A report from global management consulting firm McKinsey & Co. maintains that, despite the “massive advances in computing power, data analysis and connectedness,” the agricultural and construction industries are lagging behind other sectors when it comes to “productivity gains associated with digitization.”
The study contends that agriculture faces several unique issues in its efforts to take advantage of advanced technologies. The major challenges that make digitizing ag more difficult include “long cycles for experimentation, connectivity issues in rural areas and complex systems affected by weather.”
A recent survey of 1,400 North American businesses (646 contractors, 753 farmers) conducted by McKinsey researchers showed that both groups “are enthusiastic about the ability to use technology to improve equipment maintenance, project management tasks and aftermarket purchases.”
Among the uses for new technology, farmers find GPS auto-steering (88%) and variable-rate application technology (76%) the most attractive uses for new technologies.
According to the researchers, “These tools and technologies that could be integrated into existing operations with relatively minor modifications were perceived by end customers as more attractive than those that would require an entire redesign, such as a move to fully electric or fully automated equipment.”
“We found that farmers primarily care about heightened job effectiveness (for example, correct seed depth and higher harvesting yield), while contractors care more about lowering maintenance (parts and labor) expenses and finishing jobs faster,” say the researchers. “This is mostly driven by the fact that they have different incentives. Farmers’ financial incentive is to have a higher yield, while contractors are commercially incentivized to finish a project on time and on budget — a perpetual challenge in the capital-projects industry.”
At a ‘Technology Tipping Point’
The McKinsey research conclude that the machinery industry, like so many others, is at a technology tipping point. “If OEMs want to thrive despite the disruptions ahead, the key will be to create a compelling value proposition for customers to share data and pay for these new technologies. The winners will be companies that selectively disrupt their business models by prioritizing high value technology to drive market share and earn recurring revenue streams.”
This will enable customers to adopt these technologies and will also allow OEMs to realize greater profitability and viability for themselves. “Indeed, our research shows that construction and agriculture OEMs in the United States can generate value from these new technologies that is four to six times the current profits of OEMs. The opportunity is there for those who can seize it,” say the researchers.