The general industrials sector is on a stable growth path after a number of trying years. Having been through a difficult process of restructuring and leaning out manufacturing operations, companies are working on top-line growth again. However, intense global competition from emerging low-cost / high-capability countries continues to present formidable challenges, both in managing cost levels and in differentiating through innovation to constantly provide more value. Finally, the more stable growth allows players the opportunity to look further up and down the value chain to assess new opportunities to grow.
- Managing revenue: The first challenge in managing revenue is to develop a clear business and product strategy that will leverage existing capabilities and ensure competitiveness. The second challenge is to build a superior and competitive innovation engine, supplying new revenue — generating products to the market, thereby providing trade-offs and differentiation against a purely cost-based model. The third challenge is to create an effective go-to-market model, including an active management of the value delivered, constantly striving to find new ways of creating value for customers.
- Managing cost: Cost is and will remain a focus area for any competitive industrial company, and it needs to be addressed across the board. Leveraging global capabilities is an imperative if a company is to maintain a competitive cost position, not just to broaden the revenue base. This is not simpy a matter of low-value manufacturing, but increasingly a matter of leveraging advanced manufacturing and engineering design capabilities in low-cost / high-capability countries. Meanwhile, manufacturing processes as well as engineering and overhead must be leaned out. One way to manage costs is to create a new supplier model built on a joint cooperation with key suppliers, as opposed to the traditional method of constantly rebidding on the basis of price.
- Managing value chain participation: The back-to-basics movement risks causing players to ignore the substantial strategic and profitability opportunities available through greater participation in other areas of the value chain, including parts, service, new wraparound services such as insurance, and even downstream sales transactions. Industrials are justifiably skeptical about many of these services, but some areas may provide good opportunities for companies that temper their aggression with caution.
As one of the leading management consultants to the global general industrials, PwC’s strategy consulting team Strategy& has helped senior executives at leading companies in North America, Europe, and Asia address critical strategic, operational, and systems issues. Strategy& has helped clients turn marginal market returns into exceptional returns. Integrated changes truly differentiate players and help clients to not only take cost out but also to attain margin improvements.