With impressive technological advances in the Internet of Things (IoT), AI, Collaborative Robotics, Additive Manufacturing, and Big Data Analytics, manufacturers are scrambling to invest in digital transformation. After all, these investments can pay off handsomely. A Harvard Business Review study revealed that the digital leaders making smart investments are outpacing their competition in several key metrics:
|
Performance Metric (3-year average) |
Digital Laggards (bottom 25%) |
Digital Leaders (top 25%) |
% Gap |
|
Gross Margin |
37% |
55% |
49% |
|
Earnings |
11% |
16% |
45% |
|
Net Income |
7% |
11% |
57% |
|
IT Spend as % of Revenue |
3.2% |
3.5% |
9% |
Source: Iansiti, Marco and Lakhani, Karim. The Digital Business Divide - Analyzing the Operating Impact of Digital Transformation. Harvard Business School. September 2016.
These initiatives can bring entirely new capabilities to the business. For example, one manufacturer undergoing a digital transformation is now so confident about its production plans that it is changing its customer value proposition to include guaranteed deliveries, guaranteed quality, and performance-based pricing. This, in turn, is resulting in a willingness to take on greater risk for customer satisfaction. That’s a competitive game changer.
However, the rush to undertake a digital transformation is fraught with risk. Do you have the right people to help guide the change on the shop floor? Can you look at your business through a different lens to see breakthrough opportunities? Can you objectively assess the cultural and organizational barriers that can stop a transformation in its tracks?
In working with scores of discrete and process manufacturers, we have identified six steps that will greatly improve your chances of digital transformation success. Here’s a quick summary:
1. Set clear goals. Pick a couple of opportunities to test the proof of value. Be able to describe pilot projects in a few bullets. You’ll want to test more than one hypothesis and avoid fixating on a single pet project.
2. Validate your hypotheses with data. If one potential project, for example, is to improve the performance of a line that relies on a machine that is experiencing unplanned downtime, collect data, e.g., your manufacturing capacity, labor, raw material, planned orders, and all other key metrics specific to that work cell or that line, over a fixed period of time.
3. Build a business case. In the early stages, are you able to assign an impact-value range that suggests that addressing this makes sense? Keep in mind that business cases may be classified as either “offensive”—think EBIT, Margin or Revenue—or “defensive”—think Life Safety or Market Share Threat.
4. Executive alignment. The traditional lecture-style monthly meetings and status reports don’t work in driving digital transformation. Instead, create an executive advisory board as a forum for education, and foster a roll-up-the-sleeves attitude about possibilities and approaches, taking care to ensure that all players are engaged as a team.
5. Focus on execution and results. Take on pilot projects with a strong business case and aim attention at the barriers to execution. Perhaps your data repository lacks the capacity for relevant real-time information or your sensor data is inadequate. Addressing those interim issues will help ensure that you create the value you’re looking for and keep the energy level high during the digital transformation.
6. Seek advice from leaders. Look outside your own organization, particularly to leaders from other industries. Often what you thought was merely a distant possibility is actually standard operating procedure in another industry. Your team will start to get excited when they see the success of others on similar digital transformation journeys and will have a deeper appreciation of the importance of their efforts.
It’s worth noting that these six steps aren’t specific to technology. But they address an issue that is critically important in a digital transformation: the human factor. Failure to address the human factor is often the reason plans fall short.
For example, consider the case in which a CEO hears about what a competitor is doing and suddenly decides that, if it works there, it will work at his company, or the case in which a seasoned shop floor manager, who has focused on one area of the operation most of his career, convinces everyone he’s got a great idea for fixing a problem that’s been plaguing the company for years. The result is often months of politicking, as people push their pet projects, and others second-guess the decision that was made without a solid business case.
Today, it is possible to avoid these scenarios by collecting and analyzing data to develop a fact-based business case. This approach underscores the real value of an initiative and validates the hypothesis. With the right methods, this first step can be accomplished in weeks.
Ultimately, your path to Industry 4.0 capabilities will most likely take multiple initiatives, some expected, others unexpected. The six steps will need to be applied to all of the initiatives comprising your digital journey.
For example, while working on the shop floor with a manufacturer to validate one of its proof-of-value hypotheses, we witnessed a crane malfunction that caused a large load to drop some 30 feet. Fortunately, no one was hurt, but the incident created a new proof-of-value conversation concerning how to avoid similar incidents. We identified a major issue: the visual inspection of crane cables wasn’t reliable. Is it possible to accurately evaluate three-quarter-inch cable 35 feet in the air?
Following the six steps, the manufacturer in this scenario quickly identified a solution. The manufacturer now uses digital tools, such as small cameras and an instrument that collects data about the tension and stretch on the cables. Operators receive signals based on reliable data telling them when preventative maintenance is required. Risks are mitigated, employers work in a safer environment, and production lines aren’t disrupted. More broadly, what first seemed like a disaster provided an opportunity to demonstrate that this manufacturer’s digital transformation is leading the company to a better experience with better results.
Stephen Engel is Senior Vice President at Hitachi Consulting.
