Drives & Control - Big Changes Ahead

Challenges and opportunities
for market players
June 2019
Converging
technology
landscape in
Drives & Controls
(D&C)
©SergiiChernov/AdobeStock

220190613_Drives_Control_Teaser_v25_final.pptx
Executive Summary
Those trends contribute to a further convergence of the segments for mechanical, electric and fluid systems –
In the future these segments need to be analyzed as a single D&C technology landscape
Leading players responded to these D&C dynamics with an increase in their M&A activities as well as a
readjustment of their strategic priorities to position themselves in this new technology landscape
Four key trends have been identified as causing significant changes within the D&C1) technology landscape:
Electrification – For selected applications, electrified solutions are by now a viable – and in some cases even
superior – alternative to existing combustion/mechanical or fluid concepts
Digitalization – Data collection, analytics functionalities and smart systems within D&C are the foundation for
OEMs to offer future business models and are increasingly demanded by end customers
System solutions – Demand for industry-specific system solutions is driven by both the trend towards
hybridization/electrification as well as OEMs' cost reduction and outsourcing efforts
Automation – Autonomous and semi-automatic (collaborative robots) operation of mobile and stationary
applications will also affect D&C concepts (e.g. with respect to steering and software control)
Market dynamics partially differ by end industries due to the varying impact of the trends on end industries – This
requires market players to detect key trends and developments in each end industry individually
Given these challenges we see a need for D&C players to assess and redefine their strategic direction &
business model, including their future technology portfolio, end industry focus and customer base
OEMs across all end industries pursue innovative solutions as a strategic response to the emerging trends and rely
on partnerships with D&C companies in order to shorten time to market and control R&D spend
This strategic repositioning also requires a revision of the operating model, including distribution of resources and
organizational structures, as well as the underlying business plans for different scenarios
1) Drives & Controls

Sub-categories
The scope of this study encompasses six technology segments in
D&C for stationary and off-highway applications
D&C segments
Source: Roland Berger, Petar Ishmeriev/antonmatveev/industrieblick/artegorov3@gmail/ETAJOE/Michael - Adobe Stock
Selectedplayers
Mechanical
components
> Power electronics
> Motion controls
> Software controls
> Sensors
> PLC
> Displays
Electrical
components
Electric
drives
Mechanical
drives
Fluid
components
> Planetary drives
> Helical & bevel
helical drives
> Precision drives
> Application specific
drives
Electric
motors
> Bearings
> Clutches
> Brakes
> Couplings
> Driveshafts
> Axles
> AC/DC motors
> Direct drives
> Linear motors
> Servo motors
> Gearmotors
> Induction motors
> AC drives
> DC drives
> Variable speed
drives
> Frequency inverters
> Hydraulic &
pneumatic
components
> Valves, pumps,
cylinders, motors
> Hydrostatic drives
Study overview
Industries
Stationary and off-highway/mobile applications1)
1) Light vehicles not included in study; commercial vehicles only partially taken into consideration

Scope of this study Out of scope
This study describes the current dynamics in the D&C landscape as
well as the strategic implications for market players
Illustrative
D&C key
trendsI
Study overview
Vision/mission
Strategic direction
& business model
Operating model
Resources &
structures
Source: Roland Berger
Mapping the landscape of D&C
Electrification
System
solutions
Digitalization
Automation
Strategic
considerationsVI
Mechanical components
Mechanical drives
Motors
Electrical components
Electric drives
Fluid components
Europe
North
America
APAC
South
America
Africa
Agriculture
Light vehicles
Commercial vehicles
Power Generation
…
End
industries
Regions
Technologies
III
V
IV
Market dynamicsII
Vision
&
Missio
n
Business plan
Implementationplan
Business plan &
implementation
roadmap
Vision
&
Missio
n
Business plan
Implementationplan
Vision
&
Missio
n
Business plan
Implementationplan
Vision
&
Missio
n
Business plan
Implementationplan
Vision
&
Missio
n
Business plan
Implementationplan

Electrification, system solutions, automation and digitization trends
are driving the current convergence of the D&C landscape
D&C trends
D&C key trendsI
Climate
change
Fuel scarcity
Emission
regulations
Energy
efficiency
Integrated
energy circuit
Performance
improvement
Service
optimization
Autonomous
production
Connected
production
Factory
automation
M2M
communication
Mechanical
Electric Fluid
Mechanical
components
Mechanical
drives
Motors
Hydraulics
Electrical
components
Electric
drives
Pneumatics
Converging
technologies
Industry 4.0
Predictive
maintenance
Data analytics
Turnkey
solutions
Battery
propulsion
Hybridization
Safety
systems
Sensors
Robotics
Throughput
optimization
Customized
systems
Fuel cells
Aftersales
& service
Zero
emission
Integrated
systems
xxx Macro-economic drivers xxx Industry trends and emerging technologies Industry segments

Dana
ZF
Rexroth
SEW
Bonfiglioli
Flender1)
Nidec
Danfoss
SKF
ABB
Technology competency
A majority of key players in D&C are expanding offerings with
system solutions and/or diversification
Strategic direction by selected players
Source: Company websites, ORBIS, Roland Berger
1) Flender only; excl. Siemens business units
SystemsolutionsComponent
Focus Diversification
Market dynamics
Indicative only – Variation by application, technology, etc.
II
Strategic direction of
selected players
Levelofsystemintegration
Diversification
Expansion of their
technology competency
to digital solutions (e.g.
predictive maintenance)
Position approx. 5 years ago Primarily inorganic development
Current company position Focal areaPrimarily organic development
System solutions
Significant movement
towards electrified
system solutions (e.g.
SME Group acquisition)
Focus
Refocus on core
business of mechanical
parts (e.g. bearings,
couplings, etc.)
System solutions Diversification FocusStrategic directions:

Backup
Key trends create pressure to shift strategies – Wave of recent
investments and M&A activities symptomatic of transforming market
Market dynamicsII
Strategic approaches by selected players
Source: Company information, Roland Berger
System solutions Diversification FocusStrategic directions:
> Refocus on core business of mechanical parts (e.g.
bearings, couplings) and develop system/digitalization
capabilities to manage TCO of component
> Divestiture of linear and actuation technology business
> Strong focus on leveraging existing technology
knowledge to become a leading global integrated
systems provider
> Acquisition of WABCO (partially relevant for off-
highway)
> Expansion from manufacturing mechanical parts to
all-in-one electrified system solutions
> Acquisitions of SME and TM4
> Strong know-how in mechanical and electrical
products, focus on closing gap in factory automation
> Acquisitions of B+R, GE Industrial Solutions
> Focus on mechanical drives and system integration
across numerous industries
> Pursuit of organic growth
> Expanding towards mechanical drives & motors and
strengthening technology competencies in that field
> Acquisition of Ikusi
> Building and expanding competencies in mechanical,
mechatronics, electrical technologies
> Acquisitions of O&K Antriebstechnik, Comer Industries
> Strengthening gear capabilities beyond core
competency in electric motors
> Acquisition of Desch, CIMA, MS-Graessner
> Expansion of competencies towards digital solutions
& factory automation (logistics, assembly, production)
> Pursues organic growth (e.g. predictive maintenance)
> Strengthening digital and automatic offering on top of
system solution offer
> Acquisitions of Hytec Holdings, Hägglunds Drives

GE Industrial
Solution
buys
> Strengthen market
position and improve
presence on US market
> Deal value: USD 2.6 bn
O&K
Antriebstechnik
buys
> Boost sales within the
entire O&K business
sector
> Deal value: USD 20 m
Lafert Motors
buys
> Reinforce the motor
market position and
expand product
portfolio
Ikusi – Remote
Control Business
buys
> Strengthening
remote control
business
competencies
> Deal value: n/a
TM4 inc.
buys
> Portfolio expansion
towards electric
motors/drive
components/control
systems
Key market players respond to emerging trends with significant M&A
activities to broaden their product portfolio
Strategic approaches and exemplary M&A activities
2018 2019
Source: Company information, Roland Berger
II Market dynamics
SME Group
buys
> Technology expansion
towards electrification
for off-highway
applications
> Deal value: n/a
Bubble size indicating deal value
MS-Graessner &
Desch Antriebstechnik
buys
> Gearbox offer
diversification – Network
expansion to Europe
> Deal value: n/a
WABCO
buys
> Formation of
integrated, global
leading mobility
systems provider
> Deal value: USD 7 bn
SKF – L&AT
sells
> Focus on rotating shaft
business and increase
investments in R&D and
manufacturing
L&AT

Key trends
observed
TechnologiesIII
Mechanical
components
Motors Electrical
components
Source: Roland Berger, Petar Ishmeriev/antonmatveev/industrieblick/artegorov3@gmail/ETAJOE/Michael - Adobe Stock
Original core business Growth areas over the past years – Organic or through M&A
Technology portfolio of selected players
Mechanical
drives
Illustrative
Electric
drives
Fluid
components
Digitalization Automation System Solutions Electrification
Market players are diversifying their technology portfolio and
consequently entering other market players' core markets

The construction equipment market shows greatest potential for
expansion by D&C players – Mining and material handling following
Source: Markets & Markets, Allied Market Research, Freedonia, Roland Berger
End industries (selection)
Equipment market:1) CAGR
'18-'23
D&C trend impact
Agriculture
Construction
Material
handling
194
258
5.9%
203
306
8.5%
2018 2023
74 95
139 182
5.5%
Value [USD bn]
Electrification System solutions Automation High Mid LowRelevance:
Trend description
Large agriculture equipment
OEMs prototyping electrified
and smart farming solutions
Construction players develop-
ing autonomous concepts and
electrified solutions
Limited operation ranges lead
to high and further increasing
electrification
End industriesIV
Mining 7.2%
Strong electrification efforts for
e.g. underground mining;
increasing automation efforts
Wind power 5.0%
Service efficiency potential
through optimized monitoring
particularly for offshore parks
n/a
1) All information targets the respective machinery equipment market 2) Considering the current situation and future development of the market as well as the impact of the D&C trends
StationaryMobile
107
162
Digitalization
Overall
potential2)
High LowPotential:

Electrified axle concept
OEMs rely on partnerships with D&C companies to pursue
innovative solutions as strategic response to the emerging trends
End industriesIV
Examples in the D&C landscape
IoT service for drive
maintenance
Telematic end-to-end
solutions for mobile cranes
Commitment to electrification
> Full suite of advanced powertrain
components for electrification offered
Optimized electrified drive components
> Combination of various Dana drive & con-
trol components allow system fine-tuning
Early detection to minimize costs
> Fast indication of potential operational
problems through intelligent drives
Continuous system monitoring
> Continuous data collection with intensive
drive data analysis in case of problems
Problem detection before system stop
> Live and historical data are combined with
expert knowledge and experience
Global communication infrastructure
> Secure communication and data
transmission to the cloud
Telematic solution as customer advantage
> Simplification of data selection, plus
efficiency boost and lifespan prolongation
Enhanced efficiency via electrification
> Power loss reduction of 20% compared to
diesel-powered drivetrains
OEM
D&C
OEM
D&C
OEM
D&C
Fleet/operator monitor telematic solutions
> Supply customers with all data needed for
informal business decisions
Source: Company information
1)
1) Steel industry
e.g. Dana Spicer® Electrified™
e-Axle
e.g. ABB Ability™ Condition Monitoring / Remote
Assistance
e.g. Danfoss PLUS+1®
Connect

Regional development highly dependent on end industry – Growth
generally above average in APAC region
RegionsV
73
17
62
42
80
2018
97
59
22
2023
194
2585.9%
5.4%
6.0%
APAC North America
7.2%
Europe
4.5%
South America, Middle East & Africa
CAGR
2018-23
Agriculture equipment1)
Regional split of selected end industries [USD bn]
58
73
107
63
41
58
41
2018
67
2023
203
3068.5%
7.4%
11.2%
4.5%
10.6%
CAGR
2018-23
Construction equipment1)
54
36
33
16
43
72
2018
45
22
2023
139
182
5.5%
5.4%
5.7%
4.0%
6.6%
CAGR
2018-23
Material handling equipment1)
xxx xxx xxx xxx
1) All information targets the respective machinery equipment market
> Large agricultural and farming market in
the US drives North American
agriculture equipment growth
> Strong infrastructure/construction
investment in APAC but also Middle
East drive the growth of the market
> Increasing cost of labor and infrastructure
drive growth of intralogistics in Middle
East, Asia and Europe
Source: Markets & Markets, Allied Market Research, Freedonia, Roland Berger

Given these dynamics in D&C, companies have a need to reassess
their positioning – Current operational model challenged in particular
Roland Berger Strategy Framework – Conceptual visualization
Strategic considerationsVI
Vision &
Mission
Business plan
Implementation roadmap
Center: Vision/mission
"What is the overall long-term objective of our company?"
Vision
&
Missio
n
Business plan
Implementationplan
Inner ring: Strategic direction
"Which product technology for which customer segment in which
regional market?"
Vision
&
Missio
n
Business plan
Implementationplan
Middle ring: Operating model
"Are we doing business the right way?"
Vision
&
Missio
n
Business plan
Implementationplan
Outer ring: Resources & structures
"What are the required resources and structures?"
Vision
&
Missio
n
Business plan
Implementationplan
Inner box: Business plan
"Do we have a business plan for our strategy?"
Vision
&
Missio
n
Business plan
Implementationplan
Outer box: Implementation roadmap
"Are we clear about our implementation roadmap?"
Vision
&
Missio
n
Business plan
Implementationplan

The basis for the strategy is a clear vision/mission as well as an
unambiguous strategic direction and sound business model
Key questions (1/3) – Selection
Vision & mission Strategic direction
How to transform/manage your portfolio
towards future electrification and automation/
digitalization needs of customers?
What is your vision/mission for electrification
and digitalization/automation for 2030?
How to manage portfolio transition due to
convergence of technologies? Which
technologies to phase out and by when?
What emerging technologies and innovations
are demanded by your customers? Do you have
sufficient application engineering know-how?
How does this vision differ from your current
DNA?
Where do you see your company embedded in
an Industry 4.0/connectivity landscape? Which
are the most promising use cases?
Vision
&
Missio
n
Business plan
Implementationplan
Vision
&
Missio
n
Business plan
Implementationplan
Are you a component or system solutions
provider? Do you pursue a technology focus or
diversification strategy?

The operating model as well as resources & structures need to be
harmonized in line with the overall strategic direction
Do you have a distinct go-to-market approach
for serial business (e.g. agriculture) vs. project-
based business (e.g. steel mills) in place?
Operating model
How to adapt current capacities and regional
footprint? How to requalify existing employees
from mechanical to electric/software?
How to set up strategic product management
and prioritize R&D budget between traditional
and emerging technologies right?
How to harmonize your go-to-market approach
across different channels? Direct vs. indirect
vs. e-commerce?
Resources & structures
How to transform the organization to cope with
new D&C requirements? E.g. leveraging
innovations across all business divisions?
How to allocate/integrate new resources/
competencies? What is the best way to
integrate acquired competencies?
Where do you seek partnerships to ensure a
lean business model?
Vision
&
Missio
n
Business plan
Implementationplan
Vision
&
Missio
n
Business plan
Implementationplan
How to define your vertical integration? E.g. for
mechanical drives or semi-conductors?
What's core vs. non-core? Make vs. buy?

Based on the strategic direction and operating model, a detailed
business plan and implementation roadmap needs to be defined
How do you retrain your employees and what
kind of support do you need to train them?
Implementation roadmap
Are internal capabilities and capacities in place
to manage the operational transformation of
the organization?
Is there enough C-level attention given to the
required transformation process to implement
the new operating model?
What is the planning basis for the electrification
share and automation/digitalization in the
5-year business plan? What are other scenarios?
Business plan
Can you substantiate growth assumptions by
end industries and technologies with sufficient
market intelligence?
Is the market entry of new players in the core
business being accounted for?
Are reorganization/restructuring costs for
right-sizing the manufacturing footprint
properly taken into consideration?
Vision
&
Missio
n
Business plan
Implementationplan
Vision
&
Missio
n
Business plan
Implementationplan
Do you have experts in electrification to shape
the new design of the organization?

We have gained extensive experience in Drives & Controls through
numerous projects with leading companies across various segments
Key activities (selection)
> Go-to-market strategy for a European drives & hydraulics producer
> Long-range e-mobility strategy definition for a global transmissions
manufacturer
> Sales excellence project for leading hydraulics manufacturer
> Higher margin growth opportunity identification for a bearings
manufacturer to exit the commodity trap
> Aftersales market entry strategy (construction and agriculture) in
France for a German hydraulic components manufacturer
> Strategy and market analysis conducted for a manufacturer of process
automation technology
> Commercial due diligence of a high performance gearbox manufacturer
> Buyer due diligence on a leading linear guides and bearings
manufacturer
> Vendor due diligence for a leading supplier of drive systems
> Commercial due diligence on a manufacturer of angular gear drive
transmission solutions
Project references (selection)
References
Manufacturer of
engineered hydraulic
and electronic systems
and components
Nordic ball and roller
bearing manufacturer
Major European player
of linear motion
systems and
automation equipment
Worldwide supplier of
powertrain components
Manufacturer of drive
systemsControl and automation
technology company
Companies (selection)

Industrial goods are at our core as one of the leading global strategy
consultancies – Confirmed by industry rankings
IDC
IDC MarketScape – Business
Consulting Services 2016
Source: IDC MarketScape: Strategy / Middle Market Business Consulting Services 2016 Vendor Assessment
Midmarket
Roland Berger
McKinsey
BCG
AT Kearney
Deloitte
Major Players
Worldwide
Further: KPMG, IBM, L.E.K., Kurt
Salmon
Strategy
Roland Berger
BCG
Bain
AT Kearney
EY
Major Players
Worldwide
Further: KPMG, Accenture
Roland Berger in industry rankings
brand eins – Roland Berger
top ranked disciplines
Mechanical & plant engineering
Automotive & suppliers
Restructuring
Leadership, organization & HR
References

Your contacts at Roland Berger
Roland Berger experts
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Partner
Zurich, Switzerland
Sven.Siepen@rolandberger.com
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