In A Tale of Two Cities, Charles Dickens wrote about life in London and Paris during the French Revolution. The story included this iconic opening line:
"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, ..." A Tale of Two Cities, Charles Dickens
The same could be said today for industrial equipment companies trying to survive the “Internet of Things” revolution. While it is a time of opportunity for the industry, many companies will not make the transition to the new business models.
Identifying Your Customer and Their Goals
During our last post in this ten-part blog series, “Focusing on Customer Outcomes for Their Benefit and Yours”, we ended with two simple questions that we believe are the key to successfully making the transition from a solely product-based business model to offering customer outcomes:
- Who is the customer?
- What is their desired business outcome?
These questions are deceptively simple, but we’ve seen many companies get them wrong. Some have identified the procurement manager as the customer, and the supplier’s gross margin as the business outcome. A good way to illustrate the difficulty and implication of answering these two questions is with a “Tale of Two Companies”, both of which are serving customers in the Test and Measurement marketplace.
Example 1: Focus of a Traditional Product Company
In this example, a traditional product company started down the Remote Services Continuum and have used smart, connected products to drive service efficiency and process optimization. The next logical step is to drive business outcomes of a customer’s Integrated System.
- Integrated system: Connecting multiple products within a process and a production system to achieve pacesetter operational system performance.
- Customer: Plant Manager/Operations Manager
- Key Business Outcomes: Mean Time Between Failure, Mean Time To Repair, Equipment Uptime.
Example 2: Opportunity for a New Entrant, Software Company
In this second example, a new entrant is targeting improvement of the customer’s ultimate business outcome by addressing the entire value chain. Since they are unencumbered by legacy product definitions and entrenched ways of competing, they see software that connects products within an eco-system as the core advantage, rather than the product itself.
- Eco-system: Expansion of traditional industry boundaries, i.e. individual “integrated systems”, by linking multiple “integrated systems” with external data sources to improve and guarantee business outcomes.
- Customer: Vice President/General Manager
- Business Outcomes: Conversion Yield, Effective Unit Cost, Revenue.
Both companies have clearly gone beyond the first steps in the Remote Services Continuum of Service Efficiency and Process Optimization, and are now delivering business outcomes. However, the subtle difference in identifying the customer and their desired business outcome can have significant implications for product design and long-term success. (Tweet this!) For instance, an integrated system approach is operational and cost focused while an eco-system is business and revenue oriented in nature.
Making it the “Best of Times” for Industrial Equipment
Given that typical product development life cycles for industrial equipment companies are measured in years instead of months, product decisions made today won’t hit the market for a while. These decisions include whether connectivity will be an open or closed system, whether the diagnostics are embedded or in the cloud, and help determine the type of product usage data and system performance data that will be collected.
Although not a historical priority, spending extra time on data and analytics is incredibly important. (Tweet this!) Analytics is a required capability for companies transitioning to an outcome-focused product and service provider. As customers insist on suppliers becoming more outcome-focused, designing products that aim at the integrated system will result in shooting behind the target.
Also, a lack of understanding of the ultimate customer business outcome can result in companies giving away too much of the value realized from improved product performance. For example, while improvements in equipment uptime will reduce costs, those savings can be dwarfed by the value generated through increased product yield at the end of the process. This reflects the difference in how companies answer the two questions of “who is the customer?” and “what is their business outcome?”
Find Out What Outcomes Your Customers Want Through Analytics
TSIA understands the central role of data in driving customer outcomes and Jeremy DalleTezze leads the data analytics practice at TSIA. In an earlier blog post, Jeremy defines Business Analytics as the organizational process of improving outcomes by leveraging data.
A common service business challenge faced by TSIA’s membership is “How do service organizations leverage analytics to reduce costs and improve service offerings?” (Tweet this!) In response to this business challenge, Jeremy established a Consumption Analytics Framework to help companies build out this important capability (summarized below):
- Question Inventory: Compile the questions you should answer that drive the largest ROI for the customer.
- Data Inventory: Assimilate the required data streams for to address your questions.
- Basic Consumption Analytics: Answer the “what” and “when” questions about your customers.
- Advanced Consumption Analytics: Answer the “how” and “why” questions about consumer behavior and consumption.
- Strategy & Decision Making: Integrate analytics into the business processes to offer optimized outcome based service offerings via forecasts, experiments, and simulation
In order to make today “the best of times, the age of wisdom, and the epoch of belief”, industrial equipment companies need to set their sights on improving the business outcome of the customer’s eco-system. To learn more about how TSIA can guide your industrial equipment company down the right path to offering customer outcomes, request a membership briefing. You can also watch our on-demand webinar, "IoT and the Hardware Industry: The Remote Services Continuum". In our next post, we will address how services and sales can work together today to drive business results for your company. Stay tuned!
Read more posts in the “Intro to IoT” series:
- Smart Products Need Smart Services: How IoT Affects Industrial Equipment
- Driving Service Efficiency in the Age of IoT
- How IoT Process Optimization Can Improve Customer Outcomes
- Focusing on Customer Outcomes for Their Benefit and Yours
- Collecting the Low-Hanging Fruit in IoT
- Breaking News of How Analytics are Enabling Services Growth
- Your Strategy for Escaping the Complexity Avalanche
- Organizational Structure and Capabilities Along the Remote Services Continuum
- Leveraging Your Field Service Engineers to Drive Revenue
About the Authors
Vele 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 firstname.lastname@example.org, or connect with Vele on Twitter @.
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 email@example.com.