The US-based Technology Services Industry Association (TSIA) recently released its major global research report, The State of Field Services 2016.
The report highlights the significant trends that have emerged over the last 12 months, which will ultimately affect us all:
– Commoditisation of feature functionality. Customers are less willing to pay a premium price for technical capabilities.
– Acceleration of new consumption models. Customers continue to explore new models for purchasing technology capabilities. Technology as a service (XaaS), including product as a service and managed service offerings, continue to see double-digit revenue growth, while traditional hardware and software licence revenues contract or remain flat.
– Financial models are shifting. The revenue mix of technology providers continues to shift. There is less revenue and margin from selling technology as an asset, and more revenue from services and subscriptions.
– New offer types. The tried-and-true service portfolios are losing their appeal with customers. Traditional support/maintenance, education, and professional services offerings are designed to implement technology and keep it running.
– New organisational capabilities. Finally, all of the above trends are forcing technology companies to establish new organisational capabilities.
The impact of these trends, measured from 3Q 2014 to 3Q 2015, has seen product revenues go through the floor for many of the well-established tech companies tracked by the TSIA Technology Services 50 Index (T&S50). Particularly worrying was the effect on the 19 hardware companies included in that group. The report notes that:
“The contraction of product revenues was stunning. Quarterly product revenue for this hardware subset was down a net of $7.9 billion, with 74% of the companies losing ground year over year. Service revenues for hardware companies fared nearly as badly as product revenues, falling a net of $4.5 billion for the period”.
So, more than $12 billion of revenue for those 19 hardware companies simply vanished during Q3 2015 alone. And why? Because traditional service portfolios such as support, maintenance and professional services have always relied heavily on new product orders to generate demand, which is why they’re referred to as “product-attached” services. But, if product is down, services go down too.
Bearing these worrying figures in mind, it’s clear that organisations need to profitably grow revenue. Using the revenue data collected, the TSIA report went on to plot where every field organisation in the study sat in terms of what the TSIA defined as four differing states:
State 1: Legacy product-attached offers are suffering low growth rates due to the significant drop in product revenue.
State 2: Legacy offerings have commoditised, and new, profitable offers that adhere to the new consumption models have not been put in play.
State 3: New offers have been put in play leading to growth, but they are less profitable than historic levels.
State 4: Differentiated legacy offers and new outcome-based offers, resulting in profitable revenue growth.
The results were shocking. Using the TSIA Field Services Benchmark as a proxy, the report found that profitable revenue growth remains elusive for a massive 76% of field organisations today.
Given that 76% of field services organisation are struggling to get the all-important profitable revenue growth they so desperately need, trying to do more with less is a constant refrain. However, it’s increasingly obvious that service providers must find new ways to utilise their existing workforce in ways that drive revenue. They must also find alternative ways to raise revenue and optimise their service delivery channel.
So, what might that look like? The TSIA report identifies six field service trends that, going forward, warrant full attention:
1. Business Transformation. Faced with new business models and new offer sets, field services organisations have to rethink how they measure success.
2. Driving Customer Satisfaction. With product and service revenues declining at an accelerated rate, finding ways for the customer to spend more money with your organisation is key to success.
3. Extreme Automation. In order to take the next step in boosting productivity and growing revenue, technology can be a great enabler. Not only can basic processes like appointment scheduling and route planning be automated, but also analytics from connected products can provide insight into both customers and field services organisations, including real-time performance dashboards and resource forecasting tools.
4. Change SLA’s. Field services organisations are aggressively searching for premium support offers that excite customers. Moving from “response time” SLAs to “resolution time” SLAs reflects the industry trend toward delivering customer outcomes.
5. Embracing Adoption and Consumption Models. Field service engineers are an ideal resource to drive adoption and consumption models at a customer’s location.
6. Service Delivery Optimisation. The mantra of doing more with less is proving to be a relentless taskmaster. Field services organisations are continuing to pursue tactics that can reduce effort, labour, or both. Continuing the trend from 2015, shifting work to the most effective, lowest cost channel is a key cross-organisational task.
Whilst the TSIA findings will, for many technology providers, be a lot to take on board, they shouldn’t really come as a great surprise. The signs of real disruption to our industry have been there to see for some time, but now the need to take positive action is becoming much more urgent.
We can regard the challenges with fear or we can be optimistic and recognise that this current, dynamic setting is the perfect opportunity to come together to deliver greater efficiency. This new environment is not one where we can fine tune the existing model; it requires us to invent a new one.
We’re interested to know where other field services organisations feel they sit and what steps they’re taking to ensure they’re not one of the “76%-ers”. It’s time to exchange some ideas and really get the conversation started.
And, as 2016 draws to a close, it’s also time to wish our readers and all those we’ve had the pleasure of working with this year a really merry Christmas a joyous New Year ahead. Enjoy the festive break!