Capturing value in machinery and industrial automation as market dynamics change

| Report

The global machinery and industrial automation sector has been in a well-balanced equilibrium for decades—with only small shifts in revenue and market share, in the low single-digit percentage range. Now things are suddenly becoming exciting again.

This is because there seems to be a clear and widespread consensus among pundits and the sector’s players that two emerging global megatrends in their industry—shifting growth patterns and the increasing pace of digitization—will have a severe impact on strategic control points and value pools, forcing companies to rethink their business model (Exhibit 1). The trends’ effect on value pools are especially critical, because the ability of the sector’s players to hold on to the value they claim or capture the new value being created, or both—and to stake or maintain a claim in the new machinery and industrial automation landscape—is directly tied to their ability to occupy strategic control points along the evolving value chain.

Two trends are strong enough to aect the discrete manufacturing ecosystem.

Due to a lack of research and the complexity of the questions involved, however, very little is known regarding several issues:

  • what the resulting changes of shifting growth patterns and digitization will look like
  • how they will affect the different archetypes of players
  • which archetypes or players will be the winners or losers of the game
  • how individual archetypes or players can improve their chances of capturing the opportunities and address the challenges or threats

Our new report, Changing market dynamics: Capturing value in machinery and industrial automation, seeks to fill gaps in the knowledge base by laying out the shifts ahead and suggesting a path forward for companies in the industry.

Currently, most established players—OEMs, automation-device suppliers, and machine-control suppliers—are working on strategies to cope with shifting growth patterns and the resulting mix of unexpected high demand and declining growth in more mature technologies. At the same time, these players are preparing themselves to be best positioned to claim a share of the additional value expected to be created by digital manufacturing solutions, which we estimate will double to €32 billion worldwide by 2025.

The disruptive trend of digitization also attracts new players to participate in the market, especially in the space of software, platforms, and application providers. This diversification challenges the foothold that established players have enjoyed on strategic control points, for example, the machine-control layer in the automation technology stack. While the strategic cornerstones are often obvious and similar across players—for instance, securing core business, capturing additional value from digitization, and increasing internal efficiency—the exact chances of success of individual strategic measures and the threat from competition remains uncertain.

Against this challenging backdrop, in our report, we explored a few areas in particular:

  • The sector’s status quo and key characteristics. We organize and take stock of the global machinery and industrial automation industry. The resulting overview serves as a basis for understanding why and how the industry can be expected to change.
  • Where the industry is heading and what the top priorities are. To this end, we turned to the players themselves: our insights are drawn from a financial analysis, a survey of players, and interviews with industry participants and experts (see sidebar, “How we derived insights for this report”).
  • How to navigate. We looked at ways every company in this diverse set of players can best navigate the emerging industry landscape and develop a strategy that best positions them to hold on to the value they currently claim, capture the new value being created, or do both.

Our research and analyses yielded the following key insights, which are explored in greater detail in the full report:

  • Growth in machinery and industrial automation varied at a granular level. By player type, revenue growth has ranged from 3.7 percent all the way to 6.7 percent, with margins trending up for some and down for others. Geographically, demand shifts in one region are affecting production in others.
  • Digitization is giving rise to new business models. Software development and data analytics are supporting business models that extend beyond the production and sale of hardware. Software-enabled and as-a-service business models will go from about a third of sector revenues today to more than half in the near future.
  • Relevance of control points is shifting and ownership is up for grabs. OEMs and system integrators own many of the key control points today. An evolving machinery and industrial automation ecosystem, however, both opens the door to players controlling them in the future and grants new strategic importance to control points that were less critical in the past (Exhibit 2).
  • A lack of both digital capabilities and profitable business cases are significant challenges. Machinery and industrial automation companies will need to adopt a way of working that values, enables, and encourages customer cocreation, builds capabilities (via acquisitions or partnerships) and that attracts top talent in order to capture the value of new business models.
  • No single path, but a clear guiding principle. The forward-looking strategy for machinery and industrial automation companies will need to consider their individual aspirations and value-chain positions. All companies, however, should focus on the most attractive opportunities that also align with their strengths and emphasize their core business.
Survey respondents expect a strong shift of strategic control points, forcing them to adapt their business models.

Download Changing market dynamics: Capturing value in machinery and industrial automation, the full report on which this article is based (PDF–1.17MB).

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