What are The Challenges of Servitization for 2018 and Beyond?

ONE BIG QUESTION What are the Challenges of Servitization for 2018 and Beyond? 3 Executive Summary 4 Key Findings 5 Research Analysis 5 The advent of a “triggered maintenance” paradigm 7 Scheduling optimization as a powerful source of business advantage 9 Leveraging data and tech to plan for growth 13 Key Recommendations 14 Appendices 14 Appendix A: Methodology 14 Appendix B: Demographic Information 16 Authors Table of Contents 2 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? The future of service has never looked so promising, but along with the potential waiting to be unlocked, one big question looms. How can businesses continue to evolve their level of servitization to deliver high customer satisfaction, efficient management of front and back-end processes, and revenue growth as their operations grow in complexity? While this report cannot predict the future, we will take a deep look into research gathered from the service executives in the Field Service event community who shared their insights through an anonymous survey. These 100 responses make up a cross-section of the industry, representing manufacturers and service- centric organizations with revenue levels from SMB with less than $100 million in revenue annually to enterprise, with over $500 million. The results analyzed in this report indicate that in order to achieve peak revenue and profitability from service as a manufacturer or service-centric organization, a holistic approach to servitization is important, taking into account factors that go beyond supporting the technician in the field, linking their on-site actions with solutions that create visibility for the back-office and allow otherwise complex processes such as reverse parts logistics, warranty management, and technician scheduling optimization to be handled on a fluid basis. Executive Summary 3 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Key Findings As businesses pursue greater levels of servitization, the challenges related to the management of their operations also grow. These challenges are present across all revenue levels, but can be felt most acutely by mid-market organizations ($100-$500 million annual revenue) that have not yet achieved the revenue of their enterprise counterparts (revenue over $500 million a year), but have surpassed the size and complexity of operations of their SMB peers (less than $100 million in annual revenue). Challenges linked to important processes for servitization are common to the majority of respondents, but can be most acutely felt in an environment of transitional growth. For example, 10% more mid-market respondents than either SMB or enterprise listed understanding what work is covered by warranty as an important business process. Similarly, mid-market respondents encounter issues with component repair and overhaul processes during part replacement and return 3% more often than enterprise, and 7% more often than their SMB peers. This points to the critical nature of linking work in the field with the management of logistics and back office processes, and the complexity added by growth. The specific needs of a service organization will vary based on industry, as well as size. One thing that remains common across these parameters is the negative impact of poor performing service management solutions. Out of all respondents who said their current software does not address service management processes very well, 65% are considering replacements within the next 12 months. This group of respondents was also the second most likely to report that their service operations were a cost center, after those who did not have any service management software at all. Those with poor performing technology are the most likely to encounter difficulty across a range of essential processes. For example, 35% have challenges tracking customer specific pricing under maintenance contracts, and 52% are not able to collect data from assets in the field. Conversely, larger and more profitable businesses are more likely to employ solutions designed to streamline essential service processes. On the enterprise level, only 22% of respondents report that their service operations are cost centers. The remaining 68% of respondents have been able to create a profitable service operation, and of those respondents, 74% are satisfied with the performance of their field service management software. Enterprise organizations boast the highest adoption rates across many of the most advanced servitization techniques, such as automated technician scheduling software, with 21% using this technique over 15% of the mid- market and 13% of SMBs. As organizations seek to develop their service organizations as profit centers, solutions that are specific to service go from being considered an extra piece of utility to a requirement for effective operations. 4 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? 5 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Research Analysis As the footprint of a service organization expands to include new territories, challenges that were once simple to manage begin to become barriers to growth. The importance of parts management and reverse logistics grow exponentially with the element of distance and a larger territory. Only 17% of organizations that serve a highly localized area from a single location report challenges with serialization and tracking of replacement parts during on-site replacements. This number more than doubles to 40% of organizations that serve their entire states, and 57% of globally distributed organizations, an example of how needs can emerge that are brought on by growth or compliance needs that become applicable upon entering new markets. Other challenges remain relatively evenly distributed across geographic ranges, for example the need to easily determine whether or not a specific part or labor is covered by a maintenance or warranty contract, a challenge reported by at least 30% of respondents for each territory size, though global organizations were the most effected, at 46%. Critical service challenges across industries and territory sizes Challenges with Serialization & Tracking of Replacement Parts by Territory Size Highly localized service area and single location Multiple locations serving a single state and adjacent geographies 17% 40% Global or multinational service area 57% The importance of certain key processes will depend on the industry of a service organization, and the nature of the products they work with. Specific aspects of service management will have a greater impact on organizations depending on their areas of focus. For example, one in three manufacturers of commercial computers encounter challenges with high volume receiving of parts for repair, whereas only 4% of medical device, scientific, and imaging equipment manufacturers say the same. For them, handling the return materials authorization process becomes a critical issue, affecting 60% as the nature of the highly specialized equipment they work on makes accountability especially critical. The medical and scientific device vertical shares another key consideration with other original equipment manufacturers, that being the need to implement serial traceability to meet compliance needs or for recall support, with 61% and 77% citing this need respectively, whereas only a quarter of those in the residential appliance category felt this was important. Certain aspects of servitization are common across almost all verticals, such as the adoption of specific service level agreements for response time, where at least 50% of each group has adopted these with the exceptions of transportation and utilities. Likewise, responding to emergent phone, email, or online requests is a cornerstone of all verticals with the exceptions of residential appliances and semiconductors, the only categories where fewer than 50% of respondents listed them as important. While a broad range of requirements emerge as a service organization develops, the need for dedicated solutions supporting key service processes can be accentuated by industry specific requirements within many organizations. These processes deserve to be supported by solutions tailor made to handle them. Certain aspects of servitization are common across almost all verticals, such as the adoption of specific service level agreements for response time..." “ 6 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? 7 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Research Analysis Subcontractors are widely used to meet a range of service challenges. These challenges include not having enough capacity to handle growing business, to work on specialty jobs that require niche expertise, or service requests that come from a geographic location that is outside of a primary area of operation. What’s common to all of these is the element of allowing a business to grow more effectively and fluidly than simply relying on the natural growth of an in-house technician force. Subcontractor use is common within profitable service organizations as well as primary manufacturing businesses that have profitable service operations, with fewer than a third of each group stating that they do not use them. Advancing subcontractor communications beyond email and phone Phone and email remain the most common methods for contacting subcontractors Traditional communication methods of phone and email are still the norm for subcontractor communications in most businesses, and while dedicated app usage is gaining a foothold primarily in profitable utilities, network support, and commercial appliances companies, even within this subgroup it has yet to gain more than 50% adoption. Likewise, subcontractor portals are being used by 20% of all respondents, and EDI by only 4%. Effective use of subcontractors can help extend the range of territory and expertise that a service organization can leverage to grow, though as of now solutions for managing them beyond basic email and phone calls have not been widely adopted. Without using fully optimized bid letting, work assignment and mobile work order management measures, operational efficiency is hindered, which has a direct effect on scalability. Respondents use subcontractors for the following reasons When demand for service work exceeds our internal capacity We do not use subcontractors When service work requires disciplines or skills we do not have internally In order to test the market in new regions where we do not have local personnel When local labor laws make direct employees unattractive Within specific geographical regions where footprint is not developed N/A Low complexity manual work In warranty situations where our own techncians are not available 43% 38% 21% 16% 3% 3% 2% 1% 1% 8 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Research Analysis It’s most common for dispatchers to assign calls to technicians as they come in, though a small margin has moved to integrate technologies for dynamic scheduling. Moving towards dynamic scheduling for service technicians Only 11% of respondents have rolled out a fully automated approach to technician scheduling that can adjust in real-time. Of this subgroup, 45% are enterprise businesses, and 60% fall into the construction, utilities, or commercial appliance subgroups. General manufacturing and medical and scientific groups make up the largest portion of the 19% of respondents who have adopted drip scheduling. This method can be particularly beneficial for service on complex or highly critical devices as it allows a technician to focus their time on the task at hand without the distraction of knowing their next assignment until they are ready for it. Of the 18% of respondents who automate scheduling primarily based on technician skill and inventories, one in three are specialists in medical or scientific products, again highlighting the need for specific knowledge and attention to detail around these products. Businesses that have already made steps to integrate advanced scheduling capabilities tend to have either more predictable service cycles that are easier to automate around, or critical needs to fulfill that demand higher performance. However, another common denominator is the fact that they are able to create profits from their service operations. Given the advantages that dynamic scheduling can provide, those who move to adopt it can obtain a significant tactical advantage. 9 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Research Analysis One in every four product-centric businesses where service is a cost-center report dissatisfaction with their service technology, while three out of four service organizations with marginal profitability feel that their service solutions are only average. By contrast, no product-centric businesses in the mid-market that have been able to create a revenue stream from service reported dissatisfaction with their service solutions. Gaining the right technology is key to enabling the features most associated with successful servitization. Characteristics of profitable service operations 52% of profitable service-centric organizations and 33% of product-centric organizations that have turned service into a revenue stream automate at least one aspect of their customer communications. 67% of primary manufacturers with profitable service operations collect data reflecting the health and performance of their machinery in the field. A majority of businesses with profitable service organizations manage annual or longer-term contracts with their customers, while the opposite is true for those where service is either a cost center or only marginally profitable. Profitable service-centric businesses are nearly twice as likely to be very interested in IoT integration to automatically trigger work orders than their marginally profitable peers. Some key features of businesses with profitable service operations include: 10 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Research Analysis Mobile and chat are both in use within nearly half of respondents’ organizations, underscoring how tech and customer service are synergistic, and tools that were once cutting edge can become common. Leveraging data and tech to plan for growth Respondents are currently using the following technologies Proactive “what- if” planning for new products or service areas Embedded knowledge base and tutorials on service or repair tasks Mobile apps for use by field technicians Customer service via social media Artificial Intelligence for customer service tasks IoT to inform on condition of customer equipment, with no integration to field service systems IoT to support servitization of products IoT automatically triggering work orders Contact center analytics Outbound dialing software Chat and messaging Omnichannel communication 4% 13% 11% 12% 18% 33% 22% 28% 15% 18% 49% 45% The share of respondents who are mostly pleased with their current tech makes up around half of the population, with even poles representing those who are fully satisfied or dissatisfied, respectively. This distribution holds when respondents are isolated for reporting their service operations are profit centers. The effectiveness and capabilities of the solutions that service teams rely on has a major impact on business performance. Recognizing this, half of respondents feel that their technology could be better, even if it does allow them to manage their current strategies. Out of all respondents who said their current software does not address service management processes very well, 65% are considering replacements within the next 12 months. For service management processes that are important to your business, how well does your existing business software address each one? Very Well Somewhat Well Not Very Well Don’t Have Service Management Specific Solutions 22% 52% 23% 3% 11 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Slightly less than half of respondents are either pondering a move to obtain new service software in the next 12 months, or have already begun to evaluate their options. A significant number of respondents across all industries and profitability levels realize that at some point over the following year there is likely to be a key development in their service operations that requires more advanced capability to manage. Not at all likely Somewhat likely Very likely We are currently evaluating options. I don’t know. How likely are you to consider a new or upgraded field service management software package in the next 12 months? 39% 20% 6% 16% 19% 12 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? 13 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Respondents are very interested in obtaining the following technologies Proactive “what- if” planning for new products or service areas Embedded knowledge base and tutorials on service or repair tasks Mobile apps for use by field technicians Customer service via social media Artificial Intelligence for customer service tasks IoT to inform on condition of customer equipment, with no integration to field service systems IoT to support servitization of products IoT automatically triggering work orders Contact center analytics Outbound dialing software Chat and messaging Omnichannel communication 7% 12% 10% 11% 17% 25% 20% 21% 13% 18% 32% 30% A third of respondents are very interested in the integration of embedded knowledge tools and tutorials on their service and repair tasks. Embedded knowledge refers to the formalization of processes and strategies within the context of an organization’s culture or accepted routines. In the context of service, this type of knowledge management allows efficiency to be built into both pedagogy for newer technicians, as well as facilitate optimizing the natural workflows of more senior team members. One of the most sought after capabilities in service is the ability to implement “what-if” style planning for new products and service areas. “What-if’ tools allow for product and service launch strategies to be evaluated against a range of possible scenarios in order to optimize decision making before actually making a move into the market. Another key area being investigated primarily by manufacturers is the development of IoT to support the servitization of a product line, effectively weaving a sustainable secondary revenue stream into the business model. Importantly, only 13% of respondents report that they are currently doing this, another indication that that full force of IoT being integrated more heavily into the service and manufacturing industry has yet to be felt, and the changes it will bring will be huge. When considering your field service software, plan for the future, not just for what your current situation demands. Assessing the future requirements of your service operations as accurately as possible is a critical consideration for service managers. Create a forecast of your growth that considers what changes to your operations are to be expected across a variety of scenarios. In this way, though you can’t fully anticipate the future, you can position your business to have the tools required to accommodate growth and the service challenges that come along with it. Requirements for servitization go beyond integrating technology that supports what is going on in the field. More profitable companies will typically pick up longer contracts, requiring tools for managing SLAs and warranty information across their client base. While features such as mobile adoption are fairly ubiquitous in service organizations today, larger business that are succeeding in service need features that are specific to service management. As territories grow along with revenue levels, processes that are key to service such as providing critical information on SLAs and warranties, keeping track of part ownership and replacements, optimizing scheduling, and automating important communications become more difficult to manage as service-specific solutions must enter the picture. Developing a service operation that has the solutions in place to support essential service processes lays the framework for greater IoT integration. While the most immediate benefits of technology are around supporting the growth of a dedicated service operation and driving profitability through efficiency, another important implication of servitization is laying the data collection framework that can eventually support a greater level of IoT integration. Though a leading edge of service and product-centric organizations have been able to integrate the most cutting edge features supported by IoT at present, the interest in this area from the industry at large is huge, and effective servitization through technology is key to positioning an organization on a forward trajectory. Key Recommendations 14 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? 15 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? Appendices The results analyzed in this report were gathered from responses to a benchmarking survey delivered to the attendees of Field Service Fall 2017, as well as to executive members of the Field Service database. 100 executives responded to the survey. Demographically, respondents are spread across a range of industries with the most heavily represented being medical, scientific, and imaging devices along with construction and industrial products, followed by general manufacturing. In terms of annual revenue, close to half of respondents are at the enterprise level, while the remainder are more or less evenly split between mid-market and SMB sizes. Similarly, 46% of respondents are global or multinational companies, driven up to 57% when including respondents who operate within more than one country while not considering themselves to be multinational. Another 16% of respondents occupy the smallest footprints, either single or multiple locations serving a highly localized area. For around a quarter of respondents, the footprint they cover across their multiple locations varies from a single state, to nationwide. Appendix A: Methodology Appendix B: Demographic Information What vertical industry is your company in? Estimated annual revenue How geographically distributed is the footprint of your company? 3% Commercial computers 3% Enterprise network support services (electrical, security, telecom, cable, internet) 3% Semiconductor 4% Commercial appliances and electronics 6% General field service 6% Other 6% Residential appliances and electronics 7% Transportation (rail, aerospace, automotive, marine) 8% Utilities 13% Manufacturing 18% Construction/industrial products 23% Imaging, medical device, scientific 43% Enterprise >$500 million  27% Mid market- $100 million- $500 million 30% SMB- <$100 million 6% We have a single location and a highly localized service area.  7% We have locations in several states servicing a region of the country. 9% We have locations in multiple states and a nationwide service area. 10% We have multiple locations spread out in multiple regions of a single state servicing the entire state and adjacent geographies. 11% We have multiple locations and a highly localized service area. 11% We have locations and deliver service in more than one country. 46% We are a global/multinational company. 16 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? What is the role of service in your organization? How many field service management technicians do you employ? Product centric- service is a cost  center 0 Product centric- service is a  profit center 1-20 Service centric - profit center 21-50 Service centric- marginal  profitability from service 51-90 I don’t know. 91-100+ 20% 7% 36% 41% 27% 29% 12% 5% 5% 18% For which of the following reasons do you use subcontractors? When demand for service work exceeds our internal capacity We do not use subcontractors When service work requires disciplines or skills we do not have internally In order to test the market in new regions where we do not have local personnel When local labor laws make direct employees unattractive Within specific geographical regions where footprint is not developed N/A Low complexity manual work In warranty situations where our own techncians are not available 43% 38% 21% 16% 3% 3% 2% 1% 1% 17 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? For those who use subcontractors, how do you communicate with them about service assignments, completions and service details? Check all that apply. Which of these challenges do you face in performing work that may be covered by maintenance contracts or warranty? Determining whether labor or parts are covered by your own warranty or an ongoing contract Pricing maintenance contracts aggressively without losing money N/A Determining whether parts or labor are covered under a third party/OEM warranty so you can avoid invoicing and then reimbursing the customer Tracking customer- specific pricing for parts and labor under a maintenance contract 42% 35% 7% 22% 28% 43% 44% 27% 4% 27% 3% 22% How well- integrated is data from IoT with your business systems? N/A IoT data is visible through a portal, SCADA or other tool that is disconnected from systems we use for field service IoT data is consumed on- site by technicians while servicing equipment and is primarily used for diagnostics IoT triggers emails or other communications regarding the condition of customer equipment we can act on IoT data ports directly into field service management software to automate an expedited response IoT data is integrated with systems for contract management so automated responses conform to service level agreements and other contractual requirements Other 50% 22% 22% 14% 12% 8% 3% Phone Email Do not use subcontractors Subcontractor portal in a field service management software solution Online/offline mobile mobile app EDI (Electronic data interchange) Other 18 One Big Question - What are the Challenges of Servitization for 2018 and Beyond? When it comes to assets you service for customers, from which of the following is your company collecting or monitoring data? Data reflecting the health or performance of entire pieces of machinery N/A Data from embedded components that are mission- critical or prone to failure Data on the performance and operation of entire work cells, production lines, building automation systems, etc. 44% 36% 24% 42% 45% 34% 23% 16% 22% 22% 22% 18% 12% When you need to take parts out of customer equipment and return them to inventory for repair or other purposes, which of the following is a challenge for you in your current system? Serial traceability and tracking of the location and status of parts during the reverse logistics process Handling the return materials authorization process Component repair and overhaul processes Training and education of bench repair technicians involved in diverse repair processes on a broad spectrum of equipment N/A Managing third party contractors involved in the service process and determining which are authorized to receive a replacement part automatically, which have to send the original part back before receiving a replacement part, etc. Tracking which specific piece of equipment and customer site the part came from Determining who owns the part once it is removed from a customer’s equipment High- volume receiving of parts for repair IFS develops and delivers enterprise software for customers around the world who manufacture and distribute goods, maintain assets, and manage service-focused operations. The industry expertise of our people and solutions, together with commitment to our customers, has made us a recognized leader and the most recommended supplier in our sector. Our team of 3,500 employees supports more than one million users worldwide from a network of local offices and through our growing ecosystem of partners. For more information, visit: IFSworld.com. WBR Insights connects solution providers to their target audiences with year-round online branding and engagement lead generation campaigns. We are a team of content specialists, marketers, and advisors with a passion for powerful marketing. We believe in demand generation with a creative twist. We believe in the power of content to engage audiences. And we believe in campaigns that deliver results. Authors 19 One Big Question - What are the Challenges of Servitization for 2018 and Beyond?