Focus on customer relationship management and flexibility while serving IoT and Industry 4.0 clients

In 2019, HFS published HFS Top 10 IoT services and HFS Top 10 Industry 4.0 services reports, in which we evaluated leading service providers across three broad criteria: execution, innovation, and voice of the customer. As a part of the evaluation, we talked with several enterprise clients and asked them about their experiences with service providers throughout their engagements. In this POV, we discuss the service providers’ innovation and execution capabilities that clients like the most and the areas where service providers could improve. This POV will help IoT (internet of things) and Industry 4.0 service providers meet their clients’ expectations.

The IoT and Industry 4.0 client engagements are not merely outsourcing projects; service providers are enterprise business transformation partners

IoT and Industry 4.0 are emerging concepts; they are enabling enterprises’ transformation with improved operational efficiency, new revenue opportunities, and customer experience. IoT and Industry 4.0 are amalgamation technologies: IoT is a combination of IT and OT, and Industry 4.0 consists of several technologies, including core manufacturing-related technologies (MES, PLM, 3D printing, etc.) and emerging digital technologies (AI, cloud, AR/VR, etc.). Enterprises need an integrated approach to orchestrating these technologies to achieve their target business benefits. Integration complexity is high because of several overlaps of hardware and software components throughout a project’s implementation.

Since IoT and Industry 4.0 initiatives are closely related to enterprises’ business and operating models, the stakes are higher for both the enterprises and service providers. In many cases, enterprises select service providers that closely align with both business and technology goals. Service providers also need to consider the long-term prospects of engagements instead of viewing them as traditional cost-arbitrage outsourcing projects.

Enterprises are the least satisfied with service providers’ talent management and intelligent automation capabilities

We asked the clients to rate (on a scale of 1-10) their respective service providers for execution and innovation. Client feedback suggests they are happy with the providers’ execution of relationship management and flexibility and their innovative pricing flexibility and co-innovation models, as described in Exhibit 1. On the other hand, service providers need to improve their talent management and intelligent automation capabilities for IoT and Industry 4.0 services.

Exhibit 1: Flexibility, client relationship management, and collaboration are the most appreciated qualities of the service providers

Source: HFS Top 10 IoT Services, HFS Top 10 Industry 4.0 Services

Most service providers have a strategic account management focus for their clients. Account managers are in a critical role; they are in regular conversations with clients regarding overall project management. Service providers have shown good flexibility accommodating change requests and design changes and, and their increased onsite presence enables better project delivery. Though IoT and Industry 4.0 engagements encourage non-linear pricing models (pricing based on the outcomes), most engagements are still dominated by T&M (time and material) and fixed-price contracts. As solutions mature and business operations stabilize, we predict a sharp increase in the non-linear pricing model. Enterprises are also looking for co-innovation in some areas of their business i.e. service providers bring the technology capability and enterprises bring the domain capability to develop new solutions.

As IoT and Industry 4.0 demand talent from different technology areas, service providers face talent crunches. Service providers are focusing on internal training and talent retention initiatives and collaborating with educational institutions and start-up companies to manage talent issues. In the Industry 4.0 context, intelligent automation includes both software (analytics, AI) and industrial automation components, so service providers need both IT and OT knowledge for seamless integration. Since data-based decision making is critical for enterprises, service providers should focus on its AI and analytics capability development. Consistency of service delivery (adhering to timeline, quality of coding, etc.) and focus on internal R&D (innovative solutions and framework design) are additional areas of improvement for the service providers.

Domain understanding is also of critical importance; solutions need to incorporate industry-specific business processes and regulations. Domain understanding is also helpful for developing new solutions based on industry trends. Service providers have begun mixing up their domain and technology capabilities for their offerings and client engagements.

The Bottom Line: Service providers need a strong consulting approach to serve clients throughout the engagement journey.

Several service providers have displayed strong IT and engineering skills in this space with an exhaustive portfolio of solutions and frameworks. Clients seek not only technical guidance but also overall guidance (scenario planning, use-case identification, etc.) for their transformation journeys. Therefore, service providers need to adopt the consulting mindset to guide their clients throughout the journey. As many assumptions and plans will fail in the course of the transformation, service providers need to be flexible enough to accommodate the constant changes.