As CEOs struggle to keep their companies profitable in today's economy, there are companies that have beaten the odds and are pulling ahead of their competitors. The industry leaders that have learned how to survive today's market pressures of higher earnings, increased competition, market maturity and customer demands for better goods and services have developed the right strategies to create wealth and gain market share.  

In a four-year study of 32 major market industrial equipment companies conducted by Accenture, those companies that stood out in the crowd have four things in common — they are efficient, innovative, expanding globally, and managing their portfolios well. Combined, these business strategies will better ensure a company 's long-term survival.  

Efficiency

While the industrial equipment industry has traditionally focused on cost cutting to increase efficiency, the leading companies focus on improving the return on assets. Thriving companies constantly look for ways to become more efficient, and in particular, more efficient than their competitors. For example, a firm like GE leads its industry segment in efficiency and, accordingly, boasts a profit margin that is well above average. Companies like Illinois Tool Works and Emerson have used efficiency to beat their competitors and realize a more than 10 percent return on assets. Some companies have also found ways to use the Internet to their advantage. In the study, Accenture found those companies that use the Web as a tool to improve processes, channels and human performance, and to collaborate with customers and suppliers, tended to have the strongest financial metrics.

To achieve a sustainable advantage, however, efficiency must be coupled with innovation, geographic expansion and portfolio management.

Innovation

Innovation is mandatory for the long-term survival of any industrial equipment manufacturer. In the study, Accenture found that many companies were motivated to become more innovative because of customers' demands for goods and services that increase productivity. As a result, the true leaders have gone from simply producing and selling tangible products to providing more complex services that address the life cycle of the product. They have developed smart products designed to increase their customers' productivity and capture valuable data. The key to creating smart products is to not only capture customer information ‹ which many companies already do — but also use it to adapt products and services to more precisely meet customers' needs. With IT-enabled products that interact across open platforms and provide new opportunities, the solutions may be more valuable to the customer than the product itself.  

The study found that truly innovative companies created an astounding 70 percent of their revenue from products designed within the past five years, unlike other companies that derive much of their revenue from technology that hasn't seen improvement or enhancement, especially through add-on services, in many years. Schneider Electric and ABB are two companies that stand out in the area of research and development. Schneider has approximately 3000 engineers and 400 team members focused on R&D across 20 countries. ABB allocates more than eight percent of its revenue and 20 percent of its corporate resources to exploration and experimentation.  Another innovation that leading companies are using is eCommerce and the Internet.

Volvo Construction Equipment, for example, needed a way to extend its sales channel and more efficiently connect its network of dealerships with its customers. Volvo CE teamed with the Click Commerce/Accenture alliance to develop a business-to-business-to-consumer Web site to do just that.  The site now handles leads, pricing, product configuration and specifications for the more than 100 equipment models the company rents, sells and maintains. Now, with the robust, Web-enabled tools, Volvo CE's dealers can more effectively reach out to and support their customer base, market directly to customers and increase brand awareness and loyalty.

Geographic expansion

While many companies derive a majority of their revenue in their home region, those that generate more than half elsewhere are in a much better position to withstand regional and cyclical downturns. Japanese companies, for example, which derive 79 percent of their revenues in Japan, have not performed well over the past five years.  This poor performance is attributed to the fact that they are locked into their own market. When a recession took hold of the Japanese economy, these companies took the hit. On the other hand, a company like Siemens, which has recently managed to generate more than half its revenue outside Germany, is better positioned to ride out cyclical demand and economic booms and busts while serving an increasingly global customer base.

In addition to protecting against economic cycles, geographic expansion can be a source of growth in a flat market. Getting the first strike advantage in an emerging market can increase sales dramatically, but to sustain results a company has to be well prepared for business outside its home region. Long-term success requires a solid infrastructure and attention to personnel, political and cultural issues. One way to effectively address these issues and better ensure a quick return on investment is to partner with a company already operating in the geography. With a partner, the time it takes to handle issues like IT infrastructure, employee recruitment and housing, and creating sales channels can be shortened dramatically.

Portfolio management

Good portfolio management requires that companies focus on those businesses that are achieving results, and rid themselves of those units that are not performing or directly related to the core business. While acquisitions and divestitures may provide companies with new geographies, specialized products or services and even cost cutting opportunities, companies can find themselves in businesses they never imagined. For example, one industrial company in the study found themselves the owner of a retail chain. In addition, the study found the supposed gains from synergies are often not achieved, and costs take longer than expected to recoup. In the study, ABB stood out as a leader in portfolio management.  This company divested itself of non-core businesses ‹ like rail systems provider Adtranz ‹ and is now focused on automation and power products.

Gone are the days when CEOs could focus strictly on sales backlogs, maintenance, reengineering and cost reduction. While those issues remain critical, the industrial equipment companies that will thrive will be those that can leverage all four areas — efficiency, innovation, portfolio management and global expansion ‹ to become true leaders.    

Dean Teglia is a partner at Accenture and leads its North American Industrial Equipment practice. Teglia is an industrial engineer by education and specializes in business reengineering, IT strategy, shared services and ERP systems implementation. You can reach him at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it