Imagine you are an Original Equipment Manufacturer (OEM) who designs and manufactures fantastic products. You sell these products through a combination of direct and indirect sales channels. But because you don’t control the end-customer relationship, you don’t know how to best ‘serve’ products in the field. In other words, you have limited visibility into where your products are, in what state they’re in, and how they are being used. This reduced visibility impairs you in managing service costs, growing service revenue, and driving customer satisfaction. Let me tell you how you can regain control over your installed base.
Establishing a digital thread
A couple of years back, a premium brand of energy control systems sold its products based on a sell-and-forget model. That model had become the default modus operandi because:
- The business sold a substantial volume of units through indirect sales channels
- The company had a legacy of product leadership
This sell-and-forget model caused two major issues:
- OEM perspective – the margin contribution of product sales was insufficient to achieve the brand’s EBIT target. Tapping into the margin of services would make It possible to meet and exceed that target.
- Customer perspective – the new generation of products was getting more complex. Product owners became more dependent on OEM knowledge and services to sustain the product, to protect the investment.
To mitigate both internal and external challenges, the OEM changed Its model to sell-and-service. Historically, the OEM had access to the as-designed and as-built. Through its transformation journey, it established an as-maintained. In effect, the OEM created a digital thread spanning factory and field.
You may have noticed a (deliberate) omission in the digital thread above. Namely the as-sold. When an OEM sells products via the indirect sales channel, another legal/commercial entity controls the sales process. This entity will ‘own’ the customer relationship. It will know where the products are, in what state they are in, and how they are being used.
The fact that another legal commercial entity controls the sales process does not mean the OEM is at a loss. Far from that. The product bears the OEM logo. It is the value promise of the product that prompts a user to buy it. Who is better at explaining what the product can do and how to install, operate and maintain the product? Yes, the OEM. The OEM owns the product relationship because it knows how to sustain the product.
Sustaining modern products
When we look at the build of modern-day products, we see that every product engineered post-year 2000 has a digital component next to its mechanical and electrical parts. To sustain a contemporary product, one will need three types of skills.
The OEM as the creator of the product may be the most knowledgeable party to sustain the product on all three levels. Where we see third-party actors becoming competitors on the mechanical and electrical plane, the digital component remains the ‘home turf’ for the OEM. This is where we will focus on re-establishing the thread.
Re-establishing the thread
In the B2C world, maybe the most evocative example is the iPhone. Every phone requires a digital activation. This allows Apple to build a product relationship regardless of sales channel. Through this product relationship, Apple knows where Its products are, in what state they’re in and how they are being used. Apple uses this information to exert control over the product and service lifecycle.
Car maintenance is another example where the product relationship is more determinative than the customer relationship. When you need service for your car, the service provider will ask for your license plate number. The as-built, as-sold, and as-maintained are all linked to your license plate. When the customer relationship changes, the product-related digital thread remains constant. It’s the information in the digital thread that enables control over the product and service lifecycle. Control over items like maintenance intervals, PM-kits, troubleshooting, engineering changes, recalls, consumables, calibration values and software upgrades. All these service lifecycle activities cater to the longevity of the car, and thus the original value proposition of the OEM.
Redefining value creation
When an OEM is dependent on indirect sales channels to push products into the field, what can the OEM do with the data and control obtained through the product relationship?
- Threat: The OEM claims the data and uses it to bypass the commercial relationship. If dealers/resellers don’t get their cut, they will stop selling the product.
- Opportunity: The data value is shared to augment the commercial relationship. The data is used to create new revenue/value streams beyond the capabilities of each of the standalone entities.
A similar redefinition of value needs to be negotiated with the product owner. An OEM can’t simply grab product data. When Xerox invented remote monitoring for copiers in 1997, owners blocked the outgoing port. Procurement wanted to have control over the purchasing of toners and drums over premium-priced OEM consumables. This example shows that if product data represents a value, the OEM should give something in return.
OEM, it’s your brand
As the OEM you design and manufacture fantastic products. When in the field, they have your logo on them. Product owners will judge your brand on how you’ve organized your service delivery. If you’re dependent on an indirect sales channel to sell and service your products, you can leverage the product relationship to augment the commercial relationship. The tools to build a digital thread are there.
To learn more about establishing a digital thread for field service, read Understanding the Digital Thread & the Role of Service in the Asset Lifecycle.