By Vele Galovski, VP Research, Field Services, Technology Services Industry Association (TSIA)
Traditional hardware manufacturers and original equipment manufacturers (OEMs) are all struggling with profitable revenue growth. The historic business model that was based on “Make, Sell, Ship + Attached Service” has either collapsed or is showing signs of duress. So, who can OEM’s count on to play a key role in the transformation that needs to take place? Field services.
The story behind the collapse is simple: The CapEx business models of the past are faltering as customers insist on suppliers becoming more aligned with achievement of their business outcomes. Said another way, customers want suppliers to have more “skin in the game.” In several indexes that we track at TSIA, we have seen the result of this shift in customer preferences. Product revenue has been in a free fall for the last six years and, unsurprisingly, service revenue has also declined, but at a slower rate (you can’t attach a service contract to a product that you didn’t sell).
The other issue confronting equipment manufacturers is that the profitability of the traditional model is also under pressure. Both product and, to a lesser extent, service margins, have been declining over the last three years. This margin erosion can be attributed to commoditization of feature functionality on the product side and the proliferation of independent service providers (ISPs) on the service side.
Ironically, the last three years have ushered in a new era for service organizations as they begin to contribute more to company profit than ever before. To solidify their standing in the board room, service organizations need to move beyond “product-attached” service offers like support/maintenance contracts, training, and customization of products. And field service engineers are uniquely positioned to play a key role in this shift.
Customers are demanding new services. They don’t want response time, they want resolution time. They don’t want reactive support, they want proactive support. In addition, customers are looking for assistance to fully adopt product features and to reap the promised return on investment. The skill sets of field service engineers make them ideally suited to take a leading role in these adoption activities. They possess industry and process expertise, they are already viewed as trusted advisors, and the technical expertise gained from over 40 customer visits per month is unmatched.
When Should Field Service Start Adjusting Its Charter?
The short answer is yesterday. However, if you are still a little skeptical, here are four warning signs that your business model is about to be disrupted:
These warning signs are progressive indicators that your customers want product and service offerings that are more directly aligned with their business outcomes. Since the risk is more obvious and more acute with investor apprehension than with changing service levels, the timeframe to react gets shorter.
No hardware company is immune to these trends, it is just a matter of time. At the end of this transformation, OEM business models will look markedly different. But these changes won’t happen overnight. So, let’s get started, the clock is ticking.
For more in-depth data and analysis on this topic, download Vele’s latest research publication, “The State of Field Services 2018” report.
Vele Galovski is vice president of research, Field Services, for TSIA. Using his nearly 30 years of industry experience, he has consistently helped companies both large and small drive double-digit top-line growth with a proven retain, gain, and grow strategy. Vele has also written a book, The Perpetual Innovation Machine, which describes a holistic approach to management based on ambitious goal setting, data driven analysis, skillful prioritization, inspiring leadership, and the lost art of employee engagement. He may be contacted at email@example.com.