Moving from hardware to systems: how to turn legacy knowledge into the ultimate competitive advantage

For legacy industrial players, this creates a paradox. The capabilities that once defined their success risk becoming insufficient. At the same time, their deep domain expertise, installed base, and understanding of real-world operations give them a unique advantage in leading this transition.

This shift also changes how performance is judged. Hardware excellence, while still essential, is now the baseline, as customers evaluate solutions not by specifications, but by the outcomes they deliver. 

This opens up a clear divide. Companies that move beyond a hardware-only mindset and embrace connected systems can unlock new value pools, from recurring revenue to AI-driven optimisation across the value chain. Those who do not risk being reduced to commodity hardware providers. 

The challenge is clear: how can legacy players turn decades of engineering excellence and domain knowledge into a competitive advantage in a systems-driven world? Let’s dive deeper.

For decades, market leadership was defined by superior hardware performance: higher efficiency, better materials, greater durability, enhanced precision, or more power. Excellence meant mastering physical components better than anyone else. Many DACH-based companies born before the digital era built their success on this capability and became global leaders in physical innovation.

That era is not over. But hardware excellence is no longer enough.

Today, superior hardware performance is a prerequisite rather than a differentiator. As physical innovation plateaus, disruption increasingly manifests itself in software capabilities. The companies leading the way are no longer those that build the best individual machines. They are those who engineer systems that integrate seamlessly, create connected systems, and deliver end-to-end outcomes for their customers. 

This shift is often seen as a disadvantage for legacy manufacturers. In practice, a company’s history can be a great competitive advantage. This becomes clear when examining current leadership challenges.

Legacy knowledge as a strategic advantage

Across industrial markets, similar concerns are emerging in leadership discussions:

• “Our development cycles are too slow, and competitors release features faster.”
• “Integration challenges are killing our agility and product margin.”
• “Digital-first competitors offer seamless solutions, while our digital initiatives remain slow and siloed.”
• “Our products are high quality, yet we are often behind on emerging trends.”

While these obstacles are real, they often hide an important truth. Legacy industrial companies possess assets that digital natives struggle to replicate, such as deep domain expertise, established value chains, trusted brands, and direct market access.

What stands in the way of success is not legacy, but mindset. As long as organisations remain trapped in a hardware-first perspective, they will continue to optimise individual components while competitors design integrated systems that deliver real value to their customers. By shifting from hardware-first to systems-first thinking, legacy knowledge transforms from perceived baggage into a decisive competitive advantage.

These include guaranteed uptime, predictive maintenance, data-driven optimisation, and intelligent solutions that adjust automatically to changing conditions. The shift mirrors what we experience in everyday life. Just as consumer devices have become more intelligent and self-decisive, the same improvements are expected for industrial equipment.  

Take compressed air as an example. Rather than purchasing a compressor, factories now contract guaranteed air availability. System predicts leaks, adjusts output dynamically to demand curves, optimises energy consumption, and ensures uptime through predictive maintenance and service-level agreements. What matters to the customer is no longer the motor’s peak performance, but uninterrupted production. Focusing solely on hardware performance during development is not sufficient to deliver these outcomes.

Digitally native competitors succeed not because they build superior hardware, as it is often their weak point. They succeed because they scale faster by treating hardware and software as a single integrated solution within a larger system.

Hardware excellence remains essential, but it is no longer the hero of the story. 

Cyber-physical systems have become a widely used term in recent years, yet their meaning is often misunderstood. But what does it actually mean in the context of industrial and consumer products, and how does it differ from traditional IoT solutions?

A cyber-physical system is a continuous feedback loop between the physical and digital worlds.  

1. Physical sensors capture live operational data
2. Software processes and analyses its data
3. The system makes autonomous, rule-based or AI-driven decisions
   1. The physical device adapts and changes the physical world
   2. Insights feed back into continuous optimisation
4. Connectivity coordinates across operations, users, and fleets

Cyber-physical systems are therefore not simply hardware with an added digital layer. Not something customers can add to the hardware. They represent a fundamentally integrated product architecture. They are the product itself.  

Importantly, this shift does not require industrial companies to abandon their identity as hardware manufacturers. On the contrary, it makes hardware even more relevant.  

The transition from product performance to system outcomes fundamentally changes how industrial products must be designed. But what does this mean in practice?

A “physical device” can no longer be defined solely by its material parts. Hardware, sensors, actuators, embedded intelligence, software, data, connectivity, and user interfaces are no longer separate disciplines delivered sequentially, but form a coherent system that must be engineered as a whole. Designing these systems requires a fundamentally different development approach. In a traditional hardware-centric model, mechanical design usually comes first, software follows, and integration becomes a painful afterthought. In contrast, in a system-centric model, value is designed holistically from day one.

In this model, hardware does not lose relevance. Instead, it becomes the execution layer of an intelligent system. When hardware and software are not designed together from day one, seamless integration becomes almost impossible. At the core of modern cyber-physical systems is software-defined intelligence running on a physical execution layer. This is supported by a system-level stack that includes:

Many industrial leaders worry that cyber-physical systems will diminish the role of hardware. In reality, they make hardware even more valuable. Disruptive innovation theory suggests that incumbents often struggle when markets shift, as the very processes that once made them successful become rigid and difficult to adapt. But this perspective overlooks an important opportunity.

Instead of attempting to replicate the speed of digital disruptors, industrial companies can redefine how they understand their own products. When the definition of the product changes, the processes that support it can evolve accordingly

In cyber-physical systems, the “physical” layer is incredibly hard to replicate. Decades of domain knowledge, customer trust, production experience, and market access are barriers that digital newcomers cannot easily overcome. Digital natives can write software quickly, but they cannot replicate decades of knowledge about how machines behave under real-world conditions.

The key is to rethink how a company defines its product:

• Is the product a piece of hardware with only supporting or embedded software?
• Or is it a comprehensive system in which hardware is a fundamental, reliable, and high-quality execution layer while software delivers intelligence, optimisation, and continuous improvement?

When companies adopt the second perspective, legacy knowledge transforms from a perceived constraint into a powerful competitive advantage. Companies that combine deep hardware expertise with system-level software capabilities are therefore uniquely positioned to lead the cyber-physical era. 

For CEOs, CTOs, CPOs, and product leaders, the question is no longer whether this shift will happen, but how quickly and systematically their organisations will respond.

Industrial products will no longer compete as isolated hardware, so the question is whether companies aim to position themselves as system providers or remain component providers within someone else’s system.

The companies that will dominate the next decades will not be the ones that “added software” to hardware, nor those that abandoned the physical world. They will be the companies that master systems, combining deep industrial knowledge with software-defined intelligence to deliver guaranteed outcomes at scale.