For the past several decades, industrial equipment manufacturers have been growing through acquisitions. Applying such a strategy has given them the opportunity to expand their capabilities and capacity to succeed. Reports suggest this may continue at least in the short term; however, to meet increasing demand, manufacturers might need to squeeze even more productivity out of their acquisitions.
Equipment manufacturers are facing considerable challenges in terms of meeting growing demand with shrinking capacity. This is placing them under pressure to decide whether to increase capital investments based on the belief that the market will continue to grow or get more out of their existing assets to both capitalize on today’s opportunities and be prepared for a market that may weaken. In contemplating their options, companies should consider making more effective use of the capability and capacity of their acquisitions.
Generating growth by acquiring additional companies is a trend that seems to be continuing among leading OEMs. According to Accenture research, “Insights from the Accenture Global Manufacturing Study,” 35 percent of industrial equipment producers polled said that they planned to grow at least in part through inorganic means, with about 58 percent of those companies indicating they would use mergers and acquisitions as part of the mix.
However, companies built through acquisition can find it difficult to manage the business as a single organization instead of a collection of semi-autonomous businesses. Accomplishing the former is vital to unlocking hidden capacity across the enterprise by more effectively capitalizing on the synergies of the operations that have been purchased.
A key approach to achieving this goal is to focus on the organization’s production system. A production system, made famous by Toyota, can aid companies in creating and deploying modular and consistent capabilities. These capabilities, in turn, can enable them to quickly and dynamically allocate manufacturing capabilities across facility operations in response to changes in their markets.
In essence, a production system is an integrated and value-driven management system that enables consistency, continuous improvement and elimination of waste in manufacturing environments, driving flexibility and agility across the business. Increasingly, organizations are using their production systems and supporting resources as the platform for transformational change. Such change is needed in many companies to more effectively integrate acquired assets and capabilities, and be better prepared to respond to present and future demand.
Six elements are critical to building a comprehensive production system to help equipment manufacturers realize the full potential of acquisitions:
- Strategy and guiding principles. Equipment producers should use a comprehensive framework to align business strategy and value-targeting with expected sustainable results.
- Capability management. An organization’s manufacturing resources, including people, processes, technology and policy, must be linked to the company’s business strategy and coordinated with generating value.
- Change management. It is also key to develop a culture focused on continuous improvement and change, aligning the culture, organization, skills, talent acquisition, metrics and rewards with this objective.
- Technical management. In addition, OEMs should coordinate critical information technology (IT) systems with manufacturing capabilities to support meeting value-targets.
- Lean principles. It will be important to practice these principles that are the foundation for driving greater customer focus, process standardization and waste elimination across the operation.
- Governance. Establish a process and framework for managing value realization and the execution of continuous improvement.
While demand continues to grow in today’s industrial equipment market, the future is uncertain. Given this, the best course of action for IE organizations will be one that allows them to both deliver profitable growth and avoid the risk of increasing capital investment in a market environment that could shift. Unlocking the capability and capacity hidden inside acquisitions is one way that can help equipment organizations sustain success now and in the future.