By Michael R. Blumberg, Blumberg Advisory Group, Inc.
Starting in the mid-1980s, Industrial OEMs like GE began to recognize that the service and support of their equipment, after the sale, could represent a sizeable profitable market opportunity. This recognition has led to a long-term trend where OEMs are increasingly searching for profits in the aftermarket. According to McKinsey & Company, operating margins from aftermarket service can be 2.5 times higher than margins on new product sales. Indeed, many OEMs generate 40% -50% of their margins from services. Given this opportunity, almost 60% of Aftermarket Service leaders are focused on revenue growth or driving service as a profit center.
Unfortunately, many OEMs struggle with growing their aftermarket business despite well-published success stories. Perhaps one of the biggest reasons for this is that building a service business requires an entirely different mindset than building a product business. Product businesses focus on the tangibles of a product, whereas service businesses focus on the intangible.
It All Starts With The ‘Product Versus Service’ Mindset
When customers purchase a product, they buy an objective reality that the product’s form, fit, and function will meet their needs. When purchasing a service, customers purchase both the reality and perception that the service will meet their outcomes. In other words, service customers purchase a defined capability of service, also known as an outcome and the actual service outcome itself. To meet customers’ expectations, service leaders must have the resources available to manage actual service production/delivery (e.g., field engineers, spare parts, etc.) and the capability to serve. In other words, they need to know what type of offers they can make and be able to deliver on them and vice versa.
The Value Of Installed Base Data
Installed base data provides service leaders with the insight needed to manage the capability to serve and the actual service production. In this respect, managing a service business is more data-intensive than managing a product business. Service leaders must consider a wide range of variables in planning, managing, and executing growth objectives. installed Base data provides service organizations insight into customer requirements, utilization rates, costs, propensity to purchase, etc. This data helps service leaders research, analyze, plan, and forecast service requirements. It also provides the basis for identifying new service offerings and determining which customers are likely candidates to purchase these offerings.
An investigation of go-to-market and sales planning practices among industrial OEMs regarding revenue generation suggests a highly data-intensive process. Service providers can’t simply sell services to anyone based on the function these activities perform. Instead, OEM service organizations must possess a detailed and precise view of their install base to decide who to approach, what services to offer, when to offer them, and how to price them.
At issue, installed base (IB) data is often not readily available or attainable by OEM service sales and marketing personnel. According to recent survey research, approximately two-thirds (67%) of companies indicate that critical and relevant IB data can be distributed between as many as three (3) to four (4) different enterprise systems or applications. For example, customer site information may be contained within the company’s CRM. At the same time, product shipment data could reside in the ERP system, parts sales information in the Supply Chain Management (SCM) system, and service contract information and equipment service history may be in the field service management system (FSM).
No Clear Ownership Of Data
Further exasperating this situation is that there is no clear owner of IB data within industrial OEMs. Various functions are responsible for tracking and maintaining this data. These functions include but are not limited to sales, marketing, service, support, and finance. The net impact is that there is limited accountability within industrial OEMs concerning IB data management. In addition, nearly one-half (46%) of companies indicate that resources to support IB data management are not always available.
Given the situation within most OEM service organizations, it’s no wonder that the vast majority (90%) of companies surveyed find it somewhat, very, or extremely time-consuming to obtain relevant IB data and business intelligence necessary for increasing service revenue. In addition, over one-third (38%) are constrained by the length of time to implement IB management tools.
Limitations On Business Initiatives
Consequently, industrial OEMs do not have access to the full array of IB analytics necessary for making informed decisions concerning implementing sales and go-to-market strategies. Assessments are typically made based on a gut feeling, educated guess, or what has worked in the past. Less than half of companies surveyed consider IB analytics that provides insight into customer buying behavior or sales opportunities such as targeted sales hunting lists, market segmentation analysis, or propensity to purchase parts and services.
These limitations negatively impact the ability of OEMs to achieve their objectives or meet KPIs related to service revenue growth and service market penetration. It also underscores the need for a purpose-built business intelligence tool to provide a complete view of critical analytics related to an OEM’s installed base.
An Optimal Solution
The solution for obtaining better insights into the installed base lies within an Installed Base Platform (IBP). An IBP is an industry-specific, purpose-built decision support system that aggregates, unifies, organizes, and analyzes IB data. This solution enables OEMs to obtain richer intelligence and deeper insight into IB to increase revenue, boost profits, and deliver an exceptional customer experience.
Companies that have implemented an IBP realize enormous benefits very quickly. First, they have gained better visibility into IB data which empowers their sales and service personnel to deliver an exceptional customer experience and drive new revenue growth. Second, they’ve become more efficient and productive in generating BI reports and finding and closing new service revenue. Thirdly, they’ve generated a high ROI, as high as 10 X, within a relatively short time (e.g., 3 to 4 months). Given these findings, it is difficult to ignore the benefits of utilizing an Installed Base Platform, particularly for managing and selling into a large install base.
About The Author
Michael Blumberg is President of Blumberg Advisory Group, the leading research and consulting firm in the Field Service Industry. Mr. Blumberg is a growth catalyst helping technology service and software solutions providers establish market preeminence through a laser focus on thought leadership, operational excellence, and customer experience. He is a prolific author and frequent speaker at industry events and conferences. He is available via email at firstname.lastname@example.org. Michael’s blog is accessible at https://www.blumbergadvisor.com/blog. Follow him on Twitter via @blumberg1.