Type of Business Services

Criterion Product business System business Project business Solution business Service business
Proportion of Hardware* > 80% > 60% 30% bis 60% < 40% < 20%
Proportion of services* < 20% < 30% 40% bis 70% > 60% > 80%
Customer specificity (very) light slight / medium high high medium / high
Value added where? central generally central usually on the spot half and half usually on the spot
Turn key? - - yes on the whole yes -

Proportion of development
- medium / high medium / slight high high
(Design, Consult)

Proportion of construction No Service business (Part of

medium / high medium high slight / medium
(Montage, Build) Project- and System business)

Projekt/Order dimensions - - tends to be larger tends to be smaller small / high

Value-added chain - "Classical" VA Chain - Development / Integration - Great importance of support - Great importance of - Primary activities depending
- Focal areas depending on - Thinking "inside-out" (i.e. what activities such as purchasing Design/Consult on type of service business
business model can I offer the customer?) and project management - Customized adaptation, - Thinking from the customer's
- Thinking "inside-out" (i.e. what - Setting up/assembly system integration point of view ("outside-in"; what
can I offer the customer?) (customer-specific) - Thinking from the customer's does the customer want?)
- Thinking "inside-out" (i.e. what point of view ("outside-in"; what
can I offer the customer?) does the customer want?)

Success factors - Volume - System architecture - Recurrence rates - System integration Depending on the type of
- Product complexity - Platforms - Industry Know-how - Knowledge of customer service business
- Design to Cost - Modularity - Project management processes - Customer Intimacy
- Cost-orientation - Software competence - System integration - Solution experience - Knowledge of customer
- Product marketing (mainly in - Network of Competences processes
consumer field) - Regional customer intimicy
- Image/Branding
- Standardization
- Industry Know-how
- System integration
- Experience
- Network of Competences
- Financing mode

*: Standard-SW = HW
kundenspezifische SW = Dienstleistung

**: je nach Art des Service-Geschäfts unterschiedlich

Notes on SGI 2007

Specific key success factors by business type
Enabling the delineation of business types more effectively, examples of success
factors are quoted that are crucial in terms of cost position and, in turn, business
success. To a certain extent, individual success factors overlap; the nature of each
factor is however different for each business type (also refer to table on the previous
page).

Product Business

Definition: Marketing of individual products, modules and components. No need for

integrating services or customer specific adjustments.

• Product complexity: The more complex a product (design, parts, structure, ease
of assembly), the more difficult it is to find simple and cost-effective production
and sales processes and to take advantage of experience curve effects. Therefore
the questions: Do you keep your products simple in a comprehensive sense? How
many parts do they have? How simple is it to produce and service the parts? How
many variations are there? How broad and deep is the product line?

• Design to cost: Today it is essential that products are designed to cost and to
the customer. The questions are therefore: Do you determine right at the start of
development which product characteristics the customers want and how much
they are willing to pay for them? Are the product characteristics then determined
along with (internal) costs (target costing)? Are the technical design specifications
of the product based on this knowledge? Do you use the target costing approach?
Do you optimize life cycle costs?

• Cost perspective: Have potential cost reductions been considered at all value-
added stages? Are the decisive parts of value chain concentrated at locations in
which resources are available at favorable costs (payroll costs, software
development capacity, energy, etc.)? Is value-added optimized over all stages of
the value chain (e.g. by means of simultaneous engineering, target costing, etc.)?

• Volume: How large is the difference in volume (quantities sold) between you and
the market leader? Has everything been done to take advantage of volume
effects: identical parts, standardization, variations based on clever modular
concepts that avoid part and product variety. Pooling in purchasing?

• Marketing: Particularly important for consumer-related business.

Notes on SGI 2007 1

System Business

Definition: Combination of different products. A certain degree of engineering effort

for systems technology. Systems can be used generally; some customer-specific
costs.

• System architecture: Great complexity in system architecture causes complexity

in processes (e.g. in development, in sales, or in service) and it prevents
economies of scale in engineering. This results in unnecessary costs. Generally
system architecture must be designed for flexibility (many uses; few modules,
easy to add new features, easy to adapt to new hardware (e.g. new processors),
easy to use application-specific software and hardware). It is practical to use
standard software (widely available in the market). Is the system in your BF
designed in the manner? Do you know of a better system among your
competitors? How do you rate your system architecture compared to the best
system?

• Platforms: Platforms (uniform base system as the foundation for a number of

applications) limit system complexity and also permit cost-effective use of the
system in a variety of ways. Platforms are kept as stable as possible to keep
application-specific development costs to a minimum. For the platforms
themselves it is possible to achieve noticeable volume effects. Is the BF pursuing
such a platform strategy? How well does it perform in comparison to the
competition?

• Modularity: The individual system components and their interaction in the

system should be modularized. Modularity should be defined in a way that
variants and the various application-specific and customer-specific uses of the
system can be covered with a manageable number of different modules. The
advantages of modularity are: substantially lower effort for further development
and maintenance, higher pace of development (since parallel development is
possible), faster engineering, simpler sales, simpler service. Are the systems in
the BF modularized? How well is this structure performing in offer and order
processing? How do you assess the modularity of your system compared to the
best competitor?

• Software competency: Today software is often the central component of our

systems. Therefore the questions: Is software engineering in the BF efficient? Are
the competencies needed for skillful development of software structures
available? Does the staff know how to use the most modern programming
languages and software tools; are they being used (where practical)? Does
development have the right processes and methods to get software modules
stable and error-free as quickly as possible?

Notes on SGI 2007 2

Project Business / Industrial Systems Business ("Anlagengeschäft")

Definition: Combination of various products and/or systems. Substantial customer-

specific engineering, project planning, assembly, and startup effort. Extensive know-
how is required in the technology of the industry.

• Repeat business rate: In the industrial systems business, too, it is essential to

achieve volume effects (experience curve effects). Comparable applications
should always use comparable solutions (the principle of “copy and modify”).
Industrial system concepts and business processes should be designed
accordingly: as modular as possible, clear separation of customer-specific and
customer-independent parts, use of standards and standard components, and a
minimal proportion of customer-specific or system-specific components. Know-
how from customer-specific production should be exploited for later systems.
Advantages: faster engineering, exploitation of experience, faster achievement of
error-free operation, lower costs, more reliable calculation of project time and price
because the risk is lower. Are you pursuing such an industrial systems strategy?
How high are the repeat business rates in the BF compared to the benchmark
competitor?

• Industry know-how: Important prerequisite for development of any industry-

specific solution. The better the industry know-how, the easier it is to develop cost-
effective and innovative solutions. (How does the customer use the system? What
are the customer’s efficiency criteria? What specific technical solutions are
needed for which customer processes?) As a rule, the more customer solutions
have already been developed and documented, the greater the industry know-
how. Is industry know-how maintained in your BF? How do you rate the industry
know-how in your business field compared to your best competitor?

• Project management: Every project must be managed effectively: from offer to

operation and billing. In particular, project management also means effective risk
management. Have all tools for risk assessment, quantification and prevention
been mastered? Are contracts designed accordingly? Is the project status
continuously monitored and recorded (implementation status, milestones,
deadlines, costs)? Are effective (software-based) planning techniques/tools used
for this purpose? Do they show the interdependencies among activities, results
and events during the course of the project, and do they initiate reactions when
plan variances are discovered? Is there effective claim management? Do the
project managers have enough experience? How do you assess their previous
project performance? Are project management processes being continuously
improved on the basis of experience? Are the project managers in your business
field able to manage and process projects better than the best competitor?

• Project planning tools: Are powerful, state-of-the-art project planning tools

being used? Are they uniform throughout the entire business field?

Notes on SGI 2007 3

Solution Business

Definition: Customer-specific, integrated solutions including services as consulting,

design, engineering, systems integration, assembly, startup, finding an operator, etc.
(possibly including procurement and integration of standard hardware).

• Systems integration skills: To develop optimum solutions for customers, the

provider of a solution must have precise knowledge of all relevant system
components (especially those of leading providers/competitors). They must know
how these system components work together and the different possibilities for
using them. The solution for a particular customer must always be tailored to their
very specific problems. Nevertheless, in developing the solution, standard
components and standardized procedures should be used as much as possible.
Do the BF employees have proven and efficient procedures for developing
solutions for defined customer problems? Are these solution procedures
standardized, modular, well documented, and communicable? Is the problem-
solving process supported by IT tools? Do employees have an overview of
alternative solution configurations, the components (HW/SW) used in these
configurations, and the typical interface problems associated with them? Do they
know which role the products and services of various providers can play in the
context of a system solution? How do you assess these questions in comparison
to the best performing competitor?

• Knowledge of customer processes: You can only provide an optimum customer

solution when you have precise knowledge of customer processes and the
background of those processes. Do the employees in your BF know the markets,
competitive advantages, and business problems of the customer? Do they know
which core processes the customer uses to achieve competitive advantages? Do
the employees know the course of these processes and options for process
reengineering? Do the employees have access to the decision makers with overall
responsibility for these processes? Do they know the people who have technical
responsibility for shaping these processes? How do you assess these questions in
comparison to the best performing competitor?

• Solutions experience: The more solutions experience a provider has, the more
likely it is that they can implement a high-performance customer solution at
optimum cost. How do you assess the extent of solutions experience in your
business field in comparison to your most experienced competitor?

• Network of competencies: In marketing as in processing, the solutions business

is a knowledge-based business in which the most important asset is the
employee. Essential questions are therefore: Does your BF have all the
competencies necessary to develop appropriate solutions for customer problems?
Can these competencies be called up quickly – possibly via IT tools (skills
database, networks, etc.)? Or do organizational barriers impede the exchange of
knowledge? Are new ideas welcomed and – if suitable – quickly implemented?
Overall, is the BF able to impress the customers with the qualifications and quality
of BF staff and thus to build up a constructive and durable customer relationship?

Notes on SGI 2007 4

Service Business
Definition: Services are usually delineated pragmatically by activities: consulting,
financing, project planning, technical engineering/integration, project management,
purchasing, logistics, setup/assembly, system startup, training, documentation, operation,
repair, service, renovation/modernization, or recycling/disposal.
There are two types of service: Product-oriented and value-added-oriented services. Both
service types should be operated and reproduced in your own BF.

− Product-oriented services are concerned with the necessary support and service for
product, system and project business as well as third-party business.

− Value-added-oriented services (Value Added Services) are independent services

involving design, consulting, financing, system integration or outsourcing

Depending on the nature of the service business, very different factors make an important
contribution to success. For this reason a pull-down menu should be installed from which
the following factors can be selected:

• Customer intimacy
• Industry know-how
• Knowledge of customer processes
• Customer intimacy (regional)
• Image / Branding
• Standardization
• Systems integration capability
• Response times
• Experience / solution experience
• Network of competencies
• Project planning tools
• Financing models

Notes on SGI 2007 5