Strategy & Leadership

The New Industrialists: Pioneering the Outcome-Based Service Economy

GE Digital’s Bill Ruh and ServiceMax’s Dave Yarnold on what’s in store for the manufacturing and service industries.

Editor’s note: This story first appeared in the latest issue of Field Service, a quarterly print magazine from Field Service Digital and ServiceMax. Check out the full magazine in print or online.

GE manufactures much of what is considered the world’s critical infrastructure: jet engines, locomotives, power generation equipment, wind turbines, healthcare imaging machines. But for GE Digital CEO Bill Ruh, the most exciting product is not a traditional product at all. Instead, it’s a guarantee that the products and services customers buy will deliver specific results.

“In the end, the customer doesn’t want a product, nor do they want a service. They want an outcome,” Ruh says.

It’s a radically different mindset that GE has embraced across its industrial divisions. And now the company is focused on providing ongoing business value — and helping other companies do the same — instead of just completing an initial sale. The first step? Connecting products with Predix, GE’s platform for the Industrial Internet. In January, GE acquired ServiceMax to fill the service gap in GE’s “industrial operating system,” as Ruh puts it.

Field Service Digital spoke with Ruh and ServiceMax CEO Dave Yarnold after the acquisition to hear how, by joining forces, GE and ServiceMax are giving manufacturers and service providers alike digital capabilities for the outcome-driven digital industrial economy.

Is service finally getting the attention and respect that it deserves?

Dave Yarnold: Service is a source of profit and growth that’s been hiding in plain sight — and companies are absolutely realizing that. Margins on service are higher, and service revenue is outpacing product revenue. And as we saw during the recent economic crisis, service revenue is largely recession-proof.

The benefits go beyond the bottom line, too — it gets companies closer to their customers. In the past, companies would sell a product and then disappear until it broke or it was time to sell the latest version of the same product. But thanks to technologies like the IoT, that transactional relationship is being replaced by more of a partnership. Companies can monitor customers’ product usage and performance and offer personalized services to help them better serve their own customers. That’s powerful.

Some people might be surprised by how ingrained service is in GE’s business. What role have services played in expanding GE’s software strategy?

Bill Ruh: You have to understand that we didn’t have a services business before the mid-90s. Now, our sizable service business is a critical element of GE’s value.

If you were to go back 20 years and talk to people who were there, they would tell you that the product guys were questioning the company’s service efforts. They would say, ‘We sell products to people. Services will just confuse the customer.’ The point is that every generation has to rethink the future.

The next generation of services will be completely digitally enabled. Nobody knows the final outcome of that shift, but we know that ServiceMax and its vision is central to the final outcome.

How is GE Digital figuring out how to use software to make that sizable service business profitable?

Ruh: When we got started, GE CEO Jeff Immelt realized that our customers were applying sophisticated analytics in ways that meant they were becoming more knowledgeable about our products than we were. We encouraged our customers’ analytics efforts, of course, but the reality is that if you’re not the most knowledgeable about your products, another vendor will be. Something had to change. Services are important, they’re a big part of our business, and we could see others creeping in.

We started with our strength: making sure that our services businesses had the best analytical tools in the world to know absolutely everything about our products. Once we applied analytics to our services that no other vendor could match, we had the deepest knowledge about our services and products and established a deeper relationship with our customers, it allowed us to give our customers those same tools.

Now we want to enable every company in the industrial world to do the same. We started out by not wanting any other company to know more about our products than we did. That has morphed into providing the leading service technologies to industrial companies around the world.

Traditionally, companies have either been a service or a product company. Is that distinction no longer relevant within GE?

Ruh: I don’t think it’s an either/or proposition. People started product companies because that’s where the innovation was 50 or 100 years ago when these industries were nascent. As they matured, people began wanting capabilities to operate their products more efficiently. Services were a natural extension for most industrial OEMs.

Now, digital is challenging the business models and opening up new ways for people to rethink products and services. People are still going to make products, but now you can package those products with services in a way that’s more attractive to a customer. In the end, the customer doesn’t want a product, nor do they want a service. They want an outcome.

At GE, we learned that if you can deliver the outcome, customers don’t care about the product or service. They don’t want a jet engine — they want power by the hour. They ask, ‘How much power can I have to run my business? How much do I need?’ And they’ll pay for what they need. That doesn’t mean people will stop buying jet engines, but I do think there will be pieces of the product and service that will be augmented. What customers will really want from their strategic partners is an outcome guarantee.

These are sophisticated outcomes that will require digital innovation to deliver, but that’s where the world is moving. You don’t get to an outcome guarantee without a complete digital capability for your company and customers that allows you to measure, manage and optimize everything around a product or service.

What will ServiceMax and GE Digital be able to accomplish together that they couldn’t as easily have accomplished alone?

Yarnold: Well, first off, I’ll say that there’s no question that we now have the wherewithal to fulfill our biggest dreams as a company. We’re here to stay with the backing of one of the world’s most recognized and well-respected companies. It’s hard to believe, but we’re actually accelerating our investments in all areas of the business including product, engineering, sales and marketing. More than ever, we will be able to define and dominate the Field Service Management software market.

Next, we’ll have access to the GE Digital product and technology portfolio. That is a tremendous opportunity for our customers. We will be able to couple field service management with additional capabilities such as asset performance management (APM), to enable companies to derive even more throughput from their capital assets. An edge computing platform like Predix that feeds data into our service management platform is huge in terms of getting extremely granular and precise about the best time and way to service industrial equipment. Field service management becomes something so much more when you integrate it with the other GE Digital technologies.

One of the things that has differentiated ServiceMax has been our passion for the service domain. We’ve hired experts from field service organizations and leveraged their expertise to develop the best field service tools in the industry. Now we’ll have access to an incredibly profitable field service organization with tens of thousands of service professionals.  Imagine what we’ll learn and how we’ll be able to take that to our customers!

And finally, together we’re going to appeal to more and bigger customers than ever before. As GE had been a customer and partner of ours for many years before this acquisition, we’re now showcasing to everyone the amazing results GE has been generating through their use of ServiceMax. We can apply those same learnings to more customers to generate similar results. This deal will be a real game-changer for industrial manufacturers and operators across all industries and geographies.

Ruh: What I’m really excited about — and what makes a great acquisition — is when the capability you bought is able to execute at the same speed they were working at, while leveraging the scale that allows them to grow larger. ServiceMax brought us speed in service automation, and now we’re working together to scale it.

Customers seem genuinely excited about the acquisition, too. Even our competitors who ServiceMax is selling into, after discussions with GE’s leadership team, they feel confident in working with the GE Digital ServiceMax division. They know they will be treated with a sense of integrity and honesty. They know their intellectual property and data will be protected.

Let’s talk about Predix. What role do you see for ServiceMax in the platform?

Ruh: Predix is central to GE’s software strategy. The platform is not one product, but rather an industrial operating system complete with applications. It’s security. It’s mobile. It’s machine learning, AI and developer APIs. It’s also an ecosystem where any partner can add value.

There are really two killer apps for the industrial world: asset performance management (APM) and service automation. The goal is to get more out of your assets, your people and your manufacturing processes. We had a gap in our portfolio on the services side and needed to find the company that could become the Predix service automation company — that is, create the category, put it on top of the Predix cloud, and then integrate service automation capabilities with our customers’ manufacturing and analytics capabilities. The goal is an Industrial Internet operating system with all the capabilities companies need to run their business.

ServiceMax represents owning service automating as a market category and integrating with asset performance management (APM) capabilities to automatically schedule a technician if a product has a problem.

We’re heard a lot about the promise of zero unplanned downtime. Can you help us separate fact from fiction?

Ruh: Zero unscheduled downtime — the three sexiest words to an industrialist! Consider the airline industry: about 40 percent of all delays and cancellations are caused by mechanical problems.

Forty percent is a huge number. If an airline could trim that number, it would be a boon to its bottom line because of the costs associated with lost revenues and passenger compensation. Eliminating downtime can have a tremendous bottom-line impact.

The first outcome digital industrial companies want is zero unscheduled downtime — from catastrophic events and from minor annoyances. That step alone could easily deliver up to 10 percent back into a company’s bottom line. That would have a multiplier effect on the bottom line. There’s not much else that can deliver that kind of return.

How close are industrial companies to actually delivering on that promise?

Ruh: We’re doing it today. The question is when will companies get to where that outcome — zero unplanned downtime — is built into all of its processes. I’d expect we will see zero unplanned downtime as a product feature, delivered through a digital capability, within ten years.

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