The ultimate determinant of success is finding new ways to improve customer business outcomes . . . and getting paid for it. This is where the true opportunities of the Internet of Things and smart services reside.
Delivering Customer Outcomes with IoT
The first two steps of TSIA’s remote services continuum (Service Efficiency and Process Optimization) are still focused on the supplier’s product. The main difference in the 3rd step, Customer Outcomes, is that suppliers are looking beyond the physical product and to the integration of information, people and processes to improve a customer’s business results.
Smart, connected products are used to capture historical product usage data and system performance data. However, when used in conjunction with other data sources, equipment manufacturers can now provide insights, improve business results, and develop closer customer relationships.
First, a little discussion about what business outcomes are.
Aligning with your customer’s outcomes
Business people tend to overcomplicate things. In my role at TSIA, I am often asked what are the latest and greatest KPI’s that are being measured in the industry? I addressed my feelings towards this question with an analogy to the Chesire Cat in an earlier post, but suffice it to say that business outcomes ultimately fall into 1 of 3 broad shareholder categories:
- Revenue: New sales, Retained revenue, Expand account sales, New market penetration
- Costs: Cost of Goods Sold (COGS); Selling, General and Administrative (SG&A) Expenses
- Risk Mitigation: Strategic, Financial, Operational, Reputational, Compliance Risk
That’s it. Customers only want to know how a supplier can help them increase revenue, reduce cost, or mitigate risk. That’s all they care about. To the extent that suppliers can show a cause and effect relationship between their services and any of these business outcomes will ultimately determine the success of the company. Think about it, customers must spend ‘real’ money to acquire your services and you should make it clear that there is a return in ‘real’ money, ie improvement in their business outcomes.
How One Supplier Delivered Business Outcomes
In my last post, I referenced how Trimble accomplished a feat with a high degree of difficulty – realizing a 10% CAGR over the last 10 years, while transforming their business model. Trimble had historically sold products and attached support contracts. However, they started to notice that their customers were behaving differently. Customers needed help navigating their digital transformation due to:
- Increased demand for decision making using geospatial insights
- Continued pressure for timely and accurate data
- Data management issues due to a proliferation of mass data devices
So, Trimble saw an opportunity to leverage their existing domain expertise to improve customer outcomes. By combining decades of accumulated knowledge in ‘Positioning & Sensing’ with newly acquired Analytics, Modeling, and SaaS knowledge, they were able to transform how customers worked both in the office and out in the field. The change was good for customers and Trimble:
- Trimble was able to deliver 25-50% better business outcomes over traditional solutions.
- Recurring revenue grew at twice the rate of overall company revenue.
- Shifted their business model from perpetual license + maintenance model to a SaaS + Subscription model.
Trimble is a great example of Monetizing IoT in that: (1) they still have a large, traditional revenue base; (2) they are tapping into funding that resides in new customer budgets and ; and (3) the new,highly valued offers have resulted in different, but larger, more profitable revenue streams.
Services is eating products, and software is eating services
Companies like Trimble understand that an ecosystem of smart, connected products will deliver more business value than the physical components themselves. In this new world, the supplier that can deliver business outcomes is the one in control and in the best position to capture disproportionate value.
In my recent State of Field Services paper, I noted that service revenue is becoming an ever larger percentage of total company revenue for equipment manufacturers. So, if services is eating products, software, in the form of IoT, is eating services. This does not mean that hardware will disappear from customer locations (the software has to control something). The point is that an Internet of Things (IoT) platform can be used to enable a comprehensive array of hardware technologies into a single customer-friendly management and decision platform. The explosion of smart, connected products can help drive business outcomes, but they often have to work in concert with other partners in the ecosystem to succeed. When partners within the ecosystem don’t work together, no one benefits. Not the hardware companies, not the customer, and not the suppliers who try to help customers get the most out of their operations.
A bit of a warning to product companies that think the first two steps are good enough – someone will help customers achieve specific business outcomes, either current competitors or new entrants. And these new entrants don’t play by the same rules. They are unencumbered by legacy product definitions and entrenched ways of competing, have no historical profit pools to protect, and are open to seize full potential to capture value. These new entrants also see software that connects products as the core advantage, not the product itself.
While the first two steps of the remote services continuum can deliver value, it’s all just an opening act to delivering business outcomes with smart services. That is the true opportunity of the Internet of Things.