Prospering in a VUCA World is Causing Industrial OEMs to Focus on the Aftermarket
We are again living in uncertain times. The name for uncertain times is VUCA, which stands for Volatility, Uncertainty, Complexity, and Ambiguity. It describes constant, unpredictable change that is now the norm in many industries and areas of the business world.
Here is a partial list of the factors that are causing VUCA for industrial OEMs:
- Owners and investors expect growth
- Supply chain uncertainty
- Labor shortages (NAM projects 2.1 million unfilled U.S. jobs by 2030) and turnover (39% in 2022)
- Inflation dropping (maybe)
- Ever-increasing customer expectations
- Reshoring
- Climate change
- Interest rates (maybe) declining
- Frequent price changes
- Digital transformation
- Generative AI
- Almost 50% of all quotations result in no buyer action
It is no wonder that prospering in a VUCA world can lead to frequent adjustments in both short- and long-term plans and will always include focusing on the aftermarket.
An Interview with Jeff Bezos
I recently discovered an excerpt from an interview that Amazon Founder Jeff Bezos gave in 2017. It describes how Bezos thinks about business. This article will show how Bezos’ long-term view is appropriate for us working to prosper in VUCA times.
Excerpts from the Jeff Bezos interview:
“I very frequently get the question: ‘What’s going to change in the next ten years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next ten years?’ And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time.
… [I]n our retail business, we know that customers want low prices, and I know that’s going to be true ten years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future ten years from now where a customer comes up and says, ‘Jeff, I love Amazon; I just wish the prices were a little higher,’ [or] ‘I love Amazon; I just wish you’d deliver a little more slowly.’ Impossible. And so, the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers ten years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”
How The Bezos Interview Applies to B2B Industrial Manufacturers and prospering in a VUCA World
Executives are looking for investments that will pay off in the short and long term. The solution is to think about why people buy our products. They buy because they need the outcomes they will receive from using our products. For example, hospitals and municipalities purchase ambulances because they collect people in distress and transport them to hospitals and other trauma centers in time to save their lives.
Can you imagine an emergency room triage doctor saying to a paramedic, “Don’t worry if your ambulance won’t start; call for an Uber and put the potential heart attack victim in it when they arrive?” I don’t think so.
If you manufacture and sell complex or expensive capital equipment, the buyer will want to use the product daily for ten or more years. For that to happen, you must have an aftermarket organization that will respond within an agreed time whenever and wherever the product breaks down.
The customer wants that response from the day the warranty begins until they decide to replace the equipment. They also expect technical support, preventative maintenance, spare parts and consumables, upgrades, and someone removing and replacing the product with a new unit at the end of the useful life.
Depending on your industry, product type, and competitors, your customers may have another “wish list” of which you are unaware.
The Expectation of a Cat 797 Haul Truck
Below is an example of expectations for a Cat 797 Haul truck in Canada from Finning Cat, written in December 2020. Finning Cat is Caterpillar’s most significant dealer, with 2023 service revenue of $CD 5.378 billion, representing 56% of total Finning revenue.
The haul truck 17-100, a “shiny new Cat 797,” went into service in 1999. More than 21 years later, with over 55 million tons of material hauled over 157,000 trips, the truck is still in operation and has achieved a world record of 150,000 operating hours.
“The longevity of this truck is an incredible achievement, particularly when you consider it was designed for an operating life of 72,000 hours,” says Craig Coolen, Syncrude’s Manager of Mine Mobile Maintenance. “Along the way, there’s a lot of people who have helped this truck reach that significant milestone.”
“Craig, who was working his way through school when the truck first began operating, sees the collaboration between different business units as a major contributor to the truck’s durability.”
The 21-year-old truck frame was one year past the frame’s estimated 20-year service life, and the truck was on its 11th engine when this was written in 2020.
Next Steps For Prospering in VUCA Times
Before starting to plan the future of your aftermarket organization in a VUCA world, you should start with the desired outcomes that your customers believe are valuable. Next, you can decide how well you serve these customers and what improvements are necessary to close the gap. Then you can do the detailed planning.
Here are the specific steps in the order they should occur:
- Step 1 — Identify a market research consultant who is an Aftermarket expert and engage them.
- Step 2—Share the details of your Aftermarket organization, service products, and the margin you make on each unique service. Don’t worry if you don’t have all the data; the more you have, the easier the project will be.
- Step 3—Agree on the geographic area (country or region) and the product(s) to be addressed first. While your consultant makes a first pass on a survey instrument, your team should prepare a list of all your customers who meet the agreed-upon criteria.
- Step 4 — Divide your customer list into segments with the same application. For example, if you manufacture tractors, farmers growing crops may be a homogeneous group, and another group may be landscapers who use the tractor for clearing brush and moving plants and sod.
- Step 5—After you and your consultant agree on the survey instrument, your consultant should administer the survey in person, via Zoom, or via telephone. The survey will only include a small number of customers but should be large enough that the results will be accurate enough to support management decisions. We recommend 10 to 15 completed surveys for each group.
- Step 6 — When all the data is collected, your consultant will analyze it and turn it into useful information. They will then prepare and deliver a final report that includes a discussion of each question, the overall actions to be taken, a list of your current services that need improvement, and a list of new services your customers are willing to buy. In many cases, they will be able to identify a price the customers are willing to pay and why they will buy them.
- Step 7—Your consultant will probably offer assistance as you implement the recommended program. This is usually a good investment since their time is only invoiced when you ask for help, and they typically have enough background to provide answers efficiently.
The above seven-step approach works well for situations where your employees and independent dealers deliver aftermarket services that you are sure will conform to your methods and standards.
However, if your aftermarket support includes individual dealers who, like you, are trying to prosper in VUCA times, you have a bigger problem. You cannot build a brand without consistent support and deploy a broader menu of services until you are sure the services will provide their designed value to all customers.
Remember that it’s your brand, and the products carry your logo.
Related Article
- How To Manage a Spare Parts Business for an Industrial OEM
- Experience-Led Growth: The Path to Sustainable Differentiation
Image credit: Sam Klaidman
About Middlesex Consulting
Sam Klaidman is the founder and principal adviser at Middlesex Consulting. He helps his B2B product manufacturing clients grow their service revenue and profitability by applying the methodologies and techniques associated with Customer Value Creation, Customer Experience, and Market Research to assist them in designing and commercializing new services and the associated business transformations. Contact Sam here.