Last week, I had the pleasure of being able to visit multiple customers across Europe. While the challenges of the past 2 years (covid, supply chain, etc) are easing, a whole new set of challenges is testing OEMs as they deal with increased economic uncertainty. Being able to engage in person is critical for enterprise technology partners (like Entytle) to truly understand those top challenges, work on how we might help address them and build the trust-based foundation critical to a successful partnership.
First, many of our customers (equipment manufacturers) are seeing the impact of a changing macroeconomic environment. In many verticals, there is a slow-down in capital equipment purchases – whether driven by demand, interest rates, decision deferral, or a combination of other factors. While this has an obvious impact on top-line revenue, it has other implications, such as further underscoring the importance of (or requiring an offset from) ‘recurring revenue’ – i.e., service, parts, digital solutions, and other aftermarket offers. The revenue, and more importantly, the profit/EBITDA, associated with these recurring revenue streams is even more critical. Then the question becomes – how can we shift from our traditional ‘reactive’ (answer the phone) mindset to proactively growing this revenue?
Second, while layoffs indicate some aspects of the economy might not be as hot as before, there is still a large talent gap, particularly in areas such as field service technicians, account managers, and leadership. For the field service technicians, this is compounded by the increased focus on the service above, which makes having service capacity even more critical (and in many situations, lack of available capacity meant not being able to grow the aftermarket service business).
In addition to the areas like field service with obvious gaps in capacity, there are also more subtle challenges resulting from the generational shift that is in progress. While an equipment manufacturer has historically depended on long-term, loyal employees to maintain the understanding of customers, that is shifting. The expectation for a new 25 or 30-year-old that joins an organization is that they will be lucky to be in the role or in the company for 3-5 years instead of 30 years. Each of the executives I met with expressed this similar fear that the tribal knowledge that their business has become dependent on will likely retire and will not be replaced in the same manner moving forward.
Of course, the increase in economic uncertainty has caused many equipment manufacturers to focus on cost. Technology is always an area that is scrutinized for cost. One dimension that surprises me (even if it shouldn’t be at this point) is how internal technology projects vs spending with external partners are evaluated so differently, especially with regard to the risk associated with internal ‘build’ projects as opposed to external ‘buy’ projects – both success risk and cost risk. The cost focus also leads to new hiring freezes across the board and to push the ‘more with less’ mantra for their initiatives, often introducing additional risk beyond what was factored into the initial initiative decision.
Lastly, while equipment manufacturers are progressing in their technology maturity, there are still struggles. There are numerous ERP, CRM, and data-focused projects that are struggling to achieve the expected value (and of course struggle with timeline and cost as well). Some of these are obviously complex (i.e., ERP integrations), while for others, the complexity seems to reveal itself like layers of an onion. CRM project struggles seem to be a consistent thread – whether it be getting good enough data to make a CRM valuable or driving the change management process of digitizing legacy workflows within a CRM.
While the equipment manufacturing space has many challenges, there are huge opportunities for those that can put in place the right people, process, and technology to execute. It is exciting to partner with many of these forward-thinking organizations and help them go after these opportunities.