Key takeaways for service executives from the Oxford Economics report on manufacturing transformation. The service opportunity is now. Transforming service is key to driving profitable growth and competitive advantage. That’s what executives from manufacturing companies told Oxford Economics in a recent study commissioned by PTC. Inside you’ll find other key takeaways from the survey, specifically for service leaders.

1. Manufacturing Transformation for Service Executives
The Service Imperative
Key takeaways for service executives from the Oxford Economics report on manufacturing transformation
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2. Manufacturing Transformation for Service Executives
The service opportunity is now. Transforming
service is key to driving profitable growth and
competitive advantage. That’s what executives
from manufacturing companies told Oxford
Economics in a recent study commissioned by
PTC. Inside you’ll find other key takeaways from
the survey, specifically for service leaders.
Oxford Economics
Oxford Economics was founded in 1981 as a joint venture with Oxford
University. Since then, they have become one of the world’s foremost
independent global research firms.
Headquartered in Oxford, England, with offices throughout the
world, Oxford Economics employs more than 80 professional
macroeconomic and industry economists—one of the largest teams
of economists in the private sector.
Get more information at oxfordeconomics.com
PTC
PTC’s technology solutions help customers transform the way they
create and service products across the entire product lifecycle—from
conception and design to sourcing and service—to create sustained
competitive advantage.
Founded in 1985, PTC employs approximately 6,000 professionals,
including 1,300 dedicated service professionals, serving more
than 27,000 businesses in rapidly-evolving, globally distributed
manufacturing industries worldwide.
Get more information at PTC.com
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3. Manufacturing Transformation for Service Executives
Survey Profile
The complete findings can be found in the Manufacturing
Transformation report. Click here to download.
Oxford Economics surveyed more than 300 manufacturing executives
early in 2013. The survey covered major industries and world markets.
Respondents represented a range of titles and business functions, from
companies large and small.
What is your firm’s industry segment?
Medical Devices
Industrial
Equipment
17
17%
Electronics / HighTech
United States
Aerospace and Defense
17% 16%
%
In which country is your company headquartered?
China
Japan
Germany
16%
South Korea
Automotive
Taiwan
France
17%
Denmark
Norway
Sweden
Consumer / Retail / Apparel
What best describes your role?
Finland
0
10%
Which best describes your business function?
59%
15%
20%
25%
30%
35%
Annual revenue
Very large: over $5b
Supply Chain / Manufacturing
21%
Product / Engineering
41%
I am a
C-level
executive
5%
IT
25%
29%
25%
Small: $250m – $750m
Strategy
I report to
a C-level
executive
Service
Large: $1.26b – $5b
Operations
0
Finance
5%
10
%
15
%
20
%
Medium: $751m – $1.25b
25
%
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4. Manufacturing Transformation for Service Executives
Survey Findings
What executives told us points to manufacturing industries and companies
in transition. Their answers helped fulfill the survey’s objectives to:
ANALYZE
how external market forces are transforming manufacturing
strategies and competitive positioning.
MEASURE
the impact of strategy and planning, service, and manufacturing
operations on business performance.
PROVIDE INSIGHT
In Depth
To provide additional context for
the research study’s findings,
Oxford Economics interviewed
executives from selected
manufacturers in depth. You’ll see
mini case studies on some of these
companies, plus others, inside:
John Deere
Emerson Climate Systems
Boston Scientific
Ingersoll Rand
into how manufacturing firms will drive growth, innovation, and
customer satisfaction in the future.
Flip through this e-book’s pages for the survey’s findings most relevant to
service executives.
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5. Manufacturing Transformation for Service Executives
External market shifts
Waves of Change
66%
Economic realignment
Technology change
61%
60
%
Supplier/partner relationships
60%
Technology—67%
Technology advances make servicing products more complex.
Talent Shortages—70%
70
Especially challenging: finding service managers with strong technical
skills.
Suppliers and Partners—70%
70%
Navigating supply chains to support customers isn’t getting any easier.
Increased Regulations—63%
Service is the main front for regulatory compliance and customer
complaints.
63%
Increased regulations
46%
Changing customer
behavior
20%
67%
59%
Global competition
10%
What will have the greatest impact in the future? Executives overall
identified the major trends shown at left. From the service executive’s
perspective, these concerns take highest priority:
%
Talent shortages/labor costs
0%
Market shifts are reshaping the competitive landscape for global
manufacturers.
30%
Service executives
45%
40%
50%
60%
70%
80%
90% 100%
All executives
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6. Manufacturing Transformation for Service Executives
Differentiator & Driver
In a time of profound change, manufacturers agree: Service is a key
market differentiator.
For many manufacturers, service is, in fact, the top driver of competitive
advantage.
C-level manufacturing executives place higher value on differentiating
through service than their staff.
Fortune 1000 firms rank service as their most important competitive driver
for the future. For manufacturers of all sizes, service is only slightly behind…
and catching up fast.
68% 77%
63% 67%
C-Level Executives
Report to C-Level
0%
20%
Today
40%
60%
80%
High-tech and automotive firms see the “service as differentiator” trend
most clearly.
62%
67%
Europe
75%
82%
59%
Asia
Consumer/retail
Industrial equipment
Aerospace/defense
66%
Medical devices
0%
Today
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of respondents
3 Years
Today
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84%
68% 74%
64%
72%
60%
70%
63% 65%
56% 60%
Automotive
In 3 years
Europe’s manufacturers put more emphasis than others on differentiating
through service.
U.S.
77%
High-tech
100%
In 3 years
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7. Manufacturing Transformation for Service Executives
Service Innovation
Given the growing strategic importance of service, manufacturers’
increasing focus on service innovation is not surprising.
High-margin manufacturers see service innovation as a higher priority than
other industry categories.
Priority of service innovation
58
57%
56%
High-tech
Aerospace/defense
Medical devices
Industrial equipment
Consumer/retail
10%
20%
30%
%
40%
50%
80
%
60%
70%
10% or lower
0%
20%
40%
+
–
72%
62%
60%
80%
100%
Case in Point: John Deere
John Deere—the world-renowned maker of equipment for farmers,
ranchers, loggers, builders, homeowners, and all others linked to the
land—continually innovates in service.
80%
90%
100%
% of respondents
Today
10.1% or higher
margin
70%
69% 69%
68%
56%
64%
54%
54% 56%
Automotive
0%
10
68
%
Total
%
In 3 years
Over half of manufacturers now place high priority on innovating in service
strategy and execution. Over two-thirds will do so in the near future.
Among high-tech firms, 57% now focus on service innovation. This number
will climb to 80% in three years—a rise of over 40%.
The number of automotive firms keying on service innovation will increase
from 56% to 70%—a 25% jump.
“What’s leading edge today,” says
Pat Pinkston, vice president of global
platform services,“ becomes standard
tomorrow.” Example: Telematics—
for sending, receiving, and storing
information on product performance—
was formerly an add-on option, but now
comes with all John Deere products.
Some data can be remotely monitored.
For John Deere, service innovation is not just about improving
customer relationships and increasing service revenue. Insights gained
from service performance feed back throughout the company to help
improve current products and generate ideas for new products. John
Deere uses the term “servitization” to describe this process. Each
innovation cycle contributes to further differentiating John Deere
products in customers’ eyes.
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8. Manufacturing Transformation for Service Executives
Bottom-Line Impact
Innovation is shifting service’s primary benefit from cost reduction to
revenue growth.
Profits get a turbo-boost when manufacturers place higher priority on
service.
There’s consensus among manufacturing executives: By focusing on service,
they’re raising their company’s revenue now—and will increase it even more
in the future.
At lower levels of priority, service has more impact on costs than revenue.
When service prioritization rises, costs reduce much more, while revenue
rises even more sharply.
Revenue and cost impact of a focus on service
The bottom-line impact from shifting to high priority on service varies
somewhat by industry, but is felt significantly in all.
10%
9.5%
7.1%
8%
6%
4
%
2%
0%
-2%
-4%
-6%
-8%
-10%
10%
Revenue increase
9.3%
4.3%
Cost reduction
-6.9%
-8.9%
Today
In 3 years
Impact over time
4
Revenue increase
0%
-2%
-4%
-6.1
%
Moderate
High
Case in Point: Emerson Climate Systems
%
2%
-8.5%
Low
6%
6.1%
Cost reduction
-5.5%
8%
-6%
-8%
-10%
Charles Peters, vice president of
service engineering for Emerson
Climate Systems, believes that
focusing on service innovation
helps drive sales revenue even
before service offerings have
been specified and integrated
into a product line. The reason:
“Customers prefer working
with innovative firms,” he says.
Emerson has seen meaningful gains in market share for core products
based on the promise of future service delivery.
Priority placed on service
Through expanded use of remote diagnostics, customer self-diagnosis, and
other service innovations, productivity is rising—as are company profits.
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9. Manufacturing Transformation for Service Executives
Service Strategies
These strategies, in particular, drive manufacturers’ service
transformation initiatives:
Survey findings on the next few pages expand upon these specific service
strategies, particularly from the service executive’s perspective.
1 Service as a Profit Center
2 Remote Diagnostics
3 Performance-Based Contracts
4 Service Anywhere
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10. Manufacturing Transformation for Service Executives
Service Strategies—Service as a Profit Center
Nearly half of all manufacturers operate service as a profit center. More
will soon.
Firms operating service as a profit center
45%
Total
High-tech
Aerospace/defense
37
36%
%
Automotive
Medical devices
10%
20%
30%
66%
65%
50%
59
58%
Automotive
10%
60%
70%
22%
20%
80%
In 3 years
Industrial equipment and high-tech companies will remain furthest ahead
of the trend. Automotive firms will be the fastest adopters of service as a
profit center.
53%
51%
50%
42%
32%
Consumer/retail
Industrial equipment
58%
40%
39%
37%
Aerospace/defense
%
32%
30%
40%
50%
60%
70%
% of respondents
Today
% of respondents
Today
44%
High-tech
46
44%
40%
48%
Medical devices
0%
0%
36%
Total
%
42%
Consumer/retail
Firms bringing service in-house
56%
55%
52%
49%
Industrial equipment
To improve results, more manufacturers will bring service in-house.
In 3 years
Medical equipment and high-tech manufacturers will lead the charge. Asian
manufacturers are ahead on bringing service in-house—and will remain
ahead for the near future.
Smaller firms are ahead of larger firms in organizing service as a profit
center. Firms with higher margins are ahead for now—but smaller-margin
firms are narrowing the gap.
U.S.
33%
39%
Europe
29%
Today
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39%
42%
Asia
60%
3 Years
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11. Manufacturing Transformation for Service Executives
Service Strategies—Remote Diagnostics
Case in Point: Boston Scientific
Remote diagnostics are on the rise. They’re revolutionizing
service delivery.
Pacemakers from Boston Scientific monitor
a heart patient’s progress inside and outside
of the hospital. Remote diagnostics are thus
practically inherent in the product—not just
in the service of them. Sujal Bhakalai, the
company’s vice president of operations, puts
it succinctly: “Remote diagnostics are transforming medical device
manufacturing.”
The use of remote diagnostics for service is increasing everywhere—in
some industries faster than others, but in all of them significantly.
The use of remote diagnostics is growing
40%
Total
47%
Aerospace/defense
Automotive
22%
42%
34%
Consumer/retail
High-tech
Industrial equipment
36%
Medical devices
0%
10%
20%
56%
59%
30%
50%
63%
50%
58%
47%
66%
40%
50%
60%
70%
% of respondents
Today
In 3 years
Smaller firms are catching up to larger firms in adopting remote diagnostics
for service. Asian manufacturers are furthest ahead of the trend.
The size of a manufacturing company can make some difference in the use of
remote diagnostics. Yet this will matter less in the future.
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12. Manufacturing Transformation for Service Executives
Service Strategies—Performance-Based Contracts
Soon, nearly two-thirds of manufacturers will offer performance-based
service contracts.
Now behind American manufacturers, Asian and European manufacturers
will soon leap ahead in their use of performance-based service contracts.
Performance-based service contracts becoming common
41%
Total
49
Automotive
Industrial equipment
Consumer/retail
0%
10%
20%
%
40%
45%
43%
Medical devices
40%
66%
39
Europe
%
Today
62%
61%
60%
65
%
34
%
Asia
69%
50%
60%
70%
80%
In 3 years
Aerospace and defense firms, along with makers of medical devices, will be
practice leaders.
Manufacturers of consumer products will see the biggest jump in
performance-based service contracts—almost doubling their use.
3 Years
Case in Point: Ingersoll Rand
% of respondents
Today
61
%
70%
36%
34%
30%
52
U.S.
%
74
%
Aerospace/defense
High-tech
65%
Ingersoll Rand’s Trane division
offers performance-based
service contracts that allow a
building owner to apply future
energy and operational savings
to financing of HVAC equipment
upgrades.
The customer’s added value
isn’t simply to predict a cut in
energy costs—Trane effectively
guarantees the savings through this innovative service option. And
when you consider that energy is the largest single operating expense
in most buildings (with A/C alone typically accounting for 40% of the
total bill), the savings stand to be significant.
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13. Manufacturing Transformation for Service Executives
Service Strategies—Service Anywhere
Manufacturers with the highest revenue and profit growth will move
decisively to design, build, and service anywhere.
Globalization’s challenge: staying close to customers, wherever they are.
Manufacturers are moving to tailor their offerings to regional needs,
preferences, expectations, and standards.
Design, build and service anywhere
26%
35%
Total
Aerospace/defense
High-tech
Automotive
Consumer/retail
Medical devices
Industrial
equipment
0%
10%
58%
40%
60%
80%
100%
In 3 years
Asian manufacturers will soon lead their European and North American
counterparts.
North America
40%
Europe
60%
Asia
70%
50%
30%
40%
50%
60%
70%
80%
% of respondents
Today
65%
69%
20%
Today
63%
60%
56%
54%
16%
20%
0%
67%
26%
29%
26%
24%
28%
29%
High Revenue Firms
High Profitability Firms
In 3 years
Design, build, and service anywhere will grow a remarkable 125% in three
years. Aerospace and defense manufacturers now lead in the practice—and
plan to keep leading.
C-level executives see more value than their staff in design, build, and
service anywhere.
31%
22%
C-Level Executives
Report to C-Level
Industrial equipment manufacturers will be particularly ambitious. They’ll
more than triple their efforts to design, build, and service anywhere.
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0%
20%
Today
64%
55%
40%
60%
80%
100%
In 3 years
PTC.com

14. Manufacturing Transformation for Service Executives
Service Transformation
Manufacturers aiming to transform service should recognize three
current realities:
Not all parts of the company assign the same importance to service.
Manufacturing, finance, and, as you’d expect, service executives believe that
service will be a top driver of competitive advantage in three years.
60%
50%
Coordinating service with other functions is critical for success. Increasing
the coordination of service strategy with R&D and manufacturing will grow
increasingly important. This trend will continue across major industries.
Greater strategy coordination of service with other functions
Service
Manufacturing
Finance
With research and development
40%
0%
30%
40%
72%
74%
60%
80%
100%
In 3 years
Service strategy correlates to profits. Firms that focus more on coordinating
service with other functions have higher margins.
10%
0%
Service
50%
20%
Today
20%
60%
59%
54%
With supply chain and manufacturing
Operations
Manufacturing
R&D
R&D
IT
40%
30%
Thinking horizontally about service—i.e., making it integral to strategy
development across functions—leads to higher ROI for a manufacturer’s
growth initiatives.
Feedback from service to other functions is becoming the norm.
Manufacturers will increasingly use the product and service performance
insights gained from service execution to help drive…
20%
10%
0%
But operations, R&D, and especially IT executives, see things differently as
they look ahead.
Service leaders may wish to cultivate their peers in IT, in particular, to help
realize their organization’s bold vision for service transformation.
58%
71%
52% 65%
47% 59%
…service planning
…product development
…supply chain, manufacturing
0%
20%
Today
40%
60%
80%
100%
In 3 years
More than ever, service feedback influences product designs. This includes
small enhancements, but also major innovations—such as the increased use
of remote diagnostics to create smart products.
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15. Manufacturing Transformation for Service Executives
It’s one thing to talk the talk on the service
imperative. Better to walk the walk.
Use this brief action checklist to assess
your organization’s current status and
future preparedness for taking full
advantage of the service opportunity.
(1) How is your senior management—across functions, including R&D,
HR, and IT—addressing the critical role of service for gaining competitive
advantage?
(2) How especially can you enhance coordination of service with R&D, the
supply chain, and manufacturing?
(3) Does your organization have a closed feedback loop between service
execution and service planning, R&D, and manufacturing and supply chain
management?
(4) What organizational changes are you making to run service as a profit
center and incorporate performance-based service contracts into your
business model?
(5) How much are you able to service anywhere through partner and
supplier networks, remote diagnostics, and other enabling technologies?
Want to know more?
Click here to download PTC’s ebook on Service as Strategy.
© 2013, PTC Inc. (PTC). All rights reserved. Information described herein is furnished for informational use only, is subject
to change without notice, and should not be taken as a guarantee, commitment, condition or offer by PTC. PTC, the PTC logo,
Windchill, and all other PTC product names and logos are trademarks or registered trademarks of PTC and/or its subsidiaries in the United States and other countries. All other product or company names are property of their respective owners.
The timing of any product release, including any features or functionality, is subject to change at PTC’s discretion.
J2669–Oxford-Economics-for-Service-Exec-ebook–EN–1013
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