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Catalytic Growth Strategies For Equipment Manufacturers

How Should OEMs Be Thinking About New Smart Systems Growth Strategies?

While many companies continue to use traditional approaches to strategy development and some even succeed in this way, Harbor has seen over and over that the biggest winners are those that take firm control of their growth strategy and shape their competitive arenas. These are the companies we call “catalytic.”  Just as a chemical catalyst hastens the rate of a chemical reaction, companies with catalytic strategies shape their worlds at rates that take the competition’s breath away.

In chemistry, a catalyst works by altering the sequence of intermediate compounds that leads to the one ultimately desired. In catalytic strategy, then, the strategist must map out the sequence of strategic steps in order to begin thinking about whether a swifter or more unique sequence can be achieved by catalytic action.

What does an OEM have to do to make catalytic moves possible?  What strategy maneuvers should OEMs consider to leverage Smart Systems and IoT technologies? How can OEMs make their own people, capabilities and partners catalysts, unleashing their power to create, define and master markets?

While we strongly believe Smart Systems and IoT technologies will play a central role in OEM’s strategies going forward, we have also observed how difficult it’s been for many OEM’s to integrate new digital and IoT technology into their core business.  As the pace of Smart Systems and IoT technology adoption increases, many managers will be challenged by the trade-off decisions they will face.  Should we invest more in the core business or invest more in new innovations and new growth ventures?

When traditional business practices, company culture and operating models inhibit the required creativity and speed to effectively drive new customer innovation and value creation or, when traditional operating models constrain the organization’s ability to develop new technical skills or organizational capabilities, that is when an OEM needs to seriously consider alternative innovation modes and non-traditional growth ventures.

Today, the subject of corporate ventures and related maneuvers does not inspire many executives, especially in the conservative cultures that often exist within machine builders and equipment manufacturers. We believe that like a pendulum swinging, corporate ventures suffered a bad reputation starting as far back as the run up to the Internet bubble burst in the 1990s.  However, because the many challenges associated with embracing digital and Smart Systems technologies are now clearer and better understood, we believe the pendulum is likely swinging back.

If OEM management teams will need to live in two distinct contexts – running their core business as efficiently as possible while also being able to identify new and novel product and systems innovations, then it is very likely we have entered a chapter in the marketplace where non-traditional growth ventures and vehicles will become more common.

Developing autonomous growth ventures in parallel with the core business raises challenging operating model questions. To what extent should a new growth venture re-define elements in the core business? How, when and in what manner should the new business be integrated into the core?  How will leadership make critical allocation decisions around skills, people, talent and investments?  All of these questions lead to a very basic question, is it better to create new growth ventures or does it make more sense to keep an eye on similar external developments and players in the market and then either invest or acquire the new growth business?

OEMs need to think about new growth businesses in a manner that transcends their core products or services. OEM business strategists need to creatively imagine fully developed application solutions, ecosystems and whole marketplaces. In our experience with clients, most OEMs are significantly challenged in their development of new growth ventures. Today, OEMs willing to act tend to select only one of many potential sources for their new ventures:

  • Internally via spin-off of sound new business ideas that surface in existing core businesses, but where the culture and operating mode in the core do not permit them to survive beyond early R&D or development;
  • Autonomous ventures often developed via a corporate venture function or similar for new high potential innovation and business concepts such as IoT platforms;
  • Externally via acquisitions and minority equity investments; and,
  • Externally via joint ventures created collaboratively with customer and/or partner inputs and development.

Accordingly, the strategies and organizational approaches adopted by many OEMs today reflect their focus on only one source of new ventures.  In contrast to these more limited approaches, we believe OEMs need to move beyond their “comfort zone” and focus on synergistic market opportunities that expand an OEM’s footprint beyond their core with new growth venture development strategies that leverage a more flexible mix of these approaches – determining the best mix and the most viable “vehicle/s” for new customer solution opportunities.

In this disruptive age of Smart Systems and the Internet of Things where computing is now migrating towards and embedding itself into the physical world of “things,” a new generation of  OEMs are employing catalytic maneuvers to drive customer value and differentiation. Companies like Rockwell Automation, Xylem, Acuity Brands, Fortive and Danaher have learned to actually accelerate the development of markets and use the resulting change and complexity to their advantage. Their unique and innovative business systems work to give them great advantage.  Catalytic strategies don’t just hasten market development, but help structure markets and competitive environments to give distinct advantages to the business innovator who moves first.

Xylem, the water technology company spun off from ITT Corporation is a good example of a market and technology focused player utilizing smart systems and services to drive growth and value creation.  Xylem has focused on bringing together internal [organic] and external [acquisitions] to broaden its portfolio and capabilities to address equipment monitoring, control and data analytics to drive new growth opportunities in the water management systems arena.

Its acquisition of Sensus in the utility metering space as well as a slew of other “augmenting” and “extending” maneuvers are being integrated into a re-structured organization to create new lines of business in software, analytics and smart water infrastructure.

OEMs need to take a more holistic view of new non-traditional growth opportunities that can include ventures that address innovations in the core business as well as collaboration with customers and partners.  When multiple parallel modes of new venture development and Innovation are correctly applied, OEMs can create new internal growth ventures and engage with external organizations at differing stages of development in a structured manner.

New growth modes and ventures establish a more natural environment to enable new and unique customer solutions and nurture the skills required to develop and support them. New growth vehicles can become the “staging area” to creatively embrace new Smart Systems and IoT technologies.

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