TL;DR
● Markets are shifting like quicksand under the feet of OEMs; broad segments are going to be reshaped and redefined because of COVID19 driven changes.
● Customer behaviour is changing at warp speed; specifically remote, distributed workforces on supplier and customer sides will drive the need for new interaction processes.
● Buying habits will change dramatically across the board – B2B end-users will act as they do in their personal lives, wanting to get control of the buying process. In other words, research, recommendations, social validation and proof, and eCommerce ease.
● Massive generational shifts are underway across the workforce with ageing populations in most developed economies, coupled with fewer younger employees entering the workforce. It’s the perfect recipe for resource crunch of massive proportions.
● OEMs are not ready for these changes. The weak will perish, and only the nimble and agile will survive. Digitization of all processes, especially customer-facing ones, is critical to set up for survival and success
“Like frogs in a simmering pot…”
If there’s one thing I learned from my three decades in the industrial OEM business, it’s that the more things changed, the more they have remained the same. We’ve been like frogs in a simmering pot, doing just enough to adjust to that one-degree rise in temperature but nothing more.
Entire industries are being affected, very few positively
The headwinds and pressures facing OEM CEOs have never been stronger. COVID 19 just dealt a blow not only to 2020 plans but possibly next year as well. Here are a few market shifts that would play out across three distinct aspects of your business. These transitions will affect end consumers, industrial OEM employees & your customers.
Commercial Real Estate
Weeks of remote, stay-at-home work will make companies question the need for big, expensive offices. That will undoubtedly have a significant impact on the Commercial Real Estate market. With that comes a downstream effect on companies that provide goods and services to the building owners, like HVAC, controls, elevators, etc.
While commercial offices would see a dip, there is still space for cheaper co-working spaces that would be preferred by younger companies that will rise out of this recession. A boom in eCommerce also means warehouses may see higher demand than ever before.
eCommerce leaves retail stores in the dust
eCommerce is accelerating in the consumer market even for daily staples like groceries, pharmacy items, and restaurants, which means fewer stores, fewer malls, less fixed assets like freezers/refrigerators in grocery stores, commercial kitchen equipment in restaurants, etc. The prospect was grim for retail stores before COVID hit us in 2020. With the rapid change in consumer behaviour & reduced spending, retail stores may bear the biggest brunt of this recession.
On the other hand, we can expect a boom in the commercial kitchen space as online orders become the norm & travel declines.
Travel industry grounded for a while
Travel is going to change dramatically – fewer trips, maybe more day trips instead of being out on the road for days on end. Fewer long-haul international flights and more remote connectivity – what does all of this mean not just for airlines, but for their suppliers, which include airframe makers, engine suppliers, catering companies, and in turn, their suppliers. Closer to earth, depending on how the current oil price war plays out between major oil producers, we may end up finding fewer cars on the ground, decreasing demand for automotive equipment, and parts.
Hospitality closes its doors
Hotels – what will be the future for them? Consumers have fewer dollars to spare on entertainment and luxuries, so hospitality would have to live with far lower occupancy than usual. The lockdown is not expected to open up at once across the states and across the globe. Even those who want to travel for work or for leisure would be left with very few options. With fewer travellers, who would feel the most impact? Large chains? Small boutique hotels? Regardless, the result will be fewer investments in fixed assets…
Oil & Energy – powerless & rudderless
Enough can be written about the ongoing oil oversupply & resulting price drop to fill pages. Prices are at 20+ years low coupled with minimal consumption, and a full recovery of oil consumption may run into multiple years or even decades. However, one thing is for sure at the moment- there is an overabundance of supply coupled with very few drivers on the road; and even fewer travelers in the air. Petrochemical and refining volumes will decline. What happens to the new builds that industrial OEMs were planning? What happens to their pipeline capacity?…
Is there an app for it?…
Undergirding all of these changes is fundamental consumer behavior change. eCommerce has accelerated at unheard-of speeds, completely changing the retail landscape. The companies that are thriving are ‘digital natives’ such as Amazon, Netflix, and the ones who were already on the path to adapting to the new digital paradigm. Virtual sales are the norm now, and even the most hardened, veteran sales folks are eating humble pie trying to figure out Skype/Zoom teleconferences and the digital means of sharing a technical spec document on a screen.
“Kids don’t grow up working on cars or fixing stuff anymore. Instead, if they need an answer, they’ll look it up on Google.” – Mike Janicek, Manufacturing Engineer (The Information, April 30, 2020)
The industrial OEM’s customer is changing & evolving too. After weeks and months of purchasing with a click, or reading Yelp reviews before buying, how are B2B buyers going to behave in their work environments?
Will they go back to the old “green screens”? Look at multiple Enterprise apps, with their old clunky, broken workflows and terrible user experiences? How will personal buying habits translate into B2B experiences? Will they ask for more proof points before buying? Will they be content with the legacy mode of selling & marketing as their resources become constraint? Will a competitor swoop in with promises of better service & delivery, and will the B2B buyer switch sides now that they are used to the phenomenal levels of attention, curated sales workflows, data-driven marketing that they are used to from the digital natives.
The talent gap is widening at an alarming pace
Between 2016 and 2026, 27% of skilled and unskilled manufacturing workers in the US are expected to retire – the Society of Human Resource Management. Ref: Preparing for an Aging Workforce: Manufacturing Industry Toolkit
In 2019, approximately half of the total employment in durable goods manufacturing was 45 and older, with about 25% being 55 and older. Ref: Labor Force Statistics from the Current Population Survey
With headlines like this, what’s a manufacturing CEO to do? It is not just that the workforce is getting older; fewer younger workers are entering the manufacturing workforce. Ref: Civilian labor force participation rate by age, sex, race, and ethnicity. In other words, employees are retiring and not being replaced by younger workers at an equivalent rate. There is a pressing need to fill the workforce gap.
This is most definitely true in technical professions, where the years of underinvestment in STEM and vocational education are catching up to industry with significant consequences. A vast generational transition is underway in developed countries, especially the US, EU, and Japan.
There are two major ramifications of this transition:
- With fewer workers entering the workforce, companies have to make their employees more productive, making sure they can ‘do more, with less’.
- The younger workforce’s work habits are going to be different. For OEMs, their employees are more likely to be millennials or younger, with distinct personalities, preferences, and opinions about how work should get done. They will not abide by the antiquated technologies their predecessors used in their day to day lives – their productivity would drop navigating what feels like an alien analog world when compared to their digital lives.
I am sure by now you have understood that the pot has boiled over & it’s time for industrial OEMs to do something substantial to change the course. We are not in another recession – we are heading towards a significant ‘churn of the century’ event.
So let me just say it: OEMs have no choice but to digitize their entire businesses because, if not, there won’t be a business any longer. Of course, I am being a bit provocative, but the main point is “if not now, when?”.
What was once a luxury is now a necessity & the first-mover advantage incomplete digitization would help an OEM not just thrive this recession but exploit the opportunities that come with it. Industry leaders have long used the volatility of a recession to disrupt the market, or in other words, “create a market” that fits their strengths.
There are examples such as Emerson Electric which was quick to restructure & reallocate assets to support rapid new product development during the 2001 recession. Consequently, it remained profitable during the downturn with its stock outperforming the market.
But disruption comes when you know what you are capable of. The industrial OEM performance during the good times is certainly no predictor of the ability to survive, let alone disrupt an entire market. Innovation & ingenuity will happen when industrial OEMs know everything there is to know about their customers.
This includes knowing who their customers are (you’d be surprised the number of times we have had companies discover customers that were untouched for years and forgotten), knowing what was sold in the past, what equipment has moved quicker and what has not, understand who will likely buy (here’s a clue: it’s unlikely to be a new customer), who will extend their contracts and who wouldn’t, which equipment requires the most parts/services/consumables, what needs to be upgraded, amongst other things.
Getting all of your installed base data together will present to you the most comprehensive picture there is to power everything from a strategy to win some additional service contract of an existing customer to driving new product innovations. This will be a single source of digital truth for all of your customer-facing teams and provide them with reliable actionable insights to power their next move.
I can sense what you are thinking – we know our customers & we know our installed base…after all, we’ve done business with them for the last ‘x’ years. But here’s my question back to you – do you know all of your customers? Or does that list stop at the top 10 or top 20?
One of the most important lessons from previous recessions (and I cannot emphasize enough how strongly it applies to industrial OEM) is the one from Bain capital that was published in the heart of the 2008 recession ref: In Chaos Lies Opportunity.
The distilled takeaway is – industry leaders fail because they consider a strong market presence as insurance against failure. The leadership fails to take precautions (whether through overconfidence or through fear) and resorts to the same old playbook and pulling the same-old levers. And our experience tells us that in industrial manufacturing, digitization & getting all of the data in one place is “the last page in the appendix of the playbook”.
In conclusion, my most urgent suggestion to industrial OEMs is that they start digitization today & start with customer-facing processes as these affect everything “downstream” from the customer to the supply chain, procurement, manufacturing, employees, and so on. Your key to surviving, thriving & disrupting in this recession lies in your installed base.