Taking a Vertical Approach
Industrial companies tailoring products and capabilities
©2014 The MPI Group.
Navigating a new era
T he last decade has served up formidable challenges for industrial manufacturers. While the economy has sagged and demand for existing products has wavered,
new technologies, lower barriers to entry, and mounting global competition have
ratcheted up the stakes. As a result, many organizations are discovering that it’s
essential to rethink and sometimes reinvent the fundamental way they approach
business … and how they view the marketplace.
Some manufacturers are looking beyond their traditional product markets and
exploring opportunities to introduce entirely new products. Others are focusing
on ways to expand into new geographic areas. In many cases, as manufacturers look
to grow their customer base, both paths lead to the same destination: micromarkets.
Manufacturers are taking their relationships with existing customers and integrating
themselves into new, more specialized work for these customers. This might mean
developing a high-tech sensor and controls supporting a new line of intelligence-
enabled production equipment, or contributing to a new, highly specialized
As often happens, new technologies are at the center of this new kind of innovation
and business success. But how organizations apply these critical tools to gain market
advantage is changing. Manufacturers tap into existing market knowledge, workforce
skills and capabilities, equipment and production methods, and customer and supplier
relationships that served them well when addressing the needs of a broader market.
But now, with insights gained through technologies — systems built specifically to
accommodate standards, certifications, terminology — they can leverage their current
production capabilities in ways that previously weren’t possible. In many cases, they
are able to approach the business landscape in a new, fundamentally different and
customized way — and gain a competitive, lucrative advantage.
Micromarkets deliver a number of tangible benefits:
• Higher margin and higher value specialized goods
• Unique products that are difficult for a global market to copy
• Products that offer greater value and forge tighter bonds with customers
• New customer opportunities that result from the introduction of specialized
goods and services.
Taking a Vertical Approach to Business / The MPI Group 1
are taking their
2 Taking a Vertical Approach to Business / The MPI Group
1 Industrial Manufacturing 2014, PwC.
Micromarkets create new opportunities — but also new challenges
The emerging business environment is radically different than in times past.
Traditionally, manufacturers built factories and assembly lines that produced a
limited number of items. Customization was difficult and retooling a factory or
assembly line to produce new or different products was expensive, time-consum-
ing, and labor-intensive. Consequently, manufacturers continued to produce the
same “tried-and-true” items for years. Product lifespans were typically measured
in years — sometimes decades.
Bobby Bono, the U.S. industrial manufacturing leader at PwC, noted in a January
2014 brief that a primary area of focus for manufacturers is “diversifying and
improving the product portfolio mix to adapt to changing market conditions”
and “winning new customers around the world.” This, in turn, requires
manufacturers to customize products and services to meet more specific needs
and to realign internal processes as well as their supply chains.1
This means that the dynamics of manufacturing, how manufacturers assess the
marketplace, and whence future demand will arise are now markedly different.
Rapid design and prototyping, agile manufacturing, crowdfunding, and the ability to
plug in business systems and applications quickly via the cloud have made market
entry easier. In many cases, small entrepreneurial organizations enjoy key strategic
and tactical advantages when catering to highly specialized micromarkets. These
small, agile companies respond quickly to sets of highly specialized demand
instructions (often because they have no choice).
But the same technologies and microproduct-tailored approach also wield enormous
power for larger organizations that use their strengths to muscle into new markets.
Although micromarkets may represent an unfamiliar frontier for some industrial
manufacturers, others have previously ignored these opportunities as too small.
But with new technologies and approaches that enable companies to tap many
micromarkets, the revenue and profits no longer look so small.
An organization looking to embark on a micromarket initiative must focus on
several key factors:
• Product specifications: Entry into a micromarket may force a manufacturer to
rely on new and different sourcing methods, suppliers, manufacturing tools, and
approaches in order to meet demanding customer specifications. What’s more,
the enterprise may need to tap into new technologies in order to communicate
effectively with its micromarket customers and process orders, in order to drive
the efficiencies required for profitability.
Taking a Vertical Approach to Business / The MPI Group 3
• Industry standards: New products, solutions, and services typically require
new standards across a broad spectrum of processes and technologies. An
initiative may touch organizations and institutes such as ASTM, ISO, IEEE,
The Bluetooth Special Interest Group, and many others. It’s critical to understand
how adherence to these standards will impact production for micromarkets —
and profit margins.
• Regulations: An initiative may intersect with various government regulations.
In the U.S., the list might include OSHA, FCC, FDA, USDA and Sarbanes-Oxley,
to name but a few. Venturing into a global environment increases the list dramati-
cally, with specific regulations from the European Community (EC) as well as
regions and specific countries. This may include everything from ingredient lists
to trade laws. Here, too, it’s crucial to ensure that business systems and processes
are readily adaptable in order to comply with regulations in the micromarket.
• Packaging and labeling: Manufacturers may find it necessary to produce different
packages and entirely different labels to match micromarkets and microsegments.
In the global arena, this may translate into packaging items in different languages
and addressing different cultural preferences. In addition, various countries may
have specific packaging requirements. For industrial manufacturers, the larger
challenge is often logistics — ensuring just-in-time or milk-run deliveries,
sequencing parts and components for efficient installation into OEM product
lines, and/or kitting or pre-assembly of components (even those that include
other manufacturers’ goods).
• Service and support: A micromarket may introduce new challenges regarding
service and support. The environment may require revamping support systems,
knowledge bases, online tools, and training or retraining employees to address
new and different customer questions and problems. If a micromarket is at the
cutting edge — imagine your company is a supplier for the Apple Watch —
substantial training of support staff will be required. An inability to support
products and customers may lead to poor sales and a failed initiative.
• Business practices: Micromarkets may require new workflows and entirely new
business systems — as well as a need to revamp existing enterprise resource
planning (ERP), supply-chain management (SCM) systems, and customer relationship
management (CRM) systems. Management may find it necessary to break down
organizational silos and develop a more integrated and collaborative business
model. In addition, the move into a micromarket may also require different
partnerships and new distribution channels. Last but not least, serving specialized
micromarkets may require a higher level of confidentiality and business-system
security than has previously been required by other, broader markets.
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Supporting a micromarket strategy
A growing number of manufacturers are introducing new products or customizing
existing items to match the changing desires of B2B and B2C markets. For example,
apparel manufacturers are allowing consumers to design their own shoes while
food manufacturers permit consumers to personalize candy orders with special
messages and images. Aerospace manufacturers allow their customers — typically
airlines — to choose from a vast array of features. Computer makers now produce
equipment designed to a customer’s specific configuration needs. Serving micro-
markets further fuels customization.
Transforming a micromarket strategy into bottom-line results will require significant
changes to business processes, workflows, industrial systems, and information
technology. Core areas of focus include:
• Production equipment and tooling: Adopting a micromarket business strategy
may mean revamping production lines and equipment internally. There may be
a need to retool rapidly or create a more flexible manufacturing environment.
However, this represents only part of the challenge. An organization may require
a more agile and flexible business and IT infrastructure to accommodate its
changing physical production, including use of cloud applications, mobility and
collaboration features, and other tools. What’s more, there may also be a greater
need to rely on outsourcing and multi-sourcing to achieve optimal production
and price metrics. Some organizations will find it valuable to form new partnerships
based on a rapid prototyping and production model.
• R&D/design systems: Designing and engineering products for a micromarket
may require entirely different R&D tools. This may include computer-aided design
(CAD), modeling systems, project management systems, knowledge management
tools, and other software that’s highly specific to the micromarket. It may also
require more advanced computer simulations that allow what-if models and
digitally testing of product-attribute tradeoffs before investing money, resources,
capital, and labor in the development of an actual product. These tools also
allow micromarket customers to engage in the design so that they get precisely
what they need.
• Production environments and industrial control solutions: New products
and solutions that address a micromarket may require a radical revamping of
industrial control systems. A manufacturer may need to reconfigure its facility,
including installation of new IT systems, industrial machines, programmable logic
controllers, and software to achieve desired quality controls and output levels
and cost-efficient operations. For example, a pharmaceutical manufacturer working
on a contract for a highly contagious virus is likely to need more secure laboratory
and development space.
Taking a Vertical Approach to Business / The MPI Group 5
• Supply-chain, inventory-management, and other enterprise systems: Any
change to manufacturing processes impacts a variety of touch points internally
and externally. This means that an organization may require new systems or an
upgrade to existing enterprise applications, such as enterprise asset management,
product lifecycle management, customer relationship management, and service
management. Even fundamental financial management systems may require
upgrades to accommodate billing and invoicing procedures required by a
micromarket customer. There may also be a need for custom web interfaces,
portals, and mobile apps.
• Business intelligence: Developing new products and solutions — and under-
standing how they fit into the marketplace — often requires big data as well as
powerful analytics tools. The ability to identify market opportunities, trends, and
customer preferences is at the heart of any micromarket strategy.
Establishing business and IT systems for micromarkets isn’t enough, however. There’s
also a need to redefine how the organization does business — product development
and testing, production processes, sales and marketing methods, logistics, and supply-
chain management and collaboration.
Putting a plan in action — growing sales and margins
With a strategy, technology, and processes in place, business leaders pursue the
micromarkets that will positively impact their top and bottom lines. They spot
opportunities early and carve out their niche before the competition, gaining a
competitive advantage with early presence. They build the right sourcing scenarios
and partnerships to supplement their capabilities. And they focus their micromarket
initiative on three key issues:
• Skills, knowledge and expertise: According to The Manufacturing Institute,
a majority of manufacturers (67 percent) indicated that they face a “moderate
to severe” shortage of available, qualified workers, and 56 percent expect the
problem to get worse over the next three to five years2. It’s critical to identify
knowledge and skill gaps necessary for success with micromarkets — design and
manufacturing engineers, sales staff, customer support. Where internal talent is
lacking, be prepared to plug in consultants, independent contractors, and others
on an as-needed basis. It may also be necessary to hire new employees and/or
retrain existing employees to accommodate a micromarket strategy. In addition,
organizations must introduce communication and collaboration tools to facilitate
2 2011 Skills Gap Report, The Manufacturing Institute and Deloitte Consulting.
5 Taking a Vertical Approach to Business / The MPI Group
About The MPI Group
The MPI Group serves leaders with research, advice,
and performance-targeted solutions that provide a
competitive advantage in today’s fierce marketplace.
MPI combines the disciplines of research, strategic advice,
knowledge development, and hands-on leadership to
create a difference — in performance, in profits, and in
the people who make them possible.
• Identifying the right equipment, tools, and systems required for success: It
may be necessary to replace legacy systems with tools and technologies that promote
an agile manufacturing environment. For instance, some manufacturers are turning
to 3D-printing methods in order to rapidly design and/or produce custom
products, in some cases fulfilling orders in minutes or hours rather than days or
weeks. The Manufacturing Institute reports that the market for these devices will
rise from $2.2 billion in 2012 to $6 billion by 2017.3 Others are introducing new
ways to automate processes and eliminate steps, including advanced robotics and
machine-to-machine communication through the Internet of Things. The common
denominator among all these initiatives is a data-centric approach; metrics and key
performance indicators (KPI) are critical elements.
• Pilot, test, and refine: Over time a manufacturer will gain experience, confidence,
and knowledge that allow the organization to better identify opportunities and
apply vertical capabilities to other micromarkets. Each new micromarket builds
the knowledge base for the next. This allows the organization to achieve economies
of scale in expanding products and services.
Building a better micromarket model
Manufacturers face an array of challenges in order to grow sales, control costs, and
generate profit. Micromarkets represent a significant — and growing — opportunity.
Navigating this space requires new thinking, new tools, and, most importantly, an
entirely new way to approach almost everything that takes place within the company
— business strategy, analytics, innovation, etc. Is your organization equipped to
prosper from micromarkets?
3 3D Printing and the New Shape of Industrial Manufacturing, The Manufacturing Institute and PwC, June 2014.