5 New opportunities created by IoT and the challenges they present

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There has been some excitement in the media these days about the Internet of Things (IoT) and the promise it creates for businesses, consumers, and governments.  John Chambers, the CEO of Cisco, said on CNN’s GPS with Fareed Zakaria that IoT will create approximately $19 Trillion in economic value over the next 5 years.  As an example of the opportunities that are possible, Chambers points to the fact that the city of Barcelona created 40,000 new jobs through its connected city initiative.

While the upside potential is great, there are still many who believe that the disruptive force of IoT will have a negative impact on certain industries; eliminating jobs and destroying businesses instead of creating them. The proponents of IoT remind us that similar claims were made about the internet in its early days. However, according to a 2014 study by McKinsey and Company, 2.6 new jobs were created by the internet for every 1 job it eliminated. Will the same be true for IoT?

To answer this question, I think we have to look at how IoT will impact specific industries.  For example, let’s look at five (5) new opportunities that IoT creates for the High-Technology Service & Support Industry and the challenges they present.

  1. Facilitation of Remote Monitoring & Diagnostics: IoT makes it possible for manufacturers to implement remote monitoring and diagnostics solutions on a low cost and rapid basis. Of course, these solutions are as effective as the knowledge management tools behind them. Nevertheless, remote diagnostics can eliminate the number of emergency dispatches which in turn could have an impact on Field Service Engineer staffing levels. On the other hand, it is likely that new jobs will be created to monitor and analyze the data collected by these solutions as well as respond to the actions that are generated by this analysis.
  2. Greater integration with the supply chain: One the largest beneficiaries of IoT will be the service supply chain. By monitoring service related events, the service supply chain can have more visibility into the demand for spare parts and be more effective in planning and forecasting inventory stock levels. In addition, supply chain mangers can be more proactive in anticipating demands on forward stocking locations and depot repair & refurbishment centers. The net impact of IoT on the supply chain is an enhanced level of productivity and efficiency which is great for profits and job creation.
  3. Creation of barriers to entry: It is very possible that IoT will create new barriers to entry for service competitors. That is because once you control access to a device, you control the device itself. Manufacturers will need to think through how their channel partners participate in IoT solutions. Will channel partners participate in the revenue stream that comes from managing connected networks or will they simply resell the solution on behalf of the OEM? What options will be available when it comes to service & support? Will manufacturers implement open systems which make it possible for anyone to service the network or will be a closed solution keeping out competition?
  4. Collaboration between business partners: It is also likely that IoT solutions will be comprised of products and components from multiple suppliers. This will require greater collaboration between business partners. Manufacturers will need to establish new business protocols and rules of engagement when it comes to supporting IoT solutions involving third party products. This is likely to result in new job creation.
  5. Need for new business models:  IoT makes it possible for manufacturers to offer new added value services to their customers. At issue, these services are most likely to be monetized through subscription based models. New financial KPIs will be needed to manage these models. Instead of focusing on attach rates and gross margins, manufacturers will need to pay attention to monthly recurring revenue (MRR) and customer churn rates.   Revenue ramps up slowly under these scenarios and customer attrition rates are high so manufacturers will need to create marketing and onboarding programs to facilitate growth of MRR and reduce churn.

 

In summary, IoT will have a positive impact on the High Tech Service & Support Industry in terms of job creation and financial returns.  Indeed, IoT is likely to create multiple new jobs and businesses for everyone that it replaces.  While some companies and individuals may be at risk, they can mitigate the downside by taking a proactive approach to strategic planning.  Furthermore, companies who stand to benefit from IoT the most can ensure maximum returns, and thus double down on their investment, by incorporating fundamental strategic design principles into the development of IoT solutions.  To learn more, schedule a free consultation.

Strategic forces shaping the deployment of IoT & M2M

The Internet of Things

News about the Internet of Things (IoT) is everywhere. Indeed, IoT is one of the largest and fastest growing segments of the Information Technology industry.  The number of deployments of connected devices is forecasted to increase by 30% in 2015 from last year, according to The Gartner Group, with the total number of connected devices to reach 25 billion in 2020.

Those of us who have been involved with the High-Tech Service & Support Industry for some time will tell you that the concept of IoT and its cousin Machine to Machine (M2M) are nothing new. Remote Monitoring & Diagnostic tools have been around for decades.  As early as the mid-1980s, capital equipment manufacturers like Honeywell, Texas Instruments, and AT&T had deployed these solutions to improve the troubleshooting and maintenance of their systems.

At issue, it is only within the last couple of years that the number of IoT and M2M deployments has begun to sky-rocket.  Let’s look at some of the forces that are making this possible:

  • Social Forces: One of the reasons why I believe we are seeing a surge in connected devices within the High-Tech Service Industry is the recognition that data drives business. For service providers, it is no longer just about finding ways to reduce the time and cost associated with troubleshooting and maintenance. In order to optimize productivity and efficiency, and to facilitate innovation in a service business, you need data. While service executives have understood this for some time, end-customers now understand and appreciate that they also need access to this same data in order to optimize the operations and processes that comprise their enterprise. In essence, data about the condition of assets and machine performance is part of a larger system of systems which need to work in tandem to ensure that that the entire system works smoothly and efficiently.
  • Economic Forces: The cost of implementing IoT and M2M solutions has reduced significantly over the last decade. In the past, remote monitoring was achieved through dedicated land line data communications which were very costly to implement and maintain. Today communication is much more accessible and affordable through technologies like Internet Protocol, ZigBee, and Wireless. Furthermore, the cost of collecting data has improved significantly. Earlier solutions required expensive and clunky Programmable Logic Control (PLC) platforms. Now data collection is possible through low-cost, disposable sensors. Furthermore, the financial justification for IoT has improved. Not only is access to investment capital cheaper than ever but manufacturers are now finding ways to monetize IoT solutions resulting in a profitable revenue stream, higher ROI, and faster payback period. More importantly, the financial model associated with IoT deployments is changing. In the past, manufacturers would first attempt to sell individual customers on the benefit of adding remote monitoring to their capital equipment purchase. In turn, the customer needed to incorporate the cost of a Remote Monitoring solution into their capital expenditure and cash flow projections. The economics of IoT have now made it possible for service providers to make IoT solutions available as a subscription model, thus enabling end-customers to turn a high fixed cost investment into a variable expense.
  • Technology Forces: As noted above, the technology (e.g., data communications, sensors, etc.) associated with IoT and M2M is becoming cheaper, easier to implement, more secure, and flexible. In addition, we now have access to much more robust, cheaper, and flexible data repositories. Not only has the cost of storage improved but the advent of Big Data solutions enables us to leverage information collected by IoT in ways we have never known before.

 

For service executives who are dissatisfied with service being an afterthought in their organization, now is the time to look toward M2M and IoT as platforms for innovation and new sources of profitable revenue.    To achieve this outcome, service providers need to develop an overall service business strategy around IoT as opposed to merely a technology plan for connecting devices with back-end systems.   While addressing concerns with respect to security and risk are critical to any IoT deployment, the optimal strategy must incorporate a service centric philosophy, receive full endorsement by C-suite executives, and be formulated with active participation of the service leadership team.  Strategic design is critical to IoT success. For more information, schedule a free consultation.

How do you meet customer expectations all the time, every time?

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Time is one of the most important drivers of value within a service business. Here’s an example of why that is the case…let’s say that you decided to go out for lunch with colleagues from work and you only have 45 minutes to eat.  In this example, you have three (3) choices. You can go to restaurant A where you have a long line.  You can go to Restaurant B were you have a short line. Or you could go to Restaurant C where you have no line at all.  Which Restaurant would you go to?  I’ve asked this many times in live workshops and the participants usually say Restaurant B. Why?  More people tend to choose Restaurant B because the line is not too long or too short. The tables are turning over at a good rate and people are being seated quickly. To quote Goldie Locks, “it’s just right”.

Why not Restaurant A? The line looks like it is too long and people are not leaving very quickly.  You’ll never be able to eat lunch and get back to work on time.   Why not Restaurant C? No one is there. It looks deserted. Very suspicious! Maybe people are getting ill from the food?  Don’t know if I want to go there Restaurant B seems like the safe bet.   It’s an optimal length of time.

Customers not only notice the speed of service completion time, but the amount they pay will be in direct proportion to how long they have to wait.  The challenge is that not every customer has the same requirement for service delivery. Some require shorter length while others are willing to wait a little longer for service.  There is also is a direct correlation between service completion time and customer satisfaction. Too much service can be just as negative as too little.   Let’s say that as soon as you stepped foot into the restaurant, your server came by to take your order but you hadn’t had time to look at the menu. That’s too much service. You’d probably get annoyed and if the server continued to hover over you, chances are you’d become very dissatisfied.  Let’s look at the opposite.  You go into a restaurant, you know exactly what you want to order and need to get back to work right away but there is no server to take your order. That would lead to dissatisfaction too. Wouldn’t it?

This principle also exists for services like onsite maintenance, depot repair, and service parts logistics. If your service level agreements (SLA) specify a 4 hour response time and your Field Service Engineer arrives in 4.5 hours, you’ll have an unhappy customer on your hands.  However, if they are arrive in two (2) hours, your customer’s satisfaction level maybe no higher than if they arrived in the 4 hour timeframe guaranteed by your SLA. In fact, they might be less satisfied if the FSE arrived sooner especially if no one is available to speak to the FSE because the customer implemented a work around, and the result was the FSE had to come back another time.

As a service marketer you really have to pay close attention to the perceived value of time versus actual time and make sure you’ve defined the service level to the customer, and have the capability to deliver it. The truth is that once you understand the value of time you can weave this into your value proposition and pricing strategy.  By doing your market research, you will be able to determine if there is a segment of your market that is willing to pay a premium for faster service. However, in order to deliver faster service you most have the technology, processes, and people in place to ensure faster deliver.

As service executives, we have to continually ensure that our service delivery infrastructure is aligned with the needs of the market and vice versa. This must be done at both a tactical and strategic level.  Tactical efforts involve activities like transactional based customer satisfaction tracking studies and daily monitoring of KPIs.  Comparison of these metrics help you anticipate and resolve issues before they get out of hand.  By contrast, strategic initiatives have a longer time horizon, usually involve a capital investment, and will typically lead to a step-wise improvement in financial performance.  To achieve this outcome, a service executive will want to get a clear picture of customer requirements by commissioning a “market wants and needs” study.  He/she will probably look toward carrying out a benchmark evaluation of internal operations to ensure that the service delivery infrastructure is capable of meeting these needs. These types of analysis will also pin-point where service executives need to invest the most to achieve gains.

Just like the restaurant example given above, service executives who miss the opportunity to align internal capabilities with the needs of the market, both tactically and strategically, are likely to find customers leaving because the wait time is too long or the quality of service is questionable.  Don’t make the same mistake.  Make sure you’ve got a tactical and strategic framework in place to ensure that your service is just right.   To learn more about the concepts described in this blog post, check out my new online training course titled “Successful Service Marketing”.   Struggling to implement a tactical and strategic framework?  Feel free to schedule a free consultation to discuss how we might be able to help.

How do you know if your price is right?

strategic service pricing

When was the last time you took a serious look at your company’s pricing strategy? I worked with a client last year who hadn’t made any significant changes to their pricing in almost 20 years.  While they made minor adjustments over the years to reflect competitive pressures, they never re-evaluated the basic assumptions and core calculations around their published price list.  They realized they might have a pricing problem when they noticed that they weren’t wining as many competitive bids. In addition, the bids they did win were not very profitable.

It might be time for your company to re-examine its pricing strategy if you find yourself in a similar situation.   Before you rush into a complete overhaul of your price book, it is important to have a clear objective of what you are trying to achieve with your pricing. Remember, pricing is a marketing function and marketing is all about perception so how you price your services will influence your outcomes in the market.  For example, your objective might be to take market share from a well-entrenched competitor.  Alternatively, it might be to avoid leaving money on the table. It might be to accelerate penetration into a new market or it might be to simply cover your costs and/or subsidize another part of your business.  It is very likely that the pricing will be different depending on which objective you choose. Once you have determined your objective you can start work on establishing your pricing strategy.   There are three (3) perspectives you need to consider when determining your optimal price.

  • Competitive Price: This is the price that your competitors charge. It is best if you can build or get access to a database on competitive pricing. This will help you understand what the highest, lowest, mean and median price points are within your market.
  • Market Perceptions: It is important that you have a good grasp of market price sensitivity.   You’ll want to understand at what point the price is perceived to be too cheap that quality is questionable, a bargain, getting expensive, or too expensive to afford. The answer will help you understand the optimal range at which you can price your services. One of the best ways to obtain this information is through survey research.
  • Your Price & Cost Structure: It is important that you consider your current cost when re-evaluating your price strategy. Obviously, you must know this if you are going to set prices high enough to cover your cost if that’s your objective. You’ll also have a better understanding of how much margin you can achieve under different price scenarios when you have this information at hand.

These perspectives provide the constraints you need to optimize your objective. For example, if your objective is to take market share from a competitor through a more aggressive price strategy, than you need to not only know where your current price is in relation to your competitor(s) but you’ll also need to know what price range the market (i.e., customers, prospects) perceives as optimal.  You may run the risk of pricing your service too low that the market perceives the price as too cheap to be of any value.  On the other hand, it may be difficult to win business by raising your price if the market already perceives your price as too expensive and your price point is already significantly higher than your closest competitor.  However, you can justify an increase if you are perceived as a bargain even if your price is higher than your closest competitor.

Hopefully, it is becoming clear to you why these perspectives are so important in establishing your pricing strategy.  Let’s get back to the client that I mentioned at the beginning of this post. I took them through a similar analysis and we were able to establish a new pricing strategy that has resulted in them winning more business at a higher margin. It was surprising to learn that they didn’t have to lower prices across the board to remain competitive. In fact, they could rationalize a price increase for some of their services and still remain competitive.

In summary, the key takeaways when it comes to  developing an optimal price strategy are 1) get clear about your desired outcome, 2) make sure you have the relevant data points you need to evaluate pricing alternatives, and 3) adopt an analytical approach. Think you might need to overhaul your pricing strategy?  Feel free to schedule a free consultation to discuss how we might be able to help.