In our previous blog post, we shared an extraordinary earnings report from GE that highlighted the revenue-generating capability of IoT by combining smart, connected products with smart services. When GE Aviation collects 5,000 data points per second from “tip to tail” sensors, the knowledge gained from analyzing the data can drive condition-based maintenance, fuel savings, and risk reduction, all of which result in greater bottom-line profitability for their customer and incremental revenue for GE.
The Consumption Gap
This type of direct involvement in improving customer outcomes is a dramatic change for companies. The traditional approach adopted by product companies to enhance their unique selling propositions (USP) is to add features and functions to the product. The primary reasons for this are:
- Customers specifically ask for them
- Stay ahead of competitors who are also adding features
- Engineers want to show they can do it
However, product companies are facing a dilemma: The Consumption Gap. This gap represents the difference between the value the product could provide to the customer and the value it actually provides resulting from the customers inability to actually use the new features. (Tweet this!) So, while product companies are more than willing to add these features, customers are not willing to pay for features they are not using. This challenge was described in TSIA’s book, “Complexity Avalanche” (2009), which provides guidance on preventing the consumption gap. Those findings were then further developed in “Consumption Economics” (2011) and also led to the creation of the “B4B” (2013) framework.
The Danger of the Complexity Avalanche
In the age of IoT, where the amount of smart connected products and devices will increase by 15 – 20% each year, and over 30 billion objects will be connected to the Internet of Things by 2020 (McKinsey), the complexity avalanche is picking up speed as it heads downhill. Each of those 30 billion products will have features and functions that will create data, and companies are creating remote analytics and optimize services to capture additional value and fight commoditization. With this explosion of data, the industry faces a real risk of creating another consumption gap that offers more than what the customer can absorb.
In the future, companies will have to manage the complexity of individual products, as well as multiple products that are embedded in ecosystems. This complexity threatens to do the following:
- Increase sales costs
- Increase R&D costs to connect products with several systems
- Make it very difficult and costly to service them
A key lesson from GE’s success is to focus data collection and analytics efforts on improving the customer’s outcome. As we have noted in previous posts, most companies start with a focus on improving service efficiency.
Outcome Focused Services
As companies design new service offers, they will need to shift from services that are centered on their installed base to services that are centered on driving business outcomes for customers. (Tweet this!) This means that product providers will have to transform their offer design and selling motion to truly be services-led. For a majority of product companies, this is a major transition.
As a result, product companies are revisiting the types of services they provide their customers. Instead of service portfolios weighted in implementation and support, product companies are expanding their service capabilities to help customers throughout the technology adoption life cycle.
B4B Offer Types
Here are some B4B offer types as they relate to IoT:
- Base Support: These are the traditional product focused services that will always exist in some form.
Examples: Break-Fix, Spare Parts, Commissioning, Call Center, Incident Management, Product Training, Basic Remote Services, and Preventive Maintenance.
- Premium Support: These are product-attached, proactive, and tech-supported resolution services to optimize customers’ processes.
Examples: Proactive and predictive remote and maintenance services, Audits, Calibration, Modernizations, Multi-vendor Services.
- Adoption Services: These are services designed to help customers maximize their usage of technical capabilities. These services include self-healing, consumption analytics, operational services, and best practice playbooks by role, industry, and asset.
Examples: Remote Operate, Self-Healing, Consumption Analytics, Consulting, Assessments, Process Optimization, Asset Management, Industrial Services.
- Outcome Services: These are services designed to deliver specific business outcomes and provide product-as-a-service. These services focus on helping customers realize specific cost savings or revenue increases. They will also be sold based on the actual business value realized by the customer.
Examples: Outcome-based full service contracts, Business Domain Consulting, Managed and Outsourcing Services based on Outcome SLA’s.
It is important to clearly define these categories and align service offers to them to avoid the inevitable tensions between service lines that provide traditional base and premium support and the teams providing adoption and outcome services. TSIA has observed that providing adoption and outcome service offers often results in a blurring of traditional organizations since they require capabilities and resources from sales engineering, field support, and professional and education services.
Three Tactics to Consider to Prevent the Complexity Avalanche
The new services portfolio that is developed along the Remote Services Continuum will need to successfully deliver services that are designed to drive business outcomes for customers, while also preventing the complexity avalanche. As this migration in the service portfolio unfolds, TSIA recommends product companies consider these three key tactics:
- Clearly define the new type of service offering. This blog-series provides a recommended framework for the new service types in industrial equipment. Regardless, your employees and your customers need a clear vision of what types of services your company intends to deliver. Find your balance between standardization and customer-specific service adoption.
- Harmonize the services organizational structure. After defining your next-generation services portfolio, you need to realign the traditional service lines to map out your new services portfolio. The longer you hang on to dated organizational structures, the higher the potential for service revenue turf wars.
- Assess organizational capabilities. Finally, TSIA believes the next-generation services portfolio will require a set of organizational capabilities that will be new for many technology service reorganizations. The new service types will require adept value-based pricing, a heavy use of customer analytics, and a deep understanding of customer business processes. These are all capabilities that technology asset-based service organizations have had little reason to master.
Want more guidance on services organizational structure and organizational capabilities? Stay tuned! We’ll be diving deeper into this subject in our next blog post.
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
- Surviving the IoT Revolution: A Tale of Two Companies
- Collecting the Low-Hanging Fruit in IoT
- Breaking News of How Analytics are Enabling Services Growth
- 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 email@example.com, 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 firstname.lastname@example.org.