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.

Equipment as a Service

Do you want to own a car, or do you want to drive it? Do you want to buy and maintain a piece of equipment, or do you want to operate it?

In our business practise we often have these conversations when reminiscing on what really matters to end-users. We tend to believe it’s about outcomes and value, call it Servitisation. Still we see a lot of conventional decision making focussed on the product and associated Capex.

Voice of the Customer

According to a research by Accenture[i] around 10% of the life cycle cost is linked to designed and acquisition. The other 90% of cost is incurred during maintain, operate and disposal. Thus, it is not surprisingly that we witness an increase in customer awareness concerning the maintain and operate phase of a product.

The maintain and operate phase is as important to the customer as it is to the supplier. Witnessing dwindling margins on the product sale, suppliers are (re)focussing on the profitable margin contribution of maintain and operate services. At the same time customers are trying to reduce their operational expenditures. Focussing on the voice of the customer is often the path to finding a long-term partnership compared to short-term commercial “victories” of either party.

We want to reduce our operational expense but realise that we need the supplier in the long run.

 Why should I own the Product

The road to servitisation often starts with a simple question: “if I only want the value/ outcome of a product, why should I bear the risks of owning it while the supplier holds all the knowledge about the product”.

  • Rolls Royce “invented” Power-by-the-hour offering because the Royal Airforce demanded a fixed cost per hour in 1962.
  • Philips created Pay-per-Lux in 2015 as a result of an academic experiment with Schiphol Airport only requesting light.
  • Bosch Siemens Hausgeräte offers refrigeration-as-a-service to housing corporations reducing total cost of ownership while at the same time minimising ecological footprint.

The common thread in the above three examples is that these manufacturers transformed their business model from one based on Capex and Title Passage to one based on Pay-per-Use and partnership.

It’s a matter of looking at a bigger picture beyond the typical functional boundaries inside any organisation:

  • Apart from the one-time-sale, what is the “win” for a manufacturer in selling a piece of equipment the customer is not able to use?
  • Apart from a short-term saving, what is the “win” of a discount for a customer when it stiffens innovation?

The transformation towards outcome-based service contracts enables both manufacturer and customer to define mutual and sustainable value.

A Product is the carrier of its Outcome

Leap of Faith

To a certain extent buying/ selling a Service rather than a Product is a leap of faith. Both manufacturer and customer are in for a paradigm shift.

  • A manufacturer will have to recalibrate from the concept of infrequent revenue recognition to sustainable margin contribution.
  • A customer will have to disconnect the outcome of a product from owning it.

Thus, we see manufacturers and customers not completely abandoning the Capex & Title Passage business model, but we see them adding a business model based on outcome-based services once their mindset embraces the bilateral value promise.

Gartner[ii] expects that by 2023, 25% of commercial or industrial OEMs will offer IoT-connected product(s) via outcome-based service contracts

Seconding the transformation towards outcome-based services is the rise[iii] of the role of the Chief Revenue Officer (CRO). With a lesser margin contribution from the product sale organisations are looking at means to tie in the margin contribution of services. With a CRO organisations are putting all their eggs in one basket regarding to drive sustainable and profitable revenue growth. Companies with a CRO are leading with outcome- and subscription-based service offerings.

Digital and Connected

In an outcome-based model the focus shifts from Owning to Using. Digital technology and connected products are the key enablers in understanding and managing product usage.

It starts with creating full visibility of how a piece of equipment performs in the business context of your customer and how costs are incurred in doing so. Next, you’ll need to have a set of levers to be able to influence the both maintenance and operate activities. Lastly, you’ll need to understand how your customer will make money by using the outcome in order define a pricing model.

In a business model based on title passage and transfer of risk to customer there is a lesser motivation for the supplier to invest in digital and connectivity. The greater the motivation is in an outcome-based model where all maintain and operate risks remain with the supplier. Technology becomes a means and necessity to mitigate those risks.

  • Digital stream lines operations
  • Connectivity creates visibility and transparency

Customers expect things to work

A second reason to invest in digital and connectivity is an increasing customer expectation that products simply must work. This implies two things:

  • Prevent a product from breaking.
  • When it does break, minimise the impact on operations.

Using technology allows us to pre-empt a failure and to minimise the impact of downtime on operations.

In an outcome-based business model both customer and supplier have an aligned interest to ensure availability of the outcome “when needed”. The last two words are essential, because no matter how much you’ll invest in preventing downtime, ultimately any product will break or need maintenance. Thus, it’s the combination of technology and understanding the outcome requirements of your customer that defines the ability to monetise outcomes.

Mutual benefit

With new outcome-based variants in the offing, we often hear the doubt: “What happens when the outcome is made available by supplier, but it’s not utilised by customer”. 

For nearly two decades we are familiar with the copying machines example where you pay per copy. Over the years copier companies have perfected their outcome-based model with their customers to mutual benefit. The mechanisms they have created:

  • Provide consultancy and software solutions to make better and more usage of the deployed copying machines.
  • If utilisation goes up, the copying machine is replaced by a larger model and the former model is deployed at customers with a smaller demand.
  • Use price breaks and contract duration to cater to customer cost predictability expectation. 

Going back to our own examples. An airline buying power-by-the-hour has a genuine interest to fly the planes. A building owner buying pay-per-lux or refrigeration can only last when having tenants. If you can find the right driver to bill your outcome, outcome-based services are the way forward. In the end we want to use products. We need medical equipment because we value life. We require construction equipment because we need buildings to live and work. We need transportation means because we want to travel. Looking forward, the Gartner prediction may be conservative.


[i] Insight into Asset Lifecyle and Total Cost of Ownership – Accenture 2012

[ii] Critical Capabilities for Field Service Management, Gartner 2019 – G00436216

[iii] Anticipating the Information Needs of the Chief Revenue Officer in 2023, Gartner 2012, G00239551, 

3 Reasons Why Results Matter More Than the Product

Increasing machine uptime is at the core of what we do for our customers. We know that more than anything, our customers rely on machines to be online and fully functional in order to deliver results. From the small parts that make up a gamma ray machine to the pipe used in oil extraction, each part contributes to the general function and health of a machine. When the focus of service shifts to outcomes, it is not the value of the product/equipment that drives the equation. Even small and inexpensive components such as a pump or valve may have a tremendous impact. Service is a key component of a machine’s functionality, regardless of the size of the component, and as an organization we are laser-focused on minimizing unplanned downtime to ensure machines deliver positive results.

This perspective is driven by the need for tangible results and marks a tremendous shift in the industry we’ve witnessed over the past couple of years to outcomes over products. An outcomes-based model is where manufacturers focus on selling outcomes of a particular product rather than selling the actual product. For a solar panel farm, for example, the outcome is hours of energy created. Service teams and service providers will someday operate according to this model: instead of promising reactive repairs, service organizations will be responsible for ensuring that equipment is consistently delivering a valuable outcome by maintaining it proactively. Essentially, both the manufacturer and the service providers will be laser-focused on one thing: tangible results.

Here are three reasons why results are more valuable than the product itself – hint: it has to do with their value add past the point of sale:

  1. Uptime Has a Direct Effect on a Company’s Bottom line: Equipment can have every cutting-edge capability in the world, but unless that machine is running smoothly and consistently, it isn’t contributing to company productivity. Like an old consumer appliance that sits stagnant collecting dust, equipment plagued by repairs and downtime draws valuable resources away from the company mission, whether that is to serve patients or facilitate renewable energy sources.
  2. Steady Streams of Revenue: In an outcomes-based model, OEMs have the opportunity to continue providing service well past the point of sale, generating a regular cadence of income for the entire machine’s lifecycle. Since the goal is not only machine uptime but machine output, a product never leaves the cycle of service. Many companies already have service contracts in place which ensure a schedule of service in return of a regularly billed fee.
  3. Customers Value Results, and So Should You: Delivering memorable, superior customer service alongside your product offering is pivotal in customer retention, service delivery, and contract renewals. A company who delivers outcomes and always-on machines differentiates themselves from competitors by providing their customers with more than reactive repairs. Customers are receiving more than machine repair, but peace of mind and the ability to rely on projected bottom lines. In the end, this is a less risky, and more valuable model of service.

Each of these key reasons proves a central point: the future of field service is only as strong as the outcomes it produces. And as the industry moves towards an outcomes-based model, machine uptime, productivity and efficiency becomes a meaningful reality down to each and every small part.

This article is published in ServiceMax Field Service Digital on July 31st, 2018

Driving Revenue Growth

Today most service executives have a revenue growth target. After having delivered cost reductions for decades, the switch to delivering revenue growth is easier said than done. Where cost control stays within the current paradigm, growing revenue requires an entrepreneurial mindset. 

When sales people need to grow revenue, their first response will be “Give me a new product, with more features at a better price point. And yes, we need a marketing budget too.” Let’s transpose this mindset to the service domain.

Give Me a New Product

Take a look at your current services portfolio. When is the last time you reviewed this portfolio? How did the services in your portfolio come to be? Was it an internal push or did you create a dialogue with your customer to develop these services?

Whether we use the word disruption or not, there are several changes to take into consideration. 

  • Customer behaviour 
  • Technology
  • Business objectives 

There are two significant trends we see at play today.

  1. From Product to Output to Outcome based services
  2. From Reactive and Preventive to Condition-based and Predictive services

 

Give Me More Features

At home you may have a lot of products laden with features you do not use. Those features have been added by the supplier to cater to a multitude of use-cases. You may have a comparable situation with the “features” on your services portfolio.

In growing revenue, the most important thing is to have a dialogue with your customer to change the feature push into a feature pull.

A preventive maintenance example:

You can split the preventive maintenance job into three pieces:

  1. The execution of preventive maintenance
  2. Creating a report on the findings and activities done
  3. Communicating about the job

Many customers see the execution of preventive maintenance becoming a commodity. They expect to get a report free of charge but will acknowledge its value increasing from a compliance point of view. The eye opener may be communication. When offering choices like email, telephone, video conference or communication on site, a growing group of customers will choose the latter. With equipment becoming so complex, customers want an expect to say something sensible about it. Often this visit turns out to be the largest cross and upselling opportunity.

We see two growth levers: 

  1. Suppliers adding communication “features” enter in a dialogue of value and drive new revenue streams
  2. Suppliers adding features enabled by service and digital transformation are more connected to their customers leading to more sustainable revenue

At a Better Price Point

We’ve heard various asset operators say: “Less service is more”. Meaning, the lesser a piece of equipment requires servicing, the more the operator can drive value from its use.

We also hear that OEMs providing basis break-fix and preventive maintenance services saying that these services are becoming commoditised and are under severe price pressure.

Of course, you should continue your efforts in improving your internal efficiency and curbing your cost, but the move forward is to develop services higher up in the value chain.

We see a shift:

  • From Price to Total Cost of Ownership (TCO) to Value based proposals

 

We Need a Marketing Budget

In Sales, growing revenue is driven by touch points, leads and conversion of those leads into a sale. In Service we have plenty of touch points and we are driven by customer satisfaction. 

  • We drive incremental sales while performing a maintenance job
  • We use customer satisfaction to the benefit of higher renewal rates attach rates post point-of-sales

Though these two actions do increase revenue, they build on existing customers in the service domain. To grow revenue further, you need to tap into a base beyond your existing service customers.

  • Sell services at time of product/ equipment sales
  • Sell services to adjacent and competitor equipment

To convince these “new” customers you need to be able to articulate how good and valuable your services are. Call it marketing.

This article is published in ServiceMax Field Service Digital on June 25th, 2018

After:Market 2017 – Unleasing Service 4.0

Last week 250 service leaders attended the 11th edition of After:Market in Hamburg, Germany. For a number of years, I’ve chaired this event and presented keynotes. Over the years I’ve seen a change in dynamics both in attendants and topics covered. Not only is aftermarket reiterating its value contribution, aftermarket is also positioning itself at the core of business transformation.

To my great pleasure a growing number of attendees is having job titles like business development and sales & marketing. This year even procurement was present. The sheer observation that other functions are having an interest in service is the equivalent of “likes” on social media. The buzz is out. Service people knew that they mattered, now other functions are recognizing it.

Amongst the participants I detect a drive to unleash service on two levels:

  1. Doing things right – Daily many service people keep our assets afloat and take a pride in helping customers. To keep up with the pace of technology advancement and customer expectations, many service executives are shopping for state-of-the-art tooling.
  2. Doing the right things – Having all the data and touch points in grip, there is a realization that service is sitting on top of a gold mine to adapt/ change the business model. These service executives are shopping for how-to-get-buy-in handles. 

In my presentation “what service manager should know about sales” I mentioned a window of opportunity to initiate business transformation. If your it is the goal of your organization to grow your business rather than increasing sales, then service can lead the discussion by role playing a product-focus-scenario versus an outcome-based-scenario.

During the networking breaks and social activities, you can feel a common sense of direction. Service is working hard to get its act together on the basics. At the same time service is preparing for that opportunity to contribute to and drive the new business model.

At After:Market many speakers have shared their take on servitization, service design, product-as-a-service, digital, IoE and event procurement-psychology. Great and inspiring stuff. Especially when you tie it all together to create momentum to start your own transformation journey.

I’m looking forward to next year’s edition … and to hear from you how you have applied the insights in your organization.

This article is published in ServiceMax Field Service Digital on November 1st, 2017