During the week of July 11, we had the great privilege to host some of our customers for our first in-person Executive Advisory Board meeting. This group, and their companies, account for $65B in annual revenue, with an installed base of more than 6 million assets, worth approximately $1T.
It was an amazing experience and really gave us a terrific understanding of the current state of affairs in the industrial world.
Based on the discussions, our summary of the situation is as follows:
Business is generally quite good
- Record backlog – both due to recovered demand and supply chain bottlenecks
- Pricing actions (to keep up with inflation) have resulted in better operating margin over the past 12 months
- Most companies see this situation continuing through the end of this year
But most companies are expecting a slowdown by the end of the year
- Effects of increased interest rates, inflation, and the slowdown in housing are beginning to ripple through the economy
- Some companies are seeing sudden demand changes (Ukraine war effects are being felt in the EU and are already dampening demand
- There is a sense of “over-ordering” in the supply chain causing major bottlenecks – and many are worried about “when the next shoe will drop” causing business viability issues in Tier 2 and 3 suppliers (lots more canceled orders)
The industrial manufacturing ecosystem is struggling with major workforce issues – knowledge, skill, experience, and overall capacity gaps are everywhere
- Generational transitions – the Great Retirement (“Crew Change, Shift Change”) where millions of tenured, experienced workers are retiring in droves and are being replaced by Millennials and younger workers.
- Significantly reduced interest in the manufacturing trades and “hard-tech” STEM (vs. computer science) has exacerbated the shortages – not enough people want to go into manufacturing, or field services (due to lifestyle, training, educational orientation)
- Generic labor market shortages compound already bad hiring situations
- This issue is manifesting itself at suppliers, customers, and channel partners – all the way across the ecosystem, creating major knowledge gaps everywhere
These workforce issues exacerbate existing supply chain disruptions, as well as inflation in wages around the world
- Labor shortages reduce output creating supply constraints
- Labor shortages are addressed by overtime and increased compensation to attract new workers driving inflation
- Labor shortages are generally constraining revenue growth
Additionally, this new generation of workers have completely different expectations as buyers, sellers, users, and employees
- There is growing recognition that providing a superior customer and employee experience is paramount in the world where Boomers are being replaced by Gen X, Millennials, and even Gen Z.
- The new generation won’t stand for the terrible IT and operational experiences OEMs provide them today – their expectation is that they will have the same experience as they do in their personal lives
- Making themselves attractive to new workers is a huge challenge to legacy companies.
- Their ways of learning and doing are also different and mostly short-form digital
- Turnover with younger employees will be higher than in the past – requiring faster training and knowledge transfer.
OEMs have no choice but to change, but they have many challenges
- Current management is conservative, risk-averse, and would prefer to make incremental progress
- Quarterly earnings and Operating margin are still the dominant drivers of decision-making in industrials, and kicking the can down the road on major investments is more commonplace than one would expect
- Resources are stretched – both functional and IT – imperiling progress on virtually all initiatives – not uncommon to see major delays and cost overruns
- Commercial excellence has not historically been a focus – OEMs have traditionally been ‘order-takers’ – how do they leverage data and digital forms of engagement to drive true commercial excellence
BUT – OEMS are venturing slowly into modernizing their tech stack
- ERP upgrades are underway everywhere
- CRM implementation and upgrades are also commonplace
- IoT/remote service initiatives are being piloted
- eCommerce is being talked about in many OEMs
Data access is a major issue for everyone
- Walled gardens of data continue to exist in every company, hurting access of this relevant data to workers who need it
- IT becomes a bottleneck in getting data extracted for ad hoc analysis
- Access exacerbates the people challenges above
Analytics are important; however, many challenges to drive scalability
- Every company wants to analyze data differently, and different roles want to analyze data differently, and there are lots of ad hoc data analysis needs
- Their needs today will be different tomorrow
- They don’t trust what they don’t understand
Finally – data quality is a major issue that is a huge inhibitor of value capture
- Data is not clean, is incomplete, unstructured, not unified – for most, it is not in a condition to be useful for analysis
- Systems, and linkages are constantly changing – being alerted in a timely fashion to changes or breaks is critical
Everyone we met:
- Recognizes the data gaps and challenges that will challenge these modernizations
- values the single source of truth – and its value across the organization, both sales, and marketing, as well as for pricing, inventory, etc
- pointed out the gaps in the data that need to be filled and are looking to close these gaps
- prefers to do their own analysis vs. black box provided by vendors
- needs simple workflows that are easy to onboard new users and do not require switching between applications
- needs to measure the ROI from technology investments
- struggles the most with change management (i.e., Champion, resource capacity, capability & process)
- is eager to learn from others in similar situations
In spite of the challenges, both macro and within their organizations, it was inspiring to get together an impressive group of change agents. While progress is often more challenging than they all would like, it is positive, and by proactively addressing all aspects of people-process-technology (including data challenges), they are seeing real results and bringing their organizations along on this journey. It is also exciting for us to bring to life our vision of Entytle as the Operating System for the installed base – and enabling our partners to drive real change and sustainable value.