To set up their business for future success, industrial electronics & automation companies need to rethink their organization. From growth strategy and business model to how sales and pricing is conducted: There are four key levers to achieve sustainable profits. Given the current times and developments, constantly reinventing oneself and having a future-proof commercial strategy is a main requirement to stay ahead of the curve.
The COVID-19 crisis continues to have a large impact on industrial companies. Additionally, there are several overarching trends expected to further influence the sector. These trends lead to shifts in demand, new markets and ecosystems, new requirements on the customer side, and improved possibilities for decision-making at the interface to the customer.
The electronics industry in particular can benefit from these trends and changes. It is worth taking a look at the strategic direction, at future sales and earnings pillars, as well as sales structure and pricing in order to make long, medium, and short-term price adjustments. In the following we will dive deeper in the four key trends and the implications they have on making your company future-proof.
1. Demand shifts due to technological changes
The rate of technological progress is exponential rather than linear, and these rapid changes are causing large shifts in demand by companies and consumers alike. For electronics, examples of these changes are the rise of e-mobility, the energy transition, and a growing awareness regarding sustainability. These changes all have the ability to have a lasting effect on the landscape in which electronics companies operate.
Given this fact, it is important to lay out a growth strategy for 2025/2030 that accounts for these shifts in demand. The basis of a growth strategy are the goals (e.g. increase in EBIT, increase of volumes) and guidelines (e.g. reducing the dependency of the home market, keep operating in the premium space). Then, a long list of growth opportunities may be evaluated against this base, after which surviving opportunities should be assessed based on attractiveness and fit.
2. New ecosystems due to digitalization
Digitalization is causing a rise of new integrated ecosystems, for example in smart buildings/factories, autonomous driving, robotics, 5G connectivity, and new mobility. In this model, the value is generated through a combination of hardware, software, and services, instead of just hardware. This means that rethinking the business model becomes a crucial exercise for electronics companies. Decisions need to be made on whether the business model should be expanded based on data and what exactly can and should be monetized (e.g. API’s, data interfaces, apps, software, services).
Rethinking a business model requires an absolute change of mind-set. Instead of monetizing single units based on technical aspects, companies are entering a world of possibilities. Companies that are engaging in this should first of all determine their monetization strategy: Are we ready to make a revenue shift to recurring revenue and on which areas? Next, companies should think about their portfolio of products and services: How do you want to offer your hardware, software, and services and what is bundled together? The last important question revolves around the pricing model: Do we want to switch from simple, per unit metrics, to more output based variable metrics?
3. Data being available as decision-making tool
With technological progress in fields such as machine learning, marketing automation, and dynamic pricing, the options for next level pricing are increasing rapidly. However, many organizations are unsure how to harness these newfound powers. Many companies still show examples of historically grown pricing. For example, traditional pricing like this can be observed in discounts mainly given at escalation thresholds or large inexplicable discounts given to small customers.
Bringing pricing to a next level starts with a clear pricing structure that promotes value-based global list pricing, country-specific list prices based on regional corrections, and net-price corridors within which local organizations can set their final price. The use of advanced data greatly enhances all steps of this process. For value-based price setting, the possibility to gather more data on value drivers ensures the added value of products can be defined more clearly and defended more effectively. In discounting, the use of data can help companies move away from price control based on historical discount distributions to more predictive and upwards steered price control based on machine learning and artificial intelligence. By classifying deals into clusters, sales representatives are constantly challenged to perform a bit better than their peers in deals, causing positive upward incentives.
4. Changed customer requirements and standardization vs. solution customization
As in many industries, the electronics industry is experiencing changing purchasing processes, the rise of e-marketplaces, and lower information procurement costs. These developments might require an overhaul in the sales organization in order to make it more agile, market-friendly, and efficient. For example, sales through key accounts is expected to increase, requiring a more structured approach.
Companies should be able to answer key questions such as: How should I take various customer requirements (e.g. omnichannel) and customer segments (e.g. small, key) into account in the organizational structure? What new roles and tools will I need in sales in the future? Which short-term measures are effective in times of crisis? The answers of these questions lead to a number of choices that have to be made. In key account management, companies can opt for a more local or more centrally guided approach. In the organizational set-up, a choice can be made among a technology-, regionally- and industry-oriented sales set-up. In resources, important choices have to be made both in sizing of the organization as well as which type of resources (farmers, hunters, key account managers, and market developers) to put in which position. Making these choices consciously and fact-based is difficult, but will result in a more future-proof sales organization.