Dynamic economy, new technology and transforming business models are catalysts for a growing service software sector.
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This is the first article in a series of service management solutions.
Introduction—The Once-future Trends Have Arrived
Sci-fi aficionados grew up in a world of robotics, drones, 3D/4D printers, and virtual reality vacations, where things and situations could somewhat be managed and repaired remotely. Robots could be sent into hostile landscapes to perform functions on behalf of man, go where no man had gone before, or went and didn’t really like the idea of going again. People casually interacted with robots. These scenarios are no longer fiction, but a reality and becoming more so in our lives each day.
As adults we had more mercantile visions of the future in which the internet could disintermediate business models as we knew them. This gave us the chance to compete against the “Generals”: General Dynamics, General Motors, and General Electric. We’ve seen new asset free enterprises where dreamers could leverage the web to become big. Many have, and many others have grown by somewhat replicating big business (Amazon is such as example; it became a big property/asset manager). But the web also sprouted a huge wave of small independent boutique enterprises that have thrived across many, many industries. They relish their virtual business models and have developed strong brands and businesses. (At right: Illustration by Mike Thompson of ParamusPost)
While smart people were getting tired of the big corporate world, the media and career developers told us to build our own brands. Rich in knowledge capital and seeing a new world outside their window, many new entrepreneurs took their knowledge capital and started their own gigs, using social media to make themselves known.
Enter a new generation of young tech graduates who grew up on Google, mobile, touch, and social, and who were developing business plans in high school or undergraduate school, leveraging the next big tech boom based on social relationships. For example, today you can crowd source your idea and get funding. This has the potential to disintermediate even the VC world. Financial disintermediation has finally arrived.
In another parallel universe the emergence of the digital explorer, leveraging satellite and sensor data (previously only available to governments), brings the world—it’s oceans, deserts and frozen terrain—very close. We can now open new sources of minerals, energy, etc. in remote and often harsh environments where we were too challenged to go before.
Turning Our Back on Headquarters, the Internet-of-Things, and All That Jazz
What does this all mean? Across industries, we have left the big buildings, facilities, and industrial parks and gone remote. All those remote operations, dispersed businesses, and mobile and autonomous equipment need to be serviced. Thus, the service provider has to go to those remote locales. However, just as their customers have changed, the business of service has also changed. The service provider can also leverage technology to monitor, diagnose, and sometimes repair remotely.
Service Business Transformation
Let’s get specific. Field service is big—and small—business. We know the model, and in many ways the model has not changed much. An OEM can often gain much more revenue from the so-called aftermarket service fees than from the original product. But beyond that, the need for services in the SMB, SOHO, and home markets has grown. Large OEMs generally do not seek out SMB markets to provide service. They have developed deep and complex partnerships of experts to do this.
Different products, of course, require different service models. An MRI machine—a million dollar piece of equipment that requires certified workers who need to report each calibration of the equipment—usually means servicing from the OEM directly. Whereas computer services, printers, routers, and such can be repaired by a legion of independents. This network is essential in today’s SOHO and home markets.
In fact, essential to growth of markets such as solar is the development of a network of service teams—many of whom are independents. Today they don’t just install, but may provide usage-based contracts, remote monitoring, help home owners with their financing, tax credits and so on. Surely, this is an enhanced image of the traditional ‘repair guy.’
Our World Is Changing
Things are changing pretty fast. Just a few trends that come to mind are in the table below.
‘Smart connected’ everything is overtaking almost every product segment and changing how products are designed, built, operated, and serviced. Even highways and rails are being made smarter1 to make them safer and optimize traffic flow.
As we search our earth looking for new sources of raw materials and begin to mine previously remote places, the need to serve these infrastructures increases. This presents profound opportunities for a skilled workforce and new types of technology and services.
Changing Business Models
Extending the business model: New product processes and services—light manufacturing and field services to customers
Number of Global Start-ups
New enterprises embrace virtual business models; growth of start-ups and small businesses outside traditional office/factory settings, SOHO
Customers that once managed their own parts depots, repairs, stockrooms, etc. are now asking their distributors to take over these tasks
Off-shore manufacturers who need distribution and service partners in the local markets
Growth of device-centric infrastructures that need maintenance
Growth in the number and type of technologies within the home
Growth of personal use equipment/devices
Smart cars, autonomous equipment, lights-out infrastructure, remotely monitored and managed
Connected care/healthcare is a typical but profound example of the move out from ‘headquarters.’ As hospital expenses continue to climb, long-term patient care and treatment has been shifted to the home, and the digital healthcare provider has assumed a more and more prominent role. In addition, patients themselves are now connected with remote monitoring, mobile intelligence, and other systems for dispensing and treatment in the home.
Enhanced product designs with embedded intelligence; RFID and sensors, cellular and GPS provide data to monitor and/or operate autonomously and are all enabled by the IoT
Construction, Mining, and Exploration
Growth of remote operations. Humans are scouring the earth looking for and mining new sources of commodities, oil and gas, and are constructing new installations, new transportation infrastructure, etc.
Capturing dollars through services is a hotly competitive arena. Many manufacturers’ past service models were to support the channel in order to extend the product’s market share. Today, many manufacturers are looking to recapture the dollars and build closer ties with end customers.
Financial Models Are Also Changing
Not only has virtualization changed how businesses buy services, but it has also changed the way in which they pay for them. Seeking the real goal—performance—new models based on performance outcomes and usage have become more prominent. Beyond mere metering, well understood by many, these models have many nuanced approaches that call upon the manufacturer to think about the long-term value of the asset to the customers and the impact of the relationship with the service provider.
This approach is growing. If it grows a lot, it can have a huge impact on the quantity of original equipment that manufacturers sell, their revenue recognition model, and possible shareholder value. Of course, this would also impact the revenue, too, of services products. In other words, in a transition to this new model, manufacturers may sell less. Service providers may also lose revenue to the OEM, who may need to assume the lifetime uptime model. The OEMs also need to think about the value of the asset and if it will be returned into the market after some years of use. If the OEM takes possession, is there still value in it? If customers sell these assets into the market, will they cannibalize the new product sales? (Read more on the Outcome Economy here.)
Technology Will Enable This Future
The world is populated by an ever-expanding number of types of devices. Just as the rise of middle classes, who will consume hard goods, build homes, and require services, is having an impact, the smart world—whether called smart products, Internet-of-Things, connected things, (see definitions in side bar) will have the power to change the face of services. Cloud allows service providers to peer across the process; analytics allows predictability to know when, where and how to service. IoT will make devices smarter.
We will explore all of the above topics in this series. We will delve into the new services models and the technologies that power them.