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In previous posts in this ten-part blog series, we introduced the remote services continuum with a look at service efficiency and process optimization, and ended with a warning that this will not be enough to meet future business challenges. As customers continue to insist that suppliers move towards a Level 3 and Level 4 business model, finding new ways to save customers money and improve their business outcomes will determine the long-term success of technology companies. This is where the true opportunities of the Internet of Things and smart services reside. 

About Customer Outcome Focus

TSIA defines Customer Outcome Focus in the Remote Service Continuum as: 

Integration of information, people and processes to improve business results. Smart, connected products are used to capture historical product usage data and system performance data, in conjunction with other data sources to provide insights/support, improve business results, and develop closer customer relationships. Suppliers can now do work that was previously done by customers, partners, or not at all.

new growth opportunities in industrial equipment  

(Click image to enlarge.)
Level 3 and Level 4 supplier models focus more on customer outcomes, rather than products.

Let’s take a look at what a customer outcome focus is, and what it isn’t, using the disruptive changes occurring in the automobile industry as an example.

A Real-World Example

Like many manufacturers, Volkswagen has enthusiastically jumped into the digital future. Early this year, Martin Winterkorn CEO of Volkswagen shared his visions of connected and self-driving cars. They have invested heavily in this digital future by hiring 12,000 software engineers.

At the core of this effort is the capturing of performance data, which has improved vehicle maintenance and ensured driving pleasure, or “Fahrvergnügen” as the ads from the 90’s touted. In addition, the ability to connect with a repair facility in the event of a break down will offer additional business opportunities for the car industry.

Now, automobile manufacturers are looking to enhance the navigational system to make it more like a multimedia device. For instance, reserving a parking spot while en route to a destination and then using the navigational system to guide the driver to the prepaid, reserved location. The objective is to build loyalty and lock the customer into their car and brand.

From a customer’s perspective, are you excited about their vision?

Too Little, Too Late?

Probably not. The ubiquitous smartphone already has many of the applications that customers need regardless of the car they are driving. This has led to the realization by many major automotive companies that they have already lost the battle to turn the car into a multi-media device. As an acknowledgement of the loss, most have joined the Google Car Alliance, which has the goal of bringing Android into every car. Customers want open systems in their vehicles that connect perfectly with their smartphones and tablets, turning vehicles into a multi-media hot spot. This will make the car fun for everyone in it, except the driver! Anyone for a “driverless” car?

Outcomes and Changing Business Models

When a customer purchases a car, the basic outcome has always been to get from Point A to Point B safe, sound, quick, and with more flexibility than traditional fixed-route modes of ground transportation like rail and buses. Like all Level 1 and Level 2 product-focused companies, car manufacturers have historically differentiated their product with more features like horsepower, engine performance, luxury interior, therefore turning product ownership into a status symbol.

However, the millennials have the potential to turn this traditional business model on its head. From their perspective, owning a car that just takes you from Point A to Point B is expensive and prevents them from safely using their connected devices. So, while there is still a physical product, “driving pleasure” becomes secondary to being connected to the digital world. Additionally, when one company hires 12,000 software engineers, automobile manufacturers are now competing with Google, Apple, and thousands of software companies worldwide for talent.

How this Applies to Industrial Equipment

This story is instructive to industrial equipment companies more than you might think. Just like the automobile industry, many industrial equipment companies have developed smart, connected products that have been focused on service efficiency. Sensors capture a digital representation of physical properties that are then used to monitor performance data. Signals are generated to improve responsiveness to service incidents and deliver specific instructions to speed repair.

However, customers are less interested in product features and are looking for help in achieving business outcomes. The challenge for equipment manufacturers is that each customer system is different and they will need to work together to deliver customer business outcomes as part of a smart factory. Since most manufacturers are concerned only with their individual product performance, the door is wide open for a software company to step in and connect the individual components to improve the customer’s outcome.

In fact, Google (there’s that name again) acquired seven companies in the field of robotics in December of 2013. Google will probably not manufacture robots, but it seems that they are working on a robotic operating system. Companies like Google understand that an ecosystem of smart, connected products will deliver more business value than the physical components themselves. In this new world, the system integrators are the ones in control and in the best position to capture disproportionate value.

Services Eat Products, and Software Eats Services on the Road to Delivering Business Outcomes

Software is eating industry after industry, and the industrial equipment industry is not immune. This does not mean that hardware will disappear from customer locations (the software has to control something). But the point is that an Internet of Things (IoT) platform can be used to enable a comprehensive array of hardware technologies into a single customer-friendly management and decision platform. The proliferation of smart, connected products and information companies can help drive business outcomes, but they actually have to work together to succeed.

When these systems don’t work together, no one benefits. Not the hardware companies, not the customer, and not the suppliers who try to help customers get the most out of their operations. This lack of understanding is opening the door for software providers to create intuitive systems to give the customer what they truly want – improved business outcomes.

Our next post will focus on two simple, but difficult questions: who is the customer and what is their desired business outcome? We will look at this from an Integrated System and Ecosystem perspective, as well as introducing the central role of data in driving customer outcomes and how the TSIA Consumption Analytics Framework can help.

Read more posts in the “Intro to IoT” series:

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Vele Galovski

About Author Vele Galovski

Vele Galovski is vice president of support and field services research for TSIA. Using his nearly 30 years of industry experience, he has consistently helped companies both large and small drive double-digit top-line growth with a proven retain, gain, and grow strategy. Vele has also written a book, The Perpetual Innovation Machine, which describes a holistic approach to management based on ambitious goal setting, data driven analysis, skillful prioritization, inspiring leadership, and the lost art of employee engagement.

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Harald Kopp

About Author Harald Kopp

Professor Harald Kopp is the director of industrial services research for TSIA. He also teaches an MBA program for sales and service engineering at Furtwangen University, Germany. In his role at TSIA, he is responsible for the further development and enhancement of TSIA’s research agenda, according to the needs of businesses in the EMEA region and for industrial equipment manufacturers. His focus is chiefly on services in industrial automation, equipment, instruments and technology companies. Harald has 25+ years of accomplished experience in the areas of supply chain management, IT consulting, and industrial services.

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