Service delivery models are today undergoing unprecedented change to accommodate the needs of customers trying to navigate business and market uncertainties. Around the world, industrial manufacturers are facing new and familiar challenges ranging from economic and competitive pressures and the tightening availability of resources, to aging workforces, rising technology and operating costs, and heightened focus from top management on optimizing total cost of ownership (TCO).
These pressures are prompting a re-think of how traditional value-added services are delivered. The consensus is that service providers must dispense with longstanding models that are transactional in their approach and move toward forming true partnerships with customers in which they take ownership of the customer’s expected outcome. In other words, service providers are getting skin in the game.
This new model allows service providers to better address customer needs, which today increasingly include:
- A desire for continuous innovation, in which incremental improvements are made to ensure system performance
- Improved system stability, reliability, and quality
- Better operating expenditure (OPEX) and capital expenditure (CAPEX) cost predictability
- Optimized TCO
- Protecting intellectual property—such as engineering and training investments—along with previous capital investments
It also allows service providers to help customers tackle acute market and business challenges, such as:
- Core competency focus. With costs tightening and a smaller number of personnel responsible for more areas of plants, there’s an increasing appetite among manufacturers to outsource the running of their automation systems in order to focus on core competencies. They might, for example, channel resources to sharpen their value proposition or potentially reinvent their business.
- Aging workforce. People aged over 65 are the fastest growing demographic in the workplace through 2024, according to the U.S. Bureau of Labor Statistics. Despite older people working longer, 50% of plant personnel are still due to retire in the next five years, with the younger generation increasingly hesitant to take their places. Not surprisingly, 80% of U.S. manufacturers are reporting a shortage of qualified workers, according to the National Association of Manufacturers.
- Remote locations. Many global companies—particularly those in energy—maintain critical operations in remote areas. However, finding skilled, competent resources to run these facilities is difficult, making support a challenge.
- Economic shifts. Hundreds of thousands of energy-industry jobs have been cut in recent years due to low prices. Although the industry today is in better health, a report published by the Deloitte Center for Energy Solutions says, “When thinking about potential constraints on the recovery of the industry, we should view people as equally, if not more, critical to capital.” Volatility has long been an energy industry reality, and it remains so today.
- Technology obsolescence. The U.S. has a huge installed base of aging assets that require ever-higher levels of maintenance, according to ARC Advisory Group, and the complexity and interoperability of these systems is preventing end-users from having a complete, accurate view of their operations. Technology obsolescence is a growing threat, but the sheer cost of replacing and maintaining systems is a deterrent for many. ARC feels the solution lies in new, intelligent services, which preserve plant assets, eliminate unplanned downtime, and improve productivity and throughput.
With so many challenges to be faced, it’s little wonder servicing models are being re-examined. So, what should the new shape of services look like?
Next-Generation Service Delivery—Today
In the past, customers sought ad-hoc service support or purchased service contracts for their automation systems but still bore the stress and pressure of maintaining them. Today they have more-pressing concerns and are increasingly open to partnerships (Figure 1) with service providers willing to take over the complete running of their systems.
|1. Working together. The benefits of outcome-based services are numerous, but the most-significant benefit is arguably the opportunity for energy companies to focus on their core business. Courtesy: Honeywell Process Solutions|
Indeed, the evolutionary shift taking place can be described as moving from insurance to assurance. Service providers and customers are looking at the total lifecycle management of a plant’s automation system, and not just the sum of its parts. The notion of support, meanwhile, is morphing from a one-time transaction into an ongoing relationship.
Key performance indicator (KPI) goals are being set based on the enterprise’s, or plant’s, business priorities, with service level agreements put in place to meet those KPIs. In other words, service providers are providing guaranteed outcomes for automation system performance, including advanced control and process optimization, with financial consequences if the agreed upon KPIs aren’t met. The goal for both parties is the sustained performance of IT system, with a strategy of continuous innovation to ensure longevity.
In addition, new capabilities might be added to a customer’s service package based on the needs of the business, such as strengthened cybersecurity capabilities, preventive/predictive analytics solutions, alarm management tools, competency management programs, and continuous evolution programs. Solutions for remote locations, including remote management or human capital support, are available too.
For plant executives, the prospect of another party assuming responsibility for their technology assets is a welcome development (see sidebar “Sasol Chooses Outcome-Based Services from Honeywell”). These decision-makers have long had to cope with the mounting safety, health, and operational risks of their aging control systems while pressured to achieve higher levels of responsiveness, flexibility, and productivity—all with a diminishing level of resources. It’s an impossible task. Outsourcing this responsibility to a partner with the very latest product, application, and vertical knowledge, who will help modernize their systems and tackle their interoperability issues, allows them to mitigate risk, and crucially, focus on the bigger picture.
|Sasol Chooses Outcome-Based Services from Honeywell
Sasol, an international chemical and energy company based in South Africa, for years operated a project-based maintenance program that was largely reactive to incidents. Servicing tasks were micromanaged, with strict timings allocated to the completion of jobs, leading to friction between maintenance and the plant staff. The approach wasn’t sustainable, nor did it serve the evolving needs of the business.
What Sasol decision-makers desired was a holistic, proactive approach to maintenance and problem-solving; a focus on outcomes while reducing incidents and lowering costs.
While evaluating Assurance 360 from Honeywell, Sasol discovered a partner with the same motivations. Once deployed, the solution provided agreed upon service levels rather than prescribed quantities of materials and labor. Deliverables included a commitment to continuous improvements aligned with Sasol’s goals; minimized TCO; and expert services that augmented Sasol’s maintenance teams.
The outcome? Plant incidents have been reduced by half, requiring an average of one resource versus the previous three-and-a-half to address them; the initially skeptical engineering team has been won over and is now a willing partner for the service team; and there’s a new, company-wide initiative to drive innovation and improve business performance.
Outcome-based services are now part of Sasol’s culture. Senior Engineer Cobus van Dyk, who manages Sasol’s Critical Control Information Infrastructure team, said: “Assurance 360 has changed the organization for the better, making it more collaborative. The plant has gained trust in us through the results we’ve achieved. Our experience is, if you go into a partnership with a commitment to get a successful outcome, you can attain it with the right partner.”
Adapting to Change
Outcome-based services represent a revolution compared with previous business practices, and they will unquestionably require a period of adjustment on the part of customers and service providers.
One challenge that service providers come up against is that some customer stakeholders—particularly those in maintenance and engineering roles—perceive outcome-based services as a threat to their internal order. For years, these professionals’ day jobs have revolved around their company’s automation systems. Will relinquishing control mean the loss of their jobs? On the contrary, it could strengthen their positions. How so? They will be immediately freed from reactive, time-consuming service workloads and able to redirect their expertise into higher-level activities such as proactive maintenance, control optimization, and resolving underlying problems. In other words, they can better showcase their value to the business.
Service providers, meanwhile, need to be brave and bold, and turn years of traditional practice on its head. Mindsets must change. They need to invest in new technologies and reorganize their skilled talent to support outcome-based models. If they don’t, they risk being left behind as underlying industry trends drive lasting changes in customer needs.
The benefits of outcome-based services, such as Assurance 360 from Honeywell, are numerous, from continuously improved operations and more predicable OPEX and CAPEX costs, to better system stability, reliability and quality, and optimized TCO. However, the most significant benefit is arguably the opportunity for industrial manufacturers to focus on their core business. With automation and/or process control strategy no longer placing demands on their resources, organizations can channel their expertise into areas of the business that really need it—for example, sharpening differentiators or achieving transformation. Quite simply, strategic opportunities abound.
—Steve Linton is global director, programs and contracts, with Honeywell Process Solutions.