Future Value Creation for
Machine and Equipment OEMs
Leadership teams in most OEMs live in two distinct worlds—running their core business as efficiently as possible while also trying to identify novel product, systems, and solution delivery innovations. The two thrusts often create contention, but the continuously evolving relationship between them could be fertile ground for innovation.
OPERATING A BUSINESS WHILE SEARCHING FOR INNOVATION
Multiple forces in the marketplace are driving diverse opportunities for connected product innovation. As users and customers become more familiar with Smart Systems and IoT capabilities, they are realizing that these technology innovations will push the boundaries of how products, systems and equipment are managed today. This will, in turn, increase pressure on OEMs to embrace these capabilities.
However, traditional business practices, company cultures, and operating models inhibit the required creativity and speed to effectively drive new customer innovation and value creation in many OEMs today. Leadership teams in most OEMs live in two distinct worlds—running their core business as efficiently as possible while also trying to identify new and novel product, systems and solution delivery innovations. The two thrusts—operating the business and enabling new innovations—often creates contention.
Core OEM Businesses
New Challenges for OEM Leadership
The business environment for OEMs has entered another chapter, with new challenges and unfamiliar technologies impacting virtually all of the diverse players and segments across the OEM arena. Even though the journey forward will differ from company to company, we believe leadership teams in OEMs are facing several common forces in the marketplace, including:
New Non-Traditional Growth Opportunities: Sources of new growth are shifting away from just growing with the market, entering new regions, or taking market share from peer players. For many OEMs, growth is rapidly shifting beyond their core business to broader product/system/solutions offerings, integrating new embedded digital capabilities, or expanding vertical integration—particularly leveraging new services and value-added customer support.
Changing Sources of Competitive Differentiation: Competitive differentiation is shifting away from traditional sources—such as product/brand position, scale and available capital, low cost manufacturing, product portfolio, and channel or customer support capabilities—toward a new focus aimed at areas such as digitization and IoT-enabled product innovations as well as partner and ecosystem development.
User and Customer Experience: IoT and connected product technologies are enabling radically new user and customer experiences and informing equally disruptive business models. Understanding user and customer preferences, behaviors, interactions, and the technologies that can inform unique user experiences can create new differentiated offerings. This will drive a shift toward understanding how “intelligent” products are experienced and how “networked” products foster diverse interactions between and among manufacturers, users, application developers, technology sourcing partners and channel participants in a networked context.
Smart Systems Innovation and Optimization: New digital and IoT technologies will drive a multi-year wave of growth based on the convergence of innovations in embedded software, machine intelligence, and data and information architectures integrated with networked sensors, actuators, and client devices. These technologies will work together in unprecedented ways to solve more complex business problems than previous generations of automation, control and computing technologies. These new capabilities will revolve around real-time situational awareness and automated analysis of “states” and operations. As a result, technology will move beyond just proposing task solutions—such as executing a work order or a sales order—to sensing what is happening in the world around it, analyzing that new information for risks and alternatives, and taking actions.
Go-To-Market and Value Delivery Networks Drive Strange Bedfellows: As the complexity of these systems continues to increase, the number and diversity of stakeholders, users, sellers and supporters interacting with these systems will also rise in a way that creates a “social system” comprising new, unfamiliar relationships—a phenomenon we call “strange bedfellows.” Leveraging new digital data value inherent in connected products and systems will require new infrastructure and enabling technologies. These will, in turn, guide the formation of new and different market relationships and alliance networks encompassing complementary equipment and device OEMs, as well as third party application developers and services providers. We believe that within this solution delivery ecosystem OEMs will need to make conscious decisions about their evolving roles and position in market delivery alliances and networks.
New Business Models, Skills, and Organization Designs: The technical innovation driven by Smart Systems and IoT technologies, coupled with diverse and changing relationships between and among complementary players, will likely lead to changes in market structure, shifts in the sources of profit and value creation, and thus new business and operating models. Identifying and designing new business models along with developing the new skills, capabilities, systems and organizational relationships they require will be critical to success.
OEM Business Models
For more perspective on software-focused growth ventures, read Harbor Research’s “The Software Paradox.”
SHIFTS IN THE SOURCES OF PROFIT AND VALUE CREATION
We believe the market for “smart” value added systems and services will continue to experience significant growth, driven by several forces, including:
- The increasing sophistication of systems that customers want to deploy
- The growing desire on the part of equipment OEMs and their suppliers of components and sub-systems to develop new ways to differentiate themselves (i.e. increasingly flexible machine designs), and
- The impact of new digital and computing technologies on delivering services (particularly remote network-enabled data and analytics services)
The technical innovation driven by software and digital and IoT technologies, coupled with new business and revenue models as well as the changing relationships between and among complementary players, will cause changes in market structure as well as shifts in the sources of profit and value creation.
Winning positions in numerous domains and applications will generate attractive growth and profitability for the OEMs who creatively leverage the contention between their core operating models and the need to foster new and novel customer solutions. OEMs need to make these two worlds mutually supportive without one inhibiting the other.
Many of the OEMs we speak and work with are coming to see the continuously evolving relationship between these two dimensions as fertile ground for innovation. The two worlds need to be interwoven and mutually supportive. In fact, we believe success in either will increasingly go to the company that effectively utilizes the combined potential of both. ✦
To continue exploring this subject, read our Insight “Catalytic Growth Models & Strategies for OEMs.”
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