Capturing the opportunity in B2B services—a pathway to better returns

May 18, 2023Is your services business helping your organization outperform peers? The numbers show it is a vital way to become an industry leader and a compelling rationale for leaders to invest time and energy in the topic.

B2B services support customers across industries and, when we talk about B2B services, we have the following archetypes in mind:

1. Installing and commissioning: Equipment installation, commissioning, training, and additional services to ensure optimal usage
2. Break-fix and warranty repair: Aftermarket repair services, parts’ sales, and warranty fulfillment services
3. Inspection and preventive maintenance: Periodic equipment inspections to ensure compliance with regulations, and preventive maintenance services
4. Professional services: Services that require specialized expertise in a specific area (such as training, consulting, etcetera)
5. As-a-Service (aaS) businesses: A product or solution in an “as-a-service” model

Over the past several years, we have invested in a broad range of research in the B2B services world to help our clients unlock this value, including an analysis of the performances of more than 50 B2B organizations over the past 15 years (Exhibit 1).

A deeper analysis of organizations with a sustained focus on services shows three reasons behind their clear advantage:

• Services are inherently less cyclical, in part because service spend at customers is often tied to operating expenses (versus capital expenditure for primary equipment).
• Services businesses cater to a consolidated installed base or customer base, often with an intellectual property advantage, justifying higher margins.
• Customer relationships that include services are inherently “stickier”, driving more repeat purchases and much higher lifetime value.

B2B companies need to embrace the fast-evolving world of B2B services. Even prior to the COVID-19 pandemic and all its associated impacts, there were already signs that customers of B2B services’ were shifting their purchasing behavior. From 2020 onward, these shifts have become more significant (such as data usage for predictive analytics) and multiple new challenges and opportunities have emerged.

It is getting harder to outperform: How is your business tackling the headwinds?

We have been tracking shifts in the world of B2B services and, through CEO surveys, interviews, and roundtable discussions, we have identified four key challenges that are top of mind for business leaders and the innovations that can solve them. With each challenge, we highlight a business that has met the specific problem head on and overcome it.

1. Customer experience (CX) in services: The expectations of B2B customers are now mirroring the B2C world, with digital tools allowing faster and personalized interactions to be a differentiator.
   Farmers utilizing John Deere’s products are able to see and manage the efficiency of their farm operations through real-time information. This is available on the phone, supported by insights that technicians share based on information collected through planting and yield maps and equipment data.
2. AI-led operations: The high cost of material, labor, and capital, coupled with the need to minimize downtime, is driving a significant shift toward digital and analytical tools, making services faster and more efficient.
   Ford partnered with Bosch to create a virtual-reality (VR) training tool for technicians to enhance the speed and efficiency of diagnostics and service.
3. Commercial model evolution: As legacy time and material models are under stress because customers prefer alternate means such as remote diagnostics, organizations are looking to rapidly deploy new commercial models (for example, aaS and remote resolution). These new models have a steep learning curve with their own challenges; for instance, risk-sharing models for industrial equipment manufacturers require a strong network of sensors to accurately estimate the true costs of operations.
   Kaeser Compressors creates personalized contracts offering compressed air at a fixed price, driving steady revenue.
4. Disruptions in the workforce: The rate of retirement in the services workforce was accelerated by the COVID-19 pandemic, while services careers (especially in the field) appear less attractive to newer generations of workers. Customers need support from their service providers, but services players must find a way to attract and retain a new generation of employees.
   NCR Professional Services designed and launched a three-year apprenticeship program, allowing young and motivated professionals to gain the necessary skills to succeed in the modern world of services.

The time to act is now

As a leader of a B2B services organization, you may have already encountered some of these challenges and identified one or more initiatives to overcome them. However, if you find yourself struggling to make adequate headway, you are not alone. Through our research, we have seen CEOs unlock value by objectively answering four key questions:

• Is service a business priority? Is there sufficient focus on proactively growing your services business versus the legacy reactive posture that many businesses take?
• What is your services roadmap? Are your existing offerings truly evolving by eliminating customer pain points?
• How can you monetize new service models? Are you able to demonstrate and capture the incremental value created by new offerings to your customers?
• What is your digital readiness? Do you have the digital capabilities needed to unlock remote services and greater productivity?

So, what’s next?

Over the next few months, we will share a series of blog posts that take on each of the challenges identified and share unique insights and potential solutions for you to consider when determining your next course of action. These include:

1. CX in services: How can a customer-centric approach help you improve CX across journeys, not just touchpoints?
2. AI-led operations: What are the six core elements critical to driving digital transformation and enhancing efficiency?
3. Commercial model evolution: How can you create new, differentiated offerings to drive services growth?
4. Disruptions in the workforce: How can you bridge the expectation mismatch between employees and employers to attract, retain, and upskill services talent?