IOT MATURITY: ACROSS SERVICE AND THE ENTERPRISE

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1 WRITTEN BY: SUMAIR DUTTA, CHIEF CUSTOMER OFFICER APRIL 2015

2 Page 2 of 9 SUMMARY: TECHNOLOGY WITH THE BIGGEST IMPACT In a 2015 research survey on field service, The Service Council (TSC) members were asked what emerging technology would have the biggest impact on their field service operations over the next 5-10 years. The top answer returned by more than a third of the group was connected devices or the Internet of Things (IoT). One could argue that connected devices and services are no longer an emerging technology. Manufacturing organizations and service providers have been working with a connected infrastructure for quite some time now. In fact, in industries like medical devices, utilities, oil and gas, and telecommunications, connected devices have been enabling service and maintenance procedures for well over five years. It is becoming easier to connect now but where the real maturity comes in is in the use of the information afforded by connectivity. It can also be stated, that the impact of a connected infrastructure extends much beyond field service and the service organization. This is true. But service and support does provide a valuable starting point for the use of connected information and services. The impact on the service group is significant, tied to improved response and predictability. With this in place, IoT-enabled information can then be leveraged across the organization to improve quality and enhance revenues. RESEARCH INSIGHTS In late 2014, The Service Council polled 100 organizations to dig deeper into their efforts around remote connectivity and the Internet of Things. The survey effort focused on the process changes enabled via a connected infrastructure in support of predictive maintenance, reactive support, and new business services. Some insight into the organizations that participated is included below: Participants by Annual Revenue 53% 20% 27% Less than USD 50m USD 50m - 1b USD 1b+ Currently Leverage Remote Monitoring or Machine-to-Machine Connectivity to Monitor Assets There is still a lot to be learned of how IoT can drive better service and support. More so, a lot can be learned on how IoT enhances customer and enterprise value. Can we take simple consumer applications enabled via connected devices and transform them into broader enterprise or industrial applications? This document will contain findings on how industrial organizations are leveraging remote connectivity and IoT to enhance support processes. The document will also highlight how organizations can work with IoT-enabled connected data to further enhance service, customer, and enterprise value. 32% Yes 68% No or Don't Know

3 Page 3 of 9 GETTING CONNECTED As stated earlier (and seen in the Introductory Chart), a large proportion of industrial organizations polled by us are familiar with remote or machine connectivity or the Industrial Internet of Things. These organizations are looking to capitalize on enhanced intelligence captured directly from equipment or assets for a variety of reasons. TABLE 1: A FAMILIAR PATH Percentage of organizations with Timeframe IoT in place More than 5 years 53% Between 3 to 5 years 17% Less than 3 years 30% Of the near 70% of organizations familiar with machine connectivity in our survey, 53% have had some stake in the technology and supporting processes for more than 5 years. A large proportion of these organizations fall in the medical device and utilities spaces. We also see an increasing interest in IoT-enabled services over the previous three years from industries such as automotive, telecommunications, office equipment, software, and industrial manufacturing. As mentioned earlier, the service organization provides a valuable starting point for an IoT initiative given the scope of impact around predictive and reactive service. While most of our respondents are in service roles, they do represent the needs of their broader organizations. That said, of those with IoT initiatives in place, 48% indicated that the initial business case for connectivity was made by the service organization. Other functions that led initiatives included engineering and product development. In supporting the initial service objectives, most organizations made the decision to extend connectivity to both new assets as well as those out in the field. Two-thirds of organizations with IoT initiatives in place indicated that their deployment strategy focused on both new assets as well as on retrofits. Twenty-five percent (25%) indicated that their IoT investment was limited to new assets. In selling connectivity and IoT-related services, most organizations relied on their sales teams for opportunities connected with new asset sales. Therefore the cost and value of connectivity and associated services was negotiated at the point of initial sale. Sixty-six percent (66%) of organizations indicated that their sales teams were responsible for selling connectivity at the point of initial sale. Twenty percent (20%) indicated the use of a dedicated service sales team that followed up with the customer post-sale. For retrofit opportunities, organizations were quite divided in their preference of sales force to approach the customer. Thirty-six percent (36%) indicated the use of their sales or account management team, while an equal percentage indicated their reliance on a service sales team. While connected, most organizations have been able to tap into their assets in real-time, whereas others have only connected periodically or when notified of an incident. Fifty-one percent (51%) of respondents highlight that they have tracked asset performance in real-time while 28% state that they have either connected in real-time, upon incident, or on a periodic basis. The ability of organizations to connect with assets is often impacted by security considerations and regulatory stipulations.

4 Page 4 of 9 IOT MATURITY As seen earlier, most industrial and commercial organizations polled by TSC commence their IoT journeys in their service group. Once the project is initialized, the use of the technology and the information provided matures in two ways. Most resolves tend to be of the first two varieties, but there is a greater interest in self- service resolution models. FIGURE 1: WHY INVEST INITIALLY? 1- Within the service organization - Using information to become more predictive - Development of new services 2- Outside the service organization - Use of information by other business functions - Use of information by customers In the following sections, we will present the impact of IoT on value delivered to the service organization, to the entire enterprise, and eventually to the customer. Service Value For most service-focused organizations, the initial investment in connectivity is done for two primary reasons. The first is to eliminate primary field service dispatches for issues that can be resolved remotely. These remote resolves come in three flavors: 1- Via direct connection with the asset 2- Via an interaction between the customer and higher-level support wherein the customer is directed through the resolution process with the aid of diagnostic information captured via the machine. 3- Via customer resolutions without the aid of the service organization. This is usually tied to the availability of on-board diagnostics and a customer knowledgebase that walks the customer through potential resolution paths and corrective actions IoT investments are also made to eliminate secondary dispatches that occur due to poor firsttime fix. With the aid of better diagnostic information, the hope is that organizations can schedule the appropriate field agents and provide them with the necessary information and parts to resolve services issues on a first-visit basis. This eliminates cost, reduces customer angst, and is a general win-win for all parties involved. Eventually, organizations are looking to get much more predictive in the service that they provide. With the aid of captured machine performance and failure data, paired with historical failure analysis, organizations can piece together a predictive model that highlights the possibility of future failure. With the aid of this information, organizations can then conduct remote resolutions or schedule preventive service events thereby eliminating a reactive service need. In fact, 39% of TSC respondents have indicated that becoming more predictive in service delivery is the current primary objective of their IoT program. These organizations have reaped some of the benefits of dispatch avoidance and are now aware of predictive opportunities.

5 Page 5 of 9 FIGURE 2: FROM AVOIDANCE TO PREVENTION As seen in Figures 1 and 2, those organizations with established programs have altered the objective of their IoT investments. Those embracing more recent IoT-related projects are looking at even more mature objectives. Of those organizations with IoT projects in place for less than three years, 33% indicate that the need to develop new revenue opportunities was the primary motivation for investing in remote monitoring. This transition is taking place due to a number of factors. 1- The greater emphasis on revenue growth from the service organization over the previous 1-3 years 2- An increased dedication of sales and marketing resources to services. 3- A greater understanding of how customer data, service performance data, and remotely captured data can be leveraged to build, package, and sell new revenuegenerating services. For these revenue opportunities to occur, the service delivery model needs to be effective and efficient. Unhappy customers are unlikely to buy service contracts, parts or other services if they can avoid it. Similarly, these unhappy customers are unlikely to buy new products and services from their servicing organization. The service delivery model needs to work for revenue to be a topic of discussion between the organization and the customer. The service delivery model can be viewed across two continuums. 1- The provider of service a. Organization or partner i. Remote repair ii. In communication with customer iii. Field visit b. Customer i. Self-service 2- The timeline of service event occurrence a. Before Predictive or Preventative b. After - Reactive Reactive Service In instances where a service or failure event has occurred, most organizations are capturing diagnostic information from the serviceable asset and then making that data available to key service stakeholders: technical support agents, field service agents, and customers. TABLE 2: REACTING TO SERVICE EVENTS Remotely Captured Data Currently Used for Reactive Service Provide diagnostic information to tech support in contact with customers Provide diagnostic information directly to field technicians Provide diagnostic information to tech support to assist field agents Provide diagnostic information to customer for self-service Remote resolve or fix (no interaction) Percentage of Respondents w/ RM in place 87% 84% 82% 71% 64%

6 Page 6 of 9 This diagnostic information can then be used to support a more intelligent repair, whether done by a field agent or directly by the customer. Only 64% of organizations leveraging connectivity indicate that they conduct over-the-air fixes that eliminate the need for dispatch or client self-service. Looking ahead, organizations are looking to leverage a better understanding of the service event to ensure that the right resources are made available for service delivery. The top planned uses of remotely captured data to aid reactive service are (percentage reflects those that are planning to use data for this purpose): 1- Ship necessary parts to customer site for technician use 42% 2- Ship necessary parts to technician base or vehicle for use 36% 3- Schedule best fit technician based on part availability and skill set 34% 4- Ship parts to customers for self-service 24% Therefore remotely captured data isn t just impacting the last mile of service delivery that is the actual service work, it is impacting how organizations view their field service delivery engine and the resources necessary to deliver effective field service. Predictive and Proactive Service TSCs 2015 business trending research reveals that service organizations are extremely concerned about the reactive nature of their businesses and are taking steps to become more predictive and proactive. Data captured remotely from serviceable assets is seen as a primary means to do this. It is important to note that organizations have been successful in becoming predictive without remote monitoring, but it is seen as a major step. Remotely captured machine data can go a long way in enabling a more predictive service delivery model. TABLE 3: PROACTIVE SERVICE Remotely Captured Data Currently Used for Predictive Service To alert customers of potential service events To schedule preventative visits based on impending service events To provide resolution scenarios to customers to avert event To remotely resolve events prior to occurrence (over-the-air) Percentage of Respondents w/ RM in place 64% 53% 49% 48% As seen in Table 3, organizations are currently using data to alert and assist customers in preventing potential service issues. In areas where the customer isn t the most appropriate party to resolve the issue, organizations are looking to schedule the necessary resolution actions tied to a preventive service dispatch for the particular issue, or in the incorporation of the new service visit into an existing preventive maintenance schedule. Thirty-seven percent (37%) of respondents indicate that the incorporation of remote alerts into the scheduling of preventative visits is something that they are keenly evaluating. The increased amount of performance data available can also improve the service organization s ability to forecast future demand trends and plan for future resource needs. With a better view into future service demand, organizations can temporarily or permanently allocate resources to a particular geography or service issue with the aim of addressing it prior to failure. Forty-nine percent (49%) of respondents are looking to enhance their planning capabilities with the aid of remotely captured data.

7 Page 7 of 9 Enterprise Value To further eliminate service issues, organizations can analyze and review asset performance data and make necessary design and quality adjustments to ensure that issues don't arise in the first place. Data can also be used to isolate issues to a specific component or supply chain partner in order to improve the speed of resolution and to aid future occurrence. As organizations mature in their use of IoTenabled data for improved service, they uncover opportunities to leverage the data across other business functions. In our research, nearly 50% of organizations state that remotely captured performance data is shared with engineering and design teams. Other teams such as operations, sales and marketing, and supply chain, are beginning to look at this information to identify opportunities for improvement. FIGURE 3: ACROSS THE ENTERPRISE Engineering - Improve quality of products tied to failure and performance information (currently done by 68% of respondents) - Work with service teams to improve serviceability of products (currently done by 58% of respondents) Product Design and Systems Support - Track software versions and make necessary updates (currently done by 40% of respondents) - Add/remove product features tied to usage (currently done by 19% of respondents) Operations and Business Planning - Predict future business trends and plan resource needs (currently done by 36% respondents) - Work with service teams to manage performance-based contracts (currently done by 40% of respondents) - Manage and administer pay-per-use business models (currently done by 17% of respondents) HR and Training - Improve and modify training based on service event occurrence (currently done by 36% of respondents) - Deliver real-time training during a service event (currently done by 23% of respondents) While a number of teams have access to this data, use of the data for real change is limited to the engineering and design teams. This highlights the continued silo-d nature of most organizations. The value of this collected data across the entire enterprise can be quite significant. Here s how: Sales and Marketing - Improve account management with better access into customer usage of product and features (currently done minimally) - Personalize messaging and content tied to customer preferences (done minimally) - Recognize need for and build new services (currently done by 28% of respondents)

8 Page 8 of 9 Supply Chain - Manage inventory replenishment levels (currently done minimally) - Evaluate partner performance and isolate quality issues to supply chain link (currently done minimally) Other teams such as compliance, IT, and finance can also tap into these data streams for better results, but as it goes with most maturity models, this takes time. We are only beginning to see the use of IoT-enabled data outside the service organization. This requires interest on behalf of non-service groups to tap into this data, the ability to easily acquire and analyze data, and a set of processes to use this data to enact business change. These changes aren t usually part of the short-term goals provided to these teams. Customer Value Given all the value offered to the service organization and the entire enterprise, the investment in IoT seems like a must have. Yet, there are significant challenges. In several instances, this comes down to regulatory needs, but in most it comes down to a fear of connectivity or the lack of understanding in the true value. Come to think about it, most of the financial value discussed with remote monitoring accrues to the servicing organization. While there is an uptime and efficiency benefit to the customers, they either have to pay more for it, or they are unaware of the benefit provided. In some instances, customers believe they are receiving less value, as the service teams are less visible. Therefore there are two issues that need to be tackled. One is tied to exhibiting customer value, and the second is tied to making customers aware of the value delivered. For those organizations that have been successful in selling IoT-enabled services, messaging around improved uptime has captured customer interest. What has also worked is messaging on how uptime has impacted customer financial results. FIGURE 4: ADDRESSING CUSTOMER PAIN POINTS TABLE 4: CAN T CONNECT Challenges in IoT Journey Concerns from customers around connectivity System development/integration cost Need to work with multiple partners to develop system Percentage of Respondents 46% 35% 31% Customers not willing to pay 23% Unable to make internal business case 21% On top of the list (and at challenge 4) is customer unwillingness to connect or pay for connectivity. The financial benefit is key to customers as in most cases they are paying extra for the connectivity and services.

9 Page 9 of 9 Only 19% indicate that customers are actually provided a financial benefit or incentive to utilize connectivity. As the model matures and IoT-enabled service becomes the new normal, organizations will have to offer greater incentives to customers to convince them to willingly hand over their data. Customer data will become the prized asset. When it comes to awareness of the value offered to customers, it is essential to sell the sizzle, as pointed out by one large medical device manufacturer. This can be done via providing customers with visibility into the IoT investments made, but is most often done via the sharing of usage and performance information with customers. More than 60% of organizations with deployments in place provide operating and performance information to customers. TABLE 5: ACCESS TO VALUE Percentage of Respondents Providing Information to Customers Access to Data Via Portal 65% ed on Request 43% ed on Periodic Basis 43% In-Person Sharing on Request In-Person Sharing on Periodic Basis 39% 30% Most of this information is tied to health status in real-time or historical performance data, but there is a greater emphasis on providing diagnostic information, service transaction history data,, and benchmarking data tied to other like assets or other like customers. With the aid of this information, customers see additional value on top of the improved service delivered by their servicing partner. What s even more important is that 55% pay extra for this information. CONCLUSION: PREPARING FOR THE NEW NORMAL As the technology matures and connected assets and service become expected, customers will demand more value to allow organizations to tap into their data. Some of these value streams are tied to better reporting and information services, but others can and need to be developed. These could come in the form of: - Consumption-based purchase and usage models - Self-service consumable purchase services - Benchmarking services - Consulting and asset optimization services - Energy management services These are the services that customers will be willing to pay for as they seek to optimize the output and utility of the asset and move away from purchasing the asset in itself. Fifty-six percent (56%) of organizations indicate that they have a long-term IoT roadmap in place. For these organizations the following considerations need to be made: 1- Don t forget the customer value case. 2- Garner executive support for IoT to improve cross-organization buy in. 3- Build the business case internally on enterprise and customer value 4- Start with a small cross-functional team that includes sales, marketing, IT, product design, engineering, and service to evaluate stages of IoT project. 5- Identify immediate customer and quality problems to initiate IoT program 6- Sell the success of remote monitoring to customers and make them aware of the investment 7- Connect organization IT with customer IT in the pre-sale process to allay established data fears. 8- Analyze results against established objectives and scale across business functions

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