On February 21, 2017, FGSD celebrates 15 years of existence
FGSD Anniversary: Looking back with pride
This year Foxconn Global Services Division (FGSD) celebrates 15 years of existence. The company was written down in the Czech Commercial Register on February 21, 2002. Thus, the Foxconn Group launched its new initiative: a complex center of aftersales services for technology manufacturers. The new company took soon a life of its own. Focusing on repairs, refurbishment and, more newly, legal compliance and recycling, FGSD is tapping into its potential as vividly as 15 years ago. But how did it all started? How did the service market for technology companies look like 15 years ago? All these questions are answered by Henk Knoop, one of the company founders and FGSD CEO until 2012.
Henk, you were one of the people who were present when FGSD was created back in 2002. How did it all start?
It started in fact a year earlier, when we had a conversation in the Netherlands with Jim Chang (E.N.: the founder and first managing director of FGSD, which was then called Logistics Services Solutions). We were talking about setting up a service organization for Foxconn and we exchanged some ideas. What happened then is that over the course of a year we exchanged more and more ideas until November 2002 when we said that we need to start. I was asked when I could start and I said early February 2003.
Were you operating from the Czech Republic from the very beginning?
Not at all. We did meet with Jim in Prague – I also brought my wife because I wanted to see if she would want me to work in the Czech Republic. At that time the Czech Republic wasn’t part of the EU, so we didn’t know that much about the country. I was working for HP and was traveling around Europe a lot, but still had never been to the Czech Republic. When we came Prague was just recovering from the heavy floods of August 2002, so not the most compelling first impression. Yet we came to an agreement with Jim Chang about how I could work. That’s how we started setting up a service company for Foxconn.
What were your next steps?
We started thinking about the concept: what we wanted to achieve and if Foxconn had the same idea. We wanted to reach black numbers in two years, so we could invest for two years, but then we had to see the return on investments. When you think of a new organization you also think about the rest that you need: a system, policies and procedures, and people. You start thinking about the type of people that you want on board and you start looking for those people, because two years is a short time. Then you need to choose the system to work with. We selected SAP and started to build it. The goal was to have the system in place in a six-month time frame. Another goal was to find our first customers. So we needed to start a network of relationships and people to achieve that. Above all, we needed to activate the service mindset thinking in Foxconn, because the organization was rather manufacturing and not so much service-minded at that time. Now Foxconn stands much better in this area than back in those days.
When you were thinking about building a new service organization, what kind of services did you have in mind?
Aftermarket services. It could also be some light manufacturing, like the accessory kitting that FGSD does today, but we were thinking mainly at aftermarket services, which include any type of issues the customer might need after buying the initial technological system. For example the client can return the initial system if it doesn’t work or he might need repairs, accessories and so on.
How were you attempts to build this new service entity received by the other managers in Foxconn in Europe?
I think it was educational for both sides. They recognized that they need services. It often happens that a product doesn’t work and what the customer always remembers is how he is being serviced when a product goes down and how quickly the product is up and running again after some failure. Services can also make relations with a client stronger. If you have bad service, even if you have a good product, you won’t sell it again. If you have a product where quality is still in development, but you rely on services to keep the customer happy, then you might still get away with it. That’s what we needed to explain to our colleagues in manufacturing.
So what are the basic differences between a service and a manufacturing mentality?
I’ve always said that services are quite difficult. In manufacturing you get a forecast from the customer and you know exactly what to build and how to build it. You move straight forward knowing exactly what to do and when to do it, you can plan production, make a product and then ship it out of the door. Manufacturing is quite a clear, simple and straightforward process. In services you never know how many products will go down; when they do, you don’t know in advance what part of the product is faulty. It could well be a product that is fairly old and isn’t manufactured anymore. That’s why you have a totally different ball game. You don’t see forward and you can only look back at what has been sold. I always compare manufacturing and servicing to dancing: the man / manufacturing looks forward, he leads and sees the whole dancing floor. The woman has her back towards the direction where they are going and can only rely on the guy’s skills to be led correctly. You need to know what was sold and where, then you have to ensure that you have a certain number of products available to guarantee a certain response time. That’s what we needed to tell people at the beginning and make sure they understand because this whole process costs money.
Who pays in the end for this quite sophisticated dance, as you put it?
Well, the customer pays for it of course, but he only pays a certain amount of money. It’s up to the services guys to make it work with the little amount of money that you get. Our fees were always based on failure percentages, so there is a certain amount of money that has been allocated, but you have to work with that for long periods of time even if the product went through several updates during its life cycle. That’s not always easy. That’s what people often forget: that you’re servicing a product over a whole life cycle, which is far longer than in manufacturing. For us a product life cycle could be many years – in the case of government contracts even tens of years.
Who was your first customer?
It was HP in Scotland. They were delivering all kinds of things – we were fixing and shipping mother boards all kind of stuff. We had a different name back then and we were mainly operating from the Netherlands. Our first site was near Roermond. We did this with the help of a Scottish team. Then we hired our first product manager to cover the HP products services.
When exactly did you start developing activities in the Czech Republic?
It started when we moved here two years later. We started to build our operations in the Czech Republic first with those products that we serviced abroad, then we moved into the repair of mother boards.
You left FGSD in 2013, ten years after its foundation. Could you point at a couple of milestones for the company during this decade when you were with FGSD?
I think what was crucial was that we started developing the SAP system and train people on it. This was very important because then we had a mechanism that supported the process that we wanted. The second thing was the moment when we started accepting business in the Czech Republic. We also reached an agreement with the team in Foo-Ming to take over the hardware services on the high level boards and do that as well from the Czech Republic. Of course it was also crucial that at a certain point in time – 2006-2007 – we quoted on the accessory kits, won them and made a good deal that lasts until today.
The economic crisis hit the Czech Republic right after 2008. How do you experience the impact of the crisis on FGSD?
What happened is that work wasn’t coming that easy anymore. So we had to start looking for new customers. Normally we had the manufacturing units that we could work with to help with gaining access to customers, but that changed completely. Now everyone was fighting for business. That’s why we had to set up a new strategy and go after the market ourselves. So we set up a business development team, whom we trained. It took us two to three years before we started reaping the benefits of this step. In the meantime we also started to develop strategies meant to distinguish us from other service companies. We asked ourselves why anyone would choose us over our competition. We started working at the Control Tower concept and prepare the system behind it. That proved to be a good move, which, in the end, helped the organization to get more business in.
When you left in 2013 the economic recovery was just reaching the Czech Republic. Have you still kept in touch with the company? What are your observations on the new economic landscape in which FGSD operates nowadays?
Indeed I still have been in the Czech Republic several times since 2013 and I kept in touch with the FGSD management on a friendly basis. We exchange ideas on how to move forward.
Compared to when you started in 2002 where do you think that the potential for aftermarket services lies nowadays?
At one point in time I made a five-year strategy plan for FGSD. I think most of that plan has now been accomplished and all the things that I assumed to happen have happened. I guess what the company needs is another similar plan where it would look at the latest developments and how they impact the business, be it existing or potential business. I still see many possibilities for services but it definitely became a different ball game. There are many services companies today, but there are not many who have the FGSD Control Tower concept. I think that you don’t have to own all the capacities and capabilities, but what you need to do is to control it. By controlling it you determine where a service item is being sent, and as long as you can guarantee the quality of repairs and the turn-around time, then the customer will be happy. That’s how you can use or put yourself in the middle as being the one who manages the services requests and does all the monitoring and control of it.
You talk about competition. Do you really think that FGSD operations should be concerned with the rise of these smaller service companies that you mention?
Well, there are a lot of smaller entities – you see them all rising. When we started only a few companies could repair an iPhone; today everyone can do it. But if you can streamline that process and set up a quality system and an operating system that does all the follow up and ensures the flow of repairable items, if you do all this, if you organize all around it and take it away so your operators can do what they can do best, which is repair, then I think there is still a lot of business out there. Then with the mock-up and the service charge there would be more money and less risk then one currently has by doing everything by oneself.
What do you think is the key for any service organization to succeed in today’s business environment?
Visibility and transparency. You need to be visible for customers; they need to know that you’re there, so they need to be able to find you very easily in all kinds of media so they can require your services. Transparency means that when you take on the services request and put it into action, the customer is able to see the service request being processed transparently in the system. You don’t want too much interaction with the customer on this. Any time the client calls to ask you about their service request, it costs you money. Your profits will all be soon gone if you pick up the phone for every request several times. If you want to prevent that from happening you need to be transparent. At the same time you need to build up this relationship network with all kinds of providers of services – repairs, parts, logistics, warehouses, you name it – that you can engage to fulfill the services request of the customer. If you do this, that’s the future.