The main takeaway from the 2023 L.E.K. Consulting survey of 195 U.S. industrial equipment and technology (IE&T) companies is that executives “are generally optimistic in their ability to achieve their key priorities.”
This is a marked change in tone from the 2022 IE&T survey. Last year, respondents were reeling from “an unprecedented confluence of challenges,” including labor shortages, supply chain disruptions and the highest inflation in more than 40 years. And while those issues, along with geopolitical strife, have yet to be resolved, the consensus is that the brushfires have been sufficiently contained to enable IE&T leaders to refocus on the most important strategic growth priorities for their businesses. In particular, demand has rebounded to the point where IE&T companies can resume strategic growth priorities and devote less time and fewer resources to overcoming urgent existential threats.
A renewed emphasis on efficiency
What accounts for a more bullish outlook among IE&T executives? Much of it can be attributed to increased operational efficiency through new technologies and processes. With a particular emphasis on improving monitoring systems and onshoring or near-shoring manufacturing, approximately 80% of survey respondents expected to accelerate spending over the next three years across all supply chain initiatives.
Investing in the future
In addition, the number of executives who expect to increase spending on growth initiatives has more than doubled compared to 2022. This indicates a return to the long-term priorities that were in place before 2022. While revenue growth remains the top priority, profit growth has supplanted supply chain management as the second most important priority. IE&T companies are increasingly focused on transformative technologies and advancing on longer-term initiatives including electrification, digitization and ESG, along with automation, as a means to achieving revenue and profit growth.
There is a widely held belief among IE&T executives that the majority of existing commercial or technical barriers to implementing these transformative processes will be overcome within five years. Said an executive at an industrial products distributor, “In the long term, we are of course very focused on maintaining a healthy financial position, but we are also looking to prioritize investment in things like automation and digitization.”
Strengthening the core
More than 55% of respondents expressed confidence in their ability to achieve revenue and profit growth over the next three years. Strengthening core businesses is a renewed priority. Targeting new customers, emphasizing higher-margin products, bundling products and services, growing recurring revenue — these are all part of a growth strategy built around prioritizing revenue and profit growth.
Accounting for potential wild cards
The IE&T sector is not a monolith. Every company and end market faces a unique set of challenges. The aerospace industry, for example, considers electrification the least significant of eight categorical challenges, while metals and mining companies rate electrification the second-greatest challenge, behind only revenue growth. In addition, as recent events have shown, IE&T executives must remain both nimble and vigilant, allowing for the possibility that their businesses could be impacted by events outside their control, including:
- Fluctuations in the labor market
- Changing interest rates
- Rising material costs
- Geopolitical instability
- Disruptions in business continuity
Overall, however, IE&T executives have a renewed conviction in their organizations’ ability to weather short-term disruptions and emerge stronger over time. And while financial performance is expected to remain the top priority over the next five years, there is also a widespread confidence in the sector’s ability to overcome most technical or commercial barriers to achieving transformative initiatives.
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