New research into the digital service trends of large manufacturers shows they are lacking the necessary IT infrastructures and are struggling to meet the expectations of customers in the servitization era.

The research ,Drivers for Digital Growth in Service, was carried out by Noventum in collaboration with HSO and Microsoft and canvassed product manufacturers and technical services companies via electronic surveys and personal interviews.

Struggles with Servitization

The study comes as the influence of servitization - the sale of an outcome, rather than a one-off purchase - has prompted a move away from traditional one-off large product investments to pay-per-use and subscription models bringing a new set of customer expectations.

Customers now expect their suppliers to assist in other business goals, such as increased production and even influencing innovation and operations. To help them achieve this, the report finds, firms must adopt new business models to deliver outcome-based, data-driven services for their clients.

However, while the study showed 80% of companies are planning to deliver or are currently delivering customer business related services, 40% admitted that their current IT framework was not robust enough to fully support these new business models.

The results suggest that firms need to adopt a digital services strategy, encompassing the entire organisation in order to deliver a successful and services-based business.

The research was conducted at the beginning of 2020 before the Covid-19 outbreak and in an introduction to the report Noventum acknowledged the impact the pandemic could have on service business growth, while suggesting it could prompt a positive change in focus leading to new service-led business models. “...for the companies who have been negatively impacted by Covid-19,” the statement said, “it will be vital to adopt the new ways of working that have been learnt during the crisis and to put in place growth strategies that will ensure the survival and sustainability of the business.”

Further Reading: 

• Read the full Executive Report from the research here.
• Read more about Servitization here @ https://www.fieldservicenews.com/servitization
• To find out more about Noventum click here.
• To find out more about HSO click here.

Much has been made of the potential benefits of adopting at least some servitized strategies within a service portfolio. However, the processes that need to be put in place are complex and a delicate balance between increasing profitability and overcommitting on contractual obligations needs to be struck. Here Michael Blumberg offers his guidance as to what systems of support are required to achieve a successful path towards servitization...

Adopting IoT as part of the greater service and business environment involves keeping up with industry changes as they take place. That means incorporating better measures when needs arise in any business area and keeping cost-effective solutions in mind for the future progress of the company as a whole...

Already, 76% of companies are using IoT data analytics to establish product and/or process quality imperatives. Their decision makers can analyze IoT data to improve solution recommendations, feedback on installations, demonstrations, specific services, and others.

IoT also serves as a signifier for opportunities to improve more processes, such as identifying popular products and managing inventory.

Respondents to a recent research project undertaken by WBR and commisioned by Astea believe data should be usable in decision making at a variety of business levels. In every case, a majority of companies have either adopted IoT for specific business functions or plan to do so in the next 24 months. But companies prioritize customer-facing initiatives—service, products, and satisfaction—over internal functions such as business projections and aligning service data with financials.

 

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Customer Satisfaction & Loyalty:

73% of companies have incorporated IoT (42%) or plan to do so within 24 months (31%) for the purpose of customer satisfaction and loyalty. More companies have incorporated IoT for this purpose than for any other measured in the study.

With connected data, companies are able to understand and fulfil customer demands better thanks to improved communication. In this way, minor technological improvements can be made without delay or other consequences.

 

Service Processes & Optimization

Respondents agree that connected data and IoT have helped streamline processes across departments. By leveraging IoT data, they can measure efforts for overall growth through set channels, be they internal or service-driven.

Now, 41% of companies have incorporated IoT for process optimization, a close second to customer satisfaction and loyalty. Thirty-six percent have already incorporated IoT with service processes; more companies plan to do so within 24 months (37%) than with any other business function measured.

 

Product Uptime

Companies’ attention to customer experiences carries over to product support, where one respondent cites “notable improvements” to uptime in both industrial and consumer-driven channels. One healthcare executive says IoT helps them sustain products “during times of higher demands, especially due to the fact that these are used during medical procedures.”

More than one-third of companies have incorporated IoT for product uptime (34%); more than one-quarter of companies have plans to incorporate IoT with product uptime (30%) within 24 months.

 

Business Projections & Decisions

IoT data can be applied to various business requirements and provide essential statistics to support managerial functions. Derivations from reliable signals allow for better judgements when making business projections and decisions.

Over one-third of companies have incorporated IoT for business projections and decisions (35%); more than one-quarter of companies have plans to incorporate IoT with business projections and decisions (27%) within 24 months.

 

Predictive Maintenance

Respondents’ ambitions for better response to maintenance needs extends to real-time automated reporting, a better understanding of their products’ “general maintenance structure,” and even signals for customers to be proactive—to seek out maintenance themselves.

Several respondents cite their use of predictive reporting for scheduling, sustainability, and research methods, among others. Only 32% of companies have leveraged IoT for predictive maintenance; however, 29% plan to do so within 24 months.

 

Aligning Service Data with Financials

Fewer companies have incorporated IoT to align service data with financials (26%) than any other business function in the study. But the data suggests this is a growth area. More companies (61%) are either planning to incorporate IoT in this way within 24 months or are interested in incorporating IoT in this way than with any other business function.

Despite the prioritization of functions that drive customer success, it is in business projections, business decisions, and aligning service data with financials that companies take an increasing interest in incorporating IoT.

At least one-quarter of companies have already incorporated IoT for each of these purposes. Have you?

 

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The idea of outcome-based business models has not completely taken off as yet, and this is reflected by what respondents’ report is happening in their organisations.

On average, respondents estimate that 19% of their organisation’s business model is outcome-based, compared to 38% of the model that would be classified as product-based and 26% that is service-based.

However, there is potential for an outcome-based approach to be a big hit and it is unlikely to be too long before large multi-national corporations realise that product and service-based models are not as relevant as they once were.

It seems as though this realisation has already started to some extent; of respondents whose organisation does not currently operate a 100% outcome-based business model, more than nine in ten (95%) report that they are currently working towards moving some or all of their products and/or services in this direction or are planning to in the future.

Surveyed organisations from the oil and gas sector appear as though they are looking to get a head start on their competition with 64% of them reporting that their organisation is already working towards implementing a more outcome-based business model.

In recent times, organisations have found themselves in a race to the bottom, constantly undercutting their competitors on price, but often at the expense of product or service quality, simultaneously cutting their own profit margins.

This is not sustainable as a business model, not only due to reducing profits but also reducing customer satisfaction levels. Outcome-based business models provide an opportunity to differentiate from the competition and raise standards across all industries.

 

Enhanced Performance and More Competitive

The shift towards this type of business model is therefore somewhat unsurprising, and surveyed decision makers display overwhelmingly positive attitudes towards this approach.

The vast majority (89%) believe that the move to more outcome-based business models will enhance the way their industry operates, and only slightly fewer (82%) agree that this model will make their company more competitive than ever before.

Not only do organisations from the oil and gas sector appear to be making an early leap towards outcome-based business models, but surveyed IT and field service decision makers from organisations in this sector are almost completely convinced on the possible impacts of such a change.

More than nine in ten (94%) respondents from the oil and gas sector believe that this switch will enhance the way that their industry operates, including 71% who believe it will lead to significant enhancements.

Decision makers in oil and gas seem to be tired of the shortcomings of product and service-based business models and are ready to embrace the positive changes that outcome-based models will inevitably have.

Everything has a shelf-life, and it is evident that old school approaches to business have run their course – it is time for a change, and oil and gas are hoping to lead the way.

In business, those who can be first to the punch will often be very successful, but with a transition such as this, organisations must ensure that their plan is rigorous and well thought out.

Implementing a fully functional outcome-based model will not necessarily be a straightforward process and could be fraught with difficulties along the way, but it is certainly a step worth taking to improve customer satisfaction levels, the bottom line and the way industries operate as a whole.

 

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Data is one of the key driving forces underpinning the modern day economy, but asset and service data specifically, is absolutely crucial.

Organisations collect, aggregate and analyse plenty of it, but the way in which they do this can either be the catalyst for soaring above competitors, or the iceberg that sinks the ship.

Equally, outcome-based business models, which could be considered the next generation of the modern economy, might be a “make or break” moment in the lifespan of many global organisations. An outcome-based business model is focused on the outcome for the customer rather than a specific product. Customers receive extensive maintenance and support services after they have purchased the product, helping to nurture their relationship with the supplier.

In addition, customers only pay per outcome.

For example, the ability to only pay for a jet engine while it is in the skies, or an MRI scanner that is fully functioning and actually able to carry out a scan on a patient. Essentially, this type of model ensures that the customer always has the right outcome, enabling them to grow their own business while fostering a healthy client-supplier relationship.

Whether organisations can make an effective transition to this relatively new form of business model will likely be intrinsically linked to their ability to successfully collect and use data derived from their assets and will ultimately decide whether or not they stay afloat.

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Summary of Key Findings:

Kris Oldland, Editor-in-Chief, Field Service News talks to Prof. Tim Baines about the recent Spring Servitization Conference hosted by The Advanced Services Group and how the conversation around servitization is continuing to evolve as academia and industry come together to drive advanced services forwards...

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It has now been ten months since GE Digital acquired field service management solution provider for a cool $915 Million. Even against a backdrop of constant M&A activity within our industry, it was a deal that made the wider world sit up and pay attention to the field service sector. But how have ServiceMax slotted in two the GE Digital fold and how big a part will they play in GE’s vision of how best to serve the industrial markets of the future?

Kris Oldland, spoke exclusively to Scott Berg, COO, ServiceMax just before he participated in their first major outing as a GE Digital company at the Minds and Machines conference...

With the Minds and Machines 2017 event just days away it was an opportune time to reconnect with Scott Berg, COO of ServiceMax.

The last time I spoke with a member of the senior executive team at the Californian based Field Service Management Solution provider was when I spoke with their CEO Dave Yarnold, literally a few hours ahead of the announcement that ServiceMax was being acquired for a figure just shy of a Billion dollars by General Electric (GE) and would become part of their expanding GE Digital portfolio.

And whilst field service management is undoubtedly a hot ticket for investment at the moment, with the list of acquisitions within the market being a veritable who’s who of FSM vendors including ClickSoftware, ServicePower and IFS amongst others, nothing has come even close to matching the size of deal between GE and ServiceMax.

But then no one in the field service sector has really come close to matching ServiceMax in terms of their success story across the last decade either - growing from a three man start-up in a rented office in San Francisco to an industry leader worth close to a Billion Dollars within ten years takes some doing, yet when I spoke with Yarnold back in November last year, it wasn’t achievement I heard in his tone, but yet further ambition.

 

He talked excitedly about the reasons why he had decided GE could be a suitable home for ServiceMax, outlining hugely ambitious plans to work with GE to build out a working IT platform for entirety of the industrial sector, something that connected people, assets and workflows together to drive business forwards in the twenty first century.

Indeed, it is often hard to not get caught up in Yarnold’s enthusiasm, and sometimes the trick is to separate the passion from the plans, the hyperbole from the reality - although in fairness he and the ServiceMax team do tend to have a habit of meeting the ambitious plans he puts forward.

But has that ability to rise to the challenge been hampered or enhanced whilst being taken under the wing at GE?

Just ahead of the Minds and Machines conference is a great time to sit back and assess that question, whilst Scott Berg, is perhaps the perfect barometer.

Like Yarnold, Berg has been on the ServiceMax journey from Day 1, and whilst he undoubtedly shares much of Yarnold’s passion not just for their product but for the service industry at large as well, with Berg one also gets the feeling that, that passion is tempered just a tad by a keen analytical mind, that is acutely aware of not only the size of the opportunity but also the size of the challenge, and as Chief Operating Officer, it is his job to overcome that challenge.

 

As such he is a perfect foil for Yarnold, the two compliment each other well, (in fact that is trait that seems to be apparent throughout the whole ServiceMax family, there is a shared ‘something’ in the DNA and it seem that at all levels the team members feed well off each other) so who better to discuss how the integration with GE has progressed and whether the roadmap for Servicemax as part of GE remains on a similar course, to that which Yarnold described?

“This is really the first opportunity for us to be a GE Digital company and showcase some announcements of what we are planning,” explains Berg when we catch up to discuss what we can expect to come out of the event.

“I think this is the first time that we’ve made a public announcement where people can start to see some of the synergies across the GE Digital portfolio and the big news for us is the integration between the ServiceMax Field Service Management (FSM) Solution and Asset Performance Management (APM) within the GE portfolio. It’s big news and I think it’s a first proof point around GE’s thinking around the Industrial Internet and what role services and assets will play within that world.”

Indeed, when ServiceMax launched their Connected Field Service offering in the beginning of last year the vision was very much to bring the install base to the forefront of an FSM system, rather than just being focussed on the mobile workforce - which had traditionally been the primary focus of industry tools to date. Connected Field Service of course leveraged IoT, and from my limited understanding of AMP this was a solution that could build on that?

“Yes, it is a really interesting evolution on the concept,” Berg says helping fill in the gaps of my own understanding.

 

“If you think about our field service strategy it was about getting data from the machine and the asset. Basically, letting the machine become the sensor rather than the customer being the sensor when something goes wrong.”

“That is still very much part of the on-going strategy, what APM adds to the process is a significant amount of additional intelligence around preventative maintenance.”

“The concept has always been about avoiding unplanned downtime and in terms of providing preventative maintenance there is a rapid evolution going on where we are moving quickly from interval based maintenance i.e. perform this maintenance every 6 months or a year, to condition based maintenance - which is perform maintenance every 1,000 cycles of a machine. But now with APM combined with IoT we basically have data from the machine itself, embedded into a sophisticated analytics engine in APM, combined with the finance and the strategy to optimally operate an asset and to do so in the most profitable manner.”

“So what APM adds, fed by this IoT data, is basically recommendations and intelligence of when maintenance should most optimally be performed. For example right now, or next week or next month. It can even do things like suggest the maintenance shouldn’t even happen at all. It may be that the best strategy and profit outcome on a particular asset would be to let it burn out its useful life - it might be more profitable to replace it than it is to make the repair. And if so that is what APM will suggest.”:

“It is an evolution in the concepts around maintenance. From interval, to conditioned and now to predictive analytic schedules. And when combined with the power we already had in ServiceMax, which was taking this IoT feed from the machine and suggesting when service can happen, it becomes a very powerful tool indeed.”

One thing that is of particular interest with APM is how the solution can work from fleet level through to sub-component level.

“We are definitely down at the component level now if we look at the areas such as the Power industry or Oil and Gas - vibration sensing, the speed things are rotating at, the temperature of bearings and how do those factors impact performance behaviours or how do they impact output or throughput of a machine. It could be the volume of fluid passing through something, It could be on a grander scale, the level of power production from a thermo-nuclear plant that is converting fossil fuels to electrical output,“ Berg explains as we discuss the importance of being able to see the health of various levels of both components and assets.

“But, the important factor with APM is that it can also can apply it to systems of assets as well. You could have a situation where you have multiple assets, each with sub-components and you want them all performing hopefully in unison - or at least in tandem, to produce an overall outcome so you can ‘zero’ in on where maintenance should occur to optimise the output. It could be on one asset , it could be on one sub-component of an asset.”

 

Essentially this is perhaps where APM can deliver the most value, in helping make the vast streams of data from assets connected to the IoT, truly useful.

As Berg alludes to when he comments: “I think one of the big struggles people always have with IoT is that they basically drown in the data. You’re being sent all these readings but how do you make sense of it?”

“What APM does is make sense of that data in light of maximising the uptime and the output of an asset and its components. It’s that added layer of intelligence that IoT on it’s own doesn’t have. It’s making that data useful essentially,” he adds.

Of course, one of the big benefits of FSM tools such as ServiceMax is allowing the service organisation to empower their field service technicians by putting such rich layers of customer information, ultimately being able to put the core intelligence of the organisation itself, into the hands of the field service technician.

Given that the integration between ServiceMax and APM is geared towards increasing the efficiency of preventative maintenance strategies, I was intrigued to see how much of this intelligence would be filtered down to the engineer. For example if he was on site fixing asset A would he be able to see that in fact Asset B was due to for maintenance in the next few weeks and therefore potentially undertake the second maintenance job whilst on site to save an unnecessary future truck role?

“I think that layer of insight is there on two different levels,” Berg responds when I put this point across to him.

“From a back office standpoint certainly, APM will suggest maintenance should occur on machine number one based on a threshold that’s been reached, but more importantly than that, it will also look at the fleet of the assets and see anything else that is approaching that same level of wear and tear (or that same maintenance condition) and alongside what we’ve already created within Connected Field Service - where we are pushing that machine data down to the technician, we can use our install base management capabilities to identify the fleet of assets that are at his location and highlight those near the warning condition or those that would approach it soon.”

“This data can then be fed to the technician who can make recommendations whilst on-site with the customer to say ‘well I’m here for pump number six but whilst I’m here I can see that also pumps number three and four are in a similar condition so I’ll go ahead and fix those in advance, or perhaps even explain to the customer “well, this one I’m going to leave run as it is for a bit longer because the recommendation is to push this a little bit further before we do the maintenance activity, to allow you to get maximum output.”

 

One interesting if indirect result of giving the technician this level of insight is that by being able to relay such information to the customer, he can also reestablishes the importance of the maintenance visit in the first place.

In today’s markets as we see companies moving to outcome-based services and preventative maintenance strategies in ever greater numbers, there is the new challenge of the workload of the technician perhaps going unseen by the client. In the old traditional break-fix model there was the theatre of the service engineer being the superhero, coming in to rescue the poor Ops Manager who has had to put an exasperated call in to say - “Hey! I can’t produce anything!’ Then the engineer comes in, meets his SLA and makes everything work again. Going above and beyond and generally being a hero.

In today’s world of outcome-based contracts there is a challenge to make sure you are effectively communicating the work your technicians have done for the client, to demonstrate the value your service provides them.

With the tools Berg is discussing, it seems there is the potential to almost move the engineer into something more of a consultative role. Someone who can say I’ve come to undertake the maintenance on ‘a,b,c’ but I can also advise you that ‘x,y,z’ could be also be done today and this will improve your output by ‘n’.

“I think there is a great opportunity here to improve the lifestyle of the technician themselves,” Berg comments as we bring the conversation onto this point. “Sure, there is the heroic experience of saving the day but that is also a high anxiety moment as well. When we consider the psychology of the technician, the challenging bit is to go out there by yourself, with no one to help you, then when encounter a really bad situation hopefully you’re the one that can resolve it. It can be a life with a lot of tension, which is sometimes overlooked.”

“Alongside that I also think that customer expectations are shifting as well,” he continues.

“There is the classic metaphor that people don’t want to go out and buy a drill they want to buy a hole and the concept is largely about outcomes. I think more and more customers of the machinery don’t really care so much about the details of the machine. They don’t want it to break down, they want it to produce what they bought it for, and they want to extend and maximise its life so that it produces more of what they bought it for.”

 

“So now you put a technician in the position to not only be the hero by just fixing something retrospectively, but to be the hero that proactively maximises the customers output and production from an asset they acquired? I think that is not only going above and beyond but it is catering to more of the outcome-based mentality that companies now want to consume output rather than buy a set amount of machines.”

So it seems at least on the technology side of things there is already progress being made between the two organisations coming together, although it could be argued that this is the result of the two separate existing technologies just being plugged into each other.

The real fruits of the union are likely some way off, although how far could largely depend on how quickly and easily the ServiceMax team are integrating into the wider GE group. I mentioned Yarnold’s views at the time of the acquisition about the two organisations having a shared understanding and a similar DNA in terms of the view they both held of what ‘good service looks like’ - as well as the importance of service within industry as we move further into the twenty first century.

And of course, I was keen to see if that was holding out now the ServiceMax is fully embedded within GE.

“I think it is and I think it was very prescient of Dave to be highlighting that right at the start of us coming together,” Berg replies.

“There are several things here. Firstly, we’ve always served markets that I would largely classify as OEM manufacturers or industrial companies and certainly these are the companies and sectors that GE is already working amongst. As a direct result of that we are already seeing great energy and sales momentum by our alignment with GE business units around Oil and Gas, Energy, Power - as these were the industries we would have sold to anyway.”

[quote]I think with GE being largely a company and culture built around engineers, we have both shared an asset centric perspective on service.

“Secondly, I think with GE being largely a company and culture built around engineers, we have both shared an asset centric perspective on service. For us, it was always about a system of assets in the field that customers wanted outputs and outcomes from - we were never about being your typical field service, scheduling only solution. For us it was an awareness of the people, the schedule and the asset. And certainly GE‘s culture is grounded in engineering, machinery and assets - so we are on the same page.”

 

“The third thing that I think is interesting is that GE was one of our largest customers and if you look at GE as a company, I like to call it the largest field service company in the world. There are tens of thousands of technicians, and the vast majority of revenue at GE is derived from service contracts - so there is definitely a kindred spirit and a kind of alignment with GE because of these vertical focussed, asset centric mentalities. Plus then there is a shared passion for service which is such a big contributor to the GE business.”

Of course one would think that as one of their biggest clients, having the GE team on hand to add weight to their cause could also add some heavy kudos and gravitas at times that they need to call in the big guns.

In particular GE have been early adopters in the move towards outcome based models in a number of verticals. Is that helping the ServiceMax team when they go into conversations with prospective customers?

Of course, the move to outcome-based services is heavily tied to the use of the cutting-edge technology that ServiceMax provide, so it is in their vested interest to be avid promoters of such shifts in thinking.

But the reality is a move to outcome-based contracts can be a hard sell for service businesses to their own clients, whilst many still may need some convincing that a shift away from recurring spare parts revenue within the break-fix model is indeed the future of the Aftermarket sector.

However, having the back story of now being part of GE, who have already taken that path and who are able to say we believe this is the future because we’ve already gone out and done it in our own business, that must surely be a powerful tool when it comes to talking to those companies who are more reticent to make such a switch?

“This is actually one of the core themes at Minds and Machines,” Berg replies.

“The concept our chairman will be talking about is how our digital transformation at GE from an industrial company to a digital industrial company is really focussed on three different markets.”

“Firstly there is GE for GE, which is how we help ourselves go through this digital transformation towards outcome-centric models. Secondly, we have GE for Customers and this is looking at the business units which GE serves and the companies they sell to, and we want to help and advise them - sharing what we’ve learnt from our own experiences with them.”

“The final one is called GE for the World. What has been interesting with this and what has truly surprised me is the amount of times we’ve been speaking to companies who are traditionally staunch GE competitors, but they are curious about what we are doing.”

“The whole idea behind this is to share the experience GE has had broadly around digital transformation of industrial businesses.”

 

Given this experience and the broad touch-points Berg has access to I was curious to find out what his take on the shift to servitization was. Is it becoming as prevalent as it seems from behind my admittedly sometimes magnified field service lens? Indeed, are there many companies still in need of persuading that outcome-centric models are the best way forward, or has acceptance of the need to move towards servitized business models become widespread?

“It is interesting because I’ve yet to see much real push back on the concept,” Berg comments. “It is a as if everyone has come to accept that an outcome based model, i.e. a Service as a Product model - is the essential thing to do.

I think that value GE plays in those conversations is more geared towards telling these companies what is the first step to take on a journey like that. Sharing what our experiences have been, how we’ve done it and what our accomplishments have been.”

“It’s really interesting that in practical selling situations to potential customers one of the most impactful people we can bring into a scenario like that is someone like a CIO form one of the GE business who has made these investments, made it happen and can show you the results. I think the door is open but I think people are perhaps a bit confused as to how and where to start and that’s what GE can help them. We can outline how to start their journey and how best to stay on the right path.”

As we come to the end of our time together, a few things have become apparent throughout our conversation.

The first is that the technology seems to be a natural fit and combining ServiceMax with APM is a natural evolution, that is set to yield impressive results for those that are in place to put the two together.

The second is that Yarnold’s earlier prediction about their being a shared vision across the two organisations seems to be bang on target. As Berg explains their future plans to me there is a real sense not just of unity between the two organisations but also of continuity in terms of the original ServiceMax core beliefs that were so fundamental to their success.

However, one other thing that was apparent was the number of times Berg used the word industrial. This of course makes sense when we factor GE into the conversational mix - but one of the things that ServiceMax developed a strong reputation for pre GE, was for that every Sony, GE or Scheider they worked with - there were also the companies like Service2 - i.e. small local companies with less than twenty engineers.

Will these SMEs still be of relevance to ServiceMax or will they be forgotten as ServiceMax under GE goes hunting for a place amongst the industries enterprise elite?

 

“I think the conversation has changed a little bit for smaller companies but in a positive way,” Berg responds. “The GE brand credibility is really helping us send a positive message to smaller companies. We continue to serve all those markets and in fact one thing you will see from us is an expansion in the market at this level.”

“We see three separate groups of customers, one is the OEM manufacturers which has been a sweet spot for our business, people that make complex machines, such as medical devices or heavy machinery.”

“One expansion will be in what we call asset operators so you could think of in that realm are the power producers. Electric and Oil and Renewables who basically don’t make anything, they buy a whole bunch of assets and then produce something. Then the third group would be one that we’ve always focussed on, namely the service providers and that’s where you get a lot of these smaller companies.”

“The really interesting thing is if you take any one of the seven or eight business units in GE and think of it as an ecosystem of something like Oil and Gas then certainly you could be talking to someone like Shell or BP doing oil exploration and production but as soon as you take a step back from the centre of that industry, that’s where those relatively smaller providers are really important. What’s really interesting is that they are also really important to the GE verticals as well because there is an ecosystem of those service providers working with a GE - or maybe competing with a GE but supplementing the value in that market. So we will continue to focus on those types of companies and actually a lot of the companies we’ve historically sold to in those spaces are aligned to the GE ecosystems anyway.”

“We really think that effective field service execution is a combination of people, assets and outcomes,” Berg offers in closing.

“I think that our integration into the digital portfolio combined with the GE business experience puts us in an incredibly unique position to not only help our clients manage their people but also to help manage their install base of assets and make this shift to this outcome-based mentality around preventative maintenance a less painful and more fruitful path to follow.”

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Coen Jeukens, CSO, D-Essence, explores the developing world of Products as a Service and the increasing drive both from customer pull and vendor push towards outcome based business and service models...

When we need light, we buy a bulb. When we need a hole, we buy a drill. It is so engrained in our thinking to own products whilst we actually need the outcome. More and more we see upstart businesses cater to this “new” demand. They sell a product as a service (PAAS). How are you preparing your organisation to sell your product as a service?

We move water 

At the After:Market 2016 event in Wiesbaden a German manufacturer of pumps introduced his company with the words “we move water”.

With those simple words he set the stage for his PAAS business model. Selling the pump is not his goal; it is a means to start an outcome-based discussion with his client.

In doing so he enters in a conversation where he truly understands what drives his customer. Because the conversation goes beyond the pump, he has created a new business model where he earns money with moving water.

The additional benefit is for the environment. Instead of designing your product for repeat sales you will wind down a track where you deliver outcome at a minimal material/ energy footprint.

Transforming legacy businesses is possible 

Understanding the effort it takes to transform a legacy business, University of Cambridge professor Andy Neely asked the panel of the Field Service Summit 2017 in Warwick what successful transformation examples should encourage others to follow suit. Both Boeing and Philips demonstrate you can have best of both worlds.

They serve customers in a hybrid model.

 

Via one business unit customers can buy the product in a legacy CAPEX/ OPEX mode. Via another business unit customers can buy the output/ outcome of the product. Depending on his propensity, a customer can choose between a  jet engine and a “power by the hour” propulsion solution or a bulb and a “pay per Lux” illumination solution.

Why should you explore PAAS

It may scare corporate executives and sound very blunt but exploring PAAS is a “do or die” message.

If you don’t do it, somebody else will. At best it is your current competition and you can see it coming. For the worst, you will face competition from newcomers starting with a clean slate.

Record labels were so focussed on holding to their CD product revenue stream and deliberated so long on legal download options, they were decimated by services like Spotify.

How do you assess your organisation? Products are meant to deliver a solution.

Using a more positive approach: the more you understand how the outcome of your products generates value to your customer the more you establish yourself as long term partner in both a profitable and sustainable way.

Where to start

In the example of Philips Lighting, a small team beyond the radar of product based business model executives designed the “pay per Lux” solution.

Upon demonstrated success with a launching customer the new PAAS solution was put in the spotlight.

Setting up a sandbox environment with servitization minded people is essential, as you will be in for a paradigm shift:

[unordered_list style="bullet"]

• When you sell Outcome there is no title passage of the Product. This means the product remains on your balance sheet.
• As supplier you will be responsible for and remain in control of all CAPEX and OPEX cost components.
• You need to understand your customer to define a “pay per use” earnings model.[/unordered_list]

Understanding cost

In the Philips Lighting dialogue the customer asks for a Design, Build, Finance, Maintain and Operate solution.

This DBFMO framework (in the image above) can be used to understand total cost of ownership. Design and Build lead to the commissioning of a Product.

Maintaining the Product safeguards the Output of the Product. Operating the Output provides an Outcome. The Outcome generates Value. Maintain and Operate are stated in terms of OPEX. When adding Finance services to your portfolio, you can transpose Design and Build CAPEX into OPEX too.

Design-for-Operation

With PAAS the total cost of ownership shifts from customer to supplier. As a result the supplier is incentivised to throw in all his expertise to continuously optimise product, output and outcome.

In order to make pay per use profitable all cost elements of DBFMO need to be designed in unison. Call it design-for-operate. Where design-for-service supplements design-for-manufacturing, design-for-operate augments the former two.

 

Remember: business models based on breaking products should not be accepted.

Pay per use

Where design-for-operate drives towards minimising waste and cost, engineering the right pay per use model determines your revenue. This is where entrepreneurship and partnership kicks in.

Pay per use is a bi-directional handshake between supplier and customer that takes it to the next level compared to a typical sales-purchasing relationship.

Instead of a cost/ revenue conversation about products and output your dialogue will evolve into an outcome based profit/ value handshake.

Your customer will help you define the pay per use drivers. If you really understand his business and you are confident in the capabilities of your own organisation to generate outcome that makes your customer succeed, your customer will be inclined to enter into a partnership to make you succeed as well. As a result de pay per use drivers will be fair, sustainable and durable to both parties.

Don’t own, enjoy

Ownership comes with responsibilities. Why should a customer have to carry the risk whilst the supplier is the expert in both understanding and influencing risk. A PAAS model is the ultimate form of “back to core business”. The supplier managed DBFMO, the customer uses the outcome to generate value.

In return the customer pays for use.

Does pay per use really work for both parties or do words like partnership, fair and sustainable sound altruistic? The IT industry does give us insight into what is to come. Because SAAS solutions are available for consumers as well, first hand experience is changing our perceptions, attitude and decision-making regarding cost and value.

 

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“Philips Lighting – a PAAS dialogue – “pay per Lux”*

Customer: “I need light in my office.”
Supplier: “How many bulbs do you need?”
Customer: “I don’t know. You are the expert. What do you advise?”
Supplier: “Our proposal contains 100 bulbs of model abc. This is an investment of xyz.”
Customer: “I want the energy bill of the bulbs to be included in your proposal.”
Supplier: “Our renewed proposal contains 90 bulbs of our newest energy efficient model.”
Customer: “I want you to design, build, finance, maintain and operate the solution.”
Supplier: “We have developed a special lighting solution for you. Low on energy, sustainable in materials usage and easy to (de)install. We name it ‘pay per Lux’.”

 

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