Growing service business models: Industrial machinery superstars show the way

For industrial machinery manufacturers, offering and delivering services are critical to address the disruptive market forces driving seismic industry shifts. With decreasing product profit margins, shrinking orders for new capital equipment, and limited brand loyalty based on products, original equipment manufacturers (OEM) are struggling with how to differentiate their product—whether through cost, features, or quality. The COVID-19 pandemic has exacerbated OEM difficulties with a massive decline in new product demand.

Customers are also demanding more personalized service. They expect field service engineers to resolve immediate issues, as well as serve as trusted advisors that help them gain more value out of purchased assets. Yet many companies lack the capabilities to meet their customer service aspirations. Customers are not impressed with the experiences provided by manufacturers— only 15% give the industry high marks in experience.

Only 44% of organizations are providing seamless customer engagement.

In an attempt to drive growth, industrial machinery companies have shifted from not only selling products but also offering a broad range of services. Service offerings can be based on equipment, performance, and/or usage:

• Product-based services: sustain asset reliability, for example, maintenance and repairs
• Value-added services: provide additional value, for example, service checks, knowledge, and advisory services
• Service levels: reduce risks, for example, 99% equipment uptime
• Process optimization services: provide process-and asset-optimization services, for example, services to improve asset health or achieve desired outcomes
• Outcome-based services: deliver business outcomes, for example, production capacity.

The state of services in industrial machinery

Services deliver a continual revenue stream compared to the cyclical nature of equipment and provide a growth engine for companies. Typically, an OEM’s service operations grow between 5% and 10% annually— compared to only 2% for original equipment. And services tend to generate higher profit margins. The earnings before interest and taxes (EBIT) margin generated by service- based models is three to seven times higher compared to new equipment sales.

66% of “service superstars” are actively developing new services and business models to differentiate themselves.

To understand where industrial products companies are with their services strategies and delivery, the IBM Institute of Business Value (IBV) and Oxford Economics surveyed 500 executives in 23 countries who are involved in service development and/or delivery at their organization. And to help organizations improve their service capabilities, we analyzed survey responses and identified a small group of industrial machinery “service superstars,” consisting of one in five (21%) of our survey sample. These executives self-reported that their organizations had a well-defined services strategy that their employees understand.

Taking guidance from service superstars

Service superstars deliver better financial performance than industry peers—71% versus 58% for revenue growth and 74% versus 51% for profitability. They self-reported that they outperform for innovation—76% compared with 46% for their cohorts—which is important in creating specialized service capabilities.

This is unsurprising, as service superstars view technology as a critical enabler for digital transformation of the service experience. Over four in five reported their customers benefit from the company using technologies to increase agility and responsiveness in service and field service, compared to 46% of their peers. And 81% of service superstars indicated they keep up to date on new technologies that surround their products to service them appropriately.

Service superstars excel at customer satisfaction, and their average service delivery cost is 40% lower. 

Superstars confirmed that a collection of technologies is critical to their service delivery. IoT solutions permit continuous monitoring of assets and process data to provide health status. In addition, IoT technology helps enable a product-as-a-service business model. Cloud computing can be used to run service applications, develop/maintain data around customer touchpoints, and share information across locations. Mobile technologies allow ubiquitous access to information and help with field service execution. Automation improves productivity and efficiency of technical work order flow.

Harnessing the power of technology

Service superstars take advantage of IoT, cloud, robotics, and mobile in their service delivery processes.

Read the full report to see how industrial machinery service leaders are increasing customer satisfaction and driving services transformation.