Machinery Sector in 2030
Four scenarios for the Machinery Sector as a Growth Engine
In ten years from now, customized new machines and radical service business models from the DACH region (Germany, Austria, Switzerland) could dominate global mechanical engineering. However, it is also possible that giant tech companies from the software and Internet industry will capture key positions in the machine market and grab the majority of value creation – while at the same time highly transparent purchasing and service platforms usurp the spare parts business. The Deloitte study “Growth Engine Machinery Sector 2030” uses four realistic scenarios to show what the industry needs to prepare for – and what measures companies can take today to be properly positioned for all scenarios.
Conventional planning tools enable companies to use “best case – worst case” scenarios to make a relatively exact assessment of the future – mainly for two to three years ahead, in some cases however also up to a maximum of five years. Scenario Analysis lets you look ahead more than twice as far. Instead of delivering a likely range of target parameters, as is done by planning tools, scenario analyses enable one to look ahead at different alternative futures that seem realistic from today’s expert view. Scenarios are therefore not intended for concrete corporate planning, but are rather spotlights that illustrate especially concise, but nevertheless realistic developments, and point out their opportunities and risks.
The current Deloitte study “Growth Engine Machinery Sector 2030” shows that even critical future developments will not lead to the demise of the industry in the DACH region. On the contrary, engineering know-how from Germany, Austria and Switzerland will continue to be in demand worldwide even if tech companies will dominate the business or competitors from China succeed in taking over technological leadership in the industry. On the other hand, in none of the scenarios can industry sit back and relax. Either way, the next decades will require great efforts from mechanical engineering companies.
The machinery sector will continue to be the growth engine for the DACH region in 2030, but great efforts and an even greater readiness for change and cooperation will continue to be required.
Oliver B. Bendig, Partner & Machinery Sector Lead, Monitor Deloitte
Ecosystems and machine specialization
One basic assumption of the study is that future machine offerings will continue to follow the trend toward increasingly complex packages of machine + service + software. For machine builders, this means working more and more in one or more ecosystems where specialized partners are responsible, for instance, for data analytics, software or online services. Within an ecosystem, the partner who contributes the decisive value-added steps is usually the leader. Therefore, "power in the ecosystem" forms the first of the two variables in the scenario selection.
A second basic assumption of the study is that digitalization tends to enable more flexible and more modular machines, with highly adaptable software at their core. These "standard machines" compete with customized "special machines" – with the latter having shaped the mechanical engineering recipe for success of the last decades. Which of these two principles will prevail in which segment in the future is still open and will presumably only be decided over the next few decades. Therefore, "specialization versus standardization" is the second scenario variable.
Four realistic scenarios: Machinery Sector in 2030
A Fragile Paradise
This scenario describes a situation where the machine builders of the DACH region are successful with proven recipes: Highly specialized machines remain the best solution for customers, with the DACH machine builders retaining their leadership role within their ecosystems. They can thus consolidate and further expand their current position through continuous innovation. The decisive success factors for companies in this scenario are the same as today: customer focus and customer knowledge. Nevertheless, in 2030, the leadership of the DACH machine builders continues to be threatened from many sides: standard machines will provide for strong market competition also in the future, for instance through the advancement of Artificial Intelligence and Robotics. The attacks of the tech companies will continue as long as these companies are highly rated and “swimming in money”. And last but not least, the hungry Asian competitors especially from China, who are rapidly catching up, will remain serious competitors for the DACH machinery sector.
Success at the price of transformation
In this scenario, standard machines prevail over special machines, while technology and large parts of the software do not originate from the big tech companies but from the machine builders of the DACH region. One could also say: The vision of Industry 4.0 becomes reality. On this basis, the machine builders of the DACH region have become the undisputed market leaders of the automated production thus dominating the value added in their ecosystems. The competitive factor of “customer knowledge” is replaced in this scenario by the competitive factor of “error-free processes”. New standardized and modular machines allow customers to produce not only highly efficiently but also flexibly, supported by broad seamless service offerings. This initially leads to a boom in the DACH machinery sector as well as throughout Europe. However, the technology globalizes quickly, causing high cost pressure and consolidation in the industry.
In this world, the big tech companies prevail with their vision for the industrial Internet of Things. They operate leading B2B platforms, which own the machine and customer data exclusively, and using knowledge, they capitalize on software standards and optimize automated production processes. They rely on low-priced standard machines where the added value is mainly generated by their software. The machinery sector in the DACH region becomes a technology supplier of this system in direct competition to Asian competitors and often without customer contact. The latter factor also makes cooperation projects with customers significantly more difficult, with the innovative power of the machinery sector being weakened. In addition, the B2B platforms challenge the traditional Service and Spare Parts Business and further weaken the machinery sector.
Played by the Ecosystem
In this world, machine software contributes greater added value than the machine itself. Although the machinery sector in the DACH region succeeds in remaining successful with special machines, the software platform is usually provided by the big software suppliers. Moreover, B2B platform suppliers have established who also often controls customer access, possesses machine data, and writes customized software. The result is that machine builders generate a significantly lower added value than other partners in the ecosystem. This underdog situation is aggravated by the fact that advanced services have prevailed on a broad front – for instance “Equipment as a Service”, “Output as a Service” or even “Factory as a Service” (XaaS) – where possession of machine data is indispensable.
The different scenarios very clearly show how important it is already today to play an active part in modelling the machinery sector ecosystem – before it is remodelled by the ecosystem.
Thomas M. Döbler, Partner & German Energy, Resources & Industrials Lead, Deloitte
Dealing with uncertainty
The four scenarios created represent hypotheses that – from today’s view – could realistically occur by the year 2030 and that are of equal weight. Moreover, the study far from shows all scenarios and only considers the axes of “Power in the Ecosystem” and “Machine Specialization” as described above. Many other factors are neglected, including unforeseeable crises such as the COVID-19 pandemic. So, how should machine builders deal with such a high degree of uncertainty in order to be better prepared for the medium-term future? In their study, the Deloitte experts have defined eight measures for this purpose that are useful in nearly all cases and therefore can be implemented without further concern:
- Digitalize core processes – A strategic long-term task, where customers and their operations should be the focus.
- Think globally – Cultural openness and supra-regional online solutions can make many things cheaper and better, from development and service to internal collaboration.
- Maintain resilience – The DACH machinery sector is characterized by traditional entrepreneurship. Despite all prophecies of doom, this is a strength that must be preserved. There is a need to catch up with issues such as cyber security and the readiness to create shared ecosystems.
- Build in sustainability – Sustainability could become the future unique selling proposition of the DACH machinery sector. Moreover: Anyone who has already seriously engaged in this activity usually reports significant benefits.
- Set up an ecosystem – An ecosystem is essential for remaining relevant to the customer in the future. This includes, in particular, IT partners, technology partners and risk management partners.
- Maintain customer access – An own customer access and direct customer contact form the basis for good customer knowledge and further development of machines and services.
- Define Asia strategy: The Far East market is becoming more mature and demanding. Local marketing and local partners who understand the market are becoming increasingly important.
- Cover workforce needs creatively: DACH machine builders are often little known and located in areas that are not attractive for new employees. Flexible career paths, cooperation agreements with schools and other companies as well as online collaborations might be interesting here.
Download the complete study “Growth Engine Machinery Sector – Four scenarios for a successful future in 2030” here and learn more about the scenarios and the fields of action for mechanical engineering companies. We foresee a positive future despite all the challenges, but further big efforts are needed to make the machinery sector the growth engine in the DACH region in 2030.