Digital technology is giving industrial equipment manufacturers the opportunity to focus more on satisfying increasing demand for product and service outcomes, as well as product functionality. To succeed in the long term, however, they will need to develop new digital business models that not only help them respond quickly to such changing needs, but to grow as well.
Today, virtually every product has become a sensor or smart node that, connected to the Internet of Things (IoT), requires support from a digital platform to become an effective product or service. For example, farm equipment suppliers now offer tractors supported by a larger platform that can include everything from precision agriculture capabilities to remote support as part of the purchase. Tire manufacturers are using sensors to collect tire pressure and temperature data from trucks and then offering that data as an add-on service to fleet managers and insurers.
Creating business models that deliver such outcomes will help OEMs generate new revenue streams that can boost profitability on average by 10 percent by 2020. In addition, executing new models between now and 2020 will help differentiate them in the marketplace and provide a path to take advantage of a major digital transformation. From 2020 to 2025, new business models will have significant digital potential in all equipment segments, and companies should consider developing them now to lead in the market.
From 2025 onward, new opportunities in products and services based on digital technology also are expected to experience major growth.
Capitalizing on digital
To take advantage of this growth, OEMs will need to partially digitize their existing value chain, focusing on internal operations such as R&D, manufacturing and support functions, as well as external-focused activities such as marketing and aftersales. Taking these actions will provide the foundation for implementing new models that create operational efficiency, satisfy digital customers, and produce greater profitability.
In terms of internal operations, digitizing R&D and manufacturing processes will result in greater efficiencies that will be key to optimizing operations. Manufacturing, for example, generates more data than many areas of the business. Harnessing data can boost equipment utilization, reduce the factory footprint, and lessen sourcing complexity. Digitizing R&D, manufacturing and support functions can contribute an average of 21 percent to earnings before interest, taxes, depreciation and amortization (EBITDA) by 2020.
The potential for digital growth can be particularly leveraged by external operations like marketing and sales that engage in direct online interaction with customers. Such interaction can help satisfy rising demand for customized products and additional services available via connected products.
Accenture research shows that taking this holistic approach to digitization can greatly benefit several equipment segments. Automotive suppliers, for instance, have the potential to increase EBITDA by 31 percent, industrial electrical companies by 42 percent, heavy equipment companies by 78 percent, and consumer durables companies by 29 percent by 2020.
Engineering the future
Digital is the new definition of business. Industrial equipment companies that are well along the digital path or that soon will be have a true competitive advantage for the coming years. Other companies pursuing the same path should consider taking the following steps:
- Assess the gap between where the organization is today and the company’s digital vision. As the gap becomes apparent, so will the steps needed to bridge it. Be sure to create a solid business case with appropriate performance measures for the areas to be covered.
- Gain digital traction by developing rapid prototyping and design capabilities that are mandatory in this new environment.
- Operate in dualities. Only equipment companies that pursue partial digitization in tandem with new business model development will gain a dominant position.
- Fine-tune the organization to be responsive in a fast-paced environment. OEMs must cultivate speed and agility throughout the organization’s culture to succeed in a rapidly changing equipment market.
>>Andy Howard, [email protected], is managing director of the Automotive and Industrial Equipment Group at Accenture. Andreas Gissler, [email protected], is managing director for automotive, Accenture Strategy.