Succeeding in the Recovering Economy

Feb. 1, 2011
As the economy improves, customer orders are rising again for industrial goods manufacturers. Yet, while this is encouraging news, to succeed in the recovering marketplace, they will need to overcome a new set of challenges.

Most industrial goods companies drastically cut costs, instituted radical savings programs, put major investments on hold and adjusted customer pricing to survive during the economic crisis. But such solutions are no longer an option in the emerging market, in which customers have come to expect low price levels as the new standard, investment must be re-energized to satisfy increased demand, and operating costs are sharply on the rise again.

Then too, the trend toward customized products and the need for companies to work with ever-larger consortiums, including international alliances, are adding to the market’s complexity. Overcoming these challenges to master economic recovery profitability will require that companies make a fundamental change in how they operate.

Although the business environment is getting better, it will be important that companies remain aggressive in their marketing. This includes improving the efficiency of the sales force globally through training programs, enhancing transparency by systematically employing customer relationship management (CRM) solutions, intensifying customer interaction through systematic, key account management programs, and increasing the professional competency and knowledge of salespeople by using Web 2.0 social and interactive networks.

Second, there remains a potential opportunity to reduce purchasing costs. While many companies already actively manage the purchasing of direct materials, there is still considerable potential to be realized relative to indirect materials. Many companies would be able to save up to 30 percent of their costs in this area if they managed
procurement professionally or consolidated their orders company-wide.

Customer requests for customized products are growing. This especially holds true for industrial goods companies such as engine and plant construction manufacturers where engineer-to-order—an approach that involves concept development and production of individual components all the way to the creation of entire systems based on individual specifications—is becoming popular. The trend toward customization will require that more and more companies standardize, automate and technologically support processes related to this activity.

Today’s customers, too, are seeking increasingly complex, comprehensive solutions—from international infrastructure projects to regional technical service partnerships—which require forming alliances, where many partners join together to offer solution expertise and take on the investment risks.  For companies overseeing such initiatives, it will be crucial that they establish in-house skills to manage program complexity and handle projects in a goal-oriented way.

Service portfolio

Next, focusing on primary products alone will not be enough to sustain long-term profitability, even in a robust economy. Companies need a service portfolio, which along with the primary product, offers comprehensive, customized solutions supported by effective, efficient and continuous processes. Taking this approach will help companies satisfy customers and gain a lasting competitive edge by way of repeat business.

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The sixth action involves information technology (IT). As budgets begin increasing again, if only to a limited degree, it will continue to be critical to make transparent decisions for the right IT projects, and reduce IT costs for the running operation by implementing optimal measures and maximizing the value of existing systems. This will help save money, increase revenues, and free up funds for other measures to further increase the IT value contribution.

Lastly, the economic crisis taught industrial goods companies to adjust expenses short-term to cope with a dire situation. But the new lesson is that companies that can keep costs low and align their processes, company structures and business models to the current market situation will have a better chance of capitalizing on the recovery and sustaining high performance.

James Robbins, [email protected], is a senior executive for Accenture, a global management consulting, technology services and outsourcing company.

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