will those people involved be supported in
making the change.

The use of a ‘Project Charter’ that clearly defines objectives, success criteria,
time scales, etc and which the team sign-up to deliver, can help.

160 I. Smart et al.

10.4.3  Creating the Environment for Change

The team has to feel as though their efforts in the improvement activity will be
worthwhile, and that they have strong backing and support from senior manage-
ment. This should not only be verbal endorsement, but ideally senior managers
should be actively involved in the improvement activity. Where this is not possible,
senior managers should help create the environment for effective change, and this
includes providing the headroom for staff to be involved, empowering staff, putting
in place the required support processes, and dealing with any ‘barriers to success’.

Additionally, the team must possess the capability and capacity in the appropri-
ate tools and techniques for carrying out an improvement or transition activity.
Establishing a ‘common approach’ to improvement within the organisation will
help engagement. Proven success and familiarity of transition processes used across
the organisation will help team members accept and align to the process of
change.

10.4.4  It’s About the Process Not the People

Often poor or sub-optimal performance occurs because all of the processes within
the overall system are not well designed, integrated or synchronised. Generally
most people do not go to work to do a bad job. In fact many people will try to find
the most efficient way for them to carry-out their role and related tasks. This is an
important point to stress when engaging a team in an improvement activity, and is
of particular relevance when it is necessary to get a quantifiable measure of process
performance or where productivity appears to be an issue. Here, the time to com-
plete a process would enable the level of process waste to be established and the
level of potential improvement to be estimated. This should be sold as a study of
the process, and not a time study. Work with the team, getting them to accept that
by quantifying wastes, issues, etc, this will provide the ‘ammunition’ for change
and help them prioritise where to improve first.

10.4.5  Create the Desire for Change

Through all stages of a transition it is important to ‘enthuse’ the team. Whilst a
‘burning platform’ may be sufficient to motivate some team members, it is also
important to put the need to improve into the context of the processes and tasks that
the team carry-out. The use of relevant improvement examples and case studies will
show to team members that the process which they will go through will produce
improved performance and provide benefits for all concerned. Get endorsements
from colleagues or peers, better still get colleagues who have already been through
a similar transition activity to tell their story.

10  The Practitioner View 161

Try to make the transition relevant to the team members, and use ‘language’
which they understand.

At the start of a transition activity, work with the team to identify the how well
the current system is working. Ask them who is their Customer, what does the
Customer ‘value’ and what are the things within the system that prevent ‘value’
being delivered right first time in the most effective and efficient manner. Identify
what are the things or issues which cause them to be inefficient. Aim to quantify
these ‘issues’. Ask the team at this early stage what success might look like.
Explain that by being involved in the transition activity, that this is their opportunity
to deal with the things which cause them to be inefficient. Ask the team, if it was
your business, what would change or improve? What would success look like?

People become enthusiastic through success. So, aim to implement some ‘quick
wins’ and where possible, improvements that resolve some of the issues or ineffi-
ciencies whish team members experience themselves. This may be as simple as
providing the ‘right tool for the job’. By implementing a number of small but help-
ful improvements, the team should start to see that they can make a difference.

It is also important to make improvement ‘fun’ and make sure that any success
is celebrated.

10.4.6  Applying a Structured Approach

Make sure that there is a clear and structured approach, which actively engages
team members through all stages of the transition activity. Many different
m­ ethodologies exist. A common framework for achieving sustainable i­mprovement,
and one which teams can readily follow, is the Plan-Do-Check-Act (PDCA)
improvement cycle. Work with the team through each stage, getting members to
collate and analyse data, identify and quantify issues and opportunities, prioritise
improvements (quick wins, short, medium, long term – process improvements
through to system re-engineering).

Team members should be involved in the implementation of any improvements.
The ‘new’ process needs to be ‘hand-held’ and any refinements made if required.
Once the new process has been proven, team members should help create standard
operating procedures to ‘standardise’ the process. The aim is to create ownership.
Once in place, another useful way to engage team members is to establish an audit
process, where members take it in turns to check whether the ‘new’ process is
working to the defined standard.

Through all stages, work with the team documenting outputs on flip chart to
grow the transition story. This will help team members buy into and own any
improvements. By quantifying improvements team members will be able to see the
fruits of their efforts. Recognition of success by senior management is an important
part of the approach. Not only because of the motivational impact this will have for
team members, but also because the team need to see that any improvements will
be supported through to successful.

162 I. Smart et al.

10.5  Project Management and Delivery for Service Industries5

Any project, the results of which are designed to provide either goods or services,
needs some considerable thought and planning before starting the work of design-
ing, implementing and providing an end product. It could be argued that this think-
ing and planning forms part of the project, though both political and cultural
reality often considers that the project does not actually start until the ‘project
launch’ gate is passed because from that point, what might be considered to be
serious activity can begin. So there are five elements that must be understood,
‘sold’ to and agreed by all project team and stakeholders as part of the start up
process. These are:

• Agreed specification of requirements (subject to planning) – objectives/scope/
deliverables

• Definition of method of delivery (which design will we pursue from a list of
alternatives)

• Business process – for project monitoring and requirements delivery
• Organisation – program/portfolio/project/communications/ownership &

responsibility
• Identification and planning of constraints – time/cost/resources
• Risks – to time/cost/resources/success of the project

10.5.1  Specifying Requirements

The importance of a clear specification of requirements can’t be emphasised
enough. It is the ‘womb’ from which all other aspects of the project including
organisation, planning and implementation are ‘birthed’. So the following aspects
of those requirements need to be considered:

• Objectives: what are we actually trying to achieve – and in a service industry this
needs to be quantified in specific terms of:

• Level/quality of service
• Focus group/target for provision of service
• A definition of value – any expected return on investment/financial/environ-

mental/cultural/social – e.g. if a better health service does not ultimately yield
tangibly better health then there is no ROI and therefore no value

• Scope: what are the boundaries/extent of this service?

• How broad is this scope e.g. geographically, culturally, type & severity of the
need being served?

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10  The Practitioner View 163

• Who, what and how will it serve?
• Who, what and how will it not serve?
• How do the ‘boundaries’ affect other interfacing parts of the organisation?
• Are there phases which embrace parts of the scope and not others?
• Is it part of the project to ensure sustainability?

• Deliverables: what are the required outputs for project completion? What will be
the actual outcome/tangible provisions of this service, and what elements con-
stitute its completeness?

• Risks and assumptions: what are the known risks at this time? How might they be
mitigated or managed? Are they worthwhile taking or should they be avoided?

• Constraints: targets & CSFs for ROI, KPIs, time, cost, quality.

10.5.2  Definition of Design and Delivery Method

How will we provide this service to meet the specification and standards required?
This definition will emerge from a well constructed list of alternatives based upon
research, feasibility and conceptual methodology. In principle, the greater the num-
ber of alternatives that can be identified, the greater is the likelihood of reaching an
optimum solution.

Alternatives should be weighed against success criteria, advantages, risks and
constraints and the best selected on the basis of value, suitability, flexibility, and
capability.

10.5.3  Business Process

How will we actually do this? What will be the checks and balances that ensure
consistency, quality, standards, safety, reliability, legality? How will we monitor
progress to time, cost and quality and drive the project forward? What will the
criteria be for passing the project to the next stage/phase and release of further funding
and resources? It is important to optimise/trade-off elements of the process to:

• Meet agreed metrics for these elements
• Avoid driving time and cost into the project unnecessarily

10.5.4  Organisation

How the project is organised should be dictated by the specification together with
the availability of key stakeholders and resources to plan and implement the project.

164 I. Smart et al.

Firstly, is this in fact a portfolio or a program of projects contributing to a single
business/service goal? In which case, one or more additional layers of authority
may be needed above the several projects, to ensure adherence to overall business
goals, process, and cross project communication.

How else will the project be structured to ensure best communication and under-
standing of ownership, authority, accountability, availability and task performance
demarcation? Will there be a steering committee of stakeholders? How much will
the actual ‘customer’ be part of the organisation/communication & feedback?

10.5.5  Constraints Planning

Elements of the planning of time, costs and resources should be considered before,
during and following completion of the project specification and organisation. During
the planning process, both specification and organisation are subject to change. The
planning process will reveal areas of high and low, desirable and undesirable time,
cost and resource commitment elements which will inevitably require trade-off.

Planning (initially of timescale) should be done:

• Following best practice project planning processes
• In as much detail as possible
• As early as possible
• With all parties present, including (where appropriate) all stakeholders and

external agencies
• Using proprietary software

Constraints planning is an iterative process. It will not cease until the project ends,
the specification and organisation also need to be constantly ‘available’ for formal
adjustment as the project proceeds.

10.5.6  Risk Identification and Planning

Some sponsors and stakeholders can choose to be unsympathetic to the likelihood
and level of risks and can exhibit cognitive dissonance and denial when it comes to
any kind of hazard planning for any project. This is in itself poses a huge risk.
Threats to the success of the project need to be identified and declared as early as
possible in the project lifecycle, further risks should receive similar treatment as
they continue to emerge throughout the project. The following process of consider-
ations needs to carried out for each risk:

• Choice of strategy – manage/mitigate/move/ignore
• Probability of occurrence – How likely/how quickly
• Impact – on time/cost/quality/resources

10  The Practitioner View 165

• Capability – competence/time/budget/materials
• Plan of action – what/how/who/by when
• Monitoring – plan progress/results
• Communication – all of the above – to whom?

One additional word of warning is important here. In addition to risks which are
largely quantifiable and can be planned for, there are also uncertainties. Most of
these we cannot plan for though we may know that they may happen, but still there
are some things that will occur completely unexpectedly.

… there are known knowns; there are things we know we know. We also know there are
known unknowns; that is to say we know there are some things we do not know. But there
are also unknown unknowns—the ones we don’t know we don’t know.

Donald Rumsfeld

10.5.7  Action and Implementation

Throughout the project lifecycle we are ‘managing activities and risk within a pro-
cess’. The business or project process, together with events both predicted and
unforeseen, will therefore largely dictate how the project progresses. Despite due
diligence employed in arriving at an agreed project specification and project plan,
there is always an element of unknown factors. That is why it is essential to:

• Maintain planning and updating routines to time and cost– especially since we
can only plan what we know in detail at any given stage of the project

• Continuously review requirements specification, scope and deliverables in the
light of changes occurring

• Identify, analyse, apply strategies and action plans to all emerging risks
• Maintain good (defined) levels of communication across all elements of the

project organisation

Potentially a huge part of the project lifecycle is taken up with testing products
where often stringent, multi-faceted tests are required to get a product to its desired
standards of functionality, durability, reliability, safety, legal etc. These tests and the
subsequent re-working/redesigning of goods are almost always conducted prior to
launch, before any customer has had sight or use of the product.

Once the product is launched, any ‘failings’ or dissatisfaction with the product can
actually provide opportunities for new project s. These will launch enhancements,
‘new’ models and releases of the product ultimately generating further revenue.

For both products and services the real test of how well they perform are almost
always subject to the customer, environment, policies, operation and management of the
organisations that are responsible for operating them. Some of these aspects are unpre-
dictable, but in most cases they can be simulated prior to a product launch. Not so for
many services. They can really only be tested once the service is being used, since they
are reliant on one or more of the following unpredictable aspects which in most cases
cannot be simulated well enough prior to some significant use or abuse of the service:

166 I. Smart et al.

• Operator mood, behaviour, level of commitment
• Interpretation of how ‘good’ the service should be
• Customer demographics: geography, culture, ethnicity, background etc.
• Customer reaction
• Pressure of over demand
• Choice to not implement all of the service elements
• Degradation over time of service in one or more aspects or parts

It would be wise therefore to introduce a strictly planned and monitored Change
Management phase to aid implementation and roll-out. So we might need to con-
sider (preferably at the beginning of the project), is this part of this project, or is it
part of the operational requirement for introducing a new/improved service? This is
one reason why the project definition is so important. Was ensuring and proving
that the system would operate under different, varying/adverse conditions part of
this project brief or was it simply to design and deliver a service? What does deliver
mean here?

Projects are not generally remembered in the light of how they conformed to
time and cost, but rather:

• How they were implemented
• How they were received by the user organisation
• How much change was imposed and how quickly
• How much the user organisation was involved in planning
• How much support was available from and for those implementing
• What was/is the customer perception of the service?
• How does it perform under pressure?

Poor implementation of e.g. a manufactured product can be hidden behind that
product, since if it is good enough it will be well received. A service industry does
not usually have that luxury. The psychological and cultural effects of a badly
implemented service project on a user organisation would automatically reflect on
the service provided and on the customer receiving it.

Chapter 11

Are You Being Served?

Mairi Macintyre, Glenn Parry, and Jannis Angelis

This book came about as the growing community of practitioners and academics
were progressing the area of services to new levels of understanding. Servitization
was first introduced as the trend in which corporations offer fuller market packages
or bundles of customer-focused combinations of goods, services, support, self-
service and knowledge. As production becomes increasingly commoditised in the
eyes of the end user, companies have pursued value downstream through greater
customer involvement and interaction. This change in business focus, and indeed
strategy, has presented new challenges and opportunities to all involved with it.

Throughout this book various elements of design and delivery elements of effec-
tive services have been explored and discussed in depth. We started by considering
what was really at the heart of effective services, responses one can elicit from a
customer or user of the service. We then traced the history and development of the
service industry and the importance it has played in generating economic and social
value. For the latter, the science underpinning service offerings is one that needs to
consider the sociological context.

IBM was presented as a case demonstrating how enterprises can successfully
reinvent and transform themselves to meet the ever changing needs of its custom-
ers. The case shows how business offerings can change from a focus on products to
services. It also illustrates that change does not happen easily or overnight. It takes
time for the appropriate processes to develop and take root.

Consideration is also given to the lean principles and techniques initially origi-
nating from Toyota. Lean service is a growing area of both research and application,
covering relevant principles and techniques, and their implementation in a new
contextual paradigm. The chapter explores how principles and techniques that have
been developed for the efficient and effective manufacture of high quality vehicles
may be adapted to fit within a service context.

M. Macintyre (*) 167
WMG, University of Warwick, CV4 7AL, UK
e-mail: [email protected]

M. Macintyre et al. (eds.), Service Design and Delivery, Service Science: Research
and Innovations in the Service Economy, DOI 10.1007/978-1-4419-8321-3_11,
© Springer Science+Business Media, LLC 2011

168 M. Macintyre et al.

The ICI case study presents the value proposition of an enterprise, covering how
it is designed, managed and presented to the market. The chapter provides an
example of a company undertaking the transitional journey from product to service
provision. From this servitization a range of tools are derived which may be useful
in such business development.

We then turned to the emerging discussion of experience or output oriented
value propositions and the relationship between the two areas. This is an issue that
can only grow in its importance as strengthened competition and budget constraints
demand an ever increasingly sophisticated understanding of customer and end user
value.

Case studies exploring the complexity of deploying services were considered
next. Service offerings frequently require the provider to go out the customer. Three
cases were presented to illustrate the challenges faced by such value propositions.
The chapter employs the cases to explore in further the complex theoretical and
practical aspects of service delivery.

As firms specialise and focus on their core competences, they must collaborate
with partner firms to be able to provide product and service offerings. This is an
important element, and to this effect the added complexity of multi-organisational
service delivery was explored. This raises a particular challenge for managers, as
they must take a holistic approach. They must see beyond their individual business
units and company structures and manage the whole system as an integrated enter-
prise. It is this enterprise that in the end delivers the service experience.

The following chapter considered the issue of service costing and pricing. The
main challenges for modelling through life costs were presented and an overview
of the current approaches described. We believe that the understanding of service
costs is a challenging but critical issue for businesses, and one that will receive
significant attention over the coming years.

Throughout the book we have sought to provide a strong business focus, remain-
ing pragmatic in the presentation of challenges and issues faced by energetic man-
agers seeking to add value to their existing product offerings. We have presented
solutions to challenges faced by those currently delivering services which hopefully
may prove insightful. As an aid we have incorporated the experiences of a number
of leading practitioners, which we hope generates further understanding of the
service challenge – the illusive ‘how to’ – for public as well as private sector
institutions.

So what does the future hold for services?
Service industries dominate the world economy today in terms of the revenue.
However, most of the insights and best practice examples presented in the business
and management domain, both academic and practical, have been drawn from the
manufacturing sector. Currently many organisations, including successful large
manufacturers, are making the transition towards becoming service providers – the
process described earlier as servitization. This may be considered both as a system-
atic plan designed to achieve a particular long-term strategy as well as a trend.

11  Are You Being Served? 169

Will this trend continue? What are the indicators of a successful transition?
Where does the value lie? How transferable are manufacturing concepts in realising
value in the service context?

We hope that this book provides a base camp for those interested in and keen to
actively address these challenges. We also aim to help stimulate thoughts and
reflections which will enable us to learn more about service in practice and subse-
quently develop new supporting theory, helping those engaged in the development
of leading service businesses in the years to come. We hope that the development of
understanding may enhance the value we all derive from our service experience.