Manufacturing is undergoing a technological revolution. Known as Industry 4.0, organizations at all stages of the value chain are investing in technology and changing the way they do business. Innovations such as artificial intelligence and machine learning, the Industrial Internet of Things (IIoT), and advanced robotics are redefining the industry.
According to PwC, 91 percent of industrial companies are investing in digital factories. However, before you get caught up in the excitement it’s important to remember that technology alone is not the answer to all of your challenges. As digital transformation efforts become more mature, many companies are seeing lower than expected returns. Across all industries, Forbes reported that only 1 in 8 companies successfully transformed, while 84 percent failed.
Instead of blindly investing in technology, manufacturers need to take a step back and understand what they are looking to accomplish. Ask yourself, “What are the organizational, operational, and business model outcomes we need to achieve through digital transformation?”
The answer to this question will shape your strategy and guide you to the technologies that will have the greatest impact on your business. To help you get started, this article will go into each of these three areas in more detail.
Adapting the Organizational Structure and Culture
McKinsey states that 70 percent of large scale change initiatives fail. Most of the time, this is because the organizational structure and culture is not aligned with the desired outcome of the change. Many manufacturing companies are still extremely rigid and siloed, slowing down decision-making and making it difficult to share information across the value chain. However, if people are stuck in old ways of doing things, new technologies will never live up to expectations.
Companies that embrace digital transformation will also need to embrace new ways of doing things and a new organizational culture. Successful manufacturers will become more agile, flexible, and collaborative while tearing down information silos and removing barriers between departments. New roles will be created to account for the new skills and abilities required by technology. Clear communication and buy-in from executive level leaders will be critical to reducing skepticism and resistance by employees, and compensation needs to be realigned to reward desired behaviors. Changing the culture and structure of an organization takes time but is a necessary step on the road to transformation.
Identifying Operational Improvements
The operational outcomes you want to achieve will drive your decisions to invest in technology. For example, a company that wants to increase throughput and volume will have different technology needs than a company that wants to provide more personalized and customized products to end-users. This is why it’s so crucial to understand your objectives before purchasing technology.
One way to identify opportunities for operational improvements is through the effective use of data. IIoT is providing manufacturers with vast amounts of data, and advanced analytics software and machine learning algorithms can turn this data into valuable business insights. Manufacturers who have created a culture of sharing information and collaborating will gain a complete view of their value chain and be able to identify processes that would most benefit from digital transformation. This makes it possible to spend capital only on technology that will yield the best results.
Aligning Investments with the Business Model
According to a recent report, 52 percent of manufacturers believe their business will not exist in its current form in the next five years. Technology will create new revenue opportunities, make old business models obsolete, and in some cases completely disrupt the way you do business. Think of the “as-a-service” model that has changed how end-users pay for products like software.
Before investing in technology, make sure you have a complete understanding of what your business model is today, and whether it is realistic that you could continue making money this way in the next 5-10 years. Then, examine the potential new business models that are available to you, and identify what you would need to transition to these new models. This way, all your technology purchases are strategic, and driving you toward a new, long-term business model that will be viable in the future.
Seeing the Results from Your Digital Transformation
Digital transformation requires a large investment in both time and money. For manufacturers operating on thin margins, it’s crucial that you get a return on these investments and position yourself for future growth and success. Instead of reacting to change, you need to be the driver of innovation. To do this, you must understand how technology impacts the rest of your business, and how your desired organizational, operational, and business model outcomes all need to be aligned with your overall digital transformation strategy.