What It Takes to Scale Value-Based Industrial Solutions

B2B sales is fiercely competitive. Companies selling big-ticket products and services to other businesses must design solutions that meet their customers’ specific needs with a provable value proposition. Increasingly, that means engaging in value-based sales, where the benefits to the customer are defined, quantified, and managed by the vendor. That’s a challenging practice to get right: Many industrial companies fail to move on from piloting solutions to delivering them at scale.

Our in-depth research on industrial equipment manufacturers (IEMs) that have embraced this business model has revealed what separates the successful scalers from those who remain in pilot purgatory. Those lessons are useful to any B2B companies embarking on, or struggling with, a value-based sales approach.

Many IEMs are facing a perfect storm as two major trends converge. First, they are encountering intense competition from low-cost players, as their advanced physical products alone no longer confer a competitive advantage. Second, many of their traditional product offerings, which already carry a high cost of ownership, emit high levels of greenhouse gases at a time when customers are striving to comply with stricter environmental standards. With the convergence of these two trends shrinking opportunities for growth and profitability, IEMs are increasingly looking to new business models that might reduce customers’ operating costs and emissions. However, the ability to execute such strategies at scale has been elusive.

To improve their customer value propositions and their profit margins, IEMs are creating value-based industrial solutions.1 We define them as customized and integrated combinations of products, service, and digital technology that allow companies to achieve profitability and sustainability simultaneously by providing value in use. In some sectors, such as construction and mining equipment, solutions like fleet optimization and equipment-as-a-service already account for the majority of total revenues.2

Offering value-based industrial solutions requires manufacturers to shift from selling products to fulfilling complex customer needs — that is, to a value-in-use business logic, where the value created is shared between manufacturer and customer.3 Such solutions have three distinct but interrelated characteristics. First, they are customized to the unique operational needs of a specific customer rather than implemented off the shelf.4 Second, they comprise integrated combinations of products, services, and digital technology that enable greater value collectively than each does in isolation.5 Third, these solutions aim to deliver value in two key ways: by improving both profitability and sustainability outcomes. Profitability may manifest as productivity improvements and reduced operating costs, while sustainability can be achieved by lowering the CO2 footprint of operations and enhancing product utilization.6 Scania’s fleet management system, Volvo Construction Equipment’s site optimization solutions, ABB’s motor-as-a-service offering, Caterpillar’s autonomous solutions, GE Aerospace’s TrueChoice Flight Hour maintenance program, and John Deere’s TimberCare service offering are all examples of such solutions.

The Scaling Challenge

Our research shows that it is relatively easy for an IEM to create an initial value-based industrial solution. Doing so on a one-off basis for a single, key customer limits the scope of financial commitments. The value created for the manufacturer in this case is not primarily about the revenue derived from the customer; rather, it’s about proving technical and operational feasibility, as well as projecting a brand image of proactive, innovative thinking. However, scaling these solutions is much more challenging than delivering pilot initiatives: Offering these solutions across a large and diverse customer base requires a repeatable, structured process and strong, entrenched capabilities.

IEMs that seek to scale these solutions expect higher profits, but that often fails to materialize. Instead, many companies find that the investments needed to deliver value-based industrial solutions more broadly increase both their costs and organizational complexity, without improving profitability.7 In other words, IEMs often struggle with managing scaling in practice, and their customers frequently complain that value-based industrial solutions are not financially viable.8

We studied 19 companies across eight industry sectors to gain insight into where the scaling process breaks down and found that many IEMs overestimate the appeal of their value proposition and their customers’ willingness to pay. Across the cases, the IEMs also found it challenging to properly configure solutions and align with partners. Many were also struggling to implement new revenue models and build sufficient capabilities to deliver promised value in practice, especially when doing so required bringing in third-party services.

There are numerous reasons why these challenges prevail. First, like many manufacturers, IEMs have a deeply rooted culture that prizes developing and improving physical products. This limits their ability to deliver new forms of customer value beyond the products themselves, such as value-based solutions.9 Second, they are often organized for transaction-based customer interaction and lack the organizational readiness for solution delivery and implementation.10 Third, creating a profitable revenue model may be particularly complex because it requires alignment and agreement with third-party service providers and other ecosystem partners, over whom a focal IEM has limited control — and it requires contributions from customers, which magnifies complexity further.11

What’s Required for Value-Based Industrial Solutions to Scale

Our analysis shows that organizations that have been able to scale value-based industrial solutions have established a set of prerequisite capabilities in the initial phase of designing and piloting such offerings. In the second phase, where scaling gains traction, they have gone on to develop additional capabilities required to repeatedly sell and deliver those solutions.

In the framework we developed from our research, we have defined three core scaling capabilities for each of the two phases and briefly described the 17 practices that are key to executing each phase successfully. (See “Two Phases of Capability Development for Scaling Value-Based Industrial Solutions.”) Our research also indicates that the chain is only as strong as its weakest link, and deficiencies in any single scaling practice can stall the overall scaling process. As we look more closely at the following six core capabilities, we’ll identify particular areas of challenge that arose for the companies we studied, as well as examples of what was executed well.

Phase 1: Scaling prerequisites. The groundwork for developing value-based industrial solutions comprises the following three steps.

Develop a solution strategy. The strategy work that kicks off the process of developing a value-based industrial solution is not a particular roadblock, our analysis found. Managers recognize that adopting a value-based model represents a profound shift. As one told us, “For most of our product lines, we no longer sell just products — we deliver comprehensive solution projects tailored to our customers’ operational needs.” That said, it’s important to start by articulating a clear vision with a rationale for the shift, and to establish a set of clearly defined goals. Otherwise, top management will struggle to win the commitment of the rest of the company. Second, leaders must use a structured planning process to design a road map that outlines key activities, milestones, and timelines that operationalize the vision and goals into practical, actionable steps. Finally, leaders need to make a credible resource commitment: They must dedicate specific people, a defined budget, technology, and other assets to execute the road map.

Create a dual value proposition. Where companies have typically struggled in this initial phase is in defining a value proposition that creates both business value (profit, growth, competitive advantage) and environmental value (resource efficiency, carbon reduction, waste elimination). Successful companies use environmental value to create business value. This is a must-do: Not a single company we studied was willing or able to pursue sustainability without a clear business case.

An ecosystem partner working with an IEM we studied told us, “Profitable sustainability is front and center. Adopting advanced electric machines is not just about reducing emissions — it’s about achieving tangible financial gains. These solutions must lead to measurable reductions in operating costs, ensuring that the total cost of ownership is justified from both a financial and environmental perspective.”

However, customers may hesitate to adopt such solutions due to perceived high costs. A supplier of construction solutions invested heavily in developing electric construction machines, thereby eliminating local emissions while simultaneously reducing noise. Despite the environmental superiority of the solution, customer uptake was much slower than expected due to the more costly investment. Further, in some markets, the impact of low fossil fuel prices, or policy incentives favoring solutions that use fossil fuels, meant that savings were insufficient to offset the higher cost.

Creating a dual value proposition requires both defining and validating the promised value. Some companies found it fairly straightforward to clearly articulate how their solution would deliver both business value and environmental value. A manufacturer of heavy trucks did this well. “For long-haul operations, digital services enable our customers to reduce CO₂ emissions by cutting fuel consumption through real-time route and driving optimization,” a leader there told us. However, few IEMs correctly defined the business value of their solutions and hence failed at getting perceived customer value right. All too often, the marketing, sales, and R&D functions conceived of business value differently — even years after a solution had been launched. IEMs also commonly held inflated perceptions of the business value of their solutions that customers did not find credible.

That is why value validation — confirming and measuring the dual value created via customer feedback and real data — is so critical and so challenging. Digital maturity helps with this, as exemplified by an ecosystem actor catering to the mining industry. The company’s digital mining intelligence service provides data on asset and operational performance, which enables it to produce a customized dashboard with visibility into actual operational efficiency, environmental impact, and safety outcomes.

However, many other actors were much less sophisticated, and it was not uncommon for them to attempt to validate value via word of mouth or ad hoc customer interactions. One manufacturer developed what it believed to be a groundbreaking solution for industry automation: a suite of semiautomated, electrified machines designed to improve both efficiency and sustainability. From the IEM’s perspective, the business value seemed obvious. A senior product manager told us, “With these systems, operators can cut emissions while reducing downtime. We were confident the total cost of ownership would be compelling.” However, the customer saw it quite differently and was not convinced that the economics of the solutions were competitive and realistic — nor that the IEM’s solution reflected its operational realities.

Design for modularity and customization. Another important scaling prerequisite for delivering solutions that are customized to a particular operating context is the capability to modularize products, digital assets, and services. For products, this means developing key components, such as motors, pumps, and transmissions, such that they can be used across a variety of customer solutions. Similarly, digital modularity means designing software, data analytics, and communication interfaces to work across diverse solutions. Developing service modules that work across solutions — such as proactive maintenance contracts, upgrading, and refurbishment — enables efficient and flexible delivery and is key to delivering on the promise of a value-based industrial solution.

One construction equipment manufacturer developed standardized products, services, and digital modules along with internal processes to configure them efficiently. This gave it flexibility in designing solutions and was cost effective for its customers. In contrast, another IEM that focused excessively on customizability and limited standardization ultimately found the modular approach to be operationally inefficient and not financial viable.

Our research found that the most challenging among the practices involving modularity and customization was solution configuration. Seamlessly bringing together product, service, and digital modules was a headache across the cases we studied. Each of the three types of modules has a different value logic. Physical products are judged on reliability and quality, services are assessed more on responsiveness and customization, and digital assets are evaluated on connectivity and usability. Because the value logics are orthogonal, solution configuration becomes a problem of aligning performance regimes that are partially incompatible. For example, service customization can sometimes undercut product reliability.

Another issue is that each module type typically emerges from different units or departments within a manufacturer, which, in our cases, caused siloed thinking and hence additional integration problems. Third, the effectiveness of digital modules depended on customer data, which some customers were reluctant to share with their vendor for fear of lock-in and loss of control — but without customer data, the IEM couldn’t unlock the full value of the product and service modules. Yet another problem centered on customers having different procurement routines for products, services, and digital assets, which complicated their acquisition of value-based industrial solutions.

The example of a manufacturer catering to the mining and steel industries shows how to configure solutions well. This company followed an agile and collaborative process where customers were involved in codesigning advanced solutions and supported the configuration process. It brought together delivery experts, product owners, and R&D early to define both module integration and performance outcomes. Structured guidelines enabled sales and delivery teams to rapidly assemble and adapt solutions using standard modules with minor adjustments — thereby making the solution both efficient and responsive to individual customer needs.

In this process, a particularly pressing point was procurement and financial cycles related to different modules of the solution. Industrial products typically had an estimated life span of at least 30 years and were acquired through significant capital expenditure investments. In contrast, services were budgeted on shorter cycles of three to five years, while digital features required recurring operational expenditure payments. By involving customers early in the codesign process, the manufacturer was able to align these cycles and negotiate a hybrid model: Equipment was sold on a discounted CapEx basis, while services and digital modules were bundled into a three-year OpEx contract with the option for successive three-year extensions if predefined performance outcomes were met. This alignment reduced friction in procurement and built confidence that both operational and financial goals could be achieved simultaneously.

Phase 2: Scaling execution. As detailed below, scaling execution centers on the capabilities needed to deliver value-based industrial solutions repeatedly and across a variety of customer engagements while ensuring that financial objectives are met.

Manage ecosystem contributions. Developing and orchestrating a partner ecosystem is essential; even large IEMs cannot scale value-based industrial solutions on their own. We didn’t meet a single one that was horizontally and vertically integrated to the extent that all of the capabilities in its product, service, and digital modules were in-house. Some added needed competencies via partnerships, acquisitions, or both. One filled competency gaps in its design and delivery structures via a combination of acquisitions and contracts with complementary partners.

Building out an ecosystem requires that complementary partners be mapped out and onboarded, which worked relatively well across the cases we studied. However, aligning with partners on who would do what and who would be situated where proved much more challenging. Partners’ interests and goals tended to diverge from IEMs’, particularly when a value-based industrial solution was novel and the relationship between partner and manufacturer was recent; those factors left partners hesitant to commit to uncertain future pathways. Such situations required active orchestration and engagement. Yet another complication was that alignment normally required the sharing of data and intellectual property, which raised concerns about opportunistic behavior and knowledge leakage.

A diversified global manufacturer of industrial automation equipment had an innovative approach to partner mapping, onboarding, and alignment. The company sponsored an accelerator program for over 100 startups and small and medium-sized enterprises, with a focus on codeveloping solutions that integrated directly with its existing product lines. This collaborative approach allowed the manufacturer to tap into the capabilities of a diverse partner network and subsequently onboard and align with a subset of these companies to scale innovative solutions. Another IEM partnered with a global digital platform provider and innovative digital startups to put together complete value-based industrial solutions. After the onboarding phase, the partners worked tirelessly on clarifying responsibilities and mutual expectations, and on data-sharing protocols, to prevent overlap and friction. As trust and experience accumulated, the partners successfully developed a scalable solution that spanned the full solution life cycle — from design and operation to performance monitoring and end-of-life recovery.

Ensure financial viability. Needless to say, it is essential that a manufacturer cover its costs, recoup its investments in value-based industrial solutions, and generate profits — while maintaining an attractive customer value proposition. To manage this, an IEM must have a detailed understanding of cost structure, which is fairly straightforward, as well as the right revenue model and risk management in place. These latter two practices were more challenging for the companies we studied.

Value-based industrial solutions normally involve adopting a new type of revenue model. Upfront revenue streams from product sales are largely replaced by monthly licensing fees, given that the IEM normally retains ownership of the equipment used in its solutions. This underscores the need for rigorous risk management to be front and center. The companies in our study experienced instances of adverse customer behavior, such as in situations where equipment was misused, resulting in additional repair and maintenance costs for the manufacturer. Some IEMs also took on unanticipated costs stemming from complexity in service delivery, and others faced new financial risks, such as working capital being stressed when revenues from conventional product sales diminished. All of these risks will effectively undermine the revenue model if they aren’t proactively addressed.

One manufacturer of process equipment for mining companies pursued outcome-based cost-per-ton contracts successfully. An executive of the company told us, “This is a high-risk revenue model in which we earn in proportion to customers’ operational success materializing. While this model tightly aligns incentives — monetizing value through shared productivity gains — it also places significant pressure on us to continuously deliver measurable outcomes.”

Many of the IEMs we studied spoke of challenges in meeting performance guarantees due largely to limited insights into customer operations. This was particularly prevalent in early attempts at scaling, before learning effects had accumulated. One manufacturer eventually abandoned its attempts at performance-based contracts after years of pilot tests due to risk management and cost structure concerns. Capability gaps in delivering contracts onsite could not be closed, and the risk of consistently failing to meet promised performance outcomes was deemed too high.

Expand the addressable market. Implicit in scaling is the intention and need to reach a larger market. And, given the specificity of value-based industrial solutions, this implies building the capability to expand internationally, where customer requirements can differ significantly across countries, regions, or segments. IEMs must identify additional customer segments that are good prospects for their solutions and/or penetrate existing segments more deeply. Here, understanding customer readiness, regulatory pressure, policy incentives, and infrastructure support is key. For example, in scaling its site electrification solutions, a manufacturer of construction equipment learned that not all customers or markets were equally prepared for it. In some cases, customer maturity was too low; in others, limited local sales and delivery capacity effectively hindered implementation at scale. To address this, the IEM conducted in-depth market analyses to identify high-potential segments and regions where both customer readiness and organizational reach were aligned — thereby ensuring more focused and effective market penetration.

Addressing a larger market requires IEMs to define and clarify the roles, responsibilities, and structure of the internal or partner-based delivery organization responsible for getting the solutions implemented in practice. Some manufacturers took a hybrid approach — that is, they used an internal setup in some markets and a partner-based one in others. Some internal delivery organizations experienced major challenges, but with a partner-based approach, complexity grew further and capability deficiencies were a major issue. The delivery organizations needed to make their solutions work at each customer’s site, but even with standardized modules, the customer context and specific requirements were seldom identical. This implies that a standardized process for solution delivery was often unfeasible, and thus solution performance, such as equipment uptime, varied. We also observed a few cases where partners disagreed on who was best positioned to exert influence over solution architecture in practice: an IEM from its domestic headquarters, or third-party service actors in a specific country.

A manufacturer of equipment for the forest industry created a delivery organization equipped to implement complex solutions and deliver operational performance over time. The company adopted a forward-leaning and proactive delivery model, where service delivery teams not only responded to customer issues but also actively ensured that its solutions delivered guaranteed results. Building this capability involved combining technical expertise, field support, and monitoring routines into an organizational structure and process to support scaling and long-term customer success. An executive from a construction equipment manufacturer further underscored how instrumental the delivery organization was for customer satisfaction: “Solutions require a completely different mindset. Our delivery teams now need to collaborate closely with customers over time, monitor performance, and ensure outcomes are achieved. That demands new skills, new incentives. … Unless we invest in these capabilities, the delivery organization will drift back to its transactional delivery model.”

Using the Framework in Practice

By considering the successful scaling of value-based industrial solutions as a two-phase operation comprising six core scaling capabilities broken into a total of 17 scaling practices, manufacturers and their partners can more easily and systematically identify their relevant organizational strengths and weaknesses. This sets the stage for deliberately building scaling capabilities to bridge the company-specific weaknesses we identified. These weaknesses can span strategic, technological, organizational, financial, and market issues, making scaling decisions inherently complex.

Based on our analysis, we offer the following guidance to managers pursuing a strategy of developing and marketing value-based solutions broadly.

• These solutions are complex, highly customized, and ecosystem-dependent. For this reason, take a systematic and holistic approach to scaling them. Rollout via ad hoc actions or uncoordinated initiatives will not work.
• Scaling success is contingent on reaching sufficient maturity in all scaling practices. That said, getting the dual value proposition, solution configuration, partner alignment, revenue model, and delivery organization right seems particularly challenging. Managers should pay special attention to these scaling practices.
• Misalignment or poor timing — such as engaging global partners before a clear internal strategy has been established or attempting wider replication before solution-market fit has been achieved — is likely to create bottlenecks, resource misallocations, and scaling fatigue. Therefore, make sure that scaling practices are conducted in the suggested order.