Customers explain the market logic behind surging investment in digital transformation

Profile picture for user Michael Ouissi By Michael Ouissi July 24, 2020
Summary:
Despite the impact of the COVID-19 pandemic, surveys suggest customers are investing more in digital transformation. Michael Ouissi of IFS examines why.

Miniature work team connects cable to laptop © Montri Thipsorn - shutterstock
(© Montri Thipsorn - shutterstock)

Even as the coronavirus pandemic was hammering the global economy with supply and demand shocks, 52 percent of IT decision maker respondents to an IFS study said they will increase their spending on digital transformation, according to a global research study from IFS. Combined with respondents who plan to maintain current investment levels, 70 percent overall will grow or hold firm, and will not slow down investment.

The data also reveals that respondents who indicated their business may be impacted by economic conditions were 20 percent more likely to plan increased spending on digital transformation than the sample as a whole.

To explain such a wide delta, which runs counter to conventional wisdom that economic uncertainty would slow spend, we can look to several factors. On one hand, the disruption in the normal business flow may leave some companies with the bandwidth to re-invest in their business. They could see the pandemic as a test of focus on the businesses' needs in the medium term. Some may look at current conditions and feel the need to increase automation and move toward radically more efficient and intelligent business models in order to compete in what could be a much more challenging business environment.

A new layer of complexity

According to EPJ Transformation Founder Gus Hughes, even a seemingly staid industry like utilities may have to adopt disruptive technology just to keep the lights on-both literally and figuratively. These asset-intensive enterprises execute against well-rationalized plans to construct assets and then liquidate the cost over the productive period of the asset lifecycle. Successfully doing so now means adjusting to shifts in both demand and human capacity to complete capital projects while keeping productive assets and equipment operate.

At this point in the year you have spent months trying to plan ahead. You've got your strategy in place, sign off with your seniors. You've tested it with industry. You have your technology road maps and investment cases put together at quite some length. It is not just a case of having to re-examine the outputs of those plans, but also the inputs of those plans 

Hughes said in a recent MindFuel interview.

Organizations, utilities, telcos are having to re-plan for things they have not previously considered very quickly. They are having to build scenarios they had not previously considered. And they have had to really consider their production planning workforce management data to understand what can be done and what can be done safely. People are now doing this manually.

In other industries, added complexity is coming from shifts in customer demand. Government contractor Amentum, spun out of former parent AECOM in February of 2020, very quickly had even more disruption added to their plate by the emerging pandemic. Amentum provides federal government and military services with services for mission support and equipment maintenance, IT, intelligence, nuclear and environmental remediation, threat mitigation, mission assurance, facility maintenance and range services.

Amentum found itself adjusting to its new private equity ownership, shifting its workforce practices for safety and shifting federal government purchasing patterns and preparing for a spike in demand for its services.

Due to the shifting DoD [Department of Defense] budgets and changing priorities, "the lifecycle of assets is being extended," Amentum Vice President of Supply Chain Solutions Barbara Wade said in a MindFuel interview.

They are not replacing them. Amentum is focused on delivering solutions that support the extended lifecycle of these assets by deploying predictive maintenance and analytics on these aging assets and assist on predicting failures and performing repairs and ensuring fleet and equipment availability. Just-in-time (JIT) inventory may be gone-the government is increasing inventory levels to avoid exposure to supply chain risk from companies like China.

Long term trends accelerating

The pandemic is amplifying the effect of longer-term trends, and companies must step up investment to keep up. An IFS study revealed companies in the construction industry are even more likely to be planning to increase digital transformation spending than other companies with 75 percent planning to spend more. Technology is only now being used to increase productivity in the construction industry to the degree it has in the construction industry. Frost & Sullivan predicts the offsite/modular construction sector to grow to $215 billion by 2025-which will involve a Compound Annual Growth Rate (CAGR) of 6.3%.

This will require enterprise systems sophisticated enough not only to facilitate shop-based fabrication, but increasingly to drive efficiencies through standardized components and accommodate a flexible number of diverse delivery systems that extend well beyond traditional design-build.

Bryden Wood Director and Head of Global Systems Bryden Wood Jaimie Johnston described on a MindFuel interview how the leading UK modular builder, adopted the concept of platforms from the automotive industry, enabling them to deliver a flexible assortment of finished projects based on standard designs. But the way the projects are delivered diverge from standard models in more ways than where the work is completed.

We don't have one form of offsite, we have a range of different techniques, from volumetric to palletized, panelized and componentized that we deploy depending on what the customer's value drivers are. Platforms identify features which are shared across different types of building-for example schools, apartments and healthcare facilities. The idea of platforms was to take what we had learned over the last 25 years and use that to design components like brackets and steel beams. These are assembled Ikea-style on-site.

The fact that Bryden-Wood manufactures standard components it keeps in its inventory helps speed completion and drives down cost along other matrices. Simplicity and color-coding of components mean work can be completed by employees with much less skill and training than traditional construction. Projects are delivered with dramatically lower concrete and steel weight. And raw steel is purchased at higher volume than in traditional construction and converted into stock components, lowering the cost of inputs even further.

The business model is disruptive, and that is why IFS Vice President, Engineering, Construction & Infrastructure Kenny Ingram predicts 50 percent of all construction projects will use some element of offsite or modular fabrication within five years. Construction enterprises will either need to make the investments necessary to operate in this fashion or face an existential threat from radically more efficient competitors.

Multiple rivers converging

The counter-intuitive nature of IFS's research finding could be attributable to all these different forces, and others. But the common thread between the different reasons digital transformation is accelerating in the face of a pandemic-related economic disruption is that companies are not confident what they are doing now will continue to work in the years ahead.