The following guest blog by Elliott Burr originally appeared on our partner ServiceMax’s blog.
We’ve been talking about field service’s revenue potential for a while now – generally we’re seeing service revenue grow twice as fast as product revenue. And now according to new research from Vanson Bourne we just commissioned, industry leaders agree that field service’s transition into a primary revenue driver will happen in the next two years.
Vanson Bourne surveyed 200 IT and field service decision makers in US, UK, France and Germany from companies of all sizes with customer field service departments. They found that 86 percent of those surveyed saw field service becoming a primary revenue driver in two years.
That’s great news. So how will this transformation happen?
Well, thanks to a widespread shift to proactive outcome-based service models, shrinking product margins across the enterprise, and the natural trajectory of globalization point to service revenue eventually eclipsing product revenue.
From our own findings, 73 percent of businesses already cite field service management as having a positive impact on their organization’s profitability, and 47 percent say field service management reduces costs. That’s the kind of industry validation that will support expanding service revenue potential and making the shift to outcomes a reality.
Across many industries, manufacturers have spent about half a century ensuring they can efficiently make good products and their reward is a profit margin at the point of sale. But the problem now is that those profit margins are getting thinner and thinner. In a globally competitive market, many products are now simply commodities. With such tightly squeezed margins, the business impact from this sort of production-centric approach is rapidly diminishing.
But let me be clear: this does not mean companies are making lower quality products that break more often. Rather, thanks to connected devices and the cloud-based systems of record field service management platforms like ours provide, service organizations can move to a proactive service model maintaining equipment uptime before it ever fails.
As our own research last year found, people would be very interested in paying for an outcome-based proactive service model.
From where I sit, it’s clear that senior management is realizing that service is somewhat of a hidden gem within their organizations, which is something we’re already seeing in our own global customer base.
As companies begin to properly monetize their service departments, they have the opportunity to increase service revenues even further by supporting existing third party or competitive products. This creates an ongoing relationship with the customer that effectively locks out competitors, and provides an effective hedge in a downturn economy.
We’re already seeing increased ROI in field service thanks to the shift to outcome-based models and technology-driven operational efficiency. The next stop is revenue-generation.
About the report
During April 2016, research firm Vanson Bourne interviewed 100 IT decision makers and 100 field service decision makers from the US, UK, Germany and France. To qualify for the research, respondents’ organisations could be from any size and sector, but the organisation had to have at least one field service engineer. The IT decision makers and field service decision makers were interviewed using an online methodology and a robust multi-level screening process was used to ensure only appropriate respondents participated in the project.