Bain & Company Showcase Sustainability of Digital Solutions

Bain & Company report urges original equipment manufacturers to embrace digital solutions to enhance sustainability and efficiency

Industrial machinery is inseparable from modern life.

It’s created new forms of infrastructure, transport, healthcare and entertainment that have enhanced and extended lives, forms which we’re privileged to perceive as ordinary today. From its introduction in the mid-1700’s to its astounding progression during the 19th Century Industrial Revolution. Transforming factory floors, supply chains and allowing for the mass production of affordable products, textiles and food, machining has had an impact for as long as it’s been around. Not all of these impacts have been positive, as any environmental scientist will tell you. Which is why global consultancies like Bain & Company are urging all industries to embrace digital solutions and enhance their sustainability.

Bain & Company’s ‘Machinery And Equipment Report 2024’ reveals that industry is now a bigger consumer of the Internet of Things and semiconductor chips than other sectors. It also highlights that the most successful machinery companies are those who invest in digital solutions, outperforming industry averages on shareholder return by 100%. 

Bain’s report specifically focuses on machinery original equipment manufacturers (OEMs) arguing that these companies, by embracing the demand for digital transformation early on, can generate bigger margins, improved customer loyalty, higher revenue and greater sustainability. Considering this, why aren’t more OEMs developing digital solutions? The report highlights three major hurdles.

03: Failing to define reasons behind investment

Many OEMs create digital services and products to sell not out of customer need but to join the digital transformation race. Engineering effective digital solutions means using technology to address customer needs. Companies that fail to do this and focus only on traditional product markets will fall behind in the competitive landscape.

02: Failing to build a digital solutions business

A digital solutions business can and should according to Bain’s report become a robust second engine for the company, based on technology rather than products. The consultancy identifies OEMs' tendency to experiment with digital ventures outside the organisation as a significant pitfall. Because these ventures are not integrated with the main business they prove impossible to scale, limiting their business impact.

01: A lack of focus on select customer groups

The report illustrates that targeting a few industry verticals is an essential digital transformation strategy for OEMs. If these companies don’t they will be overwhelmed by the diverse demands of multiple industries. This will force them to re-engineer solutions to cater to each company, making these solutions unscalable and unprofitable.

Digital solutions are by and large not broadly applicable to each industry. They need to be mindfully tailored to have an effective impact. For example, robotics has helped optimise food processing, automotive assembly and medical trials, but its application in these specific areas has had important differences. Building domain know-how means approaching technology with customer needs at the forefront. 

So if OEMs overcome these roadblocks, how can they ensure success and sustainability through digital solutions? Bain & Company’s ‘Machinery And Equipment Report 2024’ provides five guidelines for OEMs embracing digital solutions to follow, along with examples of companies that have followed the following guidelines to success. 

Devising digital solutions as a means to solve customer problems

Most OEMs today have some digital solutions. However, scaling these solutions successfully requires a multiyear transformation with significant investment and an enhanced customer-focused mindset. Bain's report implores leaders to consider developing solutions as a means to solve customer problems, whilst considering to whom they are the most relevant supplier. 

The report identifies John Deere as an OEM that has successfully utilised digital solutions. Over the past decade, the company has invested billions of dollars to pivot from a tractor manufacturer to providing solutions for precision agriculture. In 2022 John Deere introduced sprayers that can distinguish weeds from crops and self-driving tractors. The company now plans to use cloud-based operations to store crop data, to sell farmers subscriptions to software that will help them yield higher profit margins. John Deere successfully identified a need among farmers for enhanced and consistent productivity and results, removing associated headaches and stress. These innovations enhance sustainability, through reducing waste and energy consumption.

Tesla digital solutions

Embrace customer unit economies

OEMs typically develop business plans based on product unit economies, ensuring the price of a machine covers building costs. The biggest cost with digital solutions isn’t building them, but acquiring customers. 

The report suggests OEMs create business cases for digital solutions by using customer unit economies, taking into account customer lifetime value and the cost of acquiring them. While this process will be lengthy, this approach ensures the business case is accounted for. 

Take the case of electric vehicle maker Tesla, which has pioneered a new business model for automotive OEMs. In addition to selling cars, Tesla offers drivers additional digital solutions throughout the product life cycle, including an extensive charging network, entertainment services, and autonomous driving packages. These solutions help Tesla maintain an electric vehicle market share of greater than 50% in its core US market, providing sustainable driving alternatives for consumers.

Hilti digital transformation

Become a digitisation partner

Digital solutions alter how a company functions. Software companies for example use expert advisors to help their customers adapt to new ways of working, ensuring they unlock the full potential of new technology. OEMs must also provide presale consultation to help customers understand the operational changes digital transformation will enact. This should include success management services to help customers get the most out of installed solutions.

The report highlights OEM Hilti, a company known for its red drilling tools, which has expanded its direct salesforce model. This expansion brings in software consultants to offer technology solutions and enhanced IoT capabilities. 

John Deere digital transformation

Invest in an Engine 2 business

The report argues that partnerships offer the greatest value in back-end operations when it comes to solution development and delivery. OEMs should embrace a mixture of acquisitions and organic investments to build technology-based businesses capable of complementing their hardware sales. When it comes to retaining customers and winning sales, sector-specific knowledge and customer relations is key. Bain & Company advise OEMs to avoid outsourcing customer-facing parts of the business. 

John Deere, avoid outsourcing customer-facing parts of the business. The reason is clear: Sector-specific knowledge and customer relations play a key role in winning sales and retaining core customers. This also enhances sustainability, by reducing the scope of hiring in this area.

Schneider Electric digital transformation (credit: ET Data World)

Build digital solutions using flexible technology architecture 

Flexible technology architecture is key for OEMs so they can abide by and evolve to meet changing security requirements. 

The report references Schneider Electric’s success in this area, having recently acquired the software engineering company Aveva, known for its work with digital twins. Because Schneider had IT/OT open architecture, they could integrate Aveva’s software smoothly, connecting applications and data from the shop floor to the C-suite via their EcoStruxure platform.

Danfoss digital solutions ( image credit: Danfoss)

Target customer segments 

Effectively using digital solutions means addressing critical customer needs in select vertical markets. The report identifies Thermostat maker Danfoss as having done this successfully. 

The company provides solutions to food supermarkets that depend on reliable refrigeration. They sell systems that monitor the temperature of refrigerated storage areas and shelves, in addition to providing connected thermostats that offer crucial insights on predictive maintenance, usage analytics and energy management. By reducing unnecessary energy consumption and predicting future patterns, Danfoss achieves greater sustainability.

"Profit pools are shifting from equipment traditional services to digitally enabled services and solutions. This is real, and we are seeing clear indicators this is becoming a major force,” said Neil Malik, partner at Bain & Company during their 2024 webinar on the report. “ The digital evolution is clearly underway. It’s not a revolution but the evolution is clearly underway.”

Machinery is digitally transforming, as leading OEMs forge deeper customer relationships and contemplate how technology can better serve their needs. Leaders in this space will develop scalable solutions that can meet a future market defined by customer segments rather than products. Targeting specific customers, addressing their needs and building trust will create a competitive advantage that will bring OEMs long-term success.

"We are at a point where things are accelerating,” said Neil. “ The leading OEMs are using this as an opportunity to build client relationships, strengthen those relationships and increase their relevance with those customers. If you project this forward you clearly see that this overtime will be a competitive advantage, and those that don’t act are potentially risking losing that edge for some time.” 


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