For equipment makers, the value of building smart connected products is clear: IoT helps you gain insights into how your products are used, predict when maintenance is needed, and boost machine performance. You realize a great physical product is no longer enough—instead, ‘as-a-service’ business models help you stay closer to customers and gain a competitive advantage by creating new revenue streams, new products, and differentiating services.
So, what’s the catch? Creating connected products goes far beyond technology. Creating new business models means changing your culture and building a new kind of relationship with customers.
Trying to jump from zero to hero is more likely than not to end in disappointment. In fact, for far too many companies, attempts to build connected products fall short. Currently, almost 75% of all IoT projects fail. Almost all of them (96%) don’t create new business models, and 60% have scalability problems. Why?
Beecham Research’s survey of 25,000 IoT adopters found that IoT adopters tend to encounter common challenges:
- Business aims not thought-out
- Company organizational issues
- Technological problems not foreseen
- Customer/vendor problems
Overcoming these challenges requires planning, experience, and stakeholder buy-in. The good news is that building smart connected products isn’t an all-or-nothing proposition. In fact, the first step to IoT success is to think big, start small, and move fast. This is why I’m so excited about how the IoT maturity curve can help guide equipment makers to take right-sized bites that, step-by-step, add up to a truly transformational outcome.
Think big and start small; kick off with IoT remote monitoring
The Internet of Things (IoT) brings amazing opportunities for enterprises to connect devices, streamline operations, open new revenue streams, and better satisfy customer demands. But many are still frustrated by their early IoT attempts and fail to get the results promised. Why? Because often, business objectives have not been carefully thought through.
For equipment makers, the value of IoT is clear-cut. IoT highlights how products are being used, makes predictive maintenance possible to reduce costs and unexpected downtime, and creates predictable, renewable as-a-service revenue streams. But getting it right isn’t as simple as it sounds.
IoT technologies and applications are evolving at a phenomenal rate, with IoT spending continuing its stellar upward curve. Analyst firm IDC1 expects IoT spending in Europe to hit $208 billion by year-end and continue a double-digit growth path to the end of 2026. However, without a robust and well-thought-out business case, enterprises can hemorrhage time and money on IoT projects that go nowhere.
Feeling the pressure
Much frustration stems from equipment makers feeling pressured to turn around IoT products and profits quickly, seeing them jump off the deep end without clear business cases or a roadmap on how to scale up the project and keep moving forward on schedule. So significant is the issue that in a survey, 58% of businesses said that their IoT projects had been unsuccessful. Only 12% classified their IoT projects as entirely successful.2
Lack of understanding around errors and equipment operational efficiencies, lack of visibility into recurring equipment failures, and inability to predict failures end up stalling projects. Not to mention hiring teams of developers to sort out technically challenging issues which are costly, slow down deployments, and the possibility of realizing value quickly.
Less haste and more speed are the way forward. Those that rush also open the attack surface to malevolent actors. Unprotected firmware, for example, puts devices at greater risk. According to a recent report, an alarming 47% of attacks on manufacturing were caused due to vulnerabilities that victim organizations had not yet or could not patch, spotlighting the need for organizations to prioritize vulnerability management.3 Gartner says that 70% of companies that do not have a firmware upgrade plan in place will be breached this year.4
Innovate and differentiate using IoT remote monitoring insight
Having the capability to harvest the data is one thing. Still, if you don’t understand the condition of your assets and processes and how customers use their devices, developing and providing value add continuously will be impossible. Without this insight, enterprises find their IoT projects stalling while the enlightened competition adds features faster.
That is why IoT remote monitoring is a great place to start the IoT journey, allowing a smooth move from traditional to smarter connected products.
IoT remote monitoring is as it says on the box. The process uses IoT-connected devices to get live insights into equipment usage and performance, which you are not physically close to. These could range from fuel monitoring for logistics and shipping companies to smart building technologies to reduce energy or industrial and manufacturing solutions to improve productivity. The use cases are endless.
Building IoT devices and services not only requires a mature technology stack, but it also needs a robust customer-oriented business model. The data insights gained from remote IoT monitoring are priceless to devise makers in speeding up the development of new products and features that customers want and need. When machines talk, they provide new insights into the behavior of your customers so you can strengthen your relationships.
As well as a deep dive into product usage, this data also reveals where there may be any device weaknesses and why and verify if it can be optimized for the task at hand while improving the customer experience. The same or higher reliability scenarios can also be scoped out for future releases based on using lower-cost components, for example, or how functions can be speeded up without impacting output quality. Enterprises that utilized Software AG’s Cumulocity IoT platform, for example, saw a staggering 125% increase in incremental revenues from advanced IoT analytics solutions, according to research by Forrester Research. In addition, they saw a 66% increase in attach rates to add-ons to customer orders and a 35% reduction in unplanned maintenance, thanks to predictive maintenance capabilities.
It isn’t all about adding features, either. Remote monitoring enables new features to be deprioritized quickly. This allows them to be rapidly replaced with unique features that add value and support features valued by the customer. In addition, new options for service programs can be made available to add supplementary services and boost revenues at increased margins.
Delivering added value and enhanced performance to customers
Kemin Industries, which provides an array of products to address global health and nutrition needs, was looking to deliver new value-added customer solutions and performance insights for its industrial application systems in the cloud. This would enable them to better connect with customers and rapidly address any issues, including troubleshooting.
Software AG and the Cumulocity IoT platform have enabled Kemin to run their liquid application systems in the cloud. As well as harvesting data from Kemin’s application systems to gain further insight into optimizing production processes and applications, customers can monitor how well liquids are pumping in industrial applications from wherever they are logging in.
In the area of sustainability, Greenflex, an environmental services company, had been experimenting with IoT for a while – but realized it needed a dynamic platform if it was going to get to market faster.
The company wanted a scalable, modular solution to connect to its wide range of existing environments and technologies that would enable it to be agile enough to pilot new approaches and expand into multiple global markets. The Cumulocity IoT platform has allowed Greenflex to add connections quickly across different devices and communication types. It has also enabled developer teams to implement devices and remote monitoring solutions faster, in line with customer demand.
Understanding customer needs is half the battle
For software engineering to be successful, companies must have access to their customers’ voices. It can be a difficult, expensive, fruitless journey without understanding their needs.
In addition, a failure to follow a remote monitoring case strategy can leave the price as the only competitive option, which requires significant margin decreases to maintain revenue levels.
IoT remote monitoring may not instantly stand out as the point to kick off your IoT journey, but it will rapidly create a competitive edge. Identifying project value and speeding up return on investment while significantly improving the user experience long and short-term. Why wait? Kickstart your IoT remote monitoring program now.
Smart Field Services: Happier customers and higher profits
Have you adopted IoT and are looking to increase aftermarket service revenues or control cost-of-service visits? Leveraging smart field services can improve productivity, reduce downtime, and turn data from connected ‘things’ into predictive actions and new business initiatives.
The pandemic reshaped the entire service landscape and accelerated digital transformation as enterprises looked for smarter, safer ways of supporting customers. However, rapidly changing technologies and the unpredictable nature of customer demands make the market unsettled. Many enterprises are still struggling with fix times due to supply chain delays resulting in challenges to finding effective ways to boost aftermarket revenue.
This is a massive issue for enterprises as service is critical to both customer retention and the bottom line. According to the Harvard Business School, increasing customer retention rates by only 5% can increase a company’s profits by 25-95%.
Data is driving the move to servitization
The field service market is highly competitive, and enterprises must look to innovative servitization models to improve efficiencies, deliver more personalized service, and stay ahead of the competition. Servitization is a proactive approach to field service management built around a subscription model and creating new customer relationships. This isn’t a new model, however. Rolls Royce is a well-quoted example, moving from selling jet engines to a power-by-the-hour basis, continually monitoring engine performance. Smart field services enable predictive and preventative maintenance, which is central to most servitization models.
According to IDC, the growth in connected ‘things’ is expected to generate a gargantuan 79.9 zettabytes of data by 2025.5 Much of this will come from business-to-business and business-to-customer interactions. This data is fuelling a move to servitization as customers increasingly demand always-on, robust, reliable devices tailored to their requirements. It is unsurprising that the global field service management industry, which generated $5.2 billion in 2021, is estimated to hit $29.9 billion by 2031.6
Delivering IoT services enables an enterprise to compete for projects more effectively and starting relationships with services also positions an enterprise for large deals when its customers replace or upgrade equipment.
Interconnectivity is changing the service model
Equipment manufacturers are facing growing challenges in terms of managing costs and maintaining high service levels within aftermarket services in an increasingly aggressive marketplace. In addition, over the past two years, supply chain issues have caused major inventory headaches.
Aftermarket services are becoming imperative for manufacturers. According to Deloitte, many manufacturers generate between 40 and 50 percent of their overall profits from services. Some generate all their earnings from services, with devices sold not to yield profit, but to drive after-sales in a large installed base.7 In addition, manufacturers that focus on services have approximately 80% of their installed base under service agreements, which allows them to continue to innovate while delivering constant revenue streams.
Smart field services also enable manufacturers to capture a bigger share of aftermarket revenue and work closely with customers that may otherwise migrate to cheaper competitors, such as searching for discounted spare parts online. It also provides better insight into equipment in the field, enabling optimized spare part management. Having this knowledge in advance also ensures the right technicians and parts are dispatched should a site visit be required expediating any fixes.
From an installation and maintenance perspective, smart field services can significantly reduce the time to install and commission equipment at the customer site while ensuring firmware and software updates are done. These updates can help to fix any security vulnerabilities and are essential building blocks in securing IoT devices and their lifecycle management.
Remote monitoring in action
Sensor-Technik Wiedmann (STW) has implemented a solution powered by Software AG’s Cumulocity IoT platform for remote condition monitoring of exhaust gas treatment systems that have been retrofitted to London buses. It is part of the city’s ambitious plan to create an ultra-low emission zone.
Cumulocity, which STW has rebranded ‘STW machines cloud,’ harvests data from on-board telematics modules, which can be monitored and analyzed in real-time. In this predictive maintenance scenario, big data can be examined to detect patterns that alert to problems in the retrofitted systems or the bus engines.
WAINS Gmbh uses smart field services capabilities to hunt down pests in a very different use case. Insects destroy between 5% and 20% of the global harvest, and the problem is worsening.
The company’s solution, dubbed “trapice,” enables users to detect pest infestations early in the cycle and implement the necessary countermeasures. Trapice uses Software AG’s Cumulocity IoT platform to digitize pest control. Cameras are used to monitor when pests get caught in traps remotely. Sensors capture additional data on environmental variables that may trigger an infestation, such as humidity. Data is sent to the Cumulocity IoT platform, where users can access data on their dashboards to take any proactive action necessary.
Selling solutions to customers’ problems
Smart manufacturers are creating more value by focusing on long-term business partnerships and solving their customer’s problems as seamlessly and efficiently as possible. This is a win-win situation for both the manufacturer and the customer alike.
Manufacturers who fail to adopt IoT field services will see their markets rapidly shrink as they lose market share to these smart manufacturers and trailblazers. At the same time, customer relations and loyalty will weaken and crack.
The manufacturers that can use IoT to differentiate themselves and make a difference when a customer wants a new device will be the ones that survive and thrive. IoT smart field services are a great way to build a stronger relationship with your customers by ensuring they get the most uptime and output from their production assets.
Unlock the business value of IoT using performance management
The Internet of Things (IoT) has enormous potential to change all our lives. But to maximize the value of connected devices and speed up service delivery, it is essential to have control at scale with real-time usage and performance metrics.
It goes without saying that equipment manufacturers will sell more machines if they can provide integrated solutions to enable their customers to improve overall equipment effectiveness and energy efficiency, better control costs, resolve issues causing downtime, and effectively manage devices wherever they are located.
According to IDC, an increase in commercial and consumer adoption is expected to drive global IoT spend to $1.1 trillion in 2023. However, all these ‘things’ can only fulfill expectations if they are appropriately managed. “While organizations are investing in hardware, software, and services to support their IoT initiatives, their next challenge is finding solutions that help manage, process and analyze the data being generated from all these connected devices,” explains Carrie MacGillvray, group vice president, internet of things, 5G and mobility at IDC.8
At the same time, enterprises are increasingly deploying their IoT software, including applications, analytics, and platforms, to the cloud. By the end of 2023, nearly one-third of IoT software spending will go toward public cloud deployment.
While some organizations may decide to stick with on-premises platforms, the scalability and benefits of a public cloud infrastructure provide a real opportunity to speed up product development and reduce start-up costs. IoT performance management is crucial.
Optimum performance is essential for maximum business value
IoT is transforming industries across the board, from manufacturing to health care. Allowing enterprises to operate more efficiently, make smart decisions, and service their customers better. Despite these benefits, IoT brings with it some management headaches. If devices are not operating at their optimum level, enterprises will be disappointed in the value extracted.
These challenges include ensuring firmware updates and security patches on devices don’t impact performance levels, maintaining visibility into the IoT ecosystem, and monitoring how IoT applications interact with cloud services to avoid shortfalls.
Data availability and collection also often cause obstacles. Even with automaton and programmable logic controllers (PLCs), many enterprises still collect using ad-hoc manual processes, extracting data using Excel spreadsheets and other simplistic methods. Data related to run time could be more efficiently stored in an enterprise resource planning (ERP) system, and data related to output in a manufacturing execution system (MES). Data linked to maintenance and downtime sitting in computerized maintenance management systems.
Diagnosing the root cause of performance is another concern. This can require the input of large improvement teams working over weeks, sometimes months, to make any difference. This is where an integrated performance management solution can provide all the operational functionality and capabilities necessary to enhance actual equipment performance.
Meeting performance management head on
Defining performance, quality, and availability targets that are coherent for a production environment also proves a puzzle for many enterprises. Tracking the six significant losses, which prove illusive to many company processes, including planned, unplanned, and micro stops, together with start-up and production rejects, is critical.
There are often frustrating trade-offs, making it more difficult to analyze the most effective ways to improve OEE (Overall Equipment Effectiveness). This common metric is designed to measure an asset’s level of productivity, and the rich stream of data provided by IoT devices can improve OEE in several ways:
- analyzing historical data to optimize performance planning
- getting red flag warnings on the degradation of systems
- tapping into predictive maintenance to avoid expensive downtime.
All these continually improve the customer experience and create new outcome-based services built around uptime, consistent quality output, and reduced energy consumption, for example. In addition, OEE calculations can help increase machine life by predicting maintenance needs and enabling customers to get maximum value from their machine investment. Manufacturers are increasingly offering OEE-as-a-service.
IoT analytics can be added to improve the customer experience continually. This is simplified using robust IoT tools that allow artificial intelligence (AI) and machine learning (ML) to provide a smooth analytics path.
Digital twins can also bring additional benefits, taking real-time IoT data and applying AI and data analytics to optimize performance. Manufacturers can glean valuable new insight by being constantly fed with data from both production and the product. Digital twins can be deployed during any or all the lifecycle stages.
Taking performance analytics to the next level
Huntsman, a multinational chemicals company that prides itself on its innovation could see that it had a data disconnect between process experts and scientists. The inability to merge daily data, new sensor data, and lab- analysis into one created bottlenecks and batch quality issues.
The multinational opted to adopt TrendMiner, a Software AG self-service industrial software solution designed to continuously improve production processes in smart factories and industry 4.0 operations. Self-service industrial analytics accelerates root-cause analysis and helps find new areas for optimization.
The transformation has enabled Huntsman to move from being an experience-driven to a data-driven operation, reduce costs and enhance production. It can now build soft sensors on operating conditions, for example, to predict the product quality of certain chemicals. In addition, it is now possible to have 24/7 quality control instead of relying on lab analyses only available during working hours.
IoT performance must align with business objectives
The IoT landscape is changing. “Organizations implementing IoT are increasingly focusing on the business outcomes of the technology. IoT initiatives are no longer driven by the sole purpose of internal operational improvement,” according to Gartner.9 Equipment manufacturers need a clear understanding of customers’ business goals.
Adopting IoT and achieving business outcomes is a complex one. Manufacturers need a well-defined IoT strategy and a solid metric to measure success. Performance management addresses issues in real-time. This improves reliability, increases customer satisfaction and retention, and lowers overall product support and ongoing maintenance costs.
Equipment manufacturers who do not invest in performance management for their assets are putting their heads in the sand. Customers will not be able to achieve their targets in a cost-effective way, which will end up seeing equipment manufacturers lose customers to the competition in an increasingly disruptive marketplace.
The Rise of Equipment as a Service: From new technology to new business models
Over the past 10-15 years, tech companies have leveraged the power of the cloud to introduce the Software as a Service business model. Rather than selling long-term licenses to products that then need to be deployed within the customer’s infrastructure, customers can stream the software online, so they only pay for what they use, when they use it. Instead of a major purchase decision involving a large team and months of evaluation, the customer can distribute the decision down to the team level to determine if another license is beneficial, increasing and decreasing usage (and corresponding costs) to business fluctuations. The advantage to the seller is a more predictable revenue stream based on recurring subscription costs. The advantage to the buyer is a cost structure more aligned with their actual usage of the products. Thanks to the development of new smart connected products, the market for equipment and equipment services is going through a similar paradigm shift.
Equipment as a Service (EaaS) combines hardware and software into a single equipment plus services package that centers around charging customers based on their usage of a product, rather than selling the product itself. This business model significantly lowers the total cost of ownership and offers elastic equipment costs that can be tuned in line with demand. More importantly, it eliminates the risk to the customer of overbuying equipment, since they are paying for outcomes rather than infrastructure.
EaaS helps equipment manufacturers to move their reliance away from shrinking hardware margins to highly profitable after-sale services and parts. According to the Technology and Services Industry Association,10 service margins were higher than product margins for the first time in its index’s history in the second quarter of 2022. It has seen digital transformation commoditize products and act as an enabler for valuable service offerings.
The gap in the market was spotted by Rolls-Royce back in 1997 when it let airlines pay for their engines based on flying hours as opposed to buying them outright. Its TotalCare Program flipped the transactional-based approach on its head. The multinational now signs around 90% of its new engines through its TotalCare program. It has helped the company build long-term, solid relationships with its customers and better align the engine manufacturer’s goals with those of the airlines.11
EaaS business models demand accurate measurement of equipment usage and/or performance. The emergence of IoT and data analytics has made this possible at a granular level. This is important, because part of offering EaaS means the equipment provider is taking ownership of successful operation of the asset at the customer site. According to IoT Analytics, it is little surprise that the EaaS market is predicted to be worth $131 billion by 2025.12
EaaS is fast becoming a strategic business imperative
EaaS is now seen as the last step on the IoT maturity curve for equipment manufacturers as it requires a significant shift away from the traditional sales of capital-intensive equipment. With margins on new equipment sliding, many equipment manufacturers have already started on their EaaS journey to enable a reliable source of income and future-proof their businesses.
At the same time, equipment manufacturers are under growing pressure to provide their customers with more flexible models. In a recent survey,13 67% of equipment suppliers said they are evaluating, planning on, or currently offering EaaS. This trend has been exacerbated by the availability of IoT, 5G, cloud, and big data analytics that are making EaaS models widely available.
Equipment manufacturers have much to gain from EaaS
Equipment manufacturers have much to gain from the EaaS model. As well as increased revenue streams, data collected from IoT devices can be analyzed to improve overall equipment design. This enables data-driven improvements in terms of features and performance.
As well as reducing the cost of entry points for customers and driving innovation, EaaS enables manufacturers to stay connected with customers, inspiring customer loyalty, generating greater value by expanding profitable after-sales services, providing benchmark data to manufacturers to increase machine reliability and productivity, and lower operating costs.
In addition, it can help equipment manufacturers to move idle inventory. For example, machines that have never been sold can be deployed with EaaS on lease agreements.
Kickstarting an EaaS initiative
Any EaaS program that will be successful at scale must be carefully thought out. Failures happen because companies overestimate their maturity levels, fail to prepare technicians for their new responsibilities, and expect customers to have the same regard for machines they have purchased outright compared to EaaS solutions, according to Deloitte.14
In addition, EaaS comes with its inherent challenges; pricing EaaS contracts can be complex. Real-time device management and trusted metrics need to be created for areas such as accurate and automated billing. EaaS suppliers also need to take on risks that the customer formerly absorbed, such as environmental factors like humidity and dust levels.
To scale up an EaaS program, Deloitte recommends that companies evaluate four core areas. Firstly, look at which specific services should be part of the EaaS program and how they will be provided, what type of leasing and finance model should be adopted, how will IoT scenarios such as predictive maintenance be integrated into machines, and lastly what type of billing system works best for customers.
Differentiating with EaaS
A pay-as-you-use model can reduce EaaS customers’ up-front cost, and it can also make a great differentiator. With greater insight and control over equipment, it is easier to enhance uptime and innovate new services.
WAINS GmbH is in the business of digital pest control and leverages smart technology to address a niche gap in the market. In the past, pest control was primarily handled in a traditional way in logistics, gastronomy, food and pharmaceutical businesses, meaning that traps were set and checked at regular intervals. This could be very costly and time-consuming — with staff being especially scarce in this industry.
The company uses Cumulocity IoT for its products, traptice® insect and traptice rodent, to monitor insect and rodent infestations and implement countermeasures quickly. WAINS offers traptice in a leasing model at attractive prices. Beginners can try out the devices and subscribe to flexible options including an all-inclusive package. Pest controllers can use the time saved by traptice to proactively improve their customer relationships and develop preventative measures or invest in recruiting personnel. WAINS customers can deploy as few or as many traps as they need to monitor their facility.
Eaas is changing the way businesses operate
EaaS is moving from a nice-to-have to a business imperative for equipment manufacturers – changing the way they operate, opening new revenue streams, providing opportunities to improve customer service, and innovating to differentiate.
While EaaS may not work for every asset category, it has incredible potential for equipment manufacturers looking to carve out their share of the digital economy. If you haven’t begun the process of putting EaaS plans in place, now is the time. EaaS transformations are already underway, and the competition will beat you to the finish line.