"Any industrial manufacturer that has not awakened to the fact that it must become a service business is in serious peril today." Steve Pazol not only lives by that warning penned by Harbor Research, but that message also motivated him to be a founder of nPhase, a smart services company recently acquired by Qualcomm Inc.
In the 2006 purchase of nPhase, Qualcomm substantially energized its ability to help manufacturing companies add the valuable service component to strengthen their business strategies. Qualcomm, a provider of business-to-business wireless enterprise applications, views smart services as a significant wave of business evolution poised to transform the manufacturing segment of the economy.
"In this competitive climate, 'smart services' are uniquely positioned to transform the product value chain just as monumentally and irrevocably as the Internet did to commerce," says Pazol. "In the early 1990s knowledge of the Internet was growing, but very few executives appreciated how the Internet enabling their operations would change them." The result, he says, has changed the roster of leading companies as well as the way business is conducted.
His early focus was on providing manufacturers with the ability to connect their products and add a service value. "We developed our nPhase methodology over years of working closely with our customers through the early adopter phase of the market and into mainstream industrial applications. The machine-to-machine (M2M) market continues to grow and connected products are becoming more and more common."
He says nPhase's evolution into Qualcomm's Global Smart Services represents his natural progression to help businesses leveraging technology to move from reactive modes to proactive business models.
He describes smart services as an enabler, helping companies such as ABB Robotics, Gardner Denver, Xerox, Siemens and John Deere evolve a continuing service model for their products. He notes that best-in-class OEMS are looking beyond product-based sales alone for differentiation, profit margin and growth. By connecting with their products in the field, a very proactive service model can be established. Even mobile assets such as over-the-road freight haulers can be monitored as a supply chain and logistics solution. OmniTRACS, Qualcomm's fleet management system, was introduced in 1991. The specialty of nPhase is fixed asset telemetry, adds Pazol.
Smart services are differentiated post-sale product support capabilities, enabled by wirelessly capturing and analyzing real-time product performance information.
Pazol says the challenges in leveraging smart services are not technical, but what he labels as organizational or change management. "While it is rather straightforward to prove out the ROI of going after a proactive service model, the challenges come in adapting the current model to deliver the service. You may have to retrain service technicians and undergo process change, including retraining of sales people. The technology is readily available and waiting to be implemented.
"Changing the behavior of a manufacturing company can be the hard part," he continues. "For example, consider that moving to a service strategy could involve broad changes in internal business processes. And transitioning to smart services is yet one more step. Middle management has to change the way they work to grasp full advantage of the new capabilities. So it can be a painful transition, not so much for upper management because they more easily grasp and appreciate the compelling reasons to adopt the concept."
Pazol says that the often-cited Harvard Business Review metric is that leading manufacturers now derive more than 50% of their revenue and 50% of their margins from service strategies. In addition, offering smart services provides customer-for-life opportunities, he adds. "Product insight is the other smart service advantage. OEMs can easily collect user data for rapid turnaround in product development."
Easy access to product application data can also call attention to product metrics that should be considered along with feeds and speed. For example, metrics on such things as product lifecycle cost can redirect the product development focus to gain a significant competitive edge. The real-world data will enable an OEM to see how its customers actually use the product. The other issue is that smart services can unlock the OEM's product knowledge for the benefit of the user.
Pazol places the smart services concept in its earliest stage, one characterized by industrial users often becoming initially involved tactically rather than strategically. His example is the user with a nagging machine problem where he hopes the solution is in machine intelligence coupled with wireless connectivity. "Our approach is to always start with the business case and some kind of a pilot test to get user feedback and determine the real business case."
Tangible business results are increasingly evident across multiple industries, including medical devices, industrial machinery, food equipment and distributed energy, says Pazol. He says the Wireless Data Research Group estimated the 2007 market for smart services (including hardware, software and services) at $28 billion. Device-related revenue streams are predicted to reach upwards of $200 billion by 2010.
Pazol believes it won't be long before not having a smart service offering will represent a critical -- and perhaps insurmountable -- disadvantage for a product manufacturer.