Service operations capabilities are at the heart of successful transformations. IDC believes that much of the focus in recent years has been on providing staff with good tools to deliver basic services, rather than creating new services and updating the flows to support those.

 

One example is mobile access. The first chart in Figure 9 shows how the spread in choice between good performers (Stage 3 and 4) and subpar performers (Stage 1 and 2) is very thin. Most companies across all sizes have managed to provide their field workers with decent capabilities, even if only providing augmented features.

 

 

On the other hand, innovation on service portfolio is overall a far more immature topic. Approximately half of the companies surveyed offer maintenance contracts at best. Another 30% augment this with financing, which means barely 20% are focused on innovating services. On top of that, there is a very large rift in regard to service creation between good performers (Stage 3 and 4) and subpar performers (Stage 1 and 2), as shown in the second chart in Figure 10. 70% of the slow performers have haphazard approaches to service creation, the complete reverse of what Borderless and Joined-Up enterprises do.

Another key discerning element in service operations excellence is the ability to have a two-way process and data flows between service management and back-office functions. 40% of the organizations surveyed have zero interlink of key systems (ERP, FSM, supply chain), suggesting a fully fragmented value chain, and just 15% have two-way links, meaning manual or sensor-based input from field service processes triggers information updates and actions in ERP and supply chain systems.

The final key success factor is related to skillsets, both in the field worker group and in the leadership team.

• Field workers need to be not only apt at using and understanding technology, but also enthusiastic about expanding their knowledge and abilities at a much faster pace. Annual training and “experience” are not enough when product updates happen monthly over-the-air and digital applications are part of the portfolio.
• Lack of know-how or internal capabilities to run a services business is ranked as the number one hurdle to servitization. IDC believes it is very hard for companies in production-oriented industries to hire executives that are capable of innovating on the service side of the house.

Eyes on the Prize — What Borderless Enterprises Teach Us

Assessing the status quo is important. But what should companies aim for? What are the benefits of becoming a Borderless enterprise and the traits defining one? The in-depth Barometer research allows us to start answering those questions:

• Companies should start investing in a long-term service vision. 90% of the best performing companies expect business model revolutions in three years with pay-per-use, outcome-based services, and ecosystem monetization all playing a role. This compares to 15% in the sample average. They also already generate 12% of their revenue from services, versus an 8% average.
• Front-end capabilities must be proactively built. The ability to immediately route calls from the contact center to engineering support is a strong indicator of leading organizations. Similarly, Borderless companies have often managed to build fully automated troubleshooting capabilities for end customers. Data is automatically synced from in-field products to the cloud, issues are logged, and solutions proactively offered.
• Strategic partnerships are critical drivers to success in servitization. Becoming a Borderless organization requires an ecosystem approach to the development of data-driven digital services. Organizations at the most advanced stage of servitization maturity are monetizing co-creation initiatives to enrich their services portfolio by leveraging the capabilities of partners in adjacent industries.

 

Figure 11 (below) shows other traits as well as the immediate benefits of being a Borderless enterprise. Much higher profitability and above-average revenue growth are both enjoyed by these types of companies.

 

 

While it is true that real Borderless enterprises are relatively hard to come by, it is imperative that businesses look to them as examples and start acting now. At the Joined-Up stage (Stage 3), roughly one-third of companies in the market are within striking distance. IDC believes many members of this group are very likely to “up-rank” in a two to three-year horizon. Remaining in the bottom ranks would mean becoming pigeonholed in a low-margin, low-growth mode for the foreseeable future.

 

Getting the Low-Hanging Fruit

IDC maintains that some low-hanging fruits can be achieved even by moving up from the lower stages of servitization. Figure 12 provides a summary of the potential gains and likely roadblocks on the path towards a Borderless enterprise. While there are multiple ways to move along the servitization journey, some common patterns start to appear. In particular:

• Strong profitability and sustained revenue acceleration are visible from Stage 3 onwards. As almost 50% of buyers sit in Stage 2, it is recommended that they build expectations around those KPIs as they connect their whole value chain. Failing KPIs would be a sign that the journey is not progressing
• The last, trickiest roadblock is linked to decision making. Transformation towards a service-first business model will eventually pass through the leadership. In the Barometer survey, 85% of respondents said they were part of a decision-making group that typically involves Head of Products, Head of Services, and often Head of Operations, plus the IT side of the organization. Building the right “dream team” dynamics will be crucial to ensure success in the final stages.

 

IDC Advice to End Buyers in Production-Oriented Industries

On a backdrop of subsiding demand for traditional products, IDC sees a clear trend emerging towards augmenting products with services, and ultimately transforming traditional physical supply chains into open ecosystem value chains. This transformation process is called servitization, and it is to be understood as a subset to digital initiatives.

While only a few have achieved the servitization “nirvana” of the Borderless enterprise, more than a third of companies globally are already Joined-Up, poised to get within striking distance of that vision soon. Those fast movers already have proof-points to show for it, including:

• Service revenues that are on average one-third larger than their peers’ as a proportion of total revenue
• 5X more chance of accelerating top line growth above 5% yearly
• Much greater likelihood of showing profitability improvements thanks to DX initiatives

IDC recommends every company in all physical value chains get moving as soon as possible. Laggards are likely to find themselves pigeonholed in low-profit niches within the next two years if they fail to do so. Based on our research, IDC recommends the following strategic and tactical best practices.

 

Strategic Best Practices

1. Work with the leadership to build a “dream team” involving Head of Products, Head of Services, Head of Operations and CIO/CDO that aligns early on strategic objectives for servitization. This transformation process will impact all those departments (and more). While initial attempts can work without coordination, data shows that internal conflicts are the biggest obstacle in Stage 3 and beyond.
2. Be proactive in customer-centricity. No servitization can happen without a strong, ultra-connected customer engagement function. Even good performers appear to struggle to go beyond basic tools and processes. Combining customer metrics with operational scores and above all being ready to invest in staff and technology from day one is highly recommended.
3. Set key performance indicators and make them public. IDC research shows that revenue growth accelerates when crossing the chasm to servitization. Financials can be volatile, though, especially on a quarterly basis and even more so when business model change hits. Measuring other items such as the percentage of service revenue in each division, field service worker satisfaction, and net promoter score is recommended to keep a steady pace and not lose sight of the end goals.

Tactical Best Practices

1. Put together a small “Services Tiger Team” as soon as possible. The team should be comprised of mid-senior members across the “dream team” divisions, including IT. Its key objectives should be to review and classify existing services, related processes, and profitability (Phase 1) and to ideate new offerings to test in the market within twelve months (Phase 2). For the sake of iteration, multi-year launches are not recommended.
2. Perform a complete review of your data flows end-to-end. To test how well connected your backoffice and front-desk are, first pick your best-selling product. Then analyze whether contact center and field service agents have consistent information about parts availability, whether they can directly augment or modify information in back-office systems, whether potential IoT or third-party component supplier data is consistent, etc. This will quickly highlight bottlenecks in process and information.
3. 3. Kill all of your IoT projects that don’t generate events in either service management or ERP/ supply chain systems. Focusing efforts on actionable data is a must. Chances are you already have IoT data collection from end products or the supply chain in place — often without a production use case. IDC recommends ruthlessly eliminating those to make space for IoT projects subordinated to the launch of new service offerings.

 

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Further Reading:

• Read more about Servitization and Advanced Services @ www.fieldservicenews.com/blog/tag/servitization-and-advanced-services
• Read more about Digital Transformation @ www.fieldservicenews.com/blog/tag/digital-transformation
• Read exclusive FSN features from IDC's Aly Pinder @ www.fieldservicenews.com/blog/author/aly-pinder
• Read FSN Features and News from the IFS team @ www.fieldservicenews.com/hs-search-results?term=IFS
• Find out more about the solutions IFS offer to help field service companies @ www.ifs.com
• Follow IFS on Twitter @ twitter.com/ifsuk