The race is on to implement digital transformation projects at scale, yet the majority of manufacturing organisations are finding scaling to be a bigger hurdle than getting the ball rolling. Rehana Khanam, partner at McKinsey & Company, advises on how to escape 'pilot purgatory'.
When we surveyed more than 700 manufacturing industry professionals earlier this year, more than two-thirds of them told us that ‘digital manufacturing’ is at the top of their operations agenda.
And it isn’t just companies in mature economies that are making Industry 4.0 a strategic priority. Respondents from India, Brazil and China were even more likely to put it the head of the list than their counterparts in Europe or the US.
Manufacturers aren’t just thinking about digitisation, they are also acting. More than 60% of the organisations in our survey have adopted new digital technologies to at least the level of pilot projects. And most of those companies are pushing forward on multiple fronts.
Respondents told us they see potential in multiple areas of technology, including the application of flexible automation, improved connectivity, and smarter analytics. On average, their companies are actively developing eight different digital solutions across their manufacturing operations. At Indian and Chinese firms, the average was more than 10.
But here’s the challenge. Only just over a quarter of respondents told us their companies had successfully taken the next step on the industry 4.0 journey: the transition from pilot project to large-scale roll-out.
In fact, the gap between piloting and roll-out is significantly larger than the gap between perceived relevance and piloting, suggesting that scaling is a bigger hurdle than getting the ball rolling.
Escape from pilot purgatory
At McKinsey, we’ve spent a lot of time exploring the root causes of this ‘pilot purgatory’ phenomenon. We’ve conducted surveys, supported clients and observed multiple digital manufacturing projects around the world.
That work has helped us identify six success factors, shared by many companies that do manage the leap to large-scale implementation of Industry 4.0:
1. Be led by value, not technology
Successful digital manufacturing projects are laser-focused on real business problems. The key question is not “how can we use this new technology?”, but “how can we create additional value?” Companies should be able to back up their answers with a detailed business case that balances implementation costs against value-creation potential.
2. Establish a clear vision and a detailed road map
Digitisation is a journey. Companies need to look beyond their immediate requirements and consider how the application of new technologies will help them build long-term competitive advantage. And once they have defined their destination, those companies need to build a detailed implementation road map that describes the technical architecture, milestones and resources they need to reach it.
3. Define the required technologies, systems and processes
Companies need to be systematic in the design of a digital manufacturing architecture that meets their specific needs. In defining its requirements, an organisation should ensure they are comprehensive (considering data collection, connectivity, analytics and application requirements), scalable (keeping future capacity needs in mind), integrated (ensuring systems and processes are compatible and data is pooled to enable analytics), and secure.
4. Build the right partnerships
Getting the benefits from digital manufacturing is an intensively collaborative effort. Companies need to the ability to collaborate internally across sites, functions and business units, and externally with a select group of technology providers and integration partners. Wherever possible, they should adopt industry standards to simplify interoperability within and beyond the organisation.
5. Drive from the top
To capture the full value of digital manufacturing, companies need stamina and consistency in their approach. The best way to ensure those things is to lead the digital transformation from the top of the organisation. The whole executive team and the company’s P&L leaders should understand the organisation’s goals and the new ways of working required to achieve them. A senior executive should have overall responsibility for the transformation, and decision-making should be coordinated across plants, geographies and functions.
6. Get ahead of the capability gap
Successful companies recognise the importance of new skillsets in their approach to digital transformation, and the significance of an organisational culture that facilitates development. The necessary skills and capabilities can be developed through a combination of internal training, the acquisition of new talent, and collaborations with technology providers and research and academic institutions.
A digital transformation has the best chance of succeeding in an environment that encourages creativity and supports innovation. The best companies are always looking for new ideas from their employees, their technology partners and the wider world.
To the lighthouse
One of the most powerful ways to grasp the full potential of digital manufacturing is to see it in action. We urge anyone considering a digital transformation to seize every opportunity to visit organisations that have already taken a similar journey, to talk with their people and experience their processes at first hand.
To that end, we’ve been working with the World Economic Forum (WEF) to identify a group of ‘lighthouse” facilities’. These are manufacturers that are already applying Industry 4.0 technologies at scale. They have agreed to act as innovation hubs: promoting the benefits of digital manufacturing, and encouraging information sharing and collaboration among industry stakeholders.
The first cohort of lighthouse facilities is a diverse group, covering a spectrum of manufacturing activities from biopharmaceuticals in Italy to automotive components in China. Perhaps it’s telling that, so far, there isn’t a UK company on the list. One question I’d love to explore is which organisation could be the first?
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