Started from the Plow now we’re Deere: John Deere’s Transformation from an Equipment Manufacturer to a Tech Firm
Farming is no longer about big, steel machines and farmers' intuition. Technology is transforming agriculture as we know it, and manufacturers of heavy equipment, like Deere, are forced the rethink their business model to transition into…wait for it… a tech company. (Cue gasp.)
In 1837, farmers were in a bind. The prairie soil of the Midwest was sticking to farmers’ cast-iron plows and hindering productivity. Enter John Deere, a typical blacksmith producing horseshoes and hayforks, who had an innovative idea. By creating polished-steel plows from sawmill blades, Deere overcame the sticky soil situation, boosted productivity, and launched John Deere.
Fast-forward 179 years and John Deere is still leveraging innovation to revolutionize farming and address a societal problem: food scarcity. Given that the global population will reach 9.6 billion people by 2050, food production must increase by 70% over the next few decades. (i) Farmers are pushing equipment providers, like Deere, to reimagine themselves as technology companies and focus on their technological capabilities to differentiate in the world of “smart farming.”
(ii)
Deere’s Customers Fawn Over New Customer Value Prop: Process Optimization through Data-Centric Technologies
While the farming industry used to rely on steel machines and farmers’ gut feelings, digital technology transformed the lay of the land, literally and figuratively. A modern-day farm may consist of:
- Fleets of machines driving themselves and each other in tight formations through IoT sensors and wireless communication
- Seeds being planted at the optimal depth, distance & pressure after soil type information is collected from IoT sensors and analyzed on mobile applications
- Deere technicians arriving with necessary parts after remotely reading diagnostic codes
- Farmers accessing real-time data on tractor location & system performance as well as crowd-sourced data from the cloud
To compete, Deere can no longer differentiate on having the biggest, fastest equipment and instead needs the smartest, most productive equipment. Deere’s new value proposition focuses on process optimization – reduced costs, increased yield and increased sustainability – through data-centric technologies and improved information flow. Over the past several years, Deere invested in four product areas to enhance its value proposition:
Deere, will you be a doll & grab me a new operating model?
To execute on its tech-enabled business model, Deere adjusted its operating model and expanded its core capabilities. In 2009, Deere created the Global Operating Model for Sustainable Growth, merging the “organization and internal reporting of the agricultural equipment segment with the commercial and consumer equipment segment.” (iii) This new division was divided into four regions and five product portfolios to promote agility, innovation, and responsiveness to customer needs and market conditions. (iv) This structural change positioned Deere to leverage economies of scale and innovate across products, holistically.
(v)
(v)
Deere also adjusted its people and processes. As Deere’s CIO notes, “when you think of John Deere you think of a bunch of mechanical engineers who are designing big steel parts, but we have 2,600 employees who…are writing software.” (vi) Deere formed an internal division dubbed the Intelligent Solutions Group, which required Deere to recruit and manage new skillsets. Through the years, Deere had perfected a continuous improvement process, but it now had to simultaneously support an agile development process for its new software engineers. (vii & viii)
Investing in cloud-computing capabilities, big-data analytics and open APIs also transformed Deere’s operations. Deere developed a partnership with AWS, enabling machine data and agronomic data to be routed seamlessly to the cloud through telematics. Deere took its technological capabilities one-step further by creating its Open Data Platform where 3rd party developers can create applications to conduct data analysis or connect other pieces of equipment to Deere’s data.
These adjustments to Deere’s org structure, employee talent pool and development processes are a few examples of the strides Deere is taking to transform its operations.
Can Deere Continue to Buck the Odds and Evolve into a Tech Company?
While Deere has successfully adapted to digital disruption thus far, it must continue to evolve its operating model and fend off looming threats to the business.
Increase Adoption Rate. 88% of the 2.1 million farms in the US are small family-farms. (ix) Through enhanced marketing tactics, user training and user support, Deere must focus on adoption of its technologically-advanced products.
Push for Government Subsidies. Given the seriousness of food scarcity, Deere should work with other stakeholders to push for government subsidies for the development and adoption of new technologies.
Update Brand and Improve Recruiting. As Deere rises to the ranks of a leading tech-firm, it will need to invest in its talent. The competition for software engineers is fierce, and Deere should rebrand & restructure to recruit talent.
Address Data Concerns. Issues around data ownership will increase as adoption increases, so Deere must implement strict operating procedures and policies to address this matter. “From a policy perspective, issues related to big data involve nearly every stage of its existence, including its collection (how it is captured), management (how it is stored and managed), and use (how it is analyzed and used).” (x)
One thing is certain, Deere ain’t no deer in headlights when it comes to digital disruption. From the polished-steel plow to the world of IoT, Deere’s journey has been long, and the company must remain innovative and agile to survive in the world of smart farming.
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Footnotes
(i) “Towards Smart Farming: Agriculture Embracing the IoT Vision,” Beecham Research (May 2015), https://www.beechamresearch.com/files/BRL%20Smart%20Farming%20Executive%20Summary.pdf , accessed November 2016.
(ii) John Deere, “Farm Forward With John Deere Farm Sight,” YouTube, published September 7, 2012, https://www.youtube.com/watch?v=_LwqYxnWXJI, accessed November 2016.
(iii) John Deere, 2009 Annual Report, p. 47, https://www.deere.com/en_ASIA/docs/brochure/our_company/investor_relations/annual_reports_and_ceo_message/2009/pdf/2009annualreport.pdf, accessed November 2016.
(iv) “John Deere Announces New Global Operating Model for Sustainable Growth,” April 14, 2009, PR Newswire, http://www.prnewswire.com/news-releases/john-deere-announces-new-global-operating-model-for-sustainable-growth-61806762.html, accessed November 14, 2016.
(v) Charles Donahue, “Smart Agromatics: A Perspective From John Deere,” PowerPoint presentation, June 18, 2014, Smart AgriMatics International Conference, Paris, France.
(vi) Christopher Mims, “To Feed Billions, Farms Are About Data as Much as Dirt,” Wall Street Journal, August 9, 2015, http://www.wsj.com/articles/to-feed-billions-farms-are-about-data-as-much-as-dirt-1439160264?mg=id-wsj, accessed November 14, 2016.
(vii) John Deere, “Building the Best Combines,” YouTube, published August 26, 2016, https://www.youtube.com/watch?v=rglT0M4HzTI, accessed November 2016.
(viii) John Deere, “John Deere, ISG and the technology to help feed the world,” YouTube, published December 21, 2012, https://www.youtube.com/watch?v=hoqPFmJpFNw, accessed November 2016.
(ix) “Family Farms are the Focus of New Agriculture Census Data,” press release, March 17, 2015, on USDA website, http://www.usda.gov/wps/portal/usda/usdamediafb?contentid=2015/03/0066.xml&printable=true, accessed November 2016.
(x) Megan Stubbs, “Big Data in U.S. Agriculture,” Congressional Research Service Prepared for Members and Committees of Congress (January 2016), Congressional Research Service, https://www.fas.org/sgp/crs/misc/R44331.pdf, accessed November 2016.
Such an enjoyable read, Emily! The title and puns are wonderful:) I find it remarkable that a farm-based equipment manager has adapted so quickly to the digital trends. Especially after reading Indigo, I understand how much information about weather / soil quality can help farmers, and you introduce the additional benefit of IoT connectivity between machines as well as remote management.
One thing I would like to know is how much up-front investment these services will require, and whether farms will be willing to and able to pay for said technology. You mention adoption rate, with the concern about marketing reach and technology training/support, but I wonder what the economics with look like in terms of additional cost v. benefit, and how affordable this technology will be.
Great post Emily, it is so interesting to see how the agricultural sector has evolved over the last decade or two. The two points that come to mind when I read this article are:
1. As it was mentioned in the previous comment and in your post, adoption rate is an area that John Deere needs to work on improving. This is particularly true on smaller farms and generally in emerging markets. Other than better marketing and training is there anything that John Deere can do to help get their technologies out there? Maybe they could come up with ways to help finance the upfront cost, either directly or through an intermediary financial institution?
2. The second point is to do with innovation through acquisition – I agree with you that hiring the best engineering talent is difficult and John Deere could struggle to compete with “sexier” tech firms like Google, Apple, etc. Perhaps this is one of the reasons why John Deere has focused on making key acquisitions in Agritech to support its innovation strategy? I imagine these acquisitions will continue to be a priority going forward. For example, in 2008 John Deere purchased Plastro Irrigation Systems to become a significant player in the drip-irrigation industry: http://www.prnewswire.com/news-releases/deere-acquires-plastro-to-become-third-largest-worldwide-in-agricultural-irrigation-57386197.html. In addition, earlier this year they purchased Monosem in order to compete in the precision planting space: https://www.deere.com/en_US/corporate/our_company/news_and_media/press_releases/2016/corporate/2016feb3-corporaterelease.page.
Very interesting post Emily! Great to see the application of technology in this important sector to make it so much more efficient. Even greater to see that the technology is already being used. As such, state of agricultural productivity in most developing countries is far from what is envisioned here but what makes it exciting to me is at times the developing countries are able to “leapfrog” technology as the latest technology becomes prevalent in developed countries and I see potential of this being such case specifically as education levels and comfort with technology usage increase. As mentioned in Shipro’s post, financial accessibility will need to be addressed for making adoption feasible to smaller farm owners.
Amazing post, Emily! I am fascinated by the technological advances that the farming industry is seeing. I do however have a large concern regarding this revolution- the farmers, their families, and their employees. You mentioned that 88% of the 2.1 million farms are small family owned operations. I agree that Deere must be active in training and support in order to encourage these farmers to use their technology, but what if farmer’s resist? I see one potential negative implications as many agricultural jobs will be replaced by this technology. Many of these farms are family owned with deep rooted generational traditions in the farming industry. Many farmers plan on hiring their children and have a few employees that work for them. It begs me to ask the question- does this technology replace human employment? If so, I think farmers may find it very difficult to adopt. To this point, I wonder what the American Farm Bureau’s take on this technology is? As the leading organization of farmers in the U.S. I would think that John Dere must get buy-in from the Bureau before it makes any big decisions regarding the progression of the technology [2]. Although operations and profits may be positively affected by this technology, what about the millions of jobs that could be lost world-wide? Where do all these people go? In class we talked about how we must adopt to the environment and become more skilled- Artur mentioned that people must begin working for companies that are developing the technology. These are highly technical jobs that require years of experience and eduction. Farming skills do not seem to translate well into tech innovation skills.
United States agriculture is estimated to be a $400 billion industry. The global agriculture industry generates close to $2.4 trillion. Around the world, the farming industry employs nearly 40% of the population; the World Bank puts the food and agriculture sector at about $4.8 trillion[1]. 40% of the world’s population depends on farming to live! These numbers are enormous. As technology is adopted across many industries, including farming, it is the companies (John Deere’s) responsibility to ensure the advances are not having negative implications on the happiness and lives of its users and the industries they are affecting. I am all for technological advances, especially in industries that could use it, but at what cost? If the cost is higher unemployment, more dependence on the federal government for assistance, and higher economic inequality (a larger disparity in the distribution of wealth), then it might not be the best idea to allow this technology to be deployed.
[1] https://www.stabroeknews.com/2016/business/08/26/technology-disrupting-global-agriculture-industry/
[2]http://www.economist.com/news/business/21602757-managers-most-traditional-industries-distrust-promising-new-technology-digital
I love stories like these! Thank you for the write up, Emily. I do believe it’s much harder for a big company to adjust to the digitization challenge more than smaller companies or start-ups. I agree that one of Deere’s biggest challenges is attracting new talent, but what about retaining old ones? As Deere innovates, I’m curious to know about integrating these new solutions to their existing clients and buyers, educating them, and making sure that the solutions are well received.
Thinking much way ahead, when they have all these clients collecting data together with Deere, how would they analyze the large amounts of data to continue serving the industry? Would these innovations come internally, or through acquisitions?