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Written by 6:00 am Feature, Service Strategy

Are we about to see an Evolution in the Service Contract as well as Service Delivery?

Are we about to see an Evolution in the Service Contract as well as Service Delivery?

Field service benchmarking circle

Our recent study, run in partnership with FieldAware, appears to show we are facing massive changes in how we approach service delivery, both with the spike in capabilities for delivering service remotely as a result of the pandemic and also the continuation of a shift towards a more connected workflow that is beginning to reach the maturation phase of at least its first iteration.

The question is will we also see a similar shift in thinking with regards to service offerings. We have been seeing a growing number of companies beginning to establish more advanced services and the shift away from traditional break fix, SLA focused, service contracts to those offering guarantees of uptime and outcome-based solutions.

It has been suggested in some corners of our sector that the pandemic will accelerate these strategies as much as they have accelerated digitalisation plans. Indeed, digitalisation and servitization are often discussed in the same breath.

When the great recession of 2009 took hold, we saw Software as a Service go from fringe concept to ubiquity within a very short period. Given that we have seen the world move to a more service-centric economy at large within the last decade, could it be that the large impact of the COVID recession will be the mass adoption of an Everything-as-a-Service economy?

“It is a well-documented aspect of servitization, that as a service provider becomes involved within delivering outcome-based services for a client, as they become more tightly woven into the fabric of the client’s ecosystem their service contracts will increase in longevity…”

First though, let us set the parameters of what a service contract looks like currently.

With regards to service contract length, the most common length of service contract is between 1 and 3 years which just over half (53%) of companies within our response set state to be the case.

A third (33%) of companies however state that their average contract length is longer than this while just 13% of companies state that their average contract length is less than 12 months.

What is interesting is that when we look at those companies who appear to be specialised in shorter term service contracts, half of these state that they envisage that the average length of service contract will increase post-pandemic. For contrast, just under of fifth (17%) of companies whose average length is between one and three years feel the same.

What is of particular interest here is that amongst those respondents whose service contract length is above three years we see the opposite impact occur. In fact, almost of half (45%) of the companies within this segment believe that the average length of service contract will increase.

Now this really is an interesting revelation and while it may be open to interpretation, one possible hypothesis as to why we are seeing companies in this segment predicting even further increases in service contract length could be that they have already moved further down along the advanced services path.

It is a well-documented aspect of servitization, that as a service provider becomes involved within delivering outcome-based services for a client, as they become more tightly woven into the fabric of the client’s ecosystem their service contracts will increase in longevity. In power generation for example, an industry that has embraced such approaches to service delivery, service contracts run for a minimum of ten years and often can stretch as long as twenty.

So could it be that the reason we are seeing this perhaps somewhat unanticipated spike in the findings is because generally those companies who have longer service contracts are already offering servitized solutions to their client base?

Again, the findings of the study would certainly seem to indicate so. Within this response set well over two thirds of companies stated that their organisation offers a form of advanced services/servitized or outcome-based solutions.

When we look at the full response set this figure drops down to two thirds (66%) of companies, which in and of itself is still a very significant size of companies that have already stepped along the road towards a more advanced service-centric economy.


Screenshot 2020-10-14 at 13.39.48Want to know more?

You can find this full paper in the premium resource library.

 

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