It is common for senior and top leadership of B2B OEMs to have reached the pinnacle of their profession by embracing the ‘build-and-sell’ business model; focused primarily upon the following 5 pillars:
1-Product design meeting marketplace requirement
2-Minimizing the Cost of Goods Sold [COGS] of the manufacturing process
3-Building a quality product, with a supported limited warranty
4-Selling the product directly or indirectly to customers & recognizing the entire product sales as revenue
5-Providing access to Aftermarket goods & services that will enable the product owner to manage the productivity of their asset, as well as the risks of unfavorable performance
However, the commercial machine marketplace is changing, requiring a greater focus upon a Servitization-based Product-as-a-Service [PaaS] model; materially improving financials, machine productivity and customer relationships. But there are OEMs who are resolute in continuing to focus upon their legacy model. Here is the list of 15 signs indicating that the leadership is running the business on legacy terms.
1. Hire new members of the leadership team that can aggressively ‘squeeze’ more profits from the legacy model
2. Sayings like; “this is the way we have always run this company”
3. Appoint a committee to study the legacy business model
4. Arrange to visit like-kind companies to see how they manage the legacy business model
5. Acquire other companies with the same legacy business model to achieve ‘economies of scale’
6. Appoint a ‘task force’ to revive the legacy business model
7. Employ company-wide training sessions to increase the performance of the legacy business model
8. Go to a retreat to discuss the state of the legacy business model in ‘today’s world’
9. Outsource the manufacturing of the product to reduce its COGS by <1.5%
10. Double-down on enterprise OpEx and CapEx to assure ‘successes’ in improving the legacy business model
11. Remain content that profits of 6-8% of enterprise revenues are like peers who employ the same legacy business model
12. Accept that the legacy business model is poorly adaptable to downdrafts of the economic cycle
13. Display reluctance to sacrifice short-term profits to migrate to a servitization-based recurring revenue model; worry about the stock analyst ‘punishing’ the value of the company
14. Lack of understanding that the COGS of their product is becoming less important in the pricing of their product; IP and firmware can often be the ‘true’ value
15. CFO exhibits too much a comfort level in knowing the current legacy business model’s financial accounting reporting system; reluctant to make any changes required for a new business model
What other signs can you name for such companies?