Rental in Transition

Last week I went to Riga to participate in the annual convention of the European Rental Association. With the theme ‘Rental in Transition’ the convention rightfully worded the pivotal junction in time. Fuelled by the European Green Deal we are poised to rebuild our economy towards net zero emmisions. This means construction will boom requiring lots of construction equipment. The big challenge for OEM, dealer, rental and construction companies will be to manage the installed base of construction equipment from a carbon footprint and emmisions perspective.

Collective bargaining

When the representative of the EU, the consultant from the Boston Consulting Group and the chairman of the European Construction Industry Federation talked about the need and drivers for transition, I had this nagging question. Suppose I own a construction equipment fleet of 1b$, the majority still being internal combustion engine (ICE) based, how do I monetise that investment if the awarding of new construction jobs is based on lower carbon footprint and emission levels?

This is big. This is a challenge of major proportions. Though the delegates subscribed to the mid-term sustainability and transformation goals, for the short-term there’s that ominous questionmark of the how-to. The impact and magnititude of the sustainability transition shows how OEM, dealer, rental, construction companies and legislators are intertwined. This requires a serious dose of collective bargaining.

Preparing for the transition

Regardless of how the transition is going to pan out, for all players in the value chain it is imperative to prepare for the transition. It will become increasingly important to understand the usage profile of construction equipment versus generic equipment attributes.

Let me explain with an example in the car rental industry. When you rent a car it typically comes with a mileage allotment per day. If you drive more, you pay more. If you drive less you still pay the daily rate. You could also split the rental model in an ‘availability’ and ‘usage’ component. Especially if the usage component drives carbon and emissions output, splitting the rental model can motivate the user for a more sustainable use.

This simple example sits at the core of asset-centric business models. It’s not about owning of having an asset, it’s about using it. See here the incentive to digitally transform your business and get access to equipment usage information. Bye the way, if you are catering to the larger construction companies, you will know that providing the usage data of construction equipment is a critical element of the rental service.

Carbon offsetting

Most of the delegates flew to Riga. Upon buying their airline ticket each had a possibility to purchase the carbon-offsetting option. How many did buy that option? Today the majority of the rental companies offer a similar carbon-offsetting option for rental equipment. How often is that option selected? A brief survey amonst the delegates revealed the non-scientific value of ±5%. Rental today is a very price sensitive industry.

When I look at the construction deadlock in my own country, the Netherlands, I see that each new project must submit a carbon and emissions overview before even getting a building permit. We heard the EU representative make remarks along similar lines. “We will use carrot and stick”. And we know of sustainability-forefront-cities only awarding projects to eco-frontrunners.

Does this mean that we can only use electric or hydrogen based equipment for future construction projects? Contemplating on the sheer size of the sustainability challenge, the answer will be ‘no’. There simply isn’t enough construction equipment to get all the work done. But if you want to continue using ICE equipment, you need to get smart at carbon-offsetting options. At the conference we heard that a CO2 calculator is a good start, but we need to make it easier to use and equipment usage based.

Beyond Equipment

For the mid and longer term we have an adject challenge when replacing ICE equipment with electric and hydrogen based alternatives. For ICE equipment we can build on the existing infrastructure of fosile fuels. And for remote locations we can very easy offer a fuel management option. 

If we want to deploy electric and hydrogen based equipment, it often means we have to supply the complete EV or hydrogen powertrain as well. This implies that the rental paradigm will change from equipment rental to complete solutions rental. From an asset management and equipment availability perspective that will mean that the complexity will increase. This will feed the argument for accelerated digital transformation.

In completely different acumen we could label this as ‘servitisation’. When the contractor needs to excavate 100 tonnes of rock, he’ll need an excavator, dumpster truck and complete power train. As food for thought for rental, would it be too far off to start selling electricity/ hydrogen as well?

Beyond Riga

It was great to be in Riga. To hear so many people in the industry. The challenge is big. Yes, there are some threats. Yes, there is a level of denial and green-washing too. On the other hand, the challenge provides a great number of opportunities too. Those who embrace those challenges and embark on their digital transformation journey, those will have the upper hand in a rental market that is in transition.

Previous blog on rental.

Why you should put service campaigns at the heart of your go-to-market

It’s common sense that owners of products, equipment and assets want a maximum of uptime at minimal operational cost. But how much emphasis does this get in the procurement cycle? For many buyers, it is difficult to define the service requirements over a multi year lifecycle. At the same time, buyers do have implicit expectations regarding lifecycle support, often derived from brand perceptions. This is a nice mix for OEM’s to strategize on.

The bulk of lifecycle cost is in operating the asset

To create an asset lifecycle strategy we will have to look at it from cradle to grave, including both the OEM and the asset owner’s perspective. In the following picture you can see the cost elements that go into each phase.

Lifecycle of assets and costs © ServiceMax

What you can see in the picture is that the cost of operating and maintaining the asset is typically a multiple of the cost of acquiring the asset. In the image from Accenture below, the ratio between product expenditure (capex) and the service expenditures (opex) comes to life. For example, if you had purchased a piece of industrial equipment for $1m, you would spend an additional $7.3m over its lifecycle to keep it running.

Initial product purchase relative to total product lifecycle cost © ServiceMax

Nominal output of the asset

Let’s go back one step. Why does somebody buy an asset? Not for the pleasure of owning it, but to use it. In using it, the asset produces a nominal output/outcome, and that generates value for the asset owner. To maintain the nominal output while wear-and-tear is degrading the asset, a mitigating lifecycle strategy needs to be put in place to secure the value potential of the asset. The following picture shows a typical asset lifecycle.

Typical asset lifecycle © ServiceMax

In this picture you’ll see service interventions like preventive maintenance and break-fix that serve the purpose of uptime. An intervention like an engineering change serves the purpose of prolonging the lifecycle of the asset as well as potentially boosting the original nominal output.

  • Extending lifecycle: mid-life upgrade, retrofit or overhaul.
  • Expanding output: booster-packs, product or software upgrades.

Product engineering beyond Point-of-Sale

Both extending the lifecycle and expanding the nominal output of an asset can be plotted against the continuous process of product engineering. Once a product hits the street, engineering receives feedback on its use through quality, warranty and maintenance channels.

Acting on asset feedback, engineering can design newer revisions of that product as well as define upgrade and booster offerings for the existing installed base.

For some OEM’s the asset feedback loop is an integral part of their Go-to-Market. Imagine you operate in an very competitive and tech savvy market. Timing is essential in building market share. At ServiceMax, we’ve come across OEM’s that go GA with a product when engineering is at 80%. They use the service organization to ‘bestow’ the customer with goodness and attention to make up for the missing 20%. In doing so, the service organization retrieves relevant intelligence to complete the engineering process. As part of the deal, the customer gets the benefit of both the latest technology as well as engineering changes post-point-of-sale. A win-win for both OEM and asset owner.

Using the product lifecyle as a means to customer intimacy

Whether you launch your product at 80% engineering completeness or at 100%, most OEM’s will continue to engineer their product beyond GA. The question is, how would you like to make those product improvements and engineering changes accessible to your existing installed base. In other words, have you setup a process to manage asset lifecycle service campaigns?

Service campaigns can stem from two different emotions. A negative and a positive one. In the end, when you manage your campaigns well, you’ll achieve higher levels of customer intimacy.

  • Negative emotions: These are quality and complaint driven engineering changes. A customer expects a certain quality and nominal output level, but is not getting it. The customer expects the supplier to fix it as quick as possible at no extra cost. Though a complaint and quality issue may start as a negative emotion, an OEM’s capability to act on it determines if the emotion remains negative or turns positive. In addition, service campaign capabilities will deliver efficiency and compliance benefits to the OEM.
  • Positive emotions: These are engineering changes that will enhance the capabilities of the asset. As such, you go above and beyond the nominal output specifications promised at point-of-sale. In general customers will perceive this as a positive, adding credibility to the OEM’s leadership and brand value. With service campaigns an OEM can reinforce that positive emotion as well as monetize it.

Service campaigns drive pro-active service

If customers buy assets to use them, OEM’s are very well positioned to facilitate the usage of those assets throughout their lifecycle. The OEM designed the product. The OEM has all the expert knowledge of how and why the product works. Now, if the OEM gets feedback on how each individual asset performs in the field, the OEM is sitting on a gold mine of data, ready to be servitized and monetized. The vehicle to deliver those services to the installed base is called – service campaigns.

This article is published on Diginomica.

Keeping Your Assets in Shape

Do you have this feeling that the battery of your phone drains faster and faster? Internet forums are full of testimonials and resolutions for keeping your battery in tip-top shape. How does this apply to B2B products, equipment and assets? Can asset owners monitor the performance of the equipment, and what handles do they have to maintain output/ outcome at the nominal level promised at point of sale?

For many years I’ve captured the digital and service transformation journey in a single tagline: “from fixing what breaks to knowing what works.” The message is driven by a simple principle: customers expect things to work. Even more, they expect the outcome of the asset to be stable over the lifecycle.

Another simple truth is that everything eventually deteriorates and breaks. This prompts the following questions:

  • What is the life expectancy of the asset? 
  • What do I need to do to keep the asset in shape?
  • What can I do to extend the life cycle of the asset?

Building a Fitness Plan

Preventive maintenance might be the first thing that comes to mind as the way to keep your assets in shape. But what does preventive maintenance (PM) prevent? And how does it affect asset performance and life expectancy? This was a tough question to answer when one of my counterparts in procurement, who was looking to reduce the selling price of a service contract, asked me, “What will happen when we reduce the PM effort by lengthening the interval?” This was even more difficult to answer when it became a numbers game, and the purchaser asked me to prove the offset between PM and break-fix. 

So where do we look next? I propose condition-based maintenance.  

We know that the performance of an asset will deteriorate over time, and we know the rate of deterioration will depend on various attributes like aging and usage. Because these attributes are measurable, we can use them as levels to trigger a service intervention. 

So rather than taking a one-size-fits-all approach based on time intervals, you can create a custom fitness plan for keeping your assets in shape. One that looks at the condition of the asset in relation to its expected performance. This can look like an intervention being triggered when the output of an asset or the viscosity of a lubricant drops below a certain threshold. 

To continue with the fitness metaphor, we often don’t just want to stay in shape—we also want to increase our longevity and even get in better shape as we age. When it comes to your assets, this is where mid-life upgrades, booster-packs and engineering changes come into play. And in the same way you use predefined levers to trigger service interventions, you should use these levers to trigger updates, upgrades and lifecycle extensions.

Both of these service strategies use asset health at the core of your service delivery model, steering you away from ‘fixing what breaks’ and towards ‘knowing what works.’

A Real Life Example

Imagine you have a pump and valve combination that has a nominal capacity of 140 m3/h.

If you used a preventive maintenance model that runs every 6 months, it would not take into account the age of the pump and valve combination, nor would it account for the corrosiveness of the transported materials. 

But if you took a condition-based approach using IoT-connected sensors, you could measure attributes like vibration, temperature, and energy consumption and use them as indicators for asset performance. For example, if the capacity drops below 130 m3/h, a service intervention would be triggered. It’s like the pump saying: “I’m not feeling well, I need a medicine.” On top of this, if you detect the pump is consistently pushed beyond original specifications, you can know that it’s necessary to initiate an upgrade conversation to safeguard asset health and durability.

Asset Centricity

The common theme of these service strategies is asset centricity. It’s about putting asset health at the core of your service delivery model and continuously comparing an asset’s current output with its expected performance.

By looking at current performance, expected performance and demand, you can also advise your customers on when it’s time to downgrade or upgrade the asset. Through this asset-centric lens you can truly become a fitness coach, advising your customers on the right fitness program that will keep their assets in tip-top shape.Learn more about IoT and condition-based maintenance here.

This article is published in ServiceMax Field Service Digital on September 1st, 2021 and Field Service News on August 25th, 2021.

Identifying new revenue streams in Service

It is no big secret that service revenue streams are profitable. Thus, it is to be expected that many CFO’s are the driving force behind your organisations’ service revenue growth ambitions. Especially when margins on product sales are dwindling. And indeed, we see the majority of today’s CSO’s having a revenue target. This is where the real transformation starts.

Having a cost-centre heritage practically all CSO’s know how to drive cost reductions in the service delivery process. Ask those same CSO’s if they know how to grow revenue, and the answers are less clear. Read on for the missing insights.

A small personal anecdote. In 2012 I was responsible for selling service contracts for a division of a € 60 billion family-run German company. Because my targets were revenue based, my role was moved from the service domain to the sales domain. The CRO asked me how I would achieve my goals and what marketing budget I needed. I said I would first build the delivery capability and then go for the marketing budget. How naive I was.

Voice of the Customer

How could I know what capabilities to build without understanding what customers really value? Without ever having put a lot of thought to my current services portfolio my service revenue stream was more a bookkeeping metric than a conscious business driver. Looking at my website under the services heading I saw the usual suspects; installation services, periodic maintenance, spare part sales and a helpdesk for break-fix scenarios. Remembering the words of the CRO; how did I market these offerings? Well, beyond the website, I didn’t. It made me aware that I needed the voice of the customer.

Customers expect assets to work

And when I asked, the answer was really simple; customers expect their assets to work. They want to maximise uptime while at the same time minimising operating cost.

The Preventive Maintenance story

May I make a guess? Preventive maintenance is a significant portion of your service revenue stream. But what if your customer starts questioning your rationale of ‘preventing’ and how those activities link to the achieved uptime? What if the procurement department of your customer pressures you to reduce the maintenance cost?

In our previous blog on how to sell customers on the value of preventive maintenance we have shown that value recognition of service delivery is moving from the actual execution to the insights you can provide. Sure, the service work needs to be done, but beyond fixing the asset, you have to ‘fix’ the customer. So, if you perform a periodic maintenance, try to shift your focus to the reporting and the interpretation/ communication of what the outcome means to the customer.

A customer may respond with:

  • Did you find any anomalies during PM and what impact do those have?
  • Do I need to reserve any additional budget to keep the asset going?
  • How can I improve the performance of the asset?

From fixing what breaks to knowing what works

Beyond reactive services

Considering revenue streams based on reactive type services are in jeopardy, the way forward is offering services that focus on the output and outcome of the asset. This implies that you have to change your paradigm from a product focus to a customer focus. At the core of your service delivery is not the product, but how your customer is using it. It makes a big difference if the same product is used intermittently at a 25% utilisation versus a 24/7 usage at 99.x%.

The key to selling uptime and performance-based services, is your understanding of the ‘cost of downtime’ of your product in the context of its use. Thus, we’re back at the voice of the customer.

I love penalty clauses

A ‘great’ way to engage in a value conversation with your customer is the topic of penalty clauses. I love them! Not because I, and my CFO, like to include the penalty liabilities into a service contract, but because penalties are a surrogate for something that is important to your customer. Try to discover the ‘why’ behind a penalty clause and focus on the mitigation of that reason. You may discover new types of services you can sell. 

My guess, it’s all about availability of the machine. Apply more curiosity and your customer will tell you when that availability matters … and when not. Even a 99.x% utilisation will have ‘black out’ windows allowing you to perform the necessary service activities without the stress over-dimensioning your service delivery organisation.

Sell first, then build delivery capability

Going back to my CRO. On a continuum of potential services, I could offer a full range from reactive to pro-active, from product to usage-based services. In the end, the determining factor is not me, the seller of the services. It’s all about the buyer of services. My CRO ‘cured’ my naivety. I first listen to my customer and sell what he/ she wants. Then, if I have a state-of-the-art and flexible service execution platform then I do not need to worry about the service delivery capability being able to catch up.

This article is published in ServiceMax Field Service Digital on November 24th, 2020

Selling Preventive Maintenance as a Value Add

Selling preventive maintenance is not what it used to be. In the old days a manufacturer could use its expert position to prescribe a maintenance scheme. Today, a combination of emerging technologies and pressure from buyers to do it cheaper/ smarter warrant a revisiting of the value proposition of preventive maintenance.

PM = Periodical Maintenance

As acronym we use PM. When talking we utter the words preventive maintenance. But what do we really mean?

  • Planned Maintenance
  • Periodical Maintenance
  • Predictive Maintenance
  • Prescriptive Maintenance

Analysing a lot of service contracts offered by OEMs we still see most of the maintenance is periodical or counter based. Just like the maintenance interval for your car; a PM each year or at 15,000 km.

All those periodical or counter based maintenance jobs are good service revenue for your service organisations But what happens when customers start challenging you? What if the customer has access to knowledge that amends or contradicts the engineering assumptions that led to the definition of your current maintenance intervals?

Buyers seek to reduce maintenance cost

In a world where people are more vocal, we see customers expecting things to work and buyers seeking to reduce maintenance cost. These expectations impact the way we sell service contracts. 

Selling is more straight forward when you can see a direct relationship between the pain and the gain. Such a link is obvious for installation and break-fix activities. But it is less apparent for preventive maintenance. Try to picture buyers asking these questions:

  • What does PM prevent and what is the risk that remains?
  • What is the rationale of the current maintenance interval?
  • Nothing happened last year. What will happen if we skip or delay a PM?
  • Can you dissect the PM job in activities (show me what you do) and is it really necessary to have all those activities done by an experienced/ expensive technician as yours?
  • Can we do pieces of the PM job ourselves?

You get the gist of the conversation and know where it is leading  less cost for your customer at the expense of less PM revenue for your service organisation.

Problem-Fix curve

What complicates the selling of service, is that in most scenarios the buyer and the customer/ user are not the same person. You may convince the user of a piece of equipment to do preventive maintenance, the buyer on the other hand has a different set of objectives. Most likely the buyer will push you on a path towards commoditising and cannibalising your PM services. All in order to reduce cost.

Rediscovering value

To stay ahead of the game let’s dissect PM along the lines of value creation for the customer. High level you can split a PM into three pieces:

  1. The execution of the maintenance activities
  2. The reporting on those activities
  3. The communication and interpretation of the results

Ask your customers to rate the value of each of those pieces. It’s probable that you will find that the business value of PM to a lesser extent is in the execution and more in the reporting and communication.

Maybe you pride yourself in your uniqueness of execution, whereas the customer might perceive it as a commodity. If also reporting and communication are on par, you may face price erosion.

If your customer needs the PM report for compliance or insurance purposes, the value of the report increases. When you consider that PM is often a play of risk and liability, you can price the value of your brand. Example: It does make a difference to an insurer if a yearly PM/ inspection is performed by a triple A company or a middle of the road company.

Communication value comes into play when your customer expects you to be a partner rather than a supplier. 

  • Supplier – “just send me the PM report, I’ll read and interpret it myself. When I need assistance, I’ll contact you.”
  • Partner – “help me interpret the findings and consequences of the PM. How does this impact my business?”.

In the latter situation you can monetise the communication beyond the effort of having a conversation for a couple of hours. PM can thus elevate from an obligatory periodical execution to an instrument of customer satisfaction and cross- and upselling.

Repackaging the preventive maintenance offering

In order to retain and expand your PM revenue stream in a context where the buyers move to reduce their spend, do go in discovery mode and (re)define preventive maintenance. PM is not a singular black box once defined by somebody in engineering with a product focus. Modern PM is a menu of choices (and consequences) for your buyer based on the usage profile of the product, budget and risk.

This article is published in Field Service News Jan/Feb 2020 issue.