Historically, the industrial products industry has prized engineering brilliance. It should come as no surprise then that many companies are going back to engineering basics. The surprise, according to a recent study by Accenture, is that an elite group of industrial companies are becoming focused on “engineering growth,” and they are excelling in a now booming industrial equipment economic climate.
The Global Growth Opportunity
Many industrial products companies are beginning to enjoy modest growth. Despite difficult economic times in the early 2000s, this sector recently began experiencing improved GDP, increased manufacturing activity, and improved U.S. demand for durables and capital goods. All economic indicators predict 2006 and 2007 will continue to present significant growth opportunities.
While across-the-board growth may be more a matter of promising economic circumstances, a number of companies are emerging as high performers. The research indicated that a select number of industrial products companies consistently deliver above-average return to shareholders (a stock price index of 2.75 versus a 1.5 peer average) and achieve growth and returns in excess of capital costs above the industry median (net cash flow from operations of 13%versus a -9.0% peer average). Since a number of factors will continue to challenge the industry, the business practices of these high-performing companies offer a blueprint for others interested in achieving operational excellence and revenue growth.
Cracking the Industrial Equipment High Performance Code
The Accenture research reveals that high performers in the industrial equipment sector have begun to “crack the code” on high performance growth. These high performers have learned how to deliberately and efficiently engineer growth by utilizing some of the building blocks of high performance – making markets, global flexibility, pricing power, and people performance. But to truly crack the code, industrial equipment high performers must adopt all four of the high performance building blocks.
The Building Blocks of Industrial Equipment Success
Today, cost-cutting programs that deliver operational efficiencies are expected. High performing companies go further by establishing a culture and value system, based on a “lean orientation,” that drive a continuously improving cost structure. This orientation delivers an exceptional financial flexibility that allows high performers to complement organic growth with strategic acquisitions to make new markets for their products and services, and ultimately achieve breakthrough growth.
Forget the debate about moving production and sourcing to low-cost countries. Those companies with the ability to flex their global operations can take maximum advantage of regional cost differences and capitalize on growth opportunities in emerging markets. They are characterized by integrated, flexible, and extended supply chains; common global operating models; and aggressive pursuit of low-cost country sourcing. As a result, they are delivering a cost-reduction well above industry averages. Many U.S.-based companies are leveraging their flexibility to establish themselves as global players, enhancing the U.S.’s long-term economic stability.
Every industrial company is faced with tremendous pressure to grow. Yet, many feel confined by market conditions, including pricing pressures and commoditization. High performing industrial sector businesses have found a way to overcome industry hurdles by consistently utilizing new ways to gather customer insight, and then using these research and marketing analytics to drive product innovation that meets specific customer needs.
Most, if not all companies, have vision and mission statements. High performers align their leadership and talent development with company values and business strategies that are reinforced by a rigorously managed measurement and rewards system.
Bringing It All Together
While industrial products companies will continue to experience a friendly economic climate, it won’t be without ongoing challenges. Industry overcapacity, high non-production costs, rapidly changing technology, and global competition will force them to be creative in growing their markets and expanding their global footprint. Companies that adopt all four of the high performing business building blocks will find the future bright.