Industrial ServicesA New Frontier for Business Model Innovation and Profitability

November 2013

“50 Years of Growth, Innovation & Leadership”

Karthik Sundaram, Industry Analyst, Industrial Automation & Process Control - Europe, Frost & Sullivan

The idea of Industry 4.0 is a new paradigm that explains the fundamentals for the next-generation

enterprise. The vision of industry 4.0 is a futuristic vision that requires a wide functional transformation of the

current organizational architecture prevalent in industries. It is also evident that the move

towards Industry 4.0 is poised to happen gradually. Our attempts to understand the idea of Industry 4.0 helped

us identify few key criteria like Big Data, the Internet of Things and the Internet of Services, as functional pillars

catalysing this transformation. In particular, within the purview of the industry research at Frost & Sullivan, we

found the description of services in the fourth installment of industrial revolution to be of considerable interest.

Furthermore, the poor scope for technological innovation across major industrial products coupled with growing

market maturity has pushed major industrial product suppliers to take concerted efforts in achieving growth

through other channels. In this context, the potential for industrial services attains center stage, both from the

standpoint of industrial vendors interested in market expansion and end-users aiming to maximise profitability.

The global industrial services market has grown significantly in the last decade. This market exhibited high re-

silience during the recessionary years, post-2008 and proved to be the saving grace for a number of industrial

suppliers. Traditionally, industrial services have always sounded synonymous with repair and maintenance work.

But of late, this perception has witnessed a change and this change forms the crux of our industry research at

Frost & Sullivan. In order to understand the emerging services market better, we, at Frost & Sullivan tried to map

this emerging segment into the larger framework of Industry 4.0.

Interestingly, our attempts to devise a roadmap for realising the vision of Industry 4.0 across key

industrial segments has made us conclude that innovation in services might form the first step towards achieving

this futuristic vision. With that premise, we aimed to assess the value-addition that can be

accorded through service innovation. To analyse this trend, we approached the expansive services space from a

traditional product perspective. This required us to revisit market statistics pertaining to services across some

key products used in the industry.

In 2012, the overall estimates for service revenues accrued from automation products like DCS, PLC, SCADA,

etc. amounted to nearly $15 billion. The conspicuous nature of this large service base is the increasing demand

for new value-added services that goes beyond traditional repair and maintenance. For instance, in the recent

years, services in the realm of predictive maintenance and energy efficiency have captured the imagination of a

number of end-users across multiple industrial segments. In case of the global pumps market, services accounted

for nearly $12.65 billion in 2011 and are expected to amount to $17.55 billion by 2016 with a CAGR of 6.8 per

cent. Within this segment, value-added services, such as condition monitoring, predictive maintenance, and ad-

vanced diagnostics, are fast gaining acceptance and expected to account for a significant portion in future owing

to growing demand for advanced pump monitoring solutions. Additionally, stringent regulations pertaining to

pump efficiency and emission control, particularly in Europe and North America, is also likely to result in increased

demand for superior value-added services.

© 2013 Frost & Sullivan Page 2

Industrial Services

A New Frontier for Business Model Innovation and Profitability

Furthermore, taking inputs out of our research on the global gearbox market, we find that the demand for reliable

servicing of gearboxes to have witnessed an upswing across the Nordic region in the last few years. The same

trend is likely to pervade across other regions in the coming years. Additionally, the plethora of third-party service

providers catering to specific end-user segments, is suggestive of the inherent opportunity present available in

the area of general maintenance.

However, besides these overwhelming trends favouring services, the larger question that needs clarity is on the

nature of service evolution. For this, we revisit the concept of Industry 4.0 that prophesizes this trend under the

title “The Internet of Services”. The Internet of Services is a framework that describes the future of services

founded on a device-independent and device-dependent service model. The projection of this trend onto specific

products in the industrial space, will lead us to identify a number of new service opportunities that bears immense

significance to industrial product suppliers.

Frost & Sullivan research has identified the following key questions pertaining to services that will

redefine the landscape of industrial operation:

• How would the nature of services evolve in the future of industries?

• How would the growing demand for services impact a supplier operating in the industry?

• How are end-users looking at plant maintenance and services in terms of a business model? How

would this impact product strategies and functionalities in future?

From a demand perspective, end-users are increasingly looking at maintenance and plant service as a means for

maximising profitability. From a market standpoint, we can safely surmise that the demand for services has been

improving quite significantly over the last decade. There is also a growing acknowledgement from industrial prod-

uct suppliers and the end-user community about the dawn of services as the next big frontier for business model

innovation and profitability.

In order to understand and evaluate the nature of this new service frontier, Frost & Sullivan is planning to roll

out a strategic research initiative that will focus on end-user expectations and requirements of services across

various product markets. The research will aim to help industrial product suppliers design their service mix and

align their product strategies to better serve the needs of the end-user in a fast-changing industrial landscape.

Industrial Services

A New Frontier for Business Model Innovation and Profitability

About Frost & Sullivan

Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage vision-ary innovation that addresses the global challenges and related growth opportunities that will make orbreak today’s market participants. For more than 50 years, we have been developing growth strategies forthe Global 1000, emerging businesses, the public sector and the investment community. Is your organisationprepared for the next profound wave of industry convergence, disruptive technologies, increasing com-petitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emergingeconomies?

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