Outcome economy set to drive new forms of product innovation

In an outcome-based economy the customer’s experience becomes the focus of the production process. But if a new product can achieve the same experience as an older model, where does that leave innovation?

According to IFS global industry director for service management Mark Brewer, innovation becomes even more essential, even if it’s driven in different ways.

“Rather than restricting innovation, the manufacturer is induced to continually reflect on how the product is behaving in the field,” Brewer explains on the sideline of Aftermarket 2018. “A combination of both consumers and industry are driving innovation. Organisations are being flexible to adapt to the expectations of millennials, generation X and so forth.”

Brewer has spent his 20-plus year career in presales, product management, business development marketing and he criss-crosses the world representing IFS at trade shows and winning business for the Sweden-based software developer.

While the service industry is undergoing a transformation that’s putting the focus on experiences and outcomes rather than product manufacturing, Brewer says innovation will come in the form of better, more cost effective, ways to provide those experiences.    

Earlier, he explained the concept to to dozens of delegates at the Berlin event using the example of Philips. The Dutch electrical giant used to sell tens of thousands of light bulbs to Amsterdam’s Schphol Airport. Now, he explained, it no longer sells bulbs – instead it provides a contract that will ensure the facility’s lights never go out.

“When you take ownership of the outcome, sure it turns the model on its head but in that example they want to minimise the amount of product they shift because it’s all coming off the profit margin of their contract,” he explains.

“Likewise they are going to great lengths to optimise the number of visits they make — so they intelligently combine visits. If they’re going to do an overhaul of certain sections of the airport, they pull all the near-term jobs into the same routine and send one team in one hit. It’s a win-win because the customer doesn’t want engineers swapping things out everyday.”

In his presentation Brewer said research showed companies could earn $12 in product servicing contracts for every $1 earned in product sales. BMW, he pointed out, earned 12% margins on the sale of each car but 65% on provision of services for each of those cars.

“Service traditionally has been underinvested,” he told delegates. “That golden goose hasn’t been mined very well – but that’s changing.”

Driving that change is technology, he explains later. “Digital twinning”, in which manufacturers track the performance and condition of their products in the field via inbuilt monitors, has the potential to revolutionise the service industry.  

“For the first time, the customer is no longer the sensor to say, for instance, that an elevator is broken; the machine is the sensor now,” Brewer says. “When a company sends a product out they never lose sight of it.

“With IoT and the leveraging of all their product information in the form of CAD, they can see how their products are performing. More interestingly, they can see the features that customers are using and not using. In that way they can see where they’ve overengineered the product and can defeature to reduce costs by taking things away.”

The end result is innovation targeted at creating better customer experiences. More and more, that will come in the form of software upgrades.

“It doesn’t mean we have to reflect hardware changes to reflect innovation and change,” he explains. “The Tesla gets its upgrade at the click of a button and GE today employs more software engineers than hardware engineers.”

Interview Conducted by Mark McCord at Aftermarket Business Platform 2018