Digital Transformation: 2017 State of Initiative Report

www.Smart Industry.com -1- Digital Transformation: 2017 State of Initiative Report Three-year study shows rising tide of consensus around digital technology’s transformative potential STATE OF INITIATIVE REPORT Sponsored by www.Smart Industry.com -2- DIGITAL TRANSFORMATION: 2017 STATE OF INITIATIVE REPORT  Now in its third annual incar- nation, the Smart Industry State of Initiative Report is among the longest running longitudinal surveys of changing attitudes and perceptions around the potential of today’s digital technologies to transform the performance of the industrial enterprise. First conducted in May, 2015, this year’s survey of 278 indus- try professionals benchmarks the evolving landscape of digital transformation, which we define as the adoption of new manu- facturing and business processes made possible by new automation, communications and comput- ing technologies represented by conceptual models such as data analytics, the Industrial Internet SURVEY METHODOLOGY Input for the Smart Industry 2017 State of Initiative Report was gathered in February, 2017, via an email survey of Smart Industry e-newsletter subscribers from across manufacturing, processing and related industries. A total of 278 respondents completed the survey, representing a broad swath of industrial concerns as shown in the accompanying chart. Trend analysis is based on responses gathered in the 2016 and 2015 editions of the survey. Manufacturing, process 17.7% Manufacturing, discrete/OEM 15.2% Engineering/professional services 28.5% Oil & gas 7.9% Mining 1.1% Transportation/logistics 1.8% Power generation 2.9% Other 24.9% ANTICIPATED IMPACT ON THE RISE Low or no impact Neutral impact High or critical impact Figure 1. Fewer survey respondents believe that their organizations will be unaffected by the latest waves of digital technology. Here, respondents answer the question, “When you consider the drivers of and the opportunities presented by digital transformation, what is your best assessment of its likely impact on your organization in the next five years?” 20 15 22.5% 18.3% 20 16 16.6% 20 17 20 15 31.5% 22.3% 20 16 14.0% 20 17 20 15 44.9% 59.4% 20 16 69.4% 20 17 www.Smart Industry.com -3- DIGITAL TRANSFORMATION: 2017 STATE OF INITIATIVE REPORT PRODUCTIVITY TOPS LIST OF BENEFITS 2017 2016 Change Increase productivity 89.1% 78.7% +10.4% Reduce costs 87.2% 85.3% +1.9% Optimize utilization 86.1% 82.2% +3.9% Enhance customer experience 80.3% 71.9% +8.4% Enhance safety 75.5% 64.8% +10.7% Create new business models/revenue streams 68.6% 72.5% -3.9% Improve sustainability 67.9% 64.4% +3.5% Figure 2. Incremental improvements in productivity, costs and asset utilization remain the top three benefits of organizations’ digital transformation initiatives. Percent of respondents identifying the listed benefits as “extremely important” or “very important.” IMPLEMENTATION PLANS PROCEEDING Figure 3. Industry’s progress on digital transformation initiatives has steadily advanced over the past three years. Percentages shown are of respondents that describe their organizations as “at the starting gate, with focus on learning and exploration,” “identifying early applications to pilot,” and “have identified applications and investments to match.” Identifying pilots 20 15 32.0% 34.5% 20 16 36.1% 20 17 Investing in applications 20 15 21.9% 24.3% 20 16 28.2% 20 17 of Things (IIoT) and Industry 4.0. This year’s study shows that while a handful of skeptics remain on the sidelines, far more industry professionals believe that digital technologies will have a significant impact on their organizations (Figure 1). Indeed, the number of survey respondents who believe digital technology will have a “high” or “critical” impact has increased from 45% to nearly 70% since 2015. INCREMENTAL IMPROVEMENT The most important benefits of digital transformation identified by survey respondents fall into the category of incremental performance improvement, namely increased productivity, reduced costs and optimized asset utilization (Figure 2). The second most impor- tant group of benefits has to do with transforming relationships with customers, either through the creation of new business models or new revenue streams or enhancing the overall customer experience. Im- provements in worker safety and sustainability also are important benefits of digital technology. While roughly a third of respondents (36%) indicate that their organizations are still in the starting gate of In starting gate 20 15 20 16 35.7% 20 17 46.1% 41.3% www.Smart Industry.com -4- DIGITAL TRANSFORMATION: 2017 STATE OF INITIATIVE REPORT their digital transformation jour- ney; that percentage is down 10% from last year (Figure 3). Of those that have begun to move forward, nearly half already are rolling out investments. The remainder are in the process of identifying their first pilot applications. Digital transformation strategies, too, continue to take shape across industry, with nearly half of respon- dents reporting a formal strategy with timelines in place (Figure 4). That number has more than doubled since 2015, when fewer than a quar- ter of respondents reported having a formal strategy in place. The ranks of those with no strategy in place Figure 4. While the number of organizations with no digital transformation strategy dwindles, the percentage of those with multi-year, formal strate- gies is growing most quickly. DIGITAL STRATEGIES MATURING 1-2 year horizon 3+ year horizon 12.8% 20.0% 20 15 20 16 20 17 20 16 20 15 20 17 21.4% 11.6% 19.1% 26.8% Formal strategy with indicated timeline 24.4% 39.1% 48.2% (2015) (2016) (2017) No strategy Informal strategy 45.2% 28.3% 20 15 20 16 20 17 20 16 20 15 20 17 18.8% 30.4% 32.6% 33.0% None or informal strategy 75.6% 60.9% 51.8% (2015) (2016) (2017) Figure 5. Industrial companies are increasingly confident in their preparations to capitalize on the opportunities presented by digital transformation now and in the future. DIGITAL CONFIDENCE BUILDING 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Prepared 1-2 years 2-3 years 5+ years Now Not at all confident Somewhat confident Confident Very confident www.Smart Industry.com -5- DIGITAL TRANSFORMATION: 2017 STATE OF INITIATIVE REPORT has dwindled rapidly, down from 45% in 2015 to only 19% this year. Respondents also show growing confidence in how well their organizations are prepared to capitalize on the opportunities presented by digital transformation (Figure 5). Some 30% say they are confident or very confident now, with that number swelling to 50% in one to two years, nearly 60% in two to three years and 70% in five years. And while more than 90% of respondents are at least somewhat confident that their organization will have this thing figured out in five years, 8% have little or no confidence that their organizations will be prepared even five years from now. OBSTACLES IDENTIFIED The survey also asked respondents to score the impor- tance of ten potential obstacles to achieving digital transformation in their organizations (Figure 6). The number one concern—as well as three out of the top four—had to do with a broadly distributed lack of understanding and skills. Indeed, a “lack of business- impact understanding” has been the number one ob- stacle for two years now, nudging out security concerns for the second year in a row. The biggest climber in the list included “weakness in our technical infrastruc- ture,” which was identified as a key obstacle by 35% or respondents, up from 26% last year. More respondents also were concerned about regulations such as for data privacy. More respondents also were concerned about regulations such as those related to data privacy. Finally, survey respondents were asked to identify the single biggest challenge to realizing digital transformation (Figure 7). While securing funding and leadership support remain important issues, talent and human resource issues topped the list for the first time this year while idea cre- ation dropped to the bottom spot. Apparently more and more companies realize the implications of digital trans- formation for their organizations—they know what they need to do, but lack the people, the skills or the culture to realize that vision.  KEY OBSTACLES TO DIGITAL TRANSFORMATION 2017 2016 Change 1. Lack of business-impact understanding 43.4% 46.1% -2.7% 2. Security concerns 41.5% 39.6% +1.9% 3. Lack of employee knowledge 40.4% 37.4% +3.0% 4. Workforce skills gap 40.4% 33.9% +6.5% 5. Weakness in our technical infrastructure 34.9% 25.7% +9.2% 6. General economic uncertainty 33.1% 33.9% -0.8% 7. Lack of senior management knowledge 28.7% 33.9% -5.2% 8. Senior management commitment 26.8% 26.1% +0.7% 9. Regulations (as for data privacy) 22.4% 16.5% +5.9% 10. Immaturity of standards 21.7% 28.3% -6.6% Figure 6. Survey respondents were asked to identify which of the above 10 obstacles were significant obstacles to digital transformation. Percent- age of respondents is listed for 2017, last year’s survey in 2016, along with the year-to-year change. PEOPLE PRESENT BIGGEST CHALLENGE 2017 2016 2015 Talent and human resources 30.0% 24.6% 26.7% Securing funding 27.4% 27.4% 25.6% Leadership support 24.2% 23.0% 20.6% Idea creation 18.4% 25.8% 25.6% Figure 7. Respondents identified talent and related human resource issues as the single biggest challenge to progress on their digital trans- formation initiatives.