"This feels like déjà vu all over again!" This is a comment that my late father and business mentor used to say to me whenever we observed a situation with a client in which history seemed to have repeated. Indeed, this current recession has brought about some interesting industry trends which for me are like déjà vu all over again and again. What am I talking about? Basically, with the decline in product sales many original equipment manufacturers (OEMs) are looking to make up margins through a more aggressive attempt at developing new service business in the the aftermarket. However, some manufacturers are surprised to learn that they do not have a captive market fro service and must compete with Third Party Maintenance (TPM) and Independent Service Organizations (ISO) for business. ISO competition is often very troubling to OEMs because ISOs usually don't have the same overhead cost structures as OEMs. As such, they can often provide service at a much lower price. Since the natural instinct is one of survival, the OEM begins to investigate strategies and tactics to eliminate competition by implementing barriers such as denying ISOs access to parts, documentation, or diagnostics.
Quite frankly, I am not sure why some OEMs want to take an adversarial stance against ISOs. Sure, it is within the legal rights of an OEM to withhold intellectual property but this can be counterproductive to the market. First, customers want choices when it comes to purchase of the equipment as well as purchase of aftermarket services. By trying to squash competition through adversarial tactics, the OEM eliminates choice. Second, a landmark Supreme Court Case in the 1990s between Eastman Kodak (Defendant) and Image Technical Services (Plaintiff) ruled that an OEM can have monopoly control over the After Market even it doesn’t have control of the Product market. AS a result, certain competitive practices like tying in the purchase of parts or diagnostics software with service contracts is a violation of Sherman Anti-Trust Laws.
Rather than erecting competitive barriers, OEMs are advised to consider how Companies like IBM, Siemens, HP, Comcast, and Philips, etc. effectively use ISOs to deliver field service on an efficient, productive, and quality basis. Over the years, a number of OEMs have acquired ISOs to not only augment and expand service capabilities but also to develop multivendor service skill sets in order to better service customers who require a single point of contact, total service solution. The fact of the matter is that independents provide value to manufacturers by the mere fact that they force manufacturers to be proactive and innovative in serving their customers. Let’s face it; implementing strategies and tactics to squash compettion is the act of desperate company. Most companies win market share and create sustainable, profitable revenue growth through a business model built upon a committment to customer satistaction, quality processes, highly effecient systems, and well trained people. Furthermore, these companies view compeitition as a healthy thing. Why not use the same standard when it comes to the Aftermarket?
To learn more about strategies and tactics for winning business in the Aftermarket contact us at 215-643-9060 or visit us at www.blumberg-advisor.com
The Field Service Automation landscape looks very different than it did 25
years ago when I began my career. Back
then, the market was in its early growth stage. Today, the market is mature.
Field Service functionality can be found in different types of applications
which we categorize into ERP/CRM (e.g., SAP, Oracle, Microsoft Dynamics, etc.),
Integrated Service Management (i.e., Astea, Metrix, Vertical Solutions, Amdocs,
etc.), Field Mobility (e.g., Antennae Software, Agentek, etc.), Service Parts
Optimization (e.g., MCA, Servigistics/Click Commerce, Baxter, etc.), and Field
Service Optimization (i.e., Service Power, Click Software, TOA, etc.). Applications are available for purchase either
through an On Premise (i.e., License) or On Demand (e.g., SaaS) solution. As
such the decision making process is much more complex.
In the past, the business user had a very vocal voice in the selection of Commercial Off the Shelf Systems (COTS). Sure
the perspectives of technical and economic decision makers were considered but
now these participations have a greater role in placing constraints and/or
mandates on the types of systems that are purchased. The technical platform on which the field
service application is written is often more important as the feature
functionality of the application itself. The ability of this application to integrate
with other corporate systems is also extremely important consideration and
constraint. One thing which is continued
to remain certain is the applications will continue to evolve and new vendors
will continue to enter the market while others disappear.
Given all these complexities, we believe end-users can benefit from working
with an independent and objective third party advisor such as ourselves to help
define the solution, recommend a qualified vendor short list, and evaluate proposals. We believe our understanding of where this
market place has been and where is it heading, combined with our knowledge of
the current state of the art and vendor market is critical in helping clients
to select and implement solutions which meet the needs of today and the
requirements of the future.
During most of the 1990's and early part of this decade we saw a tremendous interest among OEMs and 3rd Party Service providers (3PSPs) in the Multivendor Services (MVS) Market. MVS is essentially the business of providing hardware services (i.e., depot repair, field service, remote support,etc.) on products from multiple OEMs. Over the years MVS played a key role in generating incremental streams of profitable service revenue to both OEM and 3rd Parties. Our research has continously showed that end-users prefer to deal with a single point of contact for the provision of a broad array of aftermarket service & support.
OEMs and 3PSPs like the concept of MVS because it allows them to build economies of scale, improve market share, and increase profits. More importantly, the provision of MVS enables a service provider to increase their customer or installed base "density" which is a key toward building economies of scale and increasing profits. Density provides the service provider with a large volume of customers with the similar needs and thus requiring the same type of services. As such, the service provider can be more effective in managing service resources on a effecient and productive basis, and acheiving optimal levels of profit.
Around the middle of the early 2000s (circa 2002), MVS started to lose favor among service providers. This was due to several factors. First, many service providers began to realize high profit margins via the provision of managed services and/or professional services such as Business Process Outsourcing (BPO). By comparison, basic services such as field service and depot repair offered lower margins. Why focus on the plumbing when managing the whole apartment complex was more lucrative? As such, OEMs began to out-task these lower margin services to low cost 3rd Parties. Second, OEMs were in the unique position of having year of year growth in new product sales. Usually, service revenue is less of a concern for OEMs with products sales are booming. As long as products were selling, OEMs just needed to fullfill service demand and outsourcing and out-taskings was percieved to be the most effecient and economic way of meeting growing demand for suppport of new products.
The current recession and long term outlook that economic growth will be very slow for the foreseeable future is forcing many OEMs and 3PSPs to rethink their Afermarket service strategies. In board rooms and meeting rooms around the world, executives and managers are rethinking the value of MVS. Without revealing any client confidences, we are certain that a number of OEMs and 3PSPs will be aggressively entering or re-entering this market space either directly or thorugh strategic partnerships and/or acquisitions. Certainly, some very large service providers will continue to offer managed services and BPO. However, it has become increasingly obvious that it is better for these providers to concentrate on very large transactions and higher end, long term, strategic consulting assignments. We are beginning to see that some of these large providers are ceeding market share of more basic services like break-fix to mid-tier service providers and/or divesting of their infrastructure service business to indepedent organizations.
The implementation of an MVS business strategy or even a strategy involving the provision of a broad array of value added services beyond basic repair forcing OEMs and 3rd Parties to operate thier Aftermarket Service Organizations as strategic profit centers or lines of business. This has very positive effects on the industry as a whole. First, it requires service providers to add new business functions to their organization such as service marketing, human resources, finance, and IT. This in turn leads to new hires which should be a boom to employment. Second, it requires service providers to re-evaluate their service delivery infrastructure. As such, many will find they need to deploy new technology to automate processes and achieve optimal level of service qaulity and profitability. More importantly, the avaibility of increamental profits allows service providers to build a stronger business case for investment in new technology which in turn is a plus for software vendors.
History truly repeats itself. Over the years we have helped a number of OEMs and 3PSPs build very profitable aftermarket service strategies based on a provision of multivendor services. We are bullish on growth opportunities within the Aftermarket Service Industry provided that OEMs and 3PSPs seize the opportunities created by today's challenges.