In a report from 2015, McKinsey & Co., a consultancy, estimated that the IoT’s potential value to manufacturing, from operations and equipment optimization alone, lies between US$ 1.2 and 3.7 trillion. Such estimates are probably already obsolete, as even more powerful technology is developed and deployed. However, they do point to a starting point in illustrating the order of magnitude of upcoming change as the digitization phenomenon unfolds. The changes already underway in service (industrial, technical, after-sales or field service) parallel those in manufacturing. In the not too distant future, we can expect that: Smart Connected Products will self-diagnose problems; Maintenance will become, almost exclusively, predictive; Spare parts will be 3D printed; Needed interventions and optimizations at any level will be carried out according to AI generated recommendations; And humans will interact at a deeper level with machines through Augmented Reality, whether the machine is in the same room or on the other side of the planet. The nature of the service business will shift from technical labor and logistics to knowledge management and exchange. Service delivery will change drastically as will the nature of competition and business models. Servitization, in the sense of product-as-a-service (PaaS), enabled by digitization and based on platforms will become ubiquitous. The implications for jobs, companies, productivity, growth, and profits will be vast, though at present they are still the subject of on-going debate and quite unknown.
But if an “end-state” medium term can be discerned quite clearly, getting there poses significant challenges. So, at a Si2 Partners, we developed a series of survey-based management reports, to shine a spotlight into service businesses’ efforts to grasp the opportunities of digitization while dealing with the challenges. We then draw conclusions from the results and recommend the best ways forward. The first report on Augmented Reality is available now, the next report on Predictive Maintenance is due by the end of the year.
The origins of Augmented Reality (AR) as a technology, go back at least 50 years. But the first public demonstration was in 1998 during ESPN’s coverage of a football game (Cincinnati Bengals v Baltimore Ravens): Generation and display of the yellow first-down line. The line stayed fixed within the coordinates of the playing field. It was not physically present on the field and was visible only to the television audience. But from that simple application, only 15 years later, Gartner was predicting that companies would be increasing their profits by over $1 billion annually -by 2017- through the application of AR in their field service business. Things, of course, are not so simple. Reducing costs does not directly translate into increased profits. Whether that happens depends on prices and we know that digitization tends to make them drop, sometimes to zero. But even if we only consider costs, AR is clearly an important, in many ways transformational, technology with a potentially very powerful impact.
Recognizing this, over the past few years, several AR start-up vendors have emerged, targeting specifically the field service market, offering affordable, semi-standardized solutions, complementing, and competing with the more general offerings of bigger players such as Microsoft or PTC.
So, are companies adopting Augmented Reality for industrial field service? Our survey shows that they are. Most expect significant cost savings and productivity improvements through AR, mainly in engineering time and travel cost -and, interestingly, smaller companies are at least as much engaged with the technology as larger ones: Upfront investment can be low, and it can be implemented quickly and stand-alone (at least initially). Importantly, it may help reduce pressure on scarce, highly qualified, and expensive engineering resources, while simultaneously improving the cost-effective support of remote customers (smaller companies are less likely to have extensive service networks). Overall, our survey found that while less than 1/3 of respondents already used AR, and, of those, the majority had introduced it over the past 12 months, another third planned to introduce it over the coming 12 months. This indicates an accelerating trend.
Of course, for users, it has not been all smooth sailing. Challenges are numerous: For example, it turns out that connectivity at customer sites is a significant issue, which hampers the use of the technology. But technical problems are normal at this stage of introduction and they will be solved. Far more important are managerial challenges. For example, as always, one size does not fit all: The most commonly reported use case is field technicians receiving AR-based support from experienced engineers based at a remote central hub. This may help companies with large field service workforces (possibly with high turn-over rates or fewer qualifications) supporting standardized equipment. It is not much help to vendors of highly complex equipment whose field engineers are already highly experienced and qualified themselves. In fact, it may be even counter-productive, slowing things down or reducing acceptance. Better applications for such cases may be pooling AR-based support, providing technical information through “knowledge-libraries”, particularly on rarely encountered problems or legacy equipment, or integrating AR with the IoT, so that operational data can provide real-time context to engineers and support for diagnostics. However, such applications require investment in digital content, something that many AR users have often not considered, as well as a process of experimentation and development. Another finding is that following implementation of AR, many managements don’t take the necessary action to lock-in the AR benefits by pushing through change in the support and field service processes. For example, few companies eliminate technical manuals and drawings from a field engineer’s toolbox, delaying the necessary adjustments. And, while many companies market their AR capability to customers, few have developed revenue generating AR-based offerings. Yet our survey shows that customers would welcome AR-based support if it would help to reduce costs and improve performance, notwithstanding issues of confidentiality or privacy.
The process to integrate Augmented Reality into a company’s mode of operations and to maximize its benefits will, as for any new technology, be arduous and bumpy. But the impact on costs and productivity is becoming clear. Though most don’t yet formally track it, 72% of our respondents say that AR is on par with or has exceeded expectations.
The survey and report provide many more interesting results and recommendations. AR is a watershed technology, not least because it frees people from 2-dimensional screens and pages and enhances the ability to be informed, understand context, and learn. It allows remote sharing and interaction in unprecedented ways. In the end, it is probably more about augmenting humans than “reality”. And, due to its nature, service is an excellent area of application for the technology. But it should also be noted, that Augmented Reality is an “infrastructural” technology* and as such, while it may be of great value, does not confer competitive advantage on its own -it is available to all. How it is used is what is important. And, on the realistic assumption that it will rapidly become a standard way of supporting customers and equipment, not using it already is a serious disadvantage.
You can download the flyer with a comprehensive summary of results and analysis or purchase the full report “Augmented Reality in Service: Ready for Prime Time?” at the Service in Industry Hub Shop.
* Infrastructural Technology (from our blog post Digitization: How to know whether an Industry is being disrupted): In an insightful article in Harvard Business Review in 2003, Nicholas Carr, the magazine’s then editor, argued that to be sustainable, competitive advantage must be proprietary, that is it must be internalized by the company and not be available to competitors. This was the time when companies were seeking competitive advantage through applications of Information Technology -a predecessor situation to the digitization “Drang” of today. As Carr explained, over the previous 20 years there had been a shift in senior executives’ attitudes towards information technology. While in 1983 it was considered a technical issue best left to secretaries, technicians or specialists, by 2003 it had morphed into a strategic issue, to be used for competitive advantage. But, as he noted:
“Behind the change in thinking lies a simple assumption: that as IT’s potency and ubiquity have increased, so too has its strategic value. It’s a reasonable assumption, even an intuitive one. But it’s mistaken. What makes a resource truly strategic—what gives it the capacity to be the basis for a sustained competitive advantage—is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they can’t have or do. By now, the core functions of IT—data storage, data processing, and data transport—have become available and affordable to all. Their very power and presence have begun to transform them from potentially strategic resources into commodity factors of production. They are becoming costs of doing business that must be paid by all but provide distinction to none”.
As far as technology goes, 15 years later this is still valid. The key elements of digitization (connectivity, sensing, data schience, machine learning, algorithms, analytics, cloud) are non-proprietary “infrastructural” technologies and cannot provide advantage per se, other than temporary advantage during a change phase. As Carr continues:
“Proprietary technologies can be owned, actually or effectively, by a single company. A pharmaceutical firm, for example, may hold a patent on a particular compound that serves as the basis for a family of drugs. An industrial manufacturer may discover an innovative way to employ a process technology that competitors find hard to replicate. A company that produces consumer goods may acquire exclusive rights to a new packaging material that gives its product a longer shelf life than competing brands. As long as they remain protected, proprietary technologies can be the foundations for long-term strategic advantages, enabling companies to reap higher profits than their rivals.
Infrastructural technologies, in contrast, offer far more value when shared than when used in isolation. Imagine yourself in the early nineteenth century, and suppose that one manufacturing company held the rights to all the technology required to create a railroad. If it wanted to, that company could just build proprietary lines between its suppliers, its factories, and its distributors and run its own locomotives and railcars on the tracks. And it might well operate more efficiently as a result. But, for the broader economy, the value produced by such an arrangement would be trivial compared with the value that would be produced by building an open rail network connecting many companies and many buyers. The characteristics and economics of infrastructural technologies, whether railroads or telegraph lines or power generators, make it inevitable that they will be broadly shared—that they will become part of the general business infrastructure”.
Companies however inevitably fall into technology traps where they mistake infrastructural technologies as having proprietary character and that competitive advantage through them will be available indefinitely. In fact what happens is that once the technology’s potential is widely understood and recognized it attracts huge amounts of investment rapidly, costs decline and its buildup proceeds very fast. Affordability increases leading to further increases in demand. Usage is standardized, best practice is widely emulated and quickly built into the technology infrastructure itself, which in turn becomes available “off-the-shelf” and even assumes commodity characteristics.
The flip-side of this, of course, is the fact that infrastructural technologies become indispensable, without them the game cannot be played at all. And in the process of acquiring them many things change and inevitably many fall by the wayside, in particular, those whose product, service, business or operating model are not sufficiently compatible or cannot sufficiently profit from the new technologies relative to competitors and alternatives.
Augmented Reality in Service: Ready for Prime Time? A Si2 Partners Survey and Management Report. You can download the flyer (summary) or purchase the full report at the Si2 Hubshop
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