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Mechanical engineering on the move: How to navigate between downturn and disruption

Portrait of Gerald Orendi
Senior Partner
Dusseldorf Office, Central Europe
+49 211 4389 2199
December 10, 2019

What machine engineering has in store and how it can overcome the downturn it’s facing

Between economic crisis and disruption

At present, mechanical engineering is giving little cause for optimism: The times of plenty have come to an end and the downturn has long since gripped many a player. Particularly hard hit are companies in the automotive sector whose business is highly dependent on conventional drive systems.

Their example shows that the general economic slowdown and falling investments are joined in this downturn by the challenges of far-reaching structural change. The gradual substitution of the internal combustion engine poses major challenges for all equipment suppliers. At the same time, companies are compelled to invest in new technologies in spite of the drop in sales and revenues.

Many industry players have successful years behind them. It's true that most companies are in a much better position than they were going into the financial crisis ten years ago because of the larger financial reserves they have. But we think the dry spell will last longer this time. Besides that, many firms have not done their homework on digitalization.

They have a balancing act to pull off: They must adjust their structural costs while simultaneously investing in new business areas. This means they need a «weatherproof» core business with adaptive structures, and they also need to actively address the big topics of the future now, such as industrial automation and digital transformation. That requires companies to invest in digitalization, test new business models, and grasp industrial automation as an opportunity.

"Players must now tackle issues like standardization and process streamlining end to end. This can result in a complete re-engineering of the previous value chain model."
Portrait of Jan-Oliver Sestak
Principal
Berlin Office, Central Europe

Three levers to tackle the crisis:

Cost structures: Classic cost reduction programs will often be unavoidable due to the scale of the market downturn. In addition, many mechanical engineering companies have by no means exhausted classic efficiency enhancement measures, such as supplier management, modularization and standardization.

Performance culture: The labor market offers the top engineers and managers of the future so many opportunities – especially outside of the traditional industries. Companies should increase the number of training places they offer, strengthen the sense of community responsibility and use incubator models embedded in their organization to make themselves more attractive employers.

Business model: Disruption from structural change and new technologies combined means that companies are confronted with the task of evolving their core competencies even as they gear their organization up for digitalization. There is still a great deal of reluctance to test innovative business models, and many of the investments appear to have hardly any overlaps with companies' existing strengths.

Take a proactive approach to disruptive trends

Whether still operating at full speed or already feeling the pain of the economic downturn, mechanical engineering companies must now adjust their structural costs. Among other things, this requires an even stronger focus on standardization and modularization. At the same time, companies should further differentiate their portfolio toward digital business models. If you want to secure your business in the long run, you must take a proactive approach to disruptive trends. In the process, it's important to spread your risks as widely as possible, which can be done through partnerships. Every company is different, which is why each one needs individual solutions.

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Machine engineering’s downturn: the problems it faces and how it can win the upper hand

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How digitalization and disruption are aggravating the situation for mechanical engineering and what challenges companies are faced with to overturn this tendency.

Published December 2019. Available in
Further reading
Portrait of Marcus Berret
Senior Partner, Managing Director
Stuttgart Office, Central Europe
+49 711 3275-7419
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Senior Partner
Chicago Office, North America
+1 312 662-5500
Portrait of Gerald Orendi
Senior Partner
Dusseldorf Office, Central Europe
+49 211 4389 2199
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Senior Partner, Managing Partner Switzerland
Zurich Office, Central Europe
+41 79 792-7374
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Senior Partner
Shanghai Office, Eastern Asia
+86 21 5298 6677-828
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Partner
Milan Office, Southern Europe
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Portrait of Oliver Herweg
Partner
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+49 89 9230-8322
Director
Stockholm Office, Northern Europe
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Portrait of Jan-Oliver Sestak
Principal
Berlin Office, Central Europe
+49 16 0744-3490
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