Industrial Manufacturers should not embark on a digital transformation…
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Ok, so perhaps the title is a bit harsh. But we have all seen firsthand too many industrial manufacturers do not achieve their digital transformation objectives for multiple reasons. The experts at Bain, BCG, and McKinsey report that 70-90% of digital transformations stall or fail, with consistent reasons of unclear strategy & objectives, resource or capability gaps, scope too broad/undefined, and misalignment with a way of working/process.

These companies are getting ready to invest huge amounts of very scarce resources (i.e., people, scarce capabilities, money, time, partnerships, etc.) to drive differentiation, fend off digital disrupters, and/or catch up to competition – failure typically has greater implications than just not moving fast enough towards a digital future.  Not driving a digital transformation is often not an option, so the question is not if to embark, but rather how to ensure success.

In Most Digital Transformation; People, Process and Technology are Required

Often, implementation of new technology – like a new Customer Relationship Management (CRM), eCommerce, Field Service Management (FSM), or Business Intelligence (BI) – is seen as a critical enabler of a digital transformation (and is sometimes confused with the transformation itself).  This typically comes with an anticipated business result, such as an increase in sales productivity, customer satisfaction, increased service efficiency, greater revenue, etc.

In order to operationalize that new technology, the right People and Process need to be in place.  Organizations can fail on one more of the above-mentioned factors, as well as due to the intersection of People, Process, and Technology – causing the digital transformation to stall or fail, and not achieve the desired objective.  So, investing upfront in planning all aspects of these elements is critical to avoid common pitfalls.

People

Often, new technology is handed over to the same team, with an hour or a day of training on how to use the technology – and then ‘off they go…’.  While a small percentage of the team might see the value and naturally adopt the new technology, the majority do not adopt as planned and go back to their old way of working.  Often the ‘why’ is not clearly communicated and expectations are not clearly set.  Incentives should be aligned to those expectations and then real capability building (not just technology training) needs to happen – potentially on more than just using the new technology.

If we now expect Field Service Technicians to drive upsells, we need to train them on more than a FSM tool – they need training on sales, communicating a value proposition, conversion expectations, etc.  Some technicians may be comfortable with this new job function – others may want to just fix equipment – how do you handle this gap? McKinsey’s Influence Model is a good framework for thinking through the different aspects of people change management.  The last part of the influence model is role-modeling – in this case ensuring that senior leaders are role-modeling the right behaviors to drive change and reinforce expectations through the organization.

Process

In addition to the people, the process needs to be thought through completely, especially in the “to-be” state. The operative word is Transformation.  In digital transformation, too often this is confused with digitization, which means taking the existing paper process and ‘digitizing it’ rather than rethinking what the process could be. Digital transformation is focused on how the value proposition or business model changes when incorporating information, analytics, software, etc – i.e., digitalization.

In multiple examples ranging from Audi creating a digital + city-center sales experience, to Home Depot creating an omnichannel and service focused experience, to Volvo Trucks shifting from plug-in diagnostics to providing dealers condition data prior to arrival, the common theme is that not only was digital part of the change, but the process, and potentially the business model was rethought in terms of how to solve the customer problem – and solve it better with technology and data.

One way of approaching this is design thinking, where the customer problem is put at the center as opposed to a predetermined solution.  This helps to re-imagine how the problem could be solved with new technologies and perhaps different processes, etc.

Technology

Lastly, how to solve the Technology leg of the stool needs to be thoughtfully addressed.  Common challenges are trying to solve everything on day one.  The old African adage “How does one eat an elephant? One bite at a time” applies to most technology implementations as well. My good friend John Rossman, in “The Amazon Way on IoT”, writes “Think big, act small” meaning working on discrete use cases you can see the real impact on in the near term, but ensure you have a larger plan and your short-term investments will fit into a larger strategy and technology architecture. Related to this topic is another equally important one – should industrial machinery manufacturers build or buy the technology needed for the transformation.

Leaders need to think through various questions –

  • What is your core capability?
  • Where are you going to differentiate?
  • Where are you going to invest scarce resources (i.e., developers, product managers, data scientists, dev-ops, and management time)?

If you are like most companies, attracting, hiring, and retaining top technical talent is tough – making sure they are working on the things that only your company can do is critically important.  This is not just for the initial development, but for sustaining, maintaining, and evolving that technology over time.

The corporate IT landscape is littered with abandoned technology where resources were pulled or deserted with various research. Up to 70% of corporate IT projects fail and one study from McKinsey indicated that software projects typically are 66% over budget and up to 17% fail badly enough to put the entire company in jeopardy. So, it is critical to start with digestible initiatives, have a bigger picture that brings it together, and make pragmatic decisions about what you should build internally vs what technology you should look for external partners.

Conclusion

Manufacturing leaders today are faced with a pace of change that the industry has not seen in 100+ years. The challenges that are presented dramatically broaden the range of choices available, well beyond the traditional focus on managing cost to achieve a target operating margin. Instead, there are big opportunities to drive digital transformation in eCommerce, digital business models, using data to better understand customers and their problems, providing services to customers and serving the installed base better.

All of these have the potential for massive value creation, yet also present risks as companies embark into areas that are out of their comfort zone and will require people and process changes, not just new technology. Leaders must take decisive action to bring their companies into the digital world, however, they need to be thoughtful as to how they execute on this and ensure they have a holistic plan that addresses all aspects of that transformation.

 

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