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Field Services

Navigating Digital Transformation in Field Services

Tactics and Challenges for OEMs in the Digital Age

5 min read
By Kevin Bowers
At our last conference, TSIA’s President and CEO, J.B. Wood, told the crowd, "Congratulations, you're halfway through your digital transformation." The audience laughed and groaned, as many industries have been struggling through this transformation. However, for field services and hardware original equipment manufacturers (OEMs), the majority are just starting their journey.

What is Digital Transformation?

The digital transformation is the integration of technology into our everyday lives, and has had a huge impact on the expectations of our customers. Whether in software, hardware, or services, technology companies need to transform the way they do business and reimagine products and services for the digital age.
 
The biggest implication of this is the need to shift to a subscription model, which for many is no small feat. However, this is crucial for maintaining and growing a customer base and surviving the waves of digital transformation.
Image of the fish model described below

Waves of Digital Transformation


At TSIA, we think of the journey of digital transformation in terms of the Fish model. In the image above, you’ll see the solid line represents revenue and the dotted line represents costs (resembling the outline of a fish). This illustrates the journey companies go on when switching from traditional financial models to XaaS.

As you can see, during the digital transformation there are some “financial growing pains” that one must endure. Once a company enters the fish, they are adjusting to their revenue being down and their costs going up to support new as-a-Service (aaS) capabilities. Once on the other side, you see that the revenue and cost lines change trajectories and the long-term benefits of digital transformation can be felt.

The graph of the fish model is a summary of the technology and service industry as a whole, with five years invested in the journey to date. We think of it in terms of “waves,” with Wave 1 focused on transitioning to aaS and Wave 2 about easing the customer’s journey to your product or service’s value by reaching beyond just the product and helping to enable outcomes.  

Digital Transformation’s Impact on Field Services

So, where is the Field Services industry in this? If we relabeled the graphic above for OEMs with equipment on premise (field services), it would say Wave 1 spans 2021 to 2026 and Wave 2 spans 2026 to 2031. In other words, hardware OEMs may have 10 more years dealing with the fish.

Why do we say those in field service businesses are just starting out on their first wave of digital transformation? And how has that impacted OEMs and the rest of the field services industry? Let’s look at some data that illustrates the point.

Using data from our “T&S 50” data set (where we track the quarterly financial sets of 50 of the most influential technology solution providers), the image below compares service margins and revenues from 2018 and 2021. The two graphs have service margins on the Y-Axis and Services % of Revenue along the X-Axis.

Ideally, we’d like to see a shift up and to the right, indicating that service margins are rising, and a higher percentage of revenue is coming from services. Remember, digital transformation is rooted in shifting your traditional products and services to a bundled subscription of product and services and digital offers. This means seeing that shift on the graph is an indicator of progress on that journey by thinking beyond just the product to enable outcomes.
Technology and Services 50 2018 data set graph mentioned above

Technology and Services 50: 2018 Q2

Technology and Services 50 2021 data set graph mentioned above

Technology and Services 50: 2021 Q2


The orange circles in the navy box represent top OEM hardware businesses. Do you notice anything about their movement from 2018 to 2021, or lack thereof? The orange circles are on the left side of the “halfway” line in 2018 and are still on the left side of the line in 2021. As you can see, there is essentially no movement at all. These circles have remained stagnant, and any growth in service revenues may only be because product revenues are shrinking.     

Challenges for Digitalization in Field Services

Going from selling traditional software to subscriptions is hard, and the leap to managed service provider for software is even harder than that. When we look at going from traditional hardware sales to being a managed service provider, that's the hardest jump we see.
Arrows representing the business model transition mentioned above

The Business Model Transition Challenge


Those of you familiar with TSIA know the three reasons why it is so hard for OEMs to navigate this journey. In "The State of Field Services 2022," we summarize the challenges for field service operations. The three main factors handicapping the digital transformation of legacy equipment manufacturers are:
  1. The equipment is on site. When the customer buys the technology as an asset and operates it on their own, customer telemetry and performance visibility can be challenging.
  2. The equipment is not adequately connected. While on-premise technology can be enabled to "phone home," the most common frustration we hear from legacy product service organizations is that they have weak access to customer telemetry. It is not rich and robust enough to enable value realization and improve business outcomes.
  3. The equipment was sold by the channel. The channel has always been an incredible asset for companies selling on-premise equipment. The channel enabled scale, but now that asset is becoming a liability. When a product is sold through the channel, the manufacturer can lose critical visibility. Who specifically bought the product? Where is it actually installed? Who is using it? Are they still using it? This visibility is required to drive the value realization and business outcomes demanded by today's customers.

Benefits of the Digital Transformation for Field Services

The ability of OEMs to embrace digital transformation is admittedly challenging, so should we give up? Do we sit and wait for known and unknown competitors to pass us by? While the road ahead will be tough, the benefits of digitalization for field services outweigh its cost.
  • Increased savings and revenue. By some estimates, “companies [can] uncover as much as $20 million in annual cost savings by adopting new digital approaches.” This increase in revenue stems from improved technological capabilities that stream-line processes and your operational efficiencies. This frees up field technicians and other employees’ time to gain valuable hours that could be spent elsewhere, and also leads to the next benefit.
  • Improved Customer Satisfaction. Stream-lined processes mean less wait time for customers and less need for them to rely on customer support. Improved efficiency is critical as you go digital and are afforded less face time with customers. Since much of digital transformation leans on the shift to subscription, customer satisfaction is paramount to renewal and, ultimately, your success. The advanced data analytics that come with going digital will give you the digital tools you need to not only meet customer expectations but exceed them.   
It will be unfeasible to ignore the waves of digital transformation.

Unsustainable business models are unsustainable. – Thomas Lah, TSIA Executive Director and Executive VP

With this quote in mind, let's look at two TSIA frameworks that can help field services organizations navigate this shift.

The Remote Service Continuum

Image of the remote services continuum described below

Remote Services Continuum


The Remote Services Continuum (RSC) is a three-step approach that can be used as a roadmap for companies. This will help them better understand how to use digital technologies to provide more value for their customers. Additionally, the RSC can give insight as to how to monetize services based on those digital capabilities. This framework helps OEMs move away from being product-focused and shift to thinking about how they can enable the customer to obtain their outcomes. The key to this continuum is smart, connected products.   

The data you collect from your products will be more valuable than the initial product or service that you sell. – Vele Galovski, TSIA VP of Support and Field Services Research

It’s great that we say it, but at a recent TSIA conference, a large global OEM listed this as their number one learning from their journey.

"Data is at the core of everything Outcome-based – and not just from the customer perspective, but also your own operating model."

Data is the fundamental key to digital transformation. If you’re struggling with how to implement its use, here is our practical definition of it in fill-in-the-blank form:    

“With this data I can X, and I no longer need to Y."

We must remember the operative word in "digital transformation" is transformation. If you’re interested in more information on the RCS approach, check out our ebook, Why Services is the Key to Digitally Transforming Equipment Manufacturers.

The Digital Value Chain

Value creation is king. – Vele Galovski, TSIA VP of Support and Field Services Research

To generate the most value for your customers, you’ll need to build a digital value chain. Used by traditional hardware and software companies, a digital value chain is a horizontal, operational framework that should be updated and optimized for digital transformation.

To create an end-to-end value chain, you will first need to build it on a secure platform. This platform should organize the process of data collection and storage in a structured setting that will manage the complexity of today’s and future operating environments. Additionally, the digital value chain has to be connected to your internal processes and be integrated with your operational systems.

The graph below gives an overview of the moving parts of a digital value chain. While it can seem overwhelming, below are five steps to get you started on building a digital value chain for your OEM and field service management operations.
Digital Value Chain graph described above

Digital Value Chain

 

5 Steps to Building a Digital Value Chain

  • Step 1: Define Your Digital Offer Portfolio of the Future
    • Identify customer outcomes by vertical that your product and services can influence.
  • Step 2: Define Your Target Position in the Ecosystem
    • Identify service offers that create the highest value for customers and where they reside in the ecosystem (i.e. process, entire operation, and business outcome).
  • Step 3: Analyze the Capability Gaps
    • Understand the technology, infrastructure, software, and organizational skill set gaps and what investments are required to remedy them.
  • Step 4: Define Your Roadmap for "Make-or-Buy"
    • Identify the platforms, applications, and partners you need to provide your digital offers.
  • Step 5: Start Small. Think Big!
    • Implement with ambition. Connect your products and collect data, analyze and visualize the data, and leverage predictive analytics and AI to create value for customers that you can monetize.

First Steps Towards Digital Transformation

The good news about going through the digital transformation later is that OEMs can learn from the larger tech Industry that navigated the fish before them. Lessons learned in Wave 2 can be planned for during Wave 1; what was proven to work in Wave 1, OEMs can implement with confidence.

Here are some steps we recommend as you embark on navigating your own digital transformation.
  1. Get C-suite commitment. Digital transformation affects the whole company. As you inevitably encounter obstacles, a commitment from “on high” is needed to get the resources and support you need.
  2. Listen to your customers. Customers are a part of the journey as much as your company is, and they can be invaluable assets in providing much-needed feedback.
  3. Focus on the digital experience. The digital experience  will be critical to customer acceptance and success. Their success is ultimately your success, as renewals become the focus when going digital.   
  4. Embrace the financial implications. A temporary hit to revenue is a part of going through digital transformation. It’s unavoidable, but necessary to succeed long-term.     
  5. Break down silos. Handshakes between all departments will be required. C-suite commitment will be an enabler of this, but additional efforts and clear lines of communication will also be necessary.

 January 20, 2022

Kevin Bowers

About Author Kevin Bowers

Kevin Bowers is the director of field services research for TSIA. Prior to joining TSIA, Kevin held various senior leadership roles at DMG MORI USA, the largest global machine tool company in the industrial OEM marketplace. Throughout his 20-year career, he has held executive positions in sales operations, service, spare parts, training. Kevin is fluent in Japanese and he also sits on the board of directors for NIMS (National Institute for Metalworking Skills).

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