The global economy has reached the midpoint of this decade, and for the first time since its start, industrial goods and automotive executives are focused on strategies for growth rather than persistent crisis management. After steering through the COVID-19 pandemic and the ensuing inflation, supply chain disruption, and labor market shortages, C-suite leaders are now prioritizing investment in transformative strategies, such as next-level supply chain diversification and implementation of advanced technologies like artificial intelligence (AI).
These conclusions are based on two 2024 Oliver Wyman surveys, including one that sampled 100 chief executive officers from New York Stock Exchange-listed companies. In the CEO survey close to three-quarters of the executives said they were doubling down on growth opportunities, seeing potential in rising merger and acquisition activity and new disruptive business models. A stunning 96% said they would bet on AI, which they considered more opportunity than risk.
While supply chain management and cutting costs — main concerns of the year before — remain important, the corporate mood is changing. Rather than mired in a world of challenges, more than 60% are optimistic, expecting the market environment to improve over the next 12 months with falling interest rates reflecting the current low inflation.
This commentary will also focus on more than 100 responses from industrial goods and automotive C-suite executives in North America and Europe on performance transformation. Here, 64% of industrial goods company executives and 63% of automotive leaders also listed growth as their top priority.
Strategic shift towards growth and performance transformation
Behind the new strategic growth imperative should be a drive for performance transformation — not necessarily “revolutions” in response to disruption, but steady, consistent evolution aimed at producing more efficient operations and fueling innovation in products and services over time. With inflation down and markets stabilizing, it’s important for executives to recognize this strategic shift and not be held back managing against risks that are now dissipating.
Still, while executives can now afford to take this long view and envision pathways to smarter operations, they also need to double down on customer and core competencies. This “back-to-basics” strategy allows them to hedge against future uncertainty even as they push the envelope on performance transformation.
Also, key is the recognition that more efforts to transform fail than succeed because they are by no means easy. Unsuccessful transformations often occur when there is a lack of boldness. More than 50% of industrial and automotive respondents, versus 40% across industries, believed that to be the case in their respective industries. This tells us that industries need to push the boundaries to conduct successful transformations that drive change.
The research also shows that change must be something that can be tracked with metrics designed for that purpose. Among successful transformations, 83% of industrial goods respondents said they developed transformation-specific metrics.
Harnessing AI for innovation and operational efficiency
At the heart of most transformations is also new technology that enables executives to reimagine not just product lines and customer services, but also the very basics of production and supply chains. Here, AI is pivotal.
Across industries, but especially for automotive and industrial sectors, technology is the focal point for change — with palpable enthusiasm around AI. Three-quarters of the automotive executives surveyed say they expect to use AI to drive a fundamental shift in their business, versus 61% in industrial goods.
More than half (56%) of the auto executives expect generative AI to have a significant impact on their business in the next three years compared with only 30% in industrial goods and 36% across all industries. Keeping up with advanced technologies like AI is necessary to help keep rising costs in check and meet customer expectations. This perception was more pervasive in highly competitive, customer driven sectors like automotive.
Technology investments are paramount for companies — with substantial resources being allocated to stay competitive, particularly when AI is involved. There’s a growing list of tasks in which executives anticipate AI to have a role. Among auto executives, most frequently mentioned areas of application include demand forecasting and inventory management, component design and digital modeling of parts before physical prototyping, customer service including chatbots, driver assistance systems, defect detection and predictive maintenance, workflow optimization, task automation, and design generation.
Reevaluating traditional business models in manufacturing
Some of the most iconic business models, such as assembly-line production in auto manufacturing, have begun to be questioned. But while ditching the assembly line may still be a decade off, automakers are looking at other digital innovations such as automated guided vehicles (AGVs), co-bots, predictive maintenance, and vision systems. For instance, significantly more use of AGVs could start to address the rigidity of the assembly-line process by potentially eliminating some of the infrastructure.
Most importantly, the injection of more digitization could address a persistent problem with declining labor productivity. Adoption of digital technologies by car companies is expected to double by 2025 from what it was only five years before.
AI is also expected to address other major labor pressures including labor shortages, recruitment, and training. For instance, Faurecia, a major global automotive supplier, recently implemented Eightfold AI’s talent acquisition and talent management offerings to drive recruiting and employee upskilling.
Overhauling Supply Chains for Resilience and Cost Efficiency
There are other COVID-related problems that still plague companies. Higher Interest rates and raw material prices remain top challenges for both industrials and automotive, although interest rates recently began to come down. This is why we continue to see investments and focus on supply chain overhauls, especially in the industrial sector.
By no means have companies recovered all COVID-related markups on components and material costs or logistics rates. For example, several companies are revisiting their freight and small parcel agreements with suppliers to bring rates down after increases through 2022. These revised agreements should be based on data-backed trends and insight on cost drivers.
Many companies were hit with cost increases of 20%-plus on major components — well beyond inflation — without price decreases after index prices began to come down. One successful method of dealing with this is to approach suppliers with an analysis of how much prices need to come down — identifying price decreases that should occur to get back to market levels. Simultaneously, manufacturers in the United States must now also factor in the likelihood of tariffs raising non-US supplier prices. No doubt, this will change the calculations of whether it makes sense to buy domestic.
But addressing costs is not necessarily transformative. Rethinking or diversifying a company’s supply chain would be. To accomplish this, some companies are running strategic sourcing processes to identify alternative suppliers more in line with market rates or closer to production to reduce the emissions created and lower logistics costs.
Embracing evolution for sustainable transformation
After four years of reactive strategizing and risk management, companies can now begin to be more proactive — rather than avoiding negative outcomes, work instead to create more positive ones. To make the process truly transformative does not necessarily require upending the system. Executives sometimes believe that transformations need to be a “revolution,” but an evolution can get the transformation in motion. It provides new data with which executives can set broader strategies that in the end create the revolution that best fits each company’s needs.