The defining product of the digitalisation of manufacturing activities is data. Companies risk missing out on the opportunity to glean the maximum amount of information from their data and use it to drive their business towards becoming what SAP describe as an 'Intelligent Enterprise', a business whose activities are connected and transparent at every stage, from production to customer service.
The key to adopting these data-producing technologies – and profiting from them – is culture.
The power of digital technologies to disrupt manufacturing is well accepted. Their ability to change production and market paradigms faster than has ever been experienced before has been likened to a storm blowing its way through industry.
The only question for you, as a manufacturer, is whether you intend to harness the power of the storm, or hide from it – and risk future irrelevance.
This may be a dramatic metaphor, but it is perfectly reasonable when we consider the evidence of companies whose embrace of digital technologies has led to exponential increases in profitability.
The World Economic Forum says: “Corporate profitability is increasingly driven by digital capabilities. In the most digitally advanced sectors of the economy, margins have grown two to three times faster than average. And even within these sectors, there are enormous spreads between the top-performing companies and the rest of the pack.
“The ‘winner-take-most’ dynamic of the digital economy is not only producing record profits for leading firms; it may be accelerating the pace of innovation and broadening the areas in which companies can enter and quickly establish market power.”
Clearly some companies have chosen to walk towards the digital storm and embrace it, rather than shelter, and have benefitted significantly as a result.
If your company knows the storm is close, and has chosen to walk towards it rather than run, what are the building blocks you need in place to succeed?
Firstly, take a good look at the technology that runs your business and then compare it with the technology that is omnipresent in your daily life, and that of your workforce.
If you have yet to ‘go digital’, it is a fair bet that the technology you use to run your business is significantly behind the times.
What impact does that have, not only on your productivity, but on your culture? Have you considered how your people, particularly the younger members of your teams, react to working in an environment where the connectivity and instant access to information they experience out of hours is almost completely absent?
The reason so many companies find themselves behind the digital times is that their culture hasn’t moved on from the days when IT departments were routinely the source of technology initiatives and upgrades.
Systems of 15-20 years ago were cumbersome, inflexible and expensive. The easy route was to allow IT departments to apply periodic upgrades, therefore cementing in place that inflexibility and reducing the opportunity for agility and connectivity.
Compare that with Case Study 1 (see box below), where digital technologies are connecting every element of the business, from the production line to the business model, to the customer experience and right the way through the supply chain.
As Jeremy Phelps, Business Value Advisor at SAP, says, “Digital technologies connect machine to machine, operator to machine. They enable planning, engineering and manufacturing operations.
“But the key is then to connect all those elements the sharing of real-time digital intelligence beyond organisational boundaries to the strategic programming of the business. That real time connectivity is fundamental. That strategic, tactical and operational planning of the network is what drives the supply chain.”
Going from your current state to that place of data-driven agility and connectivity, using tools such as Real-Time Connected Operations, Machine Learning and AI with Cloud platforms, requires significant planning.
There are broadly two approaches to consider, and they depend on where your company is on its digital transformation journey – SAP describes them as ‘Top Down’ or ‘Bottom Up’.
The Top Down approach is for those companies which have quietly ossified over the years and who require a radical overhaul of their entire business model. Changes are required across the value chain, value proposition, and revenue model.
The long-term vision is well-defined, and the projects funded are aligned to this vision. All options are considered to drive the change, including M&A and forging strategic partnerships. It is a multi-year journey, with multiple wins along the way.
- It is typically led by strategic innovators: talented executives who can lead big business units and are potential successors to the CEO.
- These may be a Chief Digital Officer (CDO) and Chief Innovation Officer (CInO) who report directly to the CEO and the board and are directly responsible for the transformation objectives.
- Responsibilities and influence are not limited to innovation through technology, but also includes business strategy decisions like new acquisitions, new products, and service introductions.
- When engaging with technology companies, they are not interested in specific products but instead look for long-term partnerships.
SAP Case Study 1
A large European home appliance manufacturer is transforming its business by building smart products and connecting them on a single platform to deliver a connected lifestyle experience.
By combining appliance, platform, and customer data, they can offer new services and understand customers’ needs better and design more valuable products.
Through digitisation they can also build an appliance-as-service business model, where customers pay per usage of the appliances.
The Bottom Up approach is for companies who have started their digital transformation journey but who recognise a degree of integration between their business units and supply chain is required.
For instance, it may be that the production line is fully digital, producing valuable data that drives operational decision-making, but it is not connected to other business units.
The focus is on specific objectives, like creating a step-change in productivity or incremental process innovation. The emphasis is on quick wins, like predictive maintenance, the automation of repetitive tasks, making the operating environment safer using modern technology, and so on.
- It is typically led by the digital experts: Leaders of digital CoE/accelerator units, or CDOs who report to the COO/CIO/CTO.
- Focused on multiple initiatives that drive a step change in productivity, employee engagement, and improve customer experience.
- Work closely with LoBs or business units to funnel thousands of ideas into the running portfolio of digital projects.
- Most projects are funded through the IT or divisional budget, which puts the ownership of execution on the CIO or COO.
SAP Case Study 2
A large chemical company is leveraging digital technologies for several projects to drive productivity and reduce costs. They are using machine learning to eliminate voluminous and repetitive tasks in their back-office operations.
For another project they are leveraging predictive technology to improve maintenance effectiveness. They are also adopting a cloud network solution to better collaborate with equipment manufacturers and other service providers.
SAP uses the storm metaphor to describe the changes taking placed in industry. The other metaphor they like to use is that of ‘corporate cholesterol’.
To what extent does your current operational technology permit or obstruct the free flow of information? When the entire business, from its supply chains to its customer base, is connected, they call that the ‘Intelligent Enterprise’.
So, what is getting in the way of your business becoming an Intelligent Enterprise? Clearly technology is no longer a constraint. Freed from its former silos, it’s now the overarching enabler that propels companies on their digital journey.
Perhaps you are ready for that journey but struggle to define your roadmap. That’s not a technology problem, as Jeremy Phelps says, it’s a cultural one.
“Ensuring your company culture is geared correctly is vital,” he says. “Making sure data is accurate, has great integrity and quality means it will be trusted. If the culture isn’t there for that, then it won’t evolve, it won’t be useful.
“Then there must be a culture of demanding and using information to the full because if no one’s using it, nobody’s going to maintain it. So it’s a cycle. And then there is the culture where information enables the connected enterprise to raise its game and set ambitious goals. That is where real progress is made.
“There is the human element too. The new generation coming through are used to sharing, used to openness, transparency and sharing information. They want to work for companies where this is the norm.”
Jeremy says the Intelligent Enterprise is a place where the digital agility of daily life is ever-present in the workplace, making it somewhere exciting and stimulating for your future workforce to be, ready to be in control of the storm sweeping through industry – not its victim.
If you would like to discuss any of these issues directly with SAP’s Jeremy email him at: firstname.lastname@example.org
*Images courtesy of Depositphotos