Here’s a little secret for hardware and equipment manufacturers: Customer’s don’t care about your product. They only care about how your products and services can help them achieve better business outcomes.
As people streamed into my presentation at GE’s Minds+Machines, they told me that they were intrigued with the idea of equipment manufacturers ‘making money‘ with IoT. Most were not seeing a willingness from customers to pay a premium for IoT services and they were beginning to wonder what the buzz was all about. As I noted in “Reducing Service Costs with IoT”, the most common applications are focused on reducing the service delivery costs of the supplier. Although the customer does experience reduced down time / increased uptime, the primary objective of these IoT efforts is to minimize the impact of a product failure. It’s difficult to charge a premium and ‘make money‘ because 1) customers don’t want your product to fail . . . ever, and 2) they only care about your product to the extent that it helps them achieve their business outcomes. So, if suppliers really want to make money with IoT, they need to expand the scope of their efforts beyond their own product and place more emphasis on helping their customer achieve better business outcomes. This is what Process Optimization, the next step on the Remote Services Continuum, is all about.
What is Process Optimization?
There are two basic objectives of using IoT to optimize a customer’s process:
- Improve product utilization: Providing remote monitoring, predictive maintenance, and automated support before equipment fails. Combining technology, people, and process to provide services regardless of location.
- Enable value-added services: The collection and analysis of data to identify new features and value-added services that help customers achieve and maintain a level of operation.
Whereas the service efficiency step was focused on making the repair of the product quick and effective, process optimization looks to eliminate the unplanned, on-site incident altogether. By collecting data to monitor key components, get performance feedback, and identify actual usage patterns, suppliers are able to dramatically increase product utilization by:
- Repairing a product before it actually fails.
- Providing remote support and self-healing technology to minimize or eliminate on-site calls.
- Creating a knowledge base that enables technical assisted self-service.
A Process Optimization Success Story
A TSIA member from the enterprise hardware industry incorporated automated service, self-help, and assisted support technology as part of a new product launch with some impressive results:
- Field dispatch rates reduced from over 40% on previous products to less than 10%.
- 92% of issues are addressed using the diagnostics in the product by Level 1 and Level 2 customer support professionals.
- Exceeded revenue objectives, and product family growth rates are forecast to grow 2.5 times faster than originally projected.
This member success story is a logical next step after “service efficiency” with it’s continued focus on the supplier’s product performance. The phenomenal growth in product placements is a testament to the value of improved product utilization.
But wait, there’s more to process optimization.
The true value of using IoT in process optimization efforts is when suppliers go beyond their product’s performance and focus on improving their customer’s process.
Connecting the Physical and Digital World: How Trimble is Improving their Customer’s Process
In my webinar “Monetizing in an IoT World”, I presented an example of how Trimble combined their expertise in ‘Positioning & Sensing’ + Analytics + Modeling + SaaS to change the way their customers work. Trimble are specialists in positioning technologies using GPS, Lasers, and Optical methods in many markets: Geospatial, Transportation, Natural Resources, and Construction. Their products include mapping tools, range finders, handheld positioning devices as examples. However, Trimble noticed that customers needed more than hardware. Their customers had increasing demand for decision making using geospatial insights, were facing continued pressure for timely and accurate data, and were dealing with data management issues due to a proliferation of mass data devices.
So, what did they do?
- By taking a lifecycle view of a customer’s process, they focused on transforming how customers worked both in office and out in the field.
- They leveraged existing domain expertise to improve customers outcomes. When Trimble didn’t have the required capabilities, they acquired expertise.
- Trimble increased the number of partners and intensified collaboration with existing partners (suppliers and customers) to enable better customer outcomes.
Improving Customer Outcomes is Good for Supplier Bottom Lines
This transformation was good for customers AND it was great for Trimble. They have realized a 10% CAGR over the last 10 years, while transforming their business model – an accomplishment with a high degree of difficulty. Trimble was a traditional Product Engine company, receiving 75% of their revenue upfront for the sale of positioning hardware that they would then service. Over the last 4 years, they have seen a tremendous growth in their service and subscription revenue, significantly changing their overall mix of revenue streams. Interestingly, product revenue contributed less as a percentage of total company revenue at the end of 2017, but that 66% revenue contribution is more on an absolute basis than the 75% product revenue contribution of 4 years ago.
But wait, there’s even more to be gained from IoT.
In my next post I’ll discuss the third step in the remote services continuum which is all about suppliers helping customers deliver full ecosystem outcomes.