Significant changes are underway in the Capital Goods industry. Companies are facing headwinds that they only vaguely anticipated and hardly prepared for.
Not surprisingly many of them have wound up, have been acquired or have shrunk to a smaller niche business where survival may be longer. So what is happening in this used-to-be comfortably boring and stable industry?
First of all, in a remarkable shift, these companies now make more money servicing machines than actually manufacturing and selling them. But services can be a very tricky business and after an early surge of success, many companies are struggling to scale this business up.
Then there is a radical change in the customer base – emerging markets have grown far beyond any projections and today account for 40-50% of order book of many companies. The rules of the game in these countries are however very different and the competition is fierce. Stripping off the fancy bits from an expensive machine is not good enough to beat an indigenous frugally-engineered machine – success requires a fundamental change to products and operations.
On another plane, staying ahead in product innovation has only become more urgent. Who would have anticipated a few years ago that little known Chinese companies will be the technology leaders in sophisticated telecom equipment and superfast trains industry? And then there is the economy which continues to wobble, relentlessly pushing companies to be more efficient while restraining long term investments.
As companies respond to these changes, they are finding their IT to be a major barrier. Systems supporting sales and service functions are no longer fit for purpose. Fragmentation and duplication stretches the time it takes to set up a new factory, enter a new country or plug in an acquisition. IT cost levels remain stubbornly fixed during business downturn. IT has also not kept pace with the increasingly global nature of the business. In short the challenges abound. But where there are problems, there is an opportunity – and this time, in our view there is an opportunity for the CIOs to lead from the front and transform the organisation.
CIOs must start by championing a simpler organisation. More than any other role, CIOs have the best visibility to the adverse impact of organisation complexity. They need to convert this insight into an action plan, argue the case for change and lay the roadmap for a simpler and agile organisation.
Next, they need to modernise the IT estate supporting sales and service functions. Good, off-the-shelf CRM tools can be deployed to reduce sales cost, get more feet on the street and achieve continuous dialogue with customers. Services however will require more detailed assessment. Companies often have their own unique service model and the market offerings are not mature. CIOs need to be pragmatic and put in place basic building blocks that will morph and evolve as the business evolves and scales up.
Rejigging the cost structure should be next big focus. More variability needs to be introduced through usage-based pricing, virtualization etc. and cost level needs to be lowered through outsourcing, Lean IT, demand streamlining, project and application rationalisation.
Finally, CIOs need to drive the innovation agenda. Technologies such as social, mobility, analytics can deliver real differentiation and CIOs must ensure that their company is not left behind.
The Capital Goods industry is going through a radical shift. It is now up-to-the progressive CIOs seize the moment and make a fundamental change to the way business is done in this industry.
Written by Satya Samal, associate vice president – manufacturing, Infosys.
Satya heads client development and sales. He has managed several business transformations and IT outsourcing engagements for Capital Goods and Industrial Manufacturing companies in Europe. Satya has more than 16 years of experience in the technology sector and worked with McKinsey & Co. and SAP before joining Infosys.