As we look in the rearview mirror, it’s no secret that product-based revenues have been on the decline, and margins are diminishing in maturing industries such as high tech, aerospace, motor vehicles and consumer and industrial products. But after-sales service margins, on the other hand, remain healthy – and according to a study by The Service Council, even contribute upwards of 27 percent of manufacturing companies’ total revenues.
So, given the fact that this trajectory is expected to continue, why are many margin-rich after-sales service businesses sub-optimized, receiving a disproportionately low share of their company’s IT budget?
Historically, cost savings have served as the catalyst for the optimization of manufacturers’ after-sales service, but the changing times could usher in a new catalyst for after-sales. In our newest eBook, “2018 After-sales Service Predictions: Strategies for Empowering Manufacturers to Deliver Game-Changing Value,” we asked some after-sales service industry thought leaders to share their insights on what service-related tech spend will look like in 2018, and here’s what Syncron CMO Gary Brooks, The Service Council’s Sumair Dutta, and Executive Advisor Friedrich Baumann had to say.
Gary Brooks on organizational mindset shifts:
Historically, OEMs have allocated less than 20 percent of their tech spend to their after-sales service organizations. This is largely due to manufacturers’ historic practice of giving lip service to topics such as the “the customer experience” and “customer satisfaction,” while focusing almost exclusively on the performance of their product-based side of the business, which receives the remaining 80+ percent of the tech spend.
As product-based revenues decline and margins diminish across a variety of industries from automotive and construction equipment to aerospace and industrial products, OEMs are viewing after-sales service through a completely different lens. Increasingly, service is viewed as a new source of revenue, profits, competitive differentiation, and customer loyalty that can have a positive impact on the lifetime value of a customer. As a result, I believe we will see a higher percentage of tech spend allocated to the technology required to optimize OEMs’ high-margin after-sales service functions.
Friedrich Baumann on small increases leading to big change:
Despite all of today’s changes in after-sales service, new spend in the systems technology department doesn’t have to be extreme. Relatively speaking, tackling these concepts without implementing the most competitive technology is going to be what costs manufacturers more at the end of the day.
For instance, fuel efficiency requirements have the potential to be more expensive than an implemented efficiency service model on the IT side, which would ultimately cut costs on the service side of the house. But, while initial IT investment may increase as manufacturers adopt some of these new technologies, organizations who shift this budget mindset from a tech spend perspective to a service savings opportunity will be better off financially in the long run.
Sumair Dutta on the trends in technology spend:
The Service Council conducted a study in 2017 and found that 68 percent of after-sales service leaders surveyed said that their current tech spend is higher than it was five years ago, 47 percent expect spend on service to increase in 2018, and 71 percent expect it to increase over the next three years. But, past purchases have been made in silos, and the discussion needs to shift to how the overall digital strategy looks for the organization as a whole.
In a world where new product sales simply aren’t cutting it, OEMs’ after-sales service operations are ripe for massive transformation that will deliver significant value in terms of improved financial performance, operational efficiency and the lifetime value of customers. But, this much needed transformation can only be accomplished through investments in emerging technology that is specifically designed to optimize the after-sales service chain.
Want more insight into 2018? Download our brand new ebook today to hear more from some of the industry’s thought leaders on the major trends manufacturers will see in 2018 and beyond, and how to implement new business processes and technologies to win.