Software and Service Transformation as Strategic Imperative for European Industrials

For decades, European industrial companies built their success on engineering excellence, product quality, and technological leadership. Today, that foundation is no longer enough. Competitive advantage is shifting from physical products to intelligent software, data-driven services, and integrated digital solutions. The question is no longer whether industrial companies must transform, but how quickly they can turn ambition into action.
 

A defining moment for European industry

The competitive landscape has fundamentally changed. Asian manufacturers have rapidly narrowed the technology gap, offering comparable quality at lower cost, while digital-native players are entering established industrial markets and redefining customer expectations. Increasingly, customers are looking beyond standalone products to outcomes: greater efficiency, availability, predictability, and measurable business value.

As a result, software and services have become essential components of industrial offerings rather than optional add-ons. Companies that invest early in scalable digital capabilities can secure lasting competitive advantages, while those that hesitate risk losing both relevance and differentiation.

Key findings

The study reveals a significant gap between ambition and execution. While 75 percent of surveyed industrial companies believe they have moved beyond the initial stage of software and services transformation, digital products and services account for just 0.7 percent of total revenue on average.

While 64 percent of executives see failed transformation as a major competitive risk and 69 percent have already established the topic as a strategic priority, only 35 percent perceive an urgent need to act.

The findings also challenge several widely held assumptions. 73 percent of customers are willing to pay for software and digital services, but many companies still struggle to monetise these offerings effectively. Leading organisations distinguish themselves through strong executive sponsorship, dedicated software capabilities, modern digital platforms, and a clear focus on scalable business models.

Abb. 1: How manufactures see themselves

From awareness to execution

The challenge for many industrial companies is no longer understanding the importance of software and services. The challenge is execution. The study identifies nine common myths that impede progress, including the belief that a digital strategy alone is sufficient, that customers are unwilling to pay for software, and that existing sales organisations and IT landscapes can support digital growth without substantial change.

Leading companies take a fundamentally different approach. They place software and services at the center of their growth strategy, invest in digital talent, modernise their technology foundations, build dedicated capabilities, and embed cultural change across the business. This is far more than a technology initiative: it is a business transformation that affects strategy, operations, culture, and customer engagement.

Four types of companies, four different challenges

The study distinguishes four organisational archetypes: Traditionalists, Laggards, Optimisers, and Pioneers. Each faces different levels of market pressure and digital maturity, requiring tailored transformation priorities.

While some organisations still rely on traditional business models, others have already established scalable digital capabilities and are focused on international expansion. Many, however, remain caught in the middle: They are aware of the need for change but lack the capabilities, pace, or disciplined execution required to deliver meaningful progress. Understanding where an organisation stands today is the first step toward defining the right transformation roadmap and investment priorities.

Abb. 2: Four key profiles of european manufacturing companies 

What sets tomorrow's winners apart

Regardless of their starting point, successful organisations focus on a common set of priorities:

• Building a deep understanding of customer needs and digital pain points
• Developing software, data, and AI capabilities
• Establishing a clear digital vision and roadmap
• Monetising digital services consistently
• Creating scalable technology foundations
• Driving organisational and cultural change
• Building recurring, software-enabled revenue streams

These capabilities are rapidly becoming prerequisites for sustainable growth and competitiveness in industrial markets.

Methodology

The study combines quantitative and qualitative research to provide a comprehensive assessment of software and services transformation across Europe. The quantitative analysis is based on a survey of 202 senior decision-makers from industrial goods companies with annual revenues exceeding 500 million euros across Germany, Austria, Switzerland, Italy, France, Spain, Norway, and Finland.

To complement the survey, Deloitte conducted 24 in-depth interviews with industry experts from 19 companies, providing additional perspectives on transformation challenges, success factors, and emerging best practices.

The window is still open

European industrial companies possess valuable strengths: trusted customer relationships, deep industry expertise, and world-class products. These assets provide a powerful foundation for building the next generation of software-enabled solutions and services.

The study's conclusion is clear: it is not too late to act, but the time to act is now. Companies that translate strategic ambition into concrete action can unlock new growth opportunities, strengthen customer relationships, and build sustainable competitive advantages. Those that hesitate risk falling behind as the markets continue to evolve.

Download the full study to benchmark your organisation, challenge common transformation myths, and discover practical actions that can help shape the future of your business.