Background and challenge
A leading global Tier 1 industrials systems supplier faced a number of significant challenges with its legacy business, among them reduced margins, peaking market demand and increased disintermediation risk. The client called upon L.E.K. Consulting to help conceive a digital platform opportunity with the potential to develop new revenue streams while also building new business relationships and strengthening ties with existing customers. Before committing to the digital platform concept, we and the client first assessed a number of factors. These included whether its customers would be receptive to the solution, how competing firms might respond (particularly the client’s OEM customers that were pursuing similar strategies of their own), the merits of various digital business models (e.g., using proprietary end-to-end applications versus an agnostic data platform) and more.
Approach and recommendations
We began with a comprehensive analysis of current industry economics and business processes to help determine where customers would be most willing to address pain points through a digital platform and related new data and analytics services (as well as what they would be willing to spend for such solutions). We conducted interviews with key industry executives in an effort to quantify areas of near-term demand and developed propriety views on B2B digital-value capture. We further informed the strategy by analyzing a series of digital analogs in other industries, which helped identify the ways in which the client might favorably influence digital evolution in its own market. Through our discovery process, we determined that the client could position itself to compete for $2 billion in new spend on digital solutions globally over the next decade or less.
To develop the product and go-to-market strategy, we looked at a cross-section of competing firms pursuing digital solutions within the segment, as well as their recent acquisitions/expansion plans, to assess the client’s chances for success and examine possible merger or partnership opportunities. Finally, we conducted a detailed war gaming exercise to hone the strategy for competitive response.
By clearly demonstrating the new model’s strategic and financial rationale to the firm’s chief executives, our assistance helped secure funding for expansion of the client’s new digital enterprise. Today, the company is actively pursuing its digital platform strategy with the goal of tapping into available revenue generators, while at the same time maintaining critical relationships with key OEM customers and employing defense mechanisms to stay a step ahead of the competition.
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