The Insight is the Edge: Why CNH Industrial Struggles to Keep Up
Over the holidays, I listened to one of my must-listen agriculture podcasts, The Future of Agriculture by Tim Hammerich.
On the particular episode I want to highlight, Tim had Marc Kermisch, Chief Digital and Information Officer of CNH Industrial.
There are many comments from Mr. Kermisch on the future of precision agriculture and the CNH Industrial business that make the podcast worth the listen.
My biggest takeaway, though?
I can’t help but come away from listening and wondering about the vision of CNH Industrial.
In fact, the messaging comes across as CNH Industrial is content being #2 in North America to John Deere, showing little desire for leadership in any future-driven area, whether it’s autonomy, precision capabilities, or new business models.
A comment that stands out to me reinforcing this was the following regarding annual recurring revenue (emphasis mine):
“If it makes sense for the farmer and the farmer wants to go there, we will go there…we want to make sure the farmer is leading us through that business model change”
If they do not deem recurring revenue to be the future, that’s understandable. However, the rationale behind that view is noteworthy because it likely guides more than just their business model endeavors.
World-class companies lead their customers. Not vice versa.
These companies lead their customers based on unique insights that drive customer actions and behavior.
In most industries, the businesses with the insights have the edge.
CNH Industrial doesn’t clearly state a unique insight or vision guiding them, or their customers, towards the future of agriculture— whether listening to this podcast, their 2022 Tech Day, or reading investor materials, it remains unclear where they are leading their customer and why.
Wal-Mart vs. Amazon
Wal-Mart is the largest retailer in the world.
However, Amazon trumps them in market capitalization:
Source: Stratosphere.io. Wal-Mart in purple, Amazon in Orange. January 3rd, 2024.
The comparison isn’t entirely apples-to-apples because Amazon has other profitable segments, such as cloud services (AWS).
But if we look at Amazon’s bread and butter, e-commerce, which is the fastest growing segment of overall commerce, we see them eating Wal-Mart’s lunch, to no surprise:
In fact, if we compare the Gross Marketplace Value (GMV) of Amazon to Wal-Mart, they sell similar amounts in total:
Source: Seeking Alpha
According to eMarketer, US e-commerce sales are projected to reach 27% of total retail sales by the end of 2027, growing much faster than brick-and-mortar sales.
That positions Amazon well long-term and is why Wal-Mart continues investing in its e-commerce business.
However, most of what Wal Mart does in e-commerce is mimicry of Amazon.
Amazon has its highly successful third-party marketplace place, which it launched in 2000.
Wal-Mart launched similar in 2009. Walmart's network of independent sellers remains much smaller compared to Amazon's.
In 2006, Amazon announced Fulfillment by Amazon, which allows Amazon to pick, pack, and ship sellers' products quickly and reliably. Wal-Mart announced this capability only in 2020.
In 2005, Amazon launched Prime, its membership model, to entice incremental revenue for their business plus encourage an increased share of wallet from their customer base.
Wal-Mart launched its competitive offering, Wal-Mart Plus, in 2020.
Along the way, Amazon has added further membership benefits, such as Prime TV, Prime Music, and free 2-day shipping. Walmart didn’t announce 2-day shipping until 2017— only to have Amazon launch 1-day shipping just two years later, which Walmart has struggled to compete with clearly across their infrastructure network.
The list of Amazon innovations in commerce could go on (eg: Amazon Go etc), but I wanted to emphasize these examples because Amazon is focused on leading the customer while Wal-Mart is seemingly focused on peaking over the fence at what Amazon is doing.
The customer insight that Amazon has leads them to innovate and attract new customers.
Whether it is the acknowledgment that consumers are “divinely discontent,” an understanding of what won’t change, deep usage of data or having a customer obsession, these concepts are core to Amazon and its culture of innovation and strategy.
For Amazon, the customer insight is an edge.
John Deere and CNH Industrial
No matter what color of equipment you prefer, most acknowledge that John Deere has a compelling vision for the future of agriculture— popularizing the concept of plant-by-plant management along with targeting a fully autonomous corn cropping system by 2030, while deploying precision application capabilities like ExactShot.
It isn’t clear what CNH Industrial’s vision is for the future of agriculture and making their customer base more successful, and if anything, there are similarities to Wal-Mart.