Evolving as Total Cost of Ownership is the Future
I had the privilege of attending a ServiceMax event to learn about field services and their measurable potential benefits for manufacturing companies.
Firstly, ServcieMax is a terrific solution, as noted in the IDC MarketScape: Worldwide Field Service Management Applications 2023-2024.
I witnessed firsthand the unique value ServiceMax offers Manufacturing companies. The PTC concept of “Digital Threads” has taken shape in noticeable form. Specifically, optimizing field services by bringing better data from Product Development as a key differentiator. Reusing drawings, BOM, and work instructions is critical to supporting the field. This value was largely recognized. However, surprisingly, there was a lack of progress in this area.
Additionally, I was taken aback by how the combination of PLM data and Service Parts Planning could be used as a core data source for more than information and to impact cost. Combining the service intent from Engineering with the actual inventory and cost of service parts is a game changer for field services.
PTC/ServiceMax is introducing advanced solutions to connect these data sources. And, with the addition of a scalable AI framework, achieving the right information, the right part, at the right time for field services will only improve. One key point is that the better the data, the better the added AI solutions will be.
Stepping back to consider the overall theme of “Value Threading”, how does this relate to the Monetization Thread?
In my view, the monetization model for services is moving too slowly to embrace the “Total Cost of Ownership” model and to offer data-driven consumption pricing.
Today, the most prevalent model for service monetization is either Time and Materials or a Service Contract. Many (if you can believe it) prefer T&M because it presents less risk and makes it easy to measure profits. Service Contracts require more work and will vary drastically depending on the product complexity and data availability. If it is a jet engine, there is probably a lot of data, but if it is a product of less complexity, there is less data and less reliable service contract information.
The current service models are generally wrapped into a revenue and profit center – the Services Organization. This profit center considers T&M or Service Contracts (which might be embedded in Warranty) as core offerings. This is where the model is misaligned with the future and inevitably misses potential revenue & customer satisfaction opportunities.
The current business model also negatively impacts the sale of digital and/or connectivity applications. In general, the selling process for connected services, SaaS, & digital connectivity is a very different sale. Today, those are either sold as stand-alone or included in a Service Contract. Investment in such applications is misunderstood. The ROI on the investment, if tied to revenue from the applications, will fall short due to a lack of revenue every time.
TCO consumption-based sales models are a more efficient way to align with the customer and optimize revenue for the OEM.
Moving to data-driven consumption pricing opens opportunities for unfilled demand, which is added product and service revenue. To illustrate, consider TCO over time and Cost. Are the current solutions capturing the cost-to-value ratio over time so that shorter or longer TCO modeling is aligned? As noted below, the “Unmed Demand” is for services and product revenue.
The fundamental problem is that TCO data is unavailable, so the risk of data-driven consumption pricing is too high. Today, the alignment between PLM, ERP, Services Parts Planning, and Field Operations is directionally aligned to model usage and cost. This is the scalable and lower-cost option because it optimizes the current systems and provides easier downstream sales channel support.
To accomplish this, the total cost of the product, services, service parts, apps, connectivity, & support needs to be fully understood for the specific situation of the Asset. For customers with many assets, they are aligned to a single model or asset specific and combined into a single bill.
In closing, my core learning from PTC & ServiceMax was that the future of consumption-driven TCO-based monetization can be a reality!
