Executive review 3/2007
Thomas Ring and Axel Schmidt
The German machinery and industrial systems industry has become accustomed to success in recent years. Yet it has always been a cyclical business. Precisely at a time when sales and earnings are breaking records on every side, it is therefore wise to take a critical look at current strategies and recipes for success. Only if they do so will companies be able to continue to grow profitably when the current boom fades. Only then will they be able to master the challenges of globalization, of fragmented, fast-moving markets and of unrelenting pressure to innovate in the long run.
This issue of the executive review presents the findings of a study of more than 250 machinery and industrial systems firms conducted by Roland Berger from October 2006 through May 2007 in collaboration with the German Engineering Federation (VDMA) and the Laboratory for Machine Tools and Production Engineering at RWTH Aachen University. The study found that successful companies make better use of three main strategic levers than their less successful competitors. They attain a superior market position. They put together the right product portfolio. And they align their value chain strategy intelligently with both their position and their portfolio. To further enlarge their market share, German manufacturers must in future reach beyond the premium segment and gain a firmer foothold in standard segments. In an interview, Professor Günther Schuh, Director of the Laboratory for Machine Tools and Production Engineering at RWTH Aachen University, points out that merely downsizing premium products and services does not necessarily make them suitable for the middle market.
When developing innovative products, successful companies focus primarily on features that get their customers excited – features that actually or in their customers' perception add significant value to a product or service. They roll out lean products in order to satisfy growing demands for lower costs, faster delivery and greater flexibility. Their aim is to market clearly defined products and services to selected segments. After all, growth is worthwhile only if it goes hand in hand with profitability.
To improve production quality and the speed and reliability of delivery, successful engineering firms also leverage the advantages of lean manufacturing. This puts them in a far stronger position than their rivals. They add 11% more value per employee than conventional firms, for example. At the same time, their inventories account for only 23% of external sales on average – fully 12% below the figure for less successful companies.
Less successful companies need not despair, however! The final article in this issue shows how they too can move up to the ranks of their more successful peers. Provided a good management team is in place, the fruits of implementation should be visible within 18 to 24 months.
