It was a great summer holiday spent mostly traveling with family and friends, eating lots of delicious food, enjoying warm evenings under the Tuscan sun, and exploring the countryside on a motorcycle. I could have easily continued that for a few more weeks, should that have been an option.
Unfortunately, that is not the case. Simply looking at my unread e-mails reveals the essential: My inbox is filled with all kinds of questions, concerns, ideas and support requests related to extending offering portfolios with new services, modeling products & services to CPQ, processing engineering Change Orders with updates to BOMs and Maintenance Plans, managing Installed Base and providing data-driven Proactive Spares and Maintenance Services together with the partner network.
The following conclusions can be made:
Many industrial OEM companies have very high revenue growth & profitability improvement expectations in the services business area.
In many cases, reaching these targets is hindered by something outside the services area of responsibility.
Many OEM companies struggle with same issues. Help is needed in locating and fixing the broken chains.
I compiled a couple of comments related to each of the points.
In November 2021, Midagon co-hosted an event focusing on Industrial Service Transformation. One of the keynote speakers from a large Pulp & Paper company reminded that digitalization, data-driven operational improvements, and service transformation might lead to reduced services revenues for some traditional industrial OEM companies. These reduced revenues are caused by new, data-backed insights that enable doing for example operations & maintenance related activities in smarter, optimized ways – often with less help from external staff. In general, collecting, integrating and analyzing equipment condition, maintenance and process data often leads to optimized usage of on-site personnel, improved first time fix-rate and reduced unnecessary production breaks. For OEM companies that have traditionally focused heavily on providing spare parts and on-site technical support or O&M services for their customers, this transformation might lead to erosion in revenues, unless business & operating models are updated accordingly.
But there are also good possibilities for OEM companies in this data-driven service transformation. The new integrated information & insights often enable new digital service offering (= new, perhaps more modest revenue streams with limited variable costs), internal operational efficiency improvements and profitability gains. On the field, these improvements mean for example less obsolete parts (= less working capital) bound in oversized stocks, less non-value generating work (= less non-billable work) and less costly errors in the actual service execution, which -in turn- may lead to improved employee and customer satisfaction.
Consequently, for OEM companies, services-related revenue growth potential should be carefully analyzed and not overestimated. Profitability gains, on the other hand, should be exploited more to understand the full potential. The customers have -after all- done their homework and thus expect OEM companies to do their share better and cheaper.
I have written earlier blog posts focusing on “Fixing the Foundation” for Service Transformation. In my blog posts, I focused on balancing and integrating activities between the three core dimensions: processes, technology (incl. data and systems) and people.
Equally important for successful Service Transformation is a well-working and integrated Value Chain for OEM Companies (later simply OEM Value Chain, see example illustration below). As we all remember, the (value) chain is only as strong as the weakest link and in the industrial context, the earlier the chain is broken, the more severe the impact. As Services are located to the very right of the OEM Value Chain, it is heavily dependent on business capabilities in other value chain areas, spanning all the way from Offering & Product Management to Product Development to Sales and to Delivery Operations.
Let’s look at this a bit closer with a simple example. To keep the customers happy and their equipment running according to the plan, one needs to excel in Field Service Management & Delivery. To do that, one needs to have the basic data sets concerning Customers, Locations, Contracts, Offering & Products, Installed Base, Maintenance Plans, Applicable Spare Parts, Field Service Personnel etc. in good shape and up to date. Even better if one has also integrated IIoT data to support proactivity.
But that is just an example of the basic data needs. In addition, the Delivery Ops & SCM -related business capabilities, such as Sourcing, Manufacturing, Assembly, Warehousing and Transportation must be in top shape to guarantee timely deliveries of suitable spare and wear parts.
For the SCM & Delivery Ops to work well, there must be a seamless connection between Product Management, Product Development, Sales and Delivery. For Sales to work well, there must be a seamless connection between Product Management, Product Development and Sales. And so forth.
Consequently, for OEM companies heading towards Service Transformation, understanding the interconnected nature of the OEM value chain areas is crucial. For example, focusing all development efforts to Services area will not deliver the expected results, unless all the other links in the chain are also in top shape.
Let’s face the fact: The work is far from done and many OEM companies are still struggling with one or multiple areas of the seamlessly integrated OEM Value Chain. Hence, implementing Service Transformation might take considerably more time, resources and money than originally anticipated.
The good news is that quite many OEM companies have very similar issues. Those are typically related to Offering & Product Management, Modular Product Structures, Partially Custom / Configurable Products, Modeling Offering to CPQ, Role of Product Lifecycle Management (= Virtual Product Information Management) vs. Asset / Installed Base Lifecycle Management (= Physical Product Information Management), Sales & Operations Planning, Optimizing Delivery Ops as well as combining existing and new digital business capabilities.
At Midagon, we intend to find & connect the brilliant minds from the different industrial companies, establish a focused community around these topics and initiate the discussion, sharing, learning and resolving the commonly known pain points.
We will leverage our existing Midagon Communities around Production & Delivery and Industrial Service Transformation. With the help of our community members, we will launch a series of targeted workshops this autumn. In our first meeting, our intention is to clarify the focus areas, identify participants and schedule the upcoming workshops. We will invite both business and IT professionals, spanning from e.g. Enterprise and Solution Architects to Business Solution Owners and Development Portfolio Owners.
Heads up: the detailed invitations will be submitted shortly!
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