In our first post on digital transformation and manufacturing, we spoke to the imperative that’s driving the initiative in the sector, and how it appears to have reached a tipping point in very short time. This post addresses the strategies companies must employ for digital transformation to realize the growth potential it promises.
Recent research from Morar Consulting found that high-growth businesses are twice as likely to invest time in strategic planning that those that grow at lower rates. Taking such an approach is critical for those embarking upon digital transformation. Many competing technologies (e.g., internet of things [IoT], cloud computing, artificial intelligence, big data and analytics) are driving digital transformation; but the utility of any particular digital solution depends upon context. Manufacturers need to understand:
- Where they are in the digital transformation journey
- How specific technologies will add value to their business
In the midst of increasingly fierce competition and incredibly rapid technological development, companies must identify areas where the smallest changes can be made for maximum return on investment. So the starting point in the journey towards growth is the thorough understanding of one’s markets and business. Those committed to strategic planning are much more likely to achieve that “thorough understanding.”
Defining Growth Objectives
To get started, manufacturers need to make a full and objective assessment of current operations to:
- Establish what works now.
- Identify what requires immediate attention.
- Determine where digital transformation can add real value.
Only when this is completed can a company clearly define growth objectives and establish investment priorities for digital transformation.
McKinsey suggests five key questions that top leadership should ask before they establish their path for digital transformation:
- How will digital disrupt our industry in the next five to 10 years, and what new ecosystems will emerge?
- Where is the value for our company, and how can we maximize it?
- How close is the revolution to our factory doors, and where should we make investments in infrastructure, cybersecurity, and partnerships?
- What new capabilities, skills, and mindsets will the organization need? How do we identify, recruit, and retain the right new talent?
- What should be piloted now to start capturing value?
For manufacturers, defining priorities might mean a trade-off between operational efficiency and improving customer experience. The risks of holding excess inventory or missing order delivery deadlines are costly to the business. An honest look must be taken at which areas are the biggest hindrance to growth, and which offer the greatest opportunity for lasting success.
Uniquely Balancing Strategy and Technology
Those making the surest progress in digital transformation will use strategic planning to guide their transformation efforts, based on their specific business situation. For some manufacturers, digital transformation will mean investing in new technologies that connect, integrate, and automate production, including:
- AI, sensors, actuators, and drivers that facilitate real-time exchange of information
- IoT technologies (e.g. smart sensors) to predict failures and send alerts that trigger automated responses
- Automation to optimize supply-chain logistics
According to Aberdeen Group, the top digitalization technologies with the potential to impact operations are the IoT (to enable a new level of operational intelligence), the cloud (for real-time visibility and scalability), and big data analytics (to transform data into predictive, actionable insight).
For other manufacturers, digital transformation will be customer-driven: a response to increased pressure from customers to produce shorter, customized runs on products, and a more personalized experience, at the same or lower cost. Forrester notes that in these cases, companies must pivot from an inside-out focus on delivering products and services to an outside-in customer-outcome mindset to maximize new opportunities for growth.
Visibility and Insight
Regardless of the focus of digital transformation, the key to success is having the visibility and insight to understand where technology can add the most value for your business. Manufacturers have more data than ever before, but few possess the technology to derive real value from it. IDC estimates that less than 10 percent of data held by manufacturers is used effectively.
To best use this data, companies must invest in technologies that add value by providing business-critical insights. Manufacturers need an industry-specific enterprise resource planning (ERP) system that delivers real-time, in-depth data to transform their operations and enable them to seize growth opportunities.
Better visibility into all areas of a business enables smarter and faster decisions, brings new operational efficiencies, and enhances the customer experience. Whatever digital transformation looks like for your business, applying the right tools can mean the difference between merely competing and thriving.