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Image credit – McKinsey (TRS is Total Returns to Shareholders)
The Coming Industrial Sector Value Explosion
We regularly write about new technology and share our take on its likely impact on industrial manufacturers and distributors, so a new McKinsey analysis of potential margin, revenue and shareholder value benefits from tech enablement of industrial sector caught our eye this week. Please read the article for yourself because, “tech-enabled transformations in the industrial sector are still in the early stages… An early mover with the right strategy could not only grow profitably across the board, but also leapfrog over competitors and capture disproportionate value by gaining market share.”
They say, “performance at global industrial companies has been flatlining for years, but new innovations in data, connectivity, and cheap processing power and storage may soon jump-start performance.” and their article, “The trillion-dollar opportunity for the industrial sector: How to extract full value from technology” explains how.
McKinsey recommends taking a step back to measurably understand where you are now, then re-imagine every aspect of your business, “to see where technology could unlock the greatest value” before deciding exactly what you want to achieve and in what order. They cite some companies being overwhelmed by the potential of a new technology, for example the Industrial Internet of Things (IIoT), then jumping straight into introducing IIoT applications/services for their products. An industrial distributor instead of creating IIoT-enabled services, might be able to improve margins much faster by adopting analytics-based pricing or digitizing their selling process.
Their advice – don’t just use technology to make your current business model a little more efficient, but rather re-imagine how the business could be transformed and set new aspirations for it. They give the example below of how an OEM might re-imagine all five elements of their business though they point out, “whether a company focuses on two or three of the business elements or looks to create value from all five through tech enablement … will depend on the nature of its business and its position in the value chain … examine all the elements in detail before deciding on the best approach.“
Bold aspirations are to ensure your changes don’t just reinforce the status quo. Of course the new technologies will need to operate with legacy systems and existing workflows. For example, if our OEM above adopts an IIoT based predictive maintenance solution, a customer’s system detects an equipment problem and automatically requests the OEM send a service rep to carry out unscheduled maintenance. For this to work, the OEM has to integrate these requests into its service processes so reps are sent out promptly. Integrations close the loop and metrics measure the value improvement.
As always, if you have comments or suggestions please make them below, click to ask us a question or call for a discussion. In the meantime we’ll continue to keep you up-to-date on new technologies impacting industrial suppliers – next month on Blockchain in Manufacturing, the Reality after Hype and Hope!