The business model of John Deere has been focused on the manufacture and sale of tractors for over 100 years now, yet the company would appear to be considering whether this concept is rather old hat in today's new world of digital technology.
Over the past few years there have been various indications that the evolution of robotics in particular, may have a significant impact on just what the company believes its core business may actually become.
Chief technology officer with John Deere, Jahmy J. Hindman said in relation to the latest financial report for the company:
The combination of John Deere, Blue River and Bear Flag, positions autonomy as a key opportunity for differentiated value creation for our customers and our company."
The idea that rather than simply sell machines for the customer to use as they wish, manufacturers go a step further and hire them to the customer, along with a management package, has been gaining momentum outside of agriculture over the last few years, especially in the quarrying and mining sector.
Complete farm management by John Deere
Leasing and finance deals have been around for decades, however, it is now being suggested that farmers simply pay manufacturers a fee for providing not only the hardware, but also the knowledge and decision-making capacity to put it to best use.
Adding automation to the mix will reduce labour constraints upon such a plan, and confirmation that Deere sees this as a viable future method of operation came from Ryan Campbell, senior vice-president and chief financial officer.
As we reflect on what we have built to date and the possibilities we see in the future, we will aggressively make investments that promote deeper customer engagement in our digital platforms and software-driven solutions."
What to do with data?
John Deere is certainly in the vanguard when it comes to bringing farm data creation and utilisation to the market.
From the above statement we might conclude that the company feels that the potential of all this information may not be fully appreciated by many of its customers.
Herein lies another problem, and that is of information overload. However useful this tidal wave of data may be, its assimilation and the management of the farm, based on such fine detail, could well be beyond the capabilities of the average individual.
One solution is to hand over the analysis of this data, and the implementation of the optimal management plan derived from it, to a third party who has the resources to undertake the task.
This may well be where John Deere sees itself in the future.
As we speak, our production systems teams are analysing each step in our customers’ processes and designing or concepting solutions that will increase output, while reducing the inputs required," the company has said.
That sounds very much like the company levering its way into the area of farm consultancy, rather than sticking to making tractors.
Some solidity is put to this hunch when Campbell goes on to state:
As these types of solutions gain traction, we see the potential for a future less dependent on sales of new equipment units each year, and instead a future tied more closely to the jobs our customers do year in and year out, enabled by the technology that makes them more profitable, productive and sustainable."
This sentiment may well turn out to be some of the most prophetic, and far reaching, words that we have heard from any manufacturer to date, when it it comes to the role of digital technology in agriculture.
Supplying tractors is destined to become just an accessory to John Deere's main business of running farms.
Road map for a digital future
It would appear that this is no 'off the cuff' comment. Stepping back, we can see how the structure of this future is currently being erected with the various data systems already available constantly being updated, while investment in robotics carries on apace.
And it is not the last we have heard upon the subject; the company obviously feels that taking on the management of farms will be a large profitable business.
Over the next year, we’ll talk a bit more about how this transformation will impact the company’s goals and ambitions beyond our current set of goals slated for 2022. Ultimately, our next generation of goals will align to the activities and investments required to unlock the total addressable market of new value creation for our customers, which we believe is significant."
Sales and earnings rise by 29%
The Q3 earnings report did not dwell solely on the the prospects of digital transformation.
Naturally they were also pleased to announce that net sales and earnings for Q3 2021 was $11.53 billion, yes, that's billions, which represents a 29% increase over 2020.
Not only has it had a somewhat satisfying year to date, but 2022 looks to be shaping up nicely as well.
Order books are so full that it enjoys the luxury of being able to open and close them at will, with little fear that any gaps will manifest themselves in the production schedule.
The one fly in this rather fragrant ointment is the component supply issue. This has not resolved itself yet and it is likely to carry on into 2022.
The three main issues causing disruption, and even days of lost production, are materials, logistics and labour, with no let-up in sight.
Naturally these problems will be reflected in the price of the finished product and it is likely that an increase of around 8% will be seen next year.
Anyone looking for a discount on their new tractor come the turn of the year is very likely to be disappointed.