As a recent member of the Forbes Business Council, I was struck by the paucity of articles on a subject near and dear to my heart—the value of aftermarkets and services in the world of original equipment manufacturers (OEMs). While there have been articles written about IIoT or servitization, very few have really addressed the untapped potential and value of these businesses in this forum—until today.
OEMs Haven’t Changed Their Business Models In Decades
The scarcity of insights on an OEM’s installed base doesn’t surprise me a bit. After all, industrial OEMs move slowly, transforming over decades. This, in turn, is not surprising given that a typical OEM business is slow-moving, focused on the equipment sold a decade or more ago while building what will be used in the next two decades to come.
The traditional OEM business model is simple: Sell capital equipment, help the customer install it and get it operational. This is followed by years of "waiting for the phone to ring" when the customer calls for spare parts, maintenance and repair—or, if the OEM is lucky, for the next replacement or upgrade. More recently, OEMs have begun to dabble in modern business models like subscriptions or pay-per-use, but the numbers are incredibly small.
"Why Change Now?"
Regardless of the maturity level of the OEM, it is clear that there are significant changes going on in the world around them. Their customers’ buying and usage habits are changing—becoming more digital, relying on vendors to provide support (or finding providers themselves) and looking for additional collaboration with key suppliers. Many of their own workforces are undergoing a tremendous transition from experienced, tenured employees to Millennials and younger employees—many of whom likely don’t have the tolerance to deal with antiquated, manual, paper-based systems and processes.
Demographic changes also mean that the demand for new equipment is dropping in the developed/OECD economies, which means OEMs have to pay more attention to their aftermarket and service businesses.
There is huge pressure to change—and change now. For the most part, however, our observations are that the vast majority of industrial OEMs aren’t ready for this transition. When we speak to prospects and customers, we use a simple survey to assess their "aftermarket maturity." This includes their readiness along three important dimensions: people, process and tools. Maturity is scored on a scale of one to five, with the most mature companies scoring at five. Sadly, we’ve found that the average score is two.
What does this mean in the context of pressure to change? Simply put, for OEM leaders, there is no time to let the grass grow under your feet. As an ancient Chinese proverb goes: "The best time to plant a tree was 20 years ago. The next best time is now." Many of these changes and investments should have been put in place many years ago, but there are concrete steps these companies can take to make the best of this situation.
What To Do?
We propose five steps OEMs can take immediately to rectify this shortcoming.
1. Assess the maturity of your installed base selling process, people, data and tools. This is a really important first step because we find quite often that OEMs put the cart before the horse and invest in tech when there really isn’t a good process or when they are lacking in talent.
2. Regardless of maturity level, invest in a solid data foundation. This is a critical step in making sure you understand the scope and size of the pie so you can then decide how you will resource this opportunity—or not.
3. Ensure you have a solid selling process—from prospecting, to making an offer, to enabling your salespeople (inside and outside) with the right artifacts (objection handling, competitive info, etc.) and helping them close the order.
4. Train your people correctly—not just on processes but on selling skills. We see this as a very common failure mode in companies that have, up until now, had "inside sales" really function as order takers. It doesn’t work, and you may need to replace some (or all) members of this team if you can’t retrain/reskill them.
5. Start small, and increase the scope and ambition to build momentum for wins, the stickiness of change, and the ongoing adoption of new practices and habits.
While these aren’t the only ways to make headway in your installed base selling efforts, we’ve seen this as a better way forward based on our 30 years of experience in this market.
This article was first published on Forbes Business Council website.
here is the original link to the blog.
Vivek Joshi is the founder and CEO of Entytle, Inc. He is a veteran of the Industrial economy and has decades of experience in industry.
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