Too many manufacturing organizations continue to fall short as they look to scale up their business transformation efforts today, but the problem does not lie in the initial planning. Digital transformation very much remains on manufacturers’ strategic roadmaps. A new IDC InfoBrief, sponsored by IFS and entitled Shaping the Future of Manufacturing, revealed that 53% of senior decision-makers within manufacturing organizations are continuing to invest in digital initiatives to support their core business operations.
Unfortunately, initiatives are not always progressing well or being followed up sufficiently. Some manufacturers have had short-term success in reducing costs, improving operational efficiency and shortening time to market. A large number, however, have struggled to get the returns they were looking for from the digitalization process.
One of the biggest problems they have is that they often struggle to push forward from the initial move to digital. In line with this, a study by McKinsey highlights that many manufacturers have not been able to move beyond “pilot agony,” meaning that they have not been able to scale successful pilot programs or leverage new tools and technologies to see meaningful returns or business outcomes. There are a raft of reasons why transformation projects in manufacturing get stuck, from a failure to put in place a coherent business-led strategy to a lack of senior top-level involvement in projects.
Challenges to navigate and barriers to break through
A significant challenge manufacturers face in digitalizing their operations is that they tend to think about the technology implementation and business impact separately from each other. Widespread toe-dipping pilots have created a ‘try before we buy’ mentality and have isolated digital technology away from ‘business as usual.’ Other barriers cited by McKinsey in a study of Industry 4.0 initiatives include a lack of leadership and strategy and a technology-first (vs business-first) approach.
Plans may also be put on hold, or at least delayed, by continuing market uncertainty. Events like the war in Ukraine, Brexit and ever-more sophisticated cyber-threats are all likely to lead to ongoing disruption.
The combination of all these factors means many manufacturers are struggling to make use of the digital skills at their disposal; to gain wider stakeholder buy-in, or to articulate digital technology ROI. In line with this, the IDC InfoBrief revealed that 62% of manufacturing organizations lack clarity on the return on investment (ROI) from their digital transformation (DX) initiatives. If this continues, manufacturers risk losing competitive advantage and jeopardizing the scale and deployment of future initiatives.
This reflects what we hear from customers. In Formula One racing, ROI in the form of competitive advantage on the track derives from every facet of the organization, especially factory production. Getting upgrades and parts to the circuit as fast as possible is critical. The Aston Martin Aramco Cognizant F1 team’s factory is the first F1 facility to take full advantage of smart factory intelligence systems, effectively operating as a sophisticated, highly efficient machine focused on performance, precision, and real-time data. Demonstrating value – fast – is also paramount to measuring and reporting on the success of the implementation. Clean fuel manufacturer, Hexagon Agility, was able to implement sales and operations planning across all manufacturing plants within six months with IFS Success, providing a clear way to demonstrate ROI.
Finding a positive way forward
Manufacturers must start re-evaluating their transformation strategies to prevent further depletion of their investments and efforts. This will require focusing on real business needs, use cases and challenges, and integrating pilots into mainstream business processes and rolling these out across the wider manufacturing network.
In delivering all this, it is critically important that they avoid procrastination and delay, as that will merely lead to purgatory without end. So, how can they best go about it?
Getting the endorsement and support of senior leadership is often an important first step in pushing change. CIOs and CTOs can play an important role in kickstarting the process; gaining the buy-in of the CEO and then driving change through.
Once the process is under way, manufacturers need to focus on moving forward quickly and prioritizing what is most important. The best way of doing this is to pick one area, settle on a use case, digitalize, demonstrate results – and then repeat incrementally.
It is important to highlight here also that all the chosen use cases must link closely to the core goals and objectives of the business as a whole. This moves the business beyond ‘try before you buy’, and instead initiates a step-by-step change process.
A commitment to digitalize is made in one important core area of the business, with the focus squarely on showcasing value and creating momentum as technology implementations scale up over time. The key is to keep the roll-out simple but also to drive efficiencies that ultimately build more stakeholder buy-in as business benefits build over time.
Technology matters in manufacturing
Technology will be essential to manufacturers achieving digitalization, of course. It is now possible for manufacturers to access everything from end-to-end life cycle support to service and repair – all from a single platform.
It’s paramount, however, that companies first look at the business problem they’re trying to solve and visualize the role they want to play in the market. In other words, rather than taking a technology-first stance to digitalization and delivering the Moment of Service (seamless experiences to customers at those moments when it matters most), the focus needs to be on transforming the business itself to better provide these moments.
Manufacturers also need to understand that their employees will be vital to the success of any business transformation. It is crucial, therefore, that they get the support of their people and take them with them on the journey. In this context, high-quality change management is key – and that includes engaging with users and listening to and acting on their challenges, feedback and suggestions.
Making it happen
There is a route out of pilot purgatory for manufacturers, but for many, it will require a significant change in approach. Organizations need the right leadership to break away from isolated pilot implementations but that is just part of the battle. They must be committed to drive change through implementations that scale over time. As part of that process, they should be looking to demonstrate value and then repeat it. Finally, they need to remember to put business goals first and deliver technology in a supporting role.
If they do all this right, manufacturers will be a long way down the road to digital maturity. That’s where, as the IDC InfoBrief indicates, they will start to reap the real rewards. Manufacturers reporting an optimized level of digital transformation saw profits increase (40%) while those with less advanced DX maturity suffered bigger reductions in profit in the last fiscal year.
To truly thrive, organizations must follow the lead of those manufacturers who are actively engaging with new ecosystems (28%), creating new revenue streams (26%), and exploring new markets (25%) to gain advantage over competitors.
Positive indicators from the survey show that manufacturers are seeing the biggest ROI gains through scaling initiatives beyond pilots and deploying a mature DX strategy to address processes and people. The research also reveals that ROI benefits are being met or exceeded through mature digital initiatives targeted at developing new business models (51%) and engaging with new ecosystems (37%).
Therefore, those manufacturers that are most digitally mature, have got their business transformation underway, and are aggressively pursuing new opportunities will be set to start actively enjoying the benefits of becoming a truly digital organization, from reducing costs and driving operational efficiencies to enhancing the customer experience. They provide a strong example to inspire others.