Latest Trends Affecting Industrial Equipment

It's no secret that smart, connected products have had a noticeable impact on the world we live in over the past few years, especially in the way businesses are run. As part of TSIA's research initiatives, we track the latest industry trends affecting the industrial equipment sector, which includes automation technology, instruments and components, and solution providers leveraging industrial equipment. Here's a preview of my latest findings, which I've published in my paper, "TSIA State of Services for Industrial Equipment Manufacturers 2016".

Key Service Trends in Industrial Equipment

I recently attended CeBIT, the world's largest computer expo held this past March in Hannover, Germany. At this event, it was apparent that digital initiatives (which in the past were driven by isolated activities to increase efficiency in sales, production, or services) are now becoming an overall corporate digital strategy. But, who will win the Internet of Things (IoT) race? The companies that capture data and use that data to provide outcomes for customers.

Furthermore, how are industrial equipment manufacturers entering this wave of digitalization, and what can they do to reach their goals given the current state of the industry? To help answer these questions, here are the key service trends I have noticed in my research on the subject.

Download the State of Services for Industrial Equipment Manufacturers 2016 Report

Product and Service Revenues are Shrinking

Analyzing 30 publicly listed industrial equipment manufacturers reporting their product and service revenues, the portion of companies reporting profitable product led growth have been halved in one year. We are seeing pressure on overall revenues with an average decline by 7%. Furthermore, service businesses within industrial equipment (IE), (predominantly product-attached) has shown an average decline of 5%.

The good news is that the portion of these companies that have a healthy service transformation with increasing profitability and increasing service share is stable. Companies that fall in State #4 of this graphic, indicating a healthy service transformation, are companies like Applied Materials, FEI, Honeywell, Thermo Fisher Scientific, and Trimble.

Business Transformation Towards IoT/Industrial Internet

So, what is the value of IoT and Industrial Internet? TSIA recommends following the Remote Services Continuum and to focus on helping customers improve their overall processes, utilization, and achieve outcomes. 

Creating New Revenue Streams While Protecting Traditional Ones

As shown above, traditional product led growth is under immense pressure. This creates the need to create new offers along TSIA’s remote services continuum.

Operational Optimization

Declining revenues and shrinking margins create immense pressure on operations to increase efficiency. Furthermore, products and services are getting more complex and make it more difficult to scale service delivery. TSIA members that are leveraging metrics, KPIs and benchmarking with peers are able to to identify this potential and appropriately set their priorities.

Organizational Alignment of Service Lines

Providing consistent services globally, as well as delivering the same experience and quality in all markets is a major challenge for industrial equipment manufacturers. Most equipment in the field needs onsite services and support in local languages. The trend to establish and strengthen the global service executive is ongoing to provide services in a standardized way. Otherwise, increasing complexity will eat away at margins.

Top Service Business Challenges for Industrial Equipment Manufacturers

TSIA maps every inquiry we receive from industrial equipment manufacturers to a specific organizational business challenge categories, and are able to track which business challenges are showing up with the greatest frequency.

These service business challenges will no-doubt stay on top through 2016. The key trend here is that industrial providers are working to create higher-level services, with higher efficiency, and investing in tools and platforms to run and improve their services business. 

2016 Service Capability Heatmap for IE

To address these business challenges, industrial equipment manufacturers need to build and enhance key organizational capabilities, which TSIA defines as "the ability to perform actions that achieve desired results."

Looking at current industry trends and mining the service business challenges reported by TSIA members through their inquiries and questionnaires, TSIA has identified the top organizational capabilities industrial equipment companies are working on to optimize their service businesses in 2016. Many of these target capabilities are a direct carryover from 2015, which reflects the reality that many of these capabilities will take some time to establish and optimize.

You will need three pillars in place for each capability you’re building: process, people, and technology.

How to Win in the Age of Digitalization

To help you get started, here is a list of TSIA's recommended tactics your organization can use to get started on the right path to identifying and addressing your top business challenges and win in the age of digitalization.

1. Identify your business challenges.
2. Define goals and target outcomes. TSIA benchmarks are a great starting point to define goals and priorities.
3. Inventory of required capabilities to solve your top challenges.
4. Compare it with existing capabilities to identify capability gaps.
5. Prioritize those capability gaps.
6. Build or acquire capabilities to close the gaps.

Want to learn more? Download my “State of Services for Industrial Equipment Maufacturers 2016” report.