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Jan Van Veen, Managing Director, moreMomentum explains how field service companies can thrive in a disruptive industry...

The key challenge

In the manufacturing sector, a popular topic is the potential disruption, driven by:

• New technologies like artificial intelligence, Internet of things and augmented reality
• New technology specific to the equipment we offer
• Changing customers
• Emerging markets
• New entrants into the industry

And the potentially disruptive new value offerings, operating models and business models which could emerge.

As manufacturers, we run the risk of missing the boat, so the question is: Disrupt or Be Disrupted? Most of the companies will not be able to disrupt but certainly, need to know how to thrive in a disruptive world.

In my view, the following is required to be successful:

1. Full understanding of disruption and its potential impact for the business
2. Clarity on what needs to change in your business to thrive in a disruptive industry
3. The high pace of continuous change to innovate and execute

However, too often I see misconceptions about disruption and disruptive innovation, a lack of clarity on what needs to change and too slow a pace of change.

By consequence, manufacturers tend to make inadequate assessments and develop inadequate strategies, allowing leading competitors and new entrants into the industry to take the lead.

In this article, I will focus on what disruptive innovation is, the impact and how to prevent typical pitfalls.

What is disruption?

Disruptive innovation is a nasty beast. We have seen quite a few strong brands (almost) disappearing because of disruption, like Kodak, Nokia, IBM computers and Polaroid to mention a few.

For clarity, I’d like to categorize innovation along two dimensions:

• Impact: mainstream versus disruptive
• Scope: Customer value versus internal capabilities

Mainstream innovation

Mainstream innovations annually improve the value of products and services (including the related internal capabilities) as expected by the market. The aim is to increase our value and margins by better serving our best clients.

These innovations can be small and incremental or more radical.

Examples of incremental mainstream innovations are improved fuel consumption of cars engines, improved uptime of the equipment we sell through more reliable equipment and better maintenance.

Examples of more radical mainstream innovations are cars going electric and our services becoming more predictive and performance basedExamples of more radical mainstream innovations are cars going electric and our services becoming more predictive and performance-based.

Manufacturers that fall behind the competition, have not been disrupted yet The majority of the manufacturing companies are too slow in driving the mainstream innovation and see leading competitors achieving higher growth rates, higher margins, more service – recurring and stable – revenue and higher customer loyalties being ahead of the game. As Jack Welsh said: “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”

Disruptive innovation

Disruptive innovations break with the ongoing and upward trend of improving value. There are two ways of disruptive innovation: offering lower value at a lower price for the low-end market or offering lower-barrier solution opening new market segments which have not been served so far.

At the early stages, disruptive products and services serve a small niche, often at a lower value level.

These solutions will follow a mainstream innovation journey, increasing value and price. Gradually the products or services become a viable alternative for a larger portion of the markets.

Examples of low-end disruptions are the low-cost airlines, which offer flights at lower service levels and lower prices. This is quite attractive for business travellers who do not want to pay a premium price for meals and convenience.

One example of new market disruptions in which a new product or service serves other needs are the PC’s, which after some time started competing against the mainframes. Another example is salesforce.com, which offered so much more flexibility and lower cost of ownership than the traditional on-premise CRM systems.

Innovating internal capabilities

New technology enables us to develop new organizational capabilities.

For example, the low-cost airlines have adopted quite different operating models which allow them to consistently fly at much lower cost and hence maintain good margins at a low price level. For service operations, we see many manufacturers developing capabilities like remote service, connectivity, big-data and algorithms and predicting failures.

These, in themselves, are not value propositions and have no value for customers. However, these can be crucial capabilities for new service propositions.

Innovating external (customer) value

For maximum impact focus on customer value, not on capabilities

The real impact to drive competitive value is by addressing unmet needs or barriers to use new technology or solutions with a new product, services or integrated solutions. Examples are:

• How Rolls Royce offers a zero-disruption proposition for aerospace engines in which clients only pay per flight hour
• How MAN reduces fuel consumption by improving driving behaviour
• How Caterpillar helps managing a construction plant and will ensure at every stage of the construction the right number of the required equipment is available.

Besides the services and products, we can also increase value by enhancing customer experience, our brand and (lower) price levels.

Why does this matter?

At the early stages of a disruption, incumbents may see the new products and services entering their market.

However, compared to business-as-usual, the new products and services are relevant for a small niche only, the market volumes are small and the added value often is much lower. Their best clients are not interested.

At the early stages of a disruption, incumbents may see the new products and services entering their market.Above that, there are so many trends and new innovations, it is hard to predict which ones will become successful. This, together with the pressure to optimize top-line and bottom line and adequately serving our best clients, means it is easy to ignore the signs and consider them as irrelevant.

Disruption most often comes from outside your industry

Historically it appears that often incumbents beat new entrants when it’s about mainstream innovations, as they will defend their main business with valuable clients. However, when it’s about disruptive innovation, new entrants disrupt the industry and incumbents only start to respond (in panic) when it’s too late.

The new entrants have built the knowledge, capabilities and the brand which makes it tough for incumbents to catch up in time.

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In the Big Discussion, we will take one topic, bring together three leading experts on that topic and put three key questions to them to help us better understand its potential impact on the field service sector...

This issue our topic is the what to expect in 2018 and our experts are Michael Blumberg, Blumberg Advisory, Bill Pollock, Strategies for GrowthSM and Jan Van Veen, moreMomentum

The first question we tackled was What is the biggest challenge facing field service companies in the next 12 months?

Now let's turn to the second question in the discussion...

What is the biggest opportunity facing field service companies in the next 12 months?

Bill Pollock: The biggest opportunity facing field service companies today is the ability to compete head-to-head with any of their main competitors – however large or small – through the implementation and/or upgrade to a Cloud-based Field Service Management (FSM) solution. Over the past several years, Cloud technology has normalized the playing field for both FSM solution providers and their customers, who are no longer encumbered by the cost and complexity of their legacy premise-based solutions and applications.

Advances in technology are also giving a boost to those field service companies that have embraced these new technologies. For example, the greatest opportunities over the next 12 months will most likely be realised by those companies that will have already implemented Augmented Reality (AR) and/or Merged Reality (MR) into their field service operations. However, the most likely dominant field service organisations will be the ones that have also taken steps to explore the benefits of moving to an Artificial Intelligence- (AI) and Machine Learning- (ML) driven field service solution.

The technology is already there for every field service company; however, only those that embrace – and implement – these technologies will actually be able to reap the benefits.

 

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Jan Van Veen:  When talking about the biggest opportunities, I think we need to look beyond 12 months. It is mission critical to act now on future success.

Most industries are somewhere around the top of the life cycle and are facing (first signs of) commoditization.

The big opportunity for them is to go through the next life cycle where the added value is about enhancing the use of technology. The new value propositions will be heavily driven by data, algorithms and intelligence. The value will be far beyond predictive maintenance and uptime of technology.

This is a domain in which young, rapidly growing data-driven companies are in their comfort zone. So, the opportunity here is moving up the food chain and increase relevance for clients. By failing to pursue these opportunities, the threat is being forced down in the food chain and seeing other players deliver the high value, whilst seeing your role being limited to manufacturing equipment, spare parts and, to some extent, delivering low skilled hands-on machines for maintenance.

For those companies who are not ready to focus on these opportunities, I think your top priority should be to build the missing foundation and make sure you are ready to pursue the opportunities soon.

 

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Michael Blumberg: The biggest opportunity facing field service companies in the next 12 months lies in pursuing strategies that will advance their journey along the path toward servitization.

The specific strategies vary from company to company based on where they are on their journey. For some companies, 2018 will be the year when they finally transition their field service operation from a cost centre to a profit centre. For others, the opportunity lies in monetizing service offerings and effectively marketing and selling service outcomes.

Still, others will have the opportunity to invest in digital technologies that enhance service quality, boost productivity, and create an uber-like experience for their customers.

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The digital revolution in the field service sector is continuing to move forward at pace, Michael Blumberg, Principal Consultant, Blumberg Advisory Group helps us keep track...

It seems that there is no escaping the Digital Transformation Revolution in Field Service at this moment. A splendid example of this is the Servitization of Manufacturing. Servitization is about the journey a company goes through as it transforms from a product-centric company where service is an afterthought or a necessary evil to one that generates a sizable portion of revenue from services; where service is the business.  The ultimate example is a Product as a Service business.

This is sort of the razor and razor blade scenario where the manufacturer gives away the razor in exchange for the recurring revenue stream that comes from purchasing the razor blades.  Instead of razor blades, it services or more specifically, outcome-based services.  For example, paying for the usage or result (e.g., outcome) produced by a product instead of buying the actual product.   To deliver on the promise, the provider of this outcome most implement a broad array of digital technologies to ensure the equipment is up and running whenever the customer needs to access it.  Downtime is problematic so you need to have technologies like IoT, AI, AR, etc. to ensure this high uptime.

In parallel to the servitization trend is the general ethos that businesses need to disrupt or be disruptedIn parallel to the servitization trend is the general ethos that businesses need to disrupt or be disrupted.  Uber has become the poster child for disruption.  This has lead many Field Service Organizations, software vendors, and technology providers to promote the concept of “Uberization” within field service.

Let’s put the term Uberization into context, when I hear the term Uberization, I think of providing customers with real-time, on-demand, always on, always connected solution.  Other terms that people associate with Uberization are agility and frictionless.  Agility is the ability to scale quickly, frictionless is where touch points that would delay the time it takes to complete a transaction are eliminated.  We might also think of a solution that incorporates aspects of the sharing economy or gig economy.

The Field Service Industry is far from being a laggard when it comes to Uberization.  Examples of how Field Service Organizations (FSOs) are achieving this outcome include but are not limited to:

• Utilizing IoT to monitor equipment performance and send notifications and alerts about the condition and performance of the machine
• Leveraging Artificial Intelligence to interpret these notifications, identify and diagnose problems, and take corrective actions
• Transmitting dispatch orders, triggered by IoT alerts, electronically to an ERP or CRM system and using Dynamic Scheduling software functionality to assign the right person for the job based on the needs of the job
• Turning to a freelance management system platform to source and dispatch freelance technicians on-demand to scale to capacity during peak periods
• Using Augmented Reality, Virtual Reality, or Mixed Reality to provide less experienced field engineers with expertise they need to resolve technical problems they haven’t encountered before
• Relying on Big Data and analytics to optimize resource planning and allocation issues.[/unordered_list]

If FSOs are going to remain relevant and create value for their customers, their leaders must adapt and grow within the context of the trends identified above.   This motivation is required now more than ever.  Technological development and new business models are coming at such as rapid pace that leaders can afford to rest on their laurels or past successes of their company.  Past success does not guarantee future results!

In this digital age, companies must be faster, stronger and better than their competitorsIn this digital age, companies must be faster, stronger and better than their competitors.  A 5-year strategy is typically out of date within 18 months or less.  To survive and thrive in 2018, Field Service Leaders must have a crystal-clear vision about the outcomes they’d like to achieve within their organizations. They must pursue these outcomes with laser-like focus and adopt a sense of urgency about achieving these results.

Accountability to the mission is critical as is a mindset of certainty and a spirit of resourcefulness.

Quite often, the greatest of strategies and best of intentions are not pursued because of a lack of certainty or a perceived lack of resources.  The truth is that those who overcome enormous challenges and achieve phenomenal results have done so because of their determination (i.e., certainty) and their resourcefulness.   Cultivate these traits and the possibilities are endless.

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Despite huge leaps forward in technology coming at us left right and centre, the companies that will get the most from a process of digitalisation are those that keep fundamental, traditional values of putting the customer first at the core of their ethos writes Nick Frank, Managing Partner, Si2 Partners.

Those companies that are successful in implementing a digital-led growth strategy don’t bother with the jargon of the moment!

The leaders in this field start with the basics – a deep understanding of their customer’s problems and then work backwards to offer solutions that create value or reduce risk. As part of the journey, they look hard at their own DNA and take action to fill their capability shortfalls. They identify the actual data they need and then automate the data collection/analytics process to deliver scalable solutions.

Businesses starting this shift to service led growth would do well to note that successful companies do not focus on the rhetoric, but rather have an intense obsession with how to make their customers more successful. The lesson to be learned is using the latest jargon does not put you ahead of the game. Believe this and you might not realise that you are leaving your business ‘naked’ to competitive actions, just like the emperor in the children’s story.

In the last year, I have heard this same story time and time again. At the recent After Market conference in Hamburg, we heard speakers from SKF, Outotec, Caterpillar and Serco tools all starting with the customer problem, defining the customer pain map in terms of real money.

Talk to experts in machine learning or knowledge management and one hear’s exactly the same story. Start with the business problem or the KPI and then work back to the data solution. For some, this means adding services such as analytics or remote access to products to create customer value. Others go further and no longer sell a product but an outcome such as leasing a tractor unit of a truck by the mile.

In all the success stories there is a common theme. Each company is able to articulate in terms of money, why their customers should buy their solutions.

They almost all do this following what I call the Value Iceberg principal.

The cost of the product or service you provide can be clearly seen above the waterline.

However, from the customers perspective, there are many other costs within their business below the ‘waterline’. Some are easy to define such as labour, material throughput and energy. Others are much harder such as overheads or obsolescence. And then there is RISK and UNCERTAINTY that are extremely intangible and frightening when quantified, but which have a strong emotional impact on companies buying decisions.

The most profitable manufacturing companies understand the iceberg very well. By adding services to their products and creating integrated solutions, there exists a huge opportunity to capture more value that is hidden deep within the customers’ business processes. Take the truck example. The tractor unit represents maybe only 8% of the annual running costs. Below the waterline 50% of the operating costs is the fuel used, 25% the driver and profit accounts for perhaps 2-3%.

Over 20 years ago, MAN truck’s UK distributor identified this value and added maintenance services to their portfolio that were designed to reduce fuel consumption by 10% and so double the profitability of a tractor unit over the year.

Using telematics technology in the cab, they were able to manage the running costs so well, they could shift their business model to effectively lease trucks by the mile. The resulting value argument was so compelling, that over a 20-year period their business grew from £50M to 550M. The other OEM’s are now following!

For leaders of change, this deep, almost obsessive understanding of customer value, gives them the confidence to know in what businesses and technologies to invest. It allows them to understand whether customers can afford more outcome-based services and how far their business should move along the Product to Service continuum.

This value-based phenomenon is also very real when we start to look at the UK macroeconomic viewpoint. When we redefine manufacturing as a product plus associated services, a 2016 study by Cranfield University estimated this to make up 16.8% of the UK Gross Value Added(GVA) versus the traditional definition of manufacturing at 10% GVA

Perhaps this realization that our view of manufacturing is fundamentally changing, is the reason why many people focus on the digital or IR4 technologies, forgetting that these are only enablers of change. In most part, it is through services that the technologies add new value and not the other way around. But sadly many companies have yet to grasp this notion. The reality is that unless they do, many players will be left wondering why digitization and IR4 have never quite delivered on the promise!

If you would like to know more about your Value Iceberg to drive your investment priorities, then you can contact Nick at nick.frank@si2partners.com

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One of the most important presentations at this year’s Field Service Europe Conference was delivered by Rajat Kakar, VP, Head of Product Related Services Business, Fujitsu as he tackled the question of what leadership will look like in the future. kris Oldland spoke to him about some of the key points...

The world in which we are living is changing and it is changing rapidly. Digitalisation and ever increasing connectivity is having an immeasurable impact upon the way businesses operate and the workplace of the future is going to be a vastly different environment to what it is today.

The question is how prepared are you and your business to adapt to these changes? It is almost a given that those organisations that can see the road ahead and are plotting a clear roadmap for their own evolution, are the ones that will thrive. Those who wait until the changes come, and try to react to them then... they may well find it is too little, too late.

As Leon Megginson, a Louisiana State University business professor stated in a speech some fifty years ago stated “It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.”

This is why Fujitsu’s Rajat Kakar’s presentation at this year’s Field Service Europe conference held in Amsterdam is one that had attendees fully engaged - as it focused on the changes coming to all corners of industry and importantly how businesses must adapt.

If you think about leadership it goes into multiple dimensionsAnd of course at the heart of all organisational change must sit strong leadership - but what exactly does strong leadership in this brave new world of Digitisation, Automation and Artificial Intelligence look like?

“If you think about leadership it goes into multiple dimensions,” explains Rajat.

“We need to be thinking about how can we engage with and harness the next generation of people who are going to be driving service businesses forward and to do this we must start to think about things from the perspective of where the market is going to be developing.”

“Ultimately, everything comes down to this understanding of where the market is going - that is the first step. From there, if we can see how the market will evolve, then we can ask ourselves what kind of people do we need in order to be able to drive our businesses forward?”

For Rajat, globalisation driven by more effective connectivity is one such significant consideration.

“This opens up a complete new area, one which a lot of people have not really dealt with before,” he comments.

The service delivery mechanism is no longer just around the corner, the delivery mechanisms of the future will be in the global delivery centres“The service delivery mechanism is no longer just around the corner, the delivery mechanisms of the future will be in the global delivery centres. The delivery mechanisms will be possibly even be sitting in multiple countries depending on how you’re able to find your experts for the service element you want to be delivered.”

“These are the things we need to start thinking about today. We need to consider how we as companies are going to be managing our businesses moving forward.”

Of course, even today we are seeing how technology is changing the shape of our businesses and this is undoubtedly only set to increase in pace. We have been hearing talk about the fourth industrial revolution and of new business paradigms for many years now and concepts such as Industrie4.0 and Servitization are rapidly taking hold. However, Rajat asserts that this is just one aspect of the evolution service organisations should be aware of.

The fast changing face of the workforce will also add far reaching cultural changes to the way we work.

“The next element we must consider is that the workforce is changing which means that we will have a lot more experts moving into the market - you will be bringing on experts rather than developing them via the traditional organisational structures,” he explains.

It is clear that across all verticals, business leaders can expect to see wholesale changes as the combined drivers of technology and cultural shift make their impact known. One upshot of such impact Rajat predicts is a much more competitive and level playing field - which will be largely driven by the maturation of Big Data tools.

The ability to assemble data and then draw information from that data will become increasingly easier.“What I think is fascinating is that the barriers to entry will continue to become smaller,” Rajat states. “The ability to assemble data and then draw information from that data will become increasingly easier. What used to take a long time to achieve will be done in a quicker and more efficient manner.”

“To take an example, let’s look at the traditional Telco market. What happened traditionally was that you would have an infrastructure which had an clearly identifiable cost.”

“However, off the back of such infrastructure we will see a lot of small companies that are coming up who will actually achieve on the base of that infrastructure - but they could achieve a lot more, in a lot quicker way whilst avoiding much of the potential costs which a traditionally structured company used to have.”

“If you take for example a company which has been the traditional provider of telecoms such as AT&T or Telefonica you will see that more and more these organisations are getting into areas like content management.”

“This is because they can see that the traditional means of delivering news or programmes etc which generally came via traditional broadcasters are quickly becoming less and less valid.” Rajat adds.

What is happening is that via such digital changes those who had traditionally been in the market suddenly gain a lot more competitors“So if these Telco’s are able to harness the information from their customers to be able to do more direct marketing and direct advertising, and do all these things effectively, what is happening is that via such digital changes those who had traditionally been in the market suddenly gain a lot more competitors - there are a lot more smaller companies that are now able to compete.”

“Once we get down to this, the question becomes what kind of a service mechanism are you going to need to support these type of companies moving forward - because they are not looking for the traditional services, everything can be turned completely upside down.”

These are all hugely important questions you absolutely must be working through today, in order to build a leadership team that will flourish tomorrow.

“You have to face up to the fact that the type of leadership you have in place today may not be the right type of team to take you forward. Because if this leadership is not in tune with the upcoming changes to the market,then they are not in tune with how to make your business elements strategic.”

“Their ideas will effectively become lost in translation. Remember, you’re going to be needing different types of people and your going to be needing different types of skill sets if you want to stay ahead of the pack”

To quote another American University lecturer, John Allen Paulos, a Mathematician from Temple University, Pennsylvania, “Uncertainty is the only certainty.” and no one can tell exactly where the future may lie.

However, one can make an educated guess based on fairly substantial evidence - and for those attending Field Service Europe, paying attention to Rajat’s shrewd assessment of the future is sure to give you a head-start.

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