Industrial telematics can strengthen customer relationships through value-added services, open new revenue streams and redefine manufacturers’ value propositions.
Using technologies such as wireless Internet, mobile computing platforms, radio frequency identification (RFID) and global positioning, industrial equipment manufacturers can monitor information from generators, pumps, heating, ventilation and air conditioning systems, jet engines, construction equipment and more so that they can better understand—and service—customer needs, wants and habits.
To understand the appeal of industrial telematics, consider the “value rut” in which many industrial equipment companies find themselves. These companies operate in a mature and increasingly competitive marketplace, in which manufacturers generate low profit margins and low revenue growth that consistently underperforms other industries, as well as the U.S. Gross Domestic Product. Worse still, manufacturers must contend with channel partners who are faced with their own capital constraints and market pressures, and therefore insist on more innovative, cost-effective ways of working together. Further, customers likewise continue to demand better service, lower costs and new ways of doing business.
Transforming business
To survive and thrive, manufacturers must look at transitioning from a focus on commodity-oriented new product sales to a stronger focus on providing the ongoing services and products that support the equipment after its initial sale.
To understand the appeal of this strategic shift, one only needs to consider the economics. For example, customers can invest hundreds of thousands to millions of dollars in the purchase of a single piece of industrial equipment. This initial cost, though, is just a fraction of what the customer will eventually spend servicing the equipment. By offering a wide range of innovative maintenance and other services, bundled and tailored to each customer’s needs, some formerly product-focused companies are now able to secure a continuous profit on their products over their entire lifecycle.
By one measure, manufacturers can earn three dollars in after-sale services for every dollar earned through the sale of new machines and plants. Accenture analysis shows that these additional services can generate 30 percent to 50 percent margins on parts, plus more than 50 percent margin on services compared with a less-than-10 percent margin on new product sales. Telematics is a key ingredient for manufacturers making this transition.
Telematics can enable manufacturers to service their products for their customers more effectively, reduce costs and capture a larger share of lifecycle revenue. In one emerging telematics model, called business-to-product telematics, the manufacturers or their dealers can obtain information from the machines to track usage and product performance. This model provides significant cost-reduction opportunities by enabling the manufacturers to fine-tune preventive maintenance programs. Moreover, remote monitoring of customer equipment can further reduce costs by enabling a smaller number of engineers and technicians to manage more products and gain faster access to better information.
Developing a strategy
Because it can dramatically transform business models and processes, the decision to deploy telematics technology should be driven by strategy, not technology. In fact, Accenture has found that for companies that have already deployed telematics, the main challenge to achieve their telematics goals is developing an offering that is compelling and easily understood by customers, building an attractive business case and aligning the organization.
Managing an “end-to-end” telematics solution is very challenging: complete telematics solutions are complex and include customer service, support, billing, technology infrastructure, application integration, data mining and management. This usually requires revamping back-end infrastructure and establishing alliances with technology and service providers.
Dean Teglia, [email protected], is a Partner, Accenture Industrial Equipment Practice. He can be reached through Allan Schoenberg at Accenture.
