When a new executive takes over a major corporation, it’s no surprise that a new strategic plan gets announced within a few months. The plan becomes a road map of sorts, revealing the new boss’s objectives and vision for the future.
A new broom sweeps clean, as the old proverb says, and it’s what these plans aim to do too. You don’t get to be top dog of a big outfit without ambition.
At CNH Industrial, the parent company of Case IH and New Holland, Scott Wine has recently taken the helm. And true to expectation, a lot has happened within that organization in the last few months.
Effective January 1, the company split into two. The Iveco group of companies, including the Iveco truck brand and Fiat Powertrain Technologies, will splinter off on their own, leaving the new, smaller CNH Industrial with a stable of brands focused solely on agriculture and construction.
Now, this newly focused company under Wine’s leadership has announced what it is calling its three-year 2024 strategic business plan, with details on how the pared down organization aims to make inroads in the ag and construction sectors.
All was revealed at a “Capital Markets Day” event in late February, when the company invited a group of mostly financial journalists and investment brokers to an in-person event in Miami Beach, Florida.
“What we’re going to talk about today is about being a more customer-focused, centric organization,” said Wine as he took the stage to lead off the multiple presentations from senior executives. “What you’re going to see us talk about today is what the new, smaller, more agile, more customer-focused business can be.”
Now that we’re getting beyond the announcement stage and further into the company’s production year, we can begin to judge whether the new plan really is new, and whether the CNH that farmers will be dealing with will be any different from the CNH of old.
In fact, the company will even help us do that. At the end of this fiscal year, CNH Industrial for the first time will be reporting its financial details based solely on agriculture and construction equipment sales. Wine says he wants to grow those sales to between US$20 to US$22 billion dollars annually by 2024. With a strong global market for ag equipment, which now accounts for about 76 per cent of the new corporation’s income, Wine doesn’t expect to have to slash machinery prices to build sales volumes.
In fact, the plan is to mostly forget about price incentives. That’s another development to watch.
Part of the 2024 plan is to raise gross profit margins to 24 per cent. A good chunk of the improved profitability will come from a major program to reduce manufacturing costs by an enormous US$550 million per year.
“We’ve got to get improvements in quality,” Wine told the Miami meeting. “We’ve got to get improvements in productivity. Strategic sourcing is another thing. We can do much better at extracting value from our supply base. How do we partner with the best suppliers in the world to not only get better pricing, but better innovation?”
One benefit of putting the squeeze on suppliers will be the extra cash to allow the brand to spend more on R&D (4.5 per cent of net sales to be precise).
In fact, R&D is exactly where Wine says the company needs to put its money. He believes his brands have ground to make up, especially in precision technology.
It’s the precision segment, Wine asserts, that will be key to future profitability and growth in both ag and construction.
“One of the things I’ve done was try to spend time out talking with our dealers and customers,” Vine said. “What I regularly heard was this idea that we deliver great iron. The term ‘great iron’ has really been something that resonates with me. But they also said, usually in the next sentence, ‘but we wish you could be great with technology’.”
Wine says that’s why the company spent US$2.2 billion to acquire Raven Industries.
“With the acquisition of Raven, we don’t become great right away, but it puts us on a path to greatness. So what we’re going to talk about is marrying great iron with great technology.
“It’s not just our acquisition of Raven. It’s Augmenta. It’s our investment in Monarch. It’s our partnership with Trimble. It’s so many different things that we can do with technology now with Raven at the core.
“There’s a lot of benefits we get when we drive technology. It’s customer success. It’s sustainability improvements. It’s margin (profit) expansion. This just makes us better and you’ll see significant focus on the people involved and the investments we make going forward.”
While CNH may not have considered itself as being as much of a leader in precision technology as it would like, it has been been at the industry’s forefront in alternative powertrain development. And as part of that new customer-focused philosophy, the company claims alternative powertrains are just what many of its buyers want.
“Our customers are the driving force behind our journey towards electrification and alternative fuels,” vice-president of advanced technologies and innovation Selin Tur told the crowd. “Sustainability is something our customers, their customers and the planet are demanding. Businesses and their stakeholders would like to reduce their carbon footprint.”
Included in the new CNH machines we’ll see in the next three years will be a number of both ag and construction machines with electric, hybrid and alternative fuel propulsion and implement drive systems.
“We have an impressive 150 (product) launches planned over the next three years,” said Derek Neilson, president of agriculture. “Each of these will bring additional value to farmers, dealers and ultimately to ourselves.”
There are no plans to slack off on pushing alternative powertrain technology to new heights, even as the company pushes hard on developing better precision technologies as well.
“We expect to be leaders in alternative powertrains,” Wine said. “Innovation, sustainability and productivity are the things that will drive us going forward. This represents our north star on what we will be and what we will follow on the way forward.”
Of course, autonomous machine development is another key area where CNH wants to lead, with two Raven autonomous machine projects already in its stable.
“What I want you to see is how far along we are with autonomy, how quickly we can bring it to market when customers demand it,” Wine said. He promised too that CNH will deliver better technology stacks from a precision standpoint.
It also means CNH must invest in improving the dealer network that sells its products.
“On brand, dealer strength and operational excellence, there’s a lot of work to do, but we have a running start,” Wine said.
“Enhancing the dealer network’s digital capabilities is one of the key pillars of our strategic plan and significantly contributes to improving customer satisfaction,” agreed Neilson. “This includes an improvement in front-end connectivity and back-end tools supporting a fully digital customer experience from sales all the way through to service.”
While the company happily sees improved profitability and a growing product portfolio in the next three years as market demand for equipment is expected to remain strong, Wine was clear that there are potential storm clouds on the horizon, any one of which could have a strong negative impact of the company’s sales numbers.
“I’m worried about inflation,” he said. “Global debt is a big problem and that usually ties directly to inflation. What happens is that drives down market demand. We’re factoring that into our thinking. The semiconductor problem is not going away. We’ll battle through this year, it’ll probably get better in ’23. But it’s a challenge.
“What we are assuming in this plan is the ag cycle is not hurtful nor helpful through the plan period. We’re essentially going to see ups and downs through the next three years that are essentially going to keep us relatively flat from a market perspective.”
When questioned about his conservative market forecast for the near future when compared to other brands’ more optimistic expectations, Wine conceded his outlook may be comparatively modest, but he’ll be more than happy to report above-expectation results in future annual reports if they come to pass.
However, in Wine’s comments about possible future disruptions to the brand’s global business he mentioned one other thing.
“This is a very difficult world we’re in,” he said. “We understand that. We’re taking all of these factors into our business. The geopolitics are probably going to get worse before it gets better.”
Ominously, two days later, Russia invaded its neighbour, Ukraine.