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The Three Biggest Challenges Facing Hardware-Centric Businesses

Joseph Kenny, Vice President for Global Customer Success at ServiceMax discusses the funding challenges presented for businesses who need to invest in tech hardware.

“Predicting rain doesn’t count. Building arks does.” Wise words from the legendary business magnate, investor, speaker and philanthropist, Warren Buffet.

The ability to identify change just seems easier for some. That’s probably what makes Mr Buffet one of the world’s most successful and wealthiest investors. But for most of us, making the best financial decisions for long term organisational growth is not always clear.

Cloud computing and SaaS offer an alternative, but it doesn’t apply to every industry

The past decade has seen the shift away from capital expenditure to operational expenditure, using pay-as-you-go services such as cloud computing, to reduce costly depreciation in fixed hardware. It makes a lot of financial sense, but it’s not a feasible model for everyone.

Some equipment-heavy organisations – such as energy, transport and network infrastructure companies – simply have to have fixed assets. For these organisations, capital expenditure represents a necessary risk because it’s a fundamental core requirement. But while money is tied-up in long term capital equipment, these equipment reliant organisations are limited in how they monetise, and in what they can spend in operational functions, such as sales and marketing, staff training and R&D.

Is it possible for equipment-centric businesses to overcome this conundrum? And what exactly are the biggest challenges they face?

The solution isn’t where you’d necessarily expect to find it – your service department. By reimagining how to service your assets, you can find new revenue growth, new operational agility and greater innovation. Below are three key areas you will need to navigate for growth.

Challenge No 1: Recognising You Need A New Business Model (You Do…)

If you can’t change the fixed asset, change the business model around it. While fixed term leasing contracts offer fixed costs and level depreciation often over 10-year periods, customers are increasingly changing how they want to use and pay for these assets. In short, nobody wants to pay for something they don’t use. This is leading to demands for usage and payment flexibility, pushing financial risk back on the supplier. It’s a challenge. Does the supplier have the right number of units to provide for the forecasted output of the customers on its books?

It should also be seen as an opportunity. If a customer who previously paid for 150 units was only using 80 percent of the output, for example, could the supplier now sell the remaining 20 percent to someone else?

By improving equipment servicing strategies and asset uptime, suppliers could increase the economic output of the equipment and sell the excess to other buyers. It means the risk is with the supplier, as they can no longer rely on fixed-asset revenues, but the rewards could be greater.

Challenge No 2: Rate and Scale of Technologic Change (Equipment Obsolescence)

Imagine being the entrepreneur who purchased 100,000 digital cameras for resale in 2007, two months before the iPhone launched, or placed an order for 1,000 Yellow Cabs in the Autumn of 2014, when Uber was in its infancy? These were solid business models that had returned respectable profits for years if not decades, yet, within a year, the industries had been decimated and the value of those assets plummeted.

We are living through a period of unrivalled technological advancement, where not only are whole industries disappearing at the fastest rate ever, but the equipment that we depend on day to day is evolving at an ever-increasing rate. Were a company to manufacture or purchase high value equipment based on today’s leading-edge technology, there is little chance that some emerging technology would not, or could not, make those assets obsolete within two to four years.

Couple this “external risk” with the customer’s desire to purchase outcomes and not assets, and the equipment owners face a number of challenges. Who owns the assets also owns the risk of over-capacity and under-utilization, poor machine up-time, managing the supply chain required to keep the machines running, recruiting, training, and retaining staff to service the equipment – or paying someone else to do so.

Challenge No 3: Use Data to Refine Your Maintenance Strategy (Serviceability Not Just Output)

Where there is risk, there is usually opportunity, but companies must be capable of seizing that opportunity and managing that risk. In today’s world that means having access to the data required to make the right decisions with regards to asset utilisation, balancing the carrying cost of inventory against equipment up-time or first time fix rate, investing in staff development and education to improve service outcomes.

The organisations that can collect accurate data, analyse it and make actionable decisions based on that data, will be in the best position to succeed. This means companies must look to emerging technologies like AI, IoT, real time remote device monitoring and automated active equipment service feedback loops in order to continue to be on the leading edge of not only equipment output, but equipment serviceability.

Leveraging technology to automate the servicing of assets in the plant and the field will be critical to companies leveraging the data to keep their machines’ economic output at maximum, extending economic life of assets and pushing back on obsolescence for as long as possible.

Rethinking Your Way Forward

As most equipment heavy organisations are generally vertically integrated, they typically own their end to end means of production from raw material to the finished product. This provides huge scope for digital service transformation, especially around asset monitoring, maintenance and utilisation. By tapping into information about core equipment in new and innovative ways, it’s possible to deliver unmatched levels of performance, security, transparency and innovation.

A good example is SIG’s recent digital transformation of its intelligent packaging solutions in the food and beverage industry. By exploring new digital service scenarios, SIG delivered new solutions and business models based on advanced performance metrics, including as-a-service delivery, performance-based and subscription solutions.

For equipment reliant industries, collecting, accessing and utilising machine data to drive more informed decision making can mitigate the risks of changing business models, equipment obsolescence, and optimise asset maintenance plans to prolong economic life and output. If you haven’t yet viewed your service strategy as a route for business growth, it’s time you did.