Collecting the Low-Hanging Fruit in IoT

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Low_Hanging_Fruit_IoTIn the age of IoT, companies are manufacturing smart, connected products, driving service efficiency, and optimizing customer processes that drive improvements for both themselves and their customers. However, before you can begin focusing on customer outcomes and understanding the systems your solution is in by leveraging analytics, you need to create the right B4B offer types that follow the Remote Services Continuum and connect with your sales initiatives to create profitable growth.Remote_Services_Continuum

(Click image to enlarge).
The Remote Services Continuum.

A Real-World Example

One TSIA member, a machine manufacturer, increased their customer install base under contract, with the addition of remote service contracts. To realize this: 

  • A trusted platform was created to connect with customers in a standardized way.
  • Traditional remote services were extended by analytical service and predictive support. 

The support center was also able to leverage remote services to create significant improvements in efficiency and customer satisfaction by improving time to diagnose by 50% and reducing mean time to repair by 25%. So far, they're off to a great start!

Products as Part of a System

Smart, connected products can also be part of an integrated system, or even a complex ecosystem. In this world, a machine needs to support M2M (machine to machine) communication, as well as communicate with the system it has been embedded in by your customer. (Tweet this!) This means that interoperability of products with all kinds of systems is a minimum requirement for today's products.

Making the Integrated Systems Work for You

Within the traditional sell and ship model, the strong reliance on product-attached services often results in commoditization of your traditional support and maintenance contracts. Is there some low-hanging fruit that can be gathered from insights created by analytics and the connectedness?

Some (big) accounts are building their own ecosystem, and most customers will be part of one or several of these ecosystems. The main players are building the capabilities and platforms (e.g. GE and Siemens) or providing the technology (e.g. Trimble Navigation) to run platforms and allow their customers to build up their system. Success will be determined by your ability to have open and flexible interfaces as part of the relevant systems. Additional capabilities also need to be acquired to offer remote and analytics services inside of those systems or to use those platforms for your purposes. To provide, run, monitor, and service integrated systems, suppliers need a critical mass to scale the investments. So, it is critical to capture as much value as possible from the data created with your products, but also determining which third-party equipment you can capture and leverage for data-driven services. 

Offer Premium Support Contracts

It is also important to provide differentiated maintenance and support contracts, from "basic" up to "premium" support. (Tweet this!) The premium support level can include high-end remote and analytics services, and no one can do that for your products better than you can. If you need help making a case for this, TSIA Field Services benchmarks show that FS pacesetter margins are 24% higher than the average margin of industrial equipment manufacturers. What are the high gross margin practices? A few of the pacesetter practices that drive this improvement are:

  • Using field service workforce to drive sales.
  • Focusing on customer satisfaction. CSAT has a higher priority than driving revenues or profit.
  • Realizing a high remote resolution rate to prevent onsite visits.
  • Maintaining high contract coverage of installed base.

How Do You Reach High Contract Coverage?

TSIA recently benchmarked the maintenance and support business of industrial equipment manufacturers. One key finding is that the support attach rate, defined as a support contract is sold with the initial product deal, is 20% lower for industrial equipment companies than the global hardware benchmark of our service revenue generation discipline. Increasing the initial attach rate is another opportunity to realize stable, profitable, and predictable revenue streams.

Some pacesetter practices that enable improved performance include:

  • Train product sales to position the value of maintenance and support services.
  • Invest in service sales specialists to work collaboratively with product sales on their new product deals to ensure support services are positioned and sold appropriately from the beginning. 

To push the initial attach rate with one of these two options is a minor investment compared to the incremental increase in stable and reliable revenues. TSIA even provides a handy tool, TSIA's ROI Calculator, which allows you to do the math and calculate the return of an incremental increase in the support attach rate. 

With an increasing volume of contracts, we recommend professionalizing the renewals of the contracts, which are crucial to minimize the attrition rate, and opens up the opportunity for upsell to higher contract levels. If you'd like to learn more about increasing your install base of maintenance and support contracts, you can download the abridged version of this study. If you are interested in the full readout, contact us to participate in this benchmark.

Contracts in a Connected World

In a connected world, contracts will get more complex to cover the impact of the systems in which your equipment is embedded, which will challenge sales and offer management. Understanding the business outcome of your customers will help you overcome this challenge.

On the other side, you have more strategic opportunities to offer higher-level services like adoption services (consulting, machine upgrades, process optimization, etc.) and managed services (asset management, third-party maintenance, and repair, etc.). 

In your offer development process, you need to be careful not to spend too much time on features and services your customer doesn't need, which will be the topic of our next post in this series. Stay tuned!

Read more posts in the “Intro to IoT” series:

About the Authors

vele-galovskiVele Galovski is vice president of field services research and advisory for TSIA. During his career as a services executive, he has provided thought leadership and driven breakthrough performance in high-profile assignments in a diverse set of companies, including Xerox, Eastman Kodak, Bank of America, NVR, and several cloud services startups. 

Throughout his nearly 30 years in industry, he has consistently driven double-digit top-line growth with a proven retain, gain, and grow strategy; and bottom-line profitability with a focused cost-down process. He may be reached at vele.galovski@tsia.com, or connect with Vele on Twitter @vgalovski.

Harald-Kopp_new Prof. Harald Kopp is TSIA's director of industrial services research, as well as a teacher in a MBA program for sales and service engineering at Furtwangen University, Germany. His focus is chiefly on services in industrial automation, equipment, instruments and technology companies. He has 20 years of experience in the areas of research, consulting and management in industrial services, supply chain management, and IT-Management in industrial equipment, automotive and enterprise IT industries. He may be reached at harald.kopp@tsia.com.

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Topics: pacesetter, field services, industrial equipment, internet of things (IoT), remote services, Intro to IoT

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