Howard Heppelmann's Perspective on PTC´s Commitment to the Service Business

Discover More on How to Grow your Service Business with PTC´s Service Optimization Solution

According to McKinsey & Company after the analysis of 30 industries, the 
average EBIT margin for industrialaftermarket services was 25% compared to 10% for 
new equipment sold. Here at PTC, we are committed to service and driving 
value to the customers service strategy. Today, Howard Heppelmann, Divisional 
Vice President of PTC ́s IoT Business, shares his perspectives on the service 
market and PTC ́s commitment to the aftermarket business.

Transcript

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Welcome to Speaking of Service, the podcast that uncovers practical ways to grow service, revenue control costs and improve customer satisfaction. If you're looking to innovate, gain a competitive edge, or just learn about the latest service trends, you've come to the right place. Today, Chris Wolff sits with Howard Heppelmann, divisional vice president of PTC IoT Business, to talk about his perspectives on the service market, as well as PTC's overall commitment to service. Welcome to Speaking of service. As a service professional, you know better than anybody that attaching service to any piece of complex equipment at the purchase time is critical to the customer success and satisfaction and service has always been an indirect contributor to the profitability of any OEM. But we're realizing now that the aftermarket service can be even more profitable and a better contribution to your bottom line than that first year of service. In fact, McKinsey says the first year attach of service is roughly at a 10% margin or EBITA. But when you look in the outer years attaching increasing types of service to the equipment that you support, those margins can increase to 25%, making service a real contributor to the profitability of your organization rather than a cost center as it's been perceived in the past. So I'm delighted to be joined by Howard Heppelmann, who is passionate about service like you are. Welcome to speaking of service, Howard. Thank you, Wolffie. Glad to be here. So share with us just your basic perception of service and the way the market is changing. Yeah, I mean, I think you you already hit some of the really key elements. You know, service companies today, look at the total lifetime value of their products. And, you know, the product is just a small component of what ultimately becomes the real profit and cash generator of the business. You know, many of the customers that we work with in the industrial space or the medical equipment space put products into the market that live for, you know, by maybe a minimum of ten years, but often 20, 30, 40 years. And the opportunity to capitalize on those the revenue streams from those products, as well as the customer relationship that comes along with them, is really no longer thought about through the lens of that initial sale. But really, what's the total lifetime relationship with the customer and what's the total lifetime opportunity? I think in addition to this, I have the opportunity to speak to so many of our customers who whose equipment is so critical in its operations. I can't help but think about our medical device manufacturers. And, you know, we don't think of it oftentimes, but when we show up in the emergency room or our child or someone we love and they need to have an immediate blood diagnosis to understand what's what's going on, or they're going in for a certain treatment. And the equipment that there is critical to delivering that that service. We don't think about the fact that this equipment is just there. It's it's understood to be available. And but behind the scenes, there's a whole operation going on to help make sure that that uptime is maximized and to make sure that the workflow of processing a critically ill patient that's coming to the emergency room or someone who needs cancer treatment is there and available when they need it. So I think this space is evolving so fast and you nailed it when you talked about how the mentality is shifting. You know, from let’s sell a product and and man the phones for a break fix moment to really thinking about how service transforms the customer relationship but also really is the underpinning for maximizing the total lifetime opportunity of these industrial medical equipment and other complex products. Well, I'm sure the customers that you've been talking to have have wrestled with not just the technical challenge of operationally enabling that shift in service model, but also the cultural change and the way the workforce and the sales force addresses providing service. Talk to me a little bit about the most high value use cases and maybe some customers you've seen doing it extremely well. Yeah, well, you know, I like to think about what are the different ways that service gets delivered. And again, if we sort of go to yesterday's model, you know, essentially we wait for a customer to call us. The customer generally when they're calling, they're not calling to report something great going on, right? It's that they're in a crisis moment. And then we try to figure out through a verbal conversation with the customer what might be the issue with the equipment. We try to get the best resources and hopefully the right part's available and dispatch somebody really where the use cases are coming in around service is in a number of areas, specifically in connected products and connected service. So that that's one category. I think another big area is around optimizing field service, making sure that the parts that need to be available to perform that service are and that when the technicians show up, they're armed with the best sort of high fidelity guidance on how to get the job done. If I decompose those a little bit, you know, having a field service organization and using modern field service solutions to optimize the dispatch of resources is super critical. You want to make sure that the resources you have can be efficient and how you schedule them and then equipped with the right information when they show up to perform the job. But I also like to say maybe the only thing better than efficiently performing this field service, scheduled field service, is two things. One, making sure that the person who's going to go out and do that service has all of the intelligence, the insights that can best equip them to be effective when they get there. And that really comes through the lens of remote monitoring of the assets and equipment. If I can understand what's going on with that asset, if I can actually log into the asset and interrogate it remotely, I'm far better equipped to make sure that the person who's going to show up and do the service does it effectively the first time and has the necessary parts and resources to perform that service. Now that's using remote monitoring to better inform the service technician who's going to go out and repair a product. Let's take it to a whole new level. The only thing that's better than that is never having to dispatch that resource in the beginning. So remote service, especially with the industrial Internet of Things, has become such a critical use case and that it allows us not only to monitor that equipment and, you know, be alerted to issues before our customers or clients even know about them. But actually then to be able to access that equipment and perform oftentimes as much as 30% of what would be dispatched resources to perform those fixes remotely. And that is a game changer for service organizations. Well, in both of those cases where you either avoid the truck role because you're able to service remotely or you providing service through a well-informed technician on site. When I think about our clients creating these platforms that enabled tremendous amount of customization at the last mile by their clients, that's got to create just an enormous big data challenge in making sure the right information about that individual item. That's to be repaired is provided to that individual person or team that's doing the repair work. How are you seeing people manage that data complexity? I like to sometimes use the analogy of, you know, oftentimes people say in today's digital world that data is the new oil. Right. And if you think of all of the products that a typical PTC customer, you know, a OEM of large industrial equipment or medical device equipment has out in the field, these are all like mini reservoirs of oil, so to speak, data that that are pumping out. Now, the problem is just like we can't back up to an oil field and fill up our car and go anywhere with it. Right. All of this needs to be refined. And that's really where the IoT platform and technology that PTC like thing works comes into play because it is the refinery. It allows you to take all of that data coming from disparate systems, both the data off the equipment and then combine it with the business systems, the back end, the IT systems that have other critical but equally important information that inform the health of those products, bring it together into refine it into the unique insights that somebody actually needs to understand what is the problem and what do I need to do to solve that problem? Well, as a PTC employee, you and I like to say that we're the best in the world at providing the component pieces that enable that value. But talk a little bit about that data refinement. We hear Jim Heppelmann talk a lot about the digital threat and the need for that data to flow from engineering into manufacturing, from manufacturing out into service. What are the best companies do to enable that refinement? Yeah, I think, you know, maybe many of our our listeners here had a chance to either participate directly in our recent live works event or remotely. And if you haven't, it would be a great opportunity to at least listen to the keynote because it it really strung together this concept of closed loop engineering to field digital thread. Now, I'll come back to that in a second, but before I go there, I want to first talk about just in the realm of service, what PTC has amassed in terms of a portfolio of capabilities is, at least in my biased opinion, is the most robust, the most complete and the most proven portfolio of service capabilities, starting with the service max remote service. Our field service solution, followed by the thing Works Remote Service IoT Solutions, but also complemented by our service just six service parts management capabilities that make sure that the parts are actually available and placed where they need to be to perform effective service. But not ending there, going all the way down to the 3D and augmented delivery of work instruction content that makes the service technicians, whether they're brand new on day one or they've been around for a while, to be empowered to perform service specific tasks that are perhaps even unique to the individual serial number of an asset. So it starts with this idea just in the service space that we have assembled, a sort of system of service capability set that addresses all of the primary drivers, provides the digital capabilities, let's say, to effect all of the primary drivers of what makes a service organization highly efficient. But now I want to come back to the Jim Heppelmann story and the presentation that was given at Live Works in the World of Tomorrow Services is not going to be thought about as something we work with once it's thrown over the wall. This concept of digital threat that has all companies super excited is really about how do we move everything upstream? How do we create the product design, the digital twin of what ultimately becomes those critical assets in the field? How do we one time document, whether it be in 3D or are the digital work instructions that are so powerful in elevating the efficiency of the technicians that are in the field? How do we do that one time? How do we make sure that the product, the customer ordered is tracked all the way through to its life? So that when we look at a product in the field, we can reassemble all that digital content, all the analytics that have ever been done around it, even aggregate it up to a fleet level. So we're learning, you know, not just from the twin but the siblings of the twin, perhaps in terms of how those those products perform and really knitting that thread together so that if a change is made to a product, we understand immediately when and how we want to implement those changes. You know, if it's a safety issue, perhaps immediately, if it's an issue where we can burn inventory down, then that's what we want to do to optimize those those margins. But ultimately to be able to have a true representation of what that the digital twin and its physical counterpart is. That's out in the field at PTC. We were never really able to do that until we did the Service Max acquisition because we and all really of our competitors in the industry would talk about product lifecycle management just by the way, think about that for a second product lifecycle management. But that's not what we really did. What we really did was product design and release to manufacturing. And when the product went out to the field, we were back to the conversation we were talking about earlier, waiting for an angry customer typically to call us in and complain about something that was wrong with that. If you think of the term product lifecycle management, the lifecycle piece, they're super critical. And and what the digital thread does is allows you to close the loop on the lifecycle. So now we're tracing a product right up front from its requirements to its design to the configuration, the options and the variants, all the change management and complexity that comes with that as it passes through manufacturing and then out into the field, what is the as maintain view of that product and when new contributions are made upfront and product development, we understand immediately where they're impacted, but we can also collect the lifecycle part so we can collect data from those products and how they're living in the field, aggregate that data up to a meaningful level and use it to better inform how we're designing our service, how we're designing the products. And this is really going to be a game changer in the future. The concept of fully associative digital twins and physical twins that are always synchronized digitally will enable customers to lean out a lot of the inefficiencies that exist in those handoffs today and enable speed and delivery of service that is at multiple levels greater than what what most companies can accomplish today. It's just amazing to think about something as longstanding a service, you know, now going into the hyper speed of a digitally enabled world where a digital twin can make a design better and a design and physical product can make that digital twin better. But for the average bear, where do most of our customers sit in terms of moving to that nirvana of the infinity loop? If I'm looking at my operations today, if I may be a laggard, how how would you recommend I maybe weed out customization or I and what should I be embracing to prepare myself for that future state? Yeah, I think a couple of things. First, if we just go back again to what's going on in, in the customer environment, at least from the customers that I've had the pleasure of talking to, you know, we went from this let's use the phone to talk to our customers about the product. And again, usually under fairly dire circumstances, we really need to flip that. One time I heard somebody say, you know, customer relationship management is kind of about CRM. Software is an upside down term because we use that software to talk to our customers about our products. And really maybe you think of it as product relationship management, software, where we use the products, we talk to the products about our customer relationship, right? And of course you need both. But to make the point that if you can have that intimate connectivity between the OEM and the products that the customers have out in the field, and you can be talking to that product every single day and you can be adding analytics to that product, that surface issues that come back to you before the customer ever knows that they're going to have them. That is a far better means, at least in that context of doing customer relationship management than waiting for an angry customer to call you and complain that a certain product is down. So this this transition that our customers that the market is is going through around being able to remotely connect to products and have a relationship with them on an ongoing basis to better inform them about the customer is really important. That is unlocking some really important capability for our customers around moving up the service continuum from this sort of break fixed to outcome based contracts to now really outcome based events and products as a service. I'm super excited today to to see how many of our customers are no longer selling the equipment at all, but they're actually selling, you know, the per unit result of what that equipment does. And if the equipment doesn't perform for the customer, that's on them. But guess what? This remote kind of activity, efficient field service management is really the way that they can do that, do it efficiently. And it's a win win for both companies, right? The customer gets a lower cost, higher availability of performance when they want to use the equipment and the OEM is actually getting a higher per value use of that equipment. Now that's kind of the landscape we're dealing with. But if we think about what some of the challenges are today, this entire industry to date, I should say, has been one that has been developed on the backs of highly customized software. Right. And I mentioned a little bit ago sort of how the PTC portfolio has come together. But it is almost impossible for even the biggest companies in the world today to develop this string of capabilities threaded together digitally as as we talked about, into a complete solution. I think where we've seen customers really be successful is using more out of the box software to enable this. And that's everything from the dispatching of those field service resources to in my space and in the connected product space, the remote monitoring, remote access and remote service of products that are out in the field, but then complementing that with other critical capability needs that are also available out of the box around parts management and 3D and augmented work instructions. I believe the companies of tomorrow that are going to be super successful in this space, that are going to differentiate themselves first and foremost on the value they create for their customers. But then on the back end, going back to your opening statement on the profitability of their service organizations will be the companies that adopt this digital thread strategy and the only ones that will be able to adopt that and get to it. And most of our lifetime are those that take a out of the box or off the shelf approach. It doesn't mean that everything is going to be out of the box, but it's a very different strategy to start with 80% of your solution or 90% locked in and develop the other ten or 20% than it is to start at ground zero. And, you know, essentially try to replicate what PTC has created through billions of dollars of acquisitions and 20 years of, you know, focused professional software development. Now, for many of our customers, they're seeing diminishing returns on customization and their core operating software pieces. But software is becoming a much more important component to the machines that they're putting out into the field. How are you seeing the best companies manage, particularly in highly regulated environments, the software risk and quality that's so incumbent to the value that those machines produce? Yeah, this is a super important question. And by the way, if if anybody is really paying attention to the acquisitions that PTC has done, you'll notice our last two acquisitions sort of line up directly to support this, you know, digital threat vector that we've been talking about ServiceMax But the question you just asked relates to the acquisition we did just prior to that around what we call Codebeamer. And Codebeamer is technology that recognizes that in today's digital world, value of mechanical products is shifting from mechanical to software. And this is evident when I joined the industry 25 years ago, there was very little digital in a a tractor or a heavy industrial piece of equipment. Today it's all digital, right? People are running their their farm equipment and industrial equipment with screens and every product has a digital brain to it. So that's just recognition that we can't we can't escape the fact that value is moving from mechanical to software. The other thing is happening is the services that are available are enabling that value to be distributed through the cloud. So mechanical to software, but software both embedded and now in the cloud, which opens up all kinds of new services and, and potential. So Code Beamer as an acquisition enables us to at the very beginning, especially for these industries that you alluded to, medical equipment, etc., where aerospace and defense where the traceability and requirements and compliance are super critical, that could be our software enables us to capture those requirements upfront to make sure that we're developing the software and then validating and testing it along with its electro and mechanical counterparts throughout the product lifecycle, both as it passes out of design into manufacturing, but also once it's in the field. And we need to constantly update that software. This this is a really exciting part of the service story because so much of the product is becoming digital and because capabilities exist in software, like thing works for remote software content management, these products are really becoming evergreen platforms for innovation. It's no longer should it be perceived that the product we delivered is the product the customer has. With software embedded in products, we can continue to innovate on those products for the next 30 years. That's something that old, you know, the predecessor class of or generation, I should say, of products didn't have. So this ability to manage the software starting from its requirements and the full electromechanical software requirements of the product out into manufacturing and ultimately in the field and then to be able to maintain it and update it to continually support, but also innovate on those products is is a real big game changer as we see more and more digital enter, you know, the world of these complex industrial products. Well I think Tesla has always said that once you drive a Tesla off the lotT it's only going to improve in value as new features are added where a traditional combustion engine car that's not smart is going to depreciate the minute you drive it off the lot. I guess that's true. Now, if your snowmobile of your tractor of all this equipment, that's got to require a tremendous coupling of business strategy with operational strategy, design, manufacturing service, how are PTC and our partners helping our customers get started on that journey and coupling the business with the technology decisions? Yeah, well, from a PTC perspective, I would just say we are so fortunate that we have, you know, the leadership position in the industry. We do. We have the opportunity to work with the best of the best companies who are blazing the trail here. So, you know, we can bring that experience, obviously, to the next customer that's that's looking to either accelerate a journey they're already on because maybe they're stuck in the bespoke path of innovation or for those companies that want to actually leapfrog companies by taking advantage of a lot of these capabilities and being able to deploy them then very quickly. But a lot of the things you talked about there are really fundamental business strategy, transformation outcomes. And you know, for for that the PTC partner ecosystem often plays a critical role. You know, as you just said, it's not if you're if you're going to transform your operating model from I'm selling you a physical piece of equipment, a capital investment to I'm now going to charge you by the hour or by the the mile or by whatever metric you want to use. That's not a decision that happens in any one department in a company. You know, it happens at the CFO and CEO level, and yet it's super critical to how the business model of many of these companies will evolve. If we go back to what we started out talking about, which is they all recognize today that it's all about how do you use technology to improve customer intimacy through your ability to better understand, manage and create value for your customers when they use products. But then, you know, in the boardroom and and in Wall Street, the piece that matters most there is how does that does that weigh down or contribute to your profitability? And the real game with these technologies is to be able to get a much tighter connection to the customer, a much more intimate relationship solving problems that they never knew they had. And by the way, collecting a lot of intelligence about how they're there, using their products that can be used in many other ways cross-sell, upsell, etc.. But then on the back end, to be able to continue to scale the value that's created for those customers without scaling the service costs associated with it. And that's really where these technologies come into play because it gives our customers the ability to both accelerate and scale the the value and the outcome they can create, but perhaps even minimize the service costs that go along with it. And that's where value margin profitability ultimately ends up satisfying the the the folks in the boardroom that have to speak to Wall Street. And if I just consult my notes here, you've spoken about the digital thread becoming an infinity loop where digital physical products are informing their digital twins and vice versa, creating better abilities for our manufacturers to deliver software, defined updates and enhancements to their products over the air, which is manifesting in much tighter and faster innovation cycles which can be bogged down in a customized software world. So you've recommended our customers move away from customization and towards a software defined software informed value proposition to their customers. Gosh, that's a lot. How would you recommend that the average bear get started? I think again, two things back to the PTC partner angle. You know, we offer a sort of value assessment, right? So we can come in and and look at through the lens of the experience we have working with with many of these other industry leaders who are, you know, been on this journey with us for ten plus years in a really blazing the trail into the future of products as a service for example. So we can we can bring a lot of perspective around, you know, where are you at, where do you want to be and what are the concrete steps that you can take to get there. Many of our partners, though, can can also look at that at the business transformation level and come in and consult on what changes do we need to make culturally? Do we need to make from a change management perspective in the KPIs and metrics and even organizational structures that we would that that that they can take advantage of. So I think those are two concrete steps. Most of the partners in the PTC ecosystem have a practice in this area, but an immediate step would be to engage the PTC field and in sort of a value assessment around what are other leaders in the industry doing and what are some initial steps that you can take both to prove the concept and the value that would maybe accelerate that path to service transformation? If you're a repeat listener of speaking of service, you'll remember that Howard was with me just recently as one of our sets of partners was talking about delivering manufacturing throughput as a service that's an example of the ways our partners are working with PTC to simplify the challenges ahead as you look to accelerate into this new digital world. Howard, thank you so much for being with us. And speaking of service. Thank you for having me, Wolffie. This is a super exciting topic and digitally speaking, we're only on the front end of it and it's going to get more exciting as we go forward and love working with the customers that we have and and love sharing the experience that we've earned. So I appreciate being here today. Thanks for listening to the Speaking of Service podcast brought to you by PTC. If you enjoyed this episode, please subscribe wherever you get your podcasts and leave a rating or review and be sure to check out other episodes to hear new perspectives on improving life for aftermarket professionals, service teams, and the customers they support. If you have a topic of interest or want to provide feedback, email us at speaking of service at ptc.com or visit us at ptc.com/speakingofservice