Point of View

Service providers should understand the changing business dynamics of the IoT and Industry 4.0 to stay ahead of their competitors

April 6, 2020

We recently published HFS Top 10 IoT Services and HFS Top 10 Industry 4.0 services, in which we assessed leading service providers in this space. As a part of the evaluation, we interviewed several enterprise leaders about their IoT and Industry 4.0 journey, including motivations for their initiatives, challenges they faced, and the criteria they use for service provider selection. We observed that enterprises are using different selection criteria to select service providers in this space compared to traditional outsourcing across industries. In this PoV, we discuss the capabilities that enterprises look for before outsourcing a project related to IoT and Industry 4.0 and how this differs from service provider selection for traditional technology outsourcing projects.


Service providers need strong digital capabilities and offerings for IoT and Industry 4.0 services


We asked enterprises about their criteria when selecting an IoT or Industry 4.0 service provider. They mentioned that domain expertise, services portfolio depth, and digital skillset capabilities are the top three criteria for selecting the service providers, as shown in Exhibit 1.


Enterprises need competent service providers with strong technical expertise in the latest technologies that are ready to provide an efficient and effective team of professionals to solve business problems. Thus, both domain expertise and digital skillset are enterprises’ top criteria when selecting a service provider.


The service portfolio is another important parameter. The purpose of the service portfolio as a deciding factor is to ensure that the service provider has the depth and breadth of offerings to balance costs with the capacity to meet the business requirements.


Exhibit 1: Domain expertise, services portfolio depth, and digital skillset capabilities are the top three criteria for selecting IoT and Industry 4.0 service providers; Capability in digital technologies and end-to-end service offerings across the value chain are the key differentiators for the service providers



 Source: HFS Research 2019, Industry 4.0 and IoT survey; industry research survey across banking and financial services, insurance, healthcare, and life science, energy and utilities, retail and consumer products, travels, hospitality and logistics, telecom, media and high-tech, and manufacturing


Pricing, research and development, and quality of service delivery are the bottom three criteria for selecting IoT and Industry 4.0 service providers


Even if there is a lot of talk about pricing, research and development (R&D), and service delivery, none of these hold much direct significance while choosing a service provider.


We found that even if these don’t directly affect the criteria for selection, they do impact them indirectly. A strong focus on R&D improves a service provider’s ability to increase the solutions portfolio and provide innovative solutions. Therefore, service providers need to make investments that help clients reinvent how they deliver value and create innovative business models to have a competitive advantage over their competitors.


Similarly, a company’s pricing strategy does affect an existing relationship, along with the quality of service delivery. Enterprises are often interested in exploring the feasibility of non-linear pricing models for IoT and Industry 4.0 engagements.


Decision-makers tend to hold diverse opinions about their preferences, based on how well they understand emerging technology.


Technology-enabled business transformation is the key objective for enterprises in IoT and Industry 4.0 implementation


In our annual survey, we asked enterprises about their leading criteria when selecting a service provider for traditional BPS and IT related engagements across industries, and they mentioned the quality of service, existing relationships, and an ability to provide innovative solutions as the top three criteria, as shown in Exhibit 1. Interestingly, enterprises are not looking for in-depth digital capabilities among the service providers except in a few cases where innovative solutions include intelligent automation (robotic process automation, analytics capabilities). In IoT and Industry 4.0 initiatives, however, a capability in digital technologies is one of the main criteria. As digital projects often result in integrated workflow and breaking down silos of business functions, enterprises are looking for service providers that offer solutions across the value chain so that they can initiate an integrated digital transformation journey that spans business functions in their enterprises.


Incumbents have already started their digital transformation journey across geographies, different business functions, and customer experience related operations. IoT (across industries) and Industry 4.0 (primarily related to manufacturing) are the critical enablers to transform the core and expand the digital presence of enterprises. As digital implementations are in initial phases, so enterprises are looking for capabilities (technology expertise, identifying use-cases across the value chain) for service provider selection. Once the digital applications are stabilized and matured, the focus would be more on the quality of service delivery. 


The Bottom Line: Service providers should leverage technologies to realize the transformation goals of enterprises in the IoT and Industry 4.0 space.


To survive in this digital economy, emerging technologies help create a competitive advantage, enabling enterprises to generate value, reduce operating costs, and transform business models. Applications of emerging technologies are changing the expectations of industries, markets, and businesses. Thus, enterprises expect that technology service providers can support their digital transformation journey and leverage emerging technologies. IoT and Industry 4.0 are the front runners among these emerging technologies, and they are transforming the way business is done in the new digital economy.


Emerging technologies are opening new lines of business for some firms. Working on emerging technologies such as IoT and Industry 4.0 often requires an entirely new operating model for a business, and it needs to be approached with different strategies than a traditional model would require.

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