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Slower global economic growth and the opportunities and challenges brought on by digital transformation is tremendously changing the competitive landscape for industrial equipment companies. Digital transformation has led to a shift in the customer's perspective away from simply product features and functions towards how a complex system of smart, connected devices and equipment can optimize their outcome.
As new IoT-enabled services are emerging, there is a battle to capture these values between equipment manufacturers and software and platform providers.
Through TSIA’s extensive research, we know that the “Make/Sell/Ship” business model, which focuses on having a strong product engine, is under pressure. Customers are increasingly demanding OpEx consumption models and guaranteed performance and outcomes.
The results from our latest Industrial Equipment 40 index report shows:
(Click image to enlarge)
Source: The TSIA Industrial Equipment 40 Index.
Source: The TSIA Industrial Equipment 40 Index.
The intense focus on the product business of the C-suite in industrial equipment organizations leads to a service business, which:
In short, equipment companies are missing opportunities to increase service revenue share and service margin.
In this environment, let’s have a look at the top business challenges impacting industrial equipment companies. Over the past year, TSIA has analyzed the inquiries from industrial equipment companies within our membership community, identifying the most important business challenges they’re facing. We then translated these challenges into the core capabilities that services organizations of industrial equipment manufacturers will need to embrace to succeed in 2020 and beyond.
Industrial equipment companies are working on creating new revenue streams by pushing recurring and subscription by growing their Tech-as-a-Service (XaaS) businesses. Additionally, they are working hard to protect their traditional revenue streams.
In this environment the top business challenges are:
Industrial equipment business challenges.
The data shows that industrial equipment companies are working on optimizing their offer portfolio to move from free to fee and to extend their service orientation on:
But, enhancing and optimizing the offer portfolio needs a precise strategic alignment, which brings me to the next business challenge impacting industrial equipment companies.
Making the move to a services-centric business model while also becoming or staying a pacesetter in your industry needs insights on ambitious but achievable goals. To help with this strategy, TSIA’s vault of data and benchmarking research is the best starting point for achieving strategic alignment within your organization.
Areas where you can seek alignment.
Increasing recurring and subscription revenue streams creates challenges for service organizations to ensure that customers receive an excellent and standardized service experience globally. Optimizing the organizational structure for your service delivery functions means establishing an executive responsible for service offer portfolio management and the global service delivery of all business lines. A global service delivery organization is needed to scale service delivery and to provide a “follow-the-sun” support coverage model with an optimized support channel mix. It is uncommon for service organizations to establish their own, dedicated sales force.
Industrial equipment companies need to invest in tools and platforms that will help them manage service delivery, contracts, subscriptions to improve the support on all relevant channels and to increase the efficiency of the service delivery.
Industrial equipment companies have made progress in accepting the structural challenges presented by digital transformation and are turning them into strategic initiatives. As an industry, we are expecting even stronger momentum on the digital transformation journey and an increase in outcome and subscription offers.
Service executives are in the middle of digital transformation and are often the internal evangelists of the services-led world. Equipment companies need to work on building or acquiring the required capabilities based on a strategic plan.
At our upcoming Technology & Services World conference, taking place in May 4-6 in San Diego, you can learn even more about how digital transformation is impacting industrial equipment companies and how you can prepare your organization for the future. There’s still time to register, so I hope you’ll join us!
Post Date: February 18, 2020
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Professor Harald Kopp, is director, Industrial Services Research, for TSIA, as well as a teacher in a MBA program for sales and service engineering at Furtwangen University, Germany. His focus is chiefly on services in industrial automation, equipment, instruments and technology companies. He has 20 years of experience in the areas of research, consulting and management in industrial services, supply chain management, and IT-Management in industrial equipment, automotive and enterprise IT industries.
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.