Partner with TSIA
Diversity, Equity, and Inclusion
TSIA Giving Program
Customer Growth and Renewal
Service Offer Management
XaaS Channel Optimization
XaaS Product Management
XaaS Speaking Engagements
Become a Member
COVID-19 Resource Center
If you believe you are seeing this message in error,
please let us know.
As services eat products and software eats services, there are significant changes happening to success plays within the technology industry. The companies that will be the most successful are the ones who take an active role in supporting their customers as they grow their businesses. In fact, this was the topic of the opening keynote of our recent Technology Services World conference, presented by TSIA’s president and CEO, J.B. Wood.
During the rest of the conference, there were a lot of hot topics relevant to manufactures of industrial equipment (IE) presented in sessions, TSIA’s Industrial Equipment Advisory Board meetings, and 1:1 discussions. Based on this content and feedback from conference participants, it's clear that the business environment for industrial equipment manufacturers is changing in several big ways.
Industrial equipment (IE) is facing growing pressure due to an unstable global economy, weak demand in emerging countries, and strong cuts in investments, especially in the oil and gas industries. Aside from this, structural changes in the demand for products and services are emerging. As described in TSIA's book, B4B, customers are asking for:
There is also a growing impact of the Internet of Things (IoT) on industrial equipment, as companies are starting cloud service offers and creating subscription-based businesses. Regarding these changes, there were three topics in particular that stood out at the conference.
In TSIA's IE-index, we track the service revenues and margins of 30 manufacturers based on their quarterly reports. After five quarters with strong growth, we’re now seeing revenues starting to shrink for the second quarter in a row. In IE, services are still strongly correlated with new product deals, and customers are ordering less services and even downgrading or canceling maintenance contracts. Service executives are fighting to keep investments in services high, and there is a focus in IE to protect or push the major revenue streams, which still primarily revolve around products. Service executives need to prove that service revenues are more stable, more reliable, and support higher customer profitability. In most organizations, investment in service needs to be funded by service itself.
Adoption services, designed to help customers maximize their usage of technical capabilities, provide predictive maintenance and analytics enabling optimal return on investment in equipment, and can sometimes even guarantee an outcome. However, such services require remote access to the equipment. To overcome security concerns, one equipment manufacturer present at the conference recommended giving the customer 100% control of outgoing data.
Originally, the customer needed to approve each outgoing data package, but when trust is built over time, the customer will allow more and more data out the door. This enables predictive maintenance and the ability to create a data handshake to support customers by successfully using a supplier’s equipment.
In IE, revenues from managed services (MS) are about 2-5% of overall company revenues. Nevertheless, they are growing fast and creating high risks. When a company starts a managed services business, TSIA’s benchmark shows that it is most likely to be successful when strategic frameworks including KPIs and goals, a service catalog for MS offers, a dedicated MS sales team, a dedicated MS delivery team, and a client management team are first established.
Equipment manufacturers are taking more and more responsibility for customer outcomes. Some are guaranteeing the availability of equipment and accepting penalties when a goal is not reached. In a session at TSW, one equipment manufacturer presented a project to reduce failure rate of products produced by 50% and the pricing of this project was based on reaching the goal within 90 days. This demonstrated outcome pricing by putting a value on the outcomes they hoped to deliver.
More smart functions in products means more software, and more software creates the need for updates. When you do not want to give such smart services for free, equipment manufacturers are building cloud subscription services for their software products and updates. The revenue share may be small today, but it is only expected to grow. However, to see this growth, the business needs to be built right from the beginning. To begin establishing their subscription-based business models, companies of all industries are following TSIA’s LAER model (Land, Adopt, Expand, Renew).
(Click image to enlarge.)
How the LAER model looks for industrial equipment manufacturers.
How the LAER model looks for industrial equipment manufacturers.
In the “land” phase of the customer journey, a technology manufacturer will provide a trial version of their software for free. To ensure that the customer will achieve their ROI should they purchase a subscription, an onboarding process is set up. This is the “adopt” phase, where customer support and customer success aid in making sure the customer is able to use their subscription to its full potential. Successful adoption of the software leads to a customer’s desire to expand their subscription to include premium support or further subscriptions, which can in turn lead to the renewal of their subscription. There are a lot of new capabilities required to follow the LAER model successfully.
To focus on customer outcomes, these outcomes need to first be engineered, and that’s the story of TSIA executive director Thomas Lah’s keynote, “Outcome Engineering,” where he introduced a framework for systematically engineering customer outcomes and building outcome chains. He also reviewed lessons learned from companies that have been working on engineering customers outcomes. Further examples of outcome chains were presented by TSIA’s research team for adoption services that drive upselling, optimizing professional services, and service delivery channel optimization in field services. To grow customers successfully, the whole value chain needs to be defined by the outcome chains needed to reach a customer’s target goal.
Did you attend TSW but want a refresher on the sessions presented? Attendees have access to downloading conference presentations here, but you can also catch up on some of the keynotes by watching videos from our past event. If you have any additional comments or questions, feel free to reach out in the comments section below or email directly at email@example.com. Thanks for reading!
Post Date: November 17, 2015
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.
The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.