As manufacturers head into the budget planning season, they will soon be faced with several challenges —including some complexities new to the process. Evolving from digital initiatives, these new hurdles involve open-ended questions with no easy answers and limited historical data to guide strategic thinking. Venturing into untried territory, such as the creation of new revenue streams, involves visionary theories and confidence in concepts. How do you assign dollar values to initiatives with no prior history or proven Return on Investment (ROI)? A holistic approach and some guidelines will help.
Further Defining the Problem
Manufacturers are feeling the pressure to keep pace with change and adopt digital initiatives in order to meet customer expectations and optimize resources. Without automation and innovative technologies—like Internet of Things (IoT), predictive analytics, and Artificial Intelligence (AI)—manufacturers know they will inevitably fall behind the competition and miss emerging opportunities. In this global economy where competition is fierce, and margins are paper-thin, any gap in capabilities can be a serious liability, causing customers to look to other suppliers who are faster, cheaper, or more responsive.
Similarly, the high velocity of change can cause some manufacturers to make hasty decisions and take shortcuts when planning their digital initiatives. Piecemeal projects that attempt to address issues with stop-gap measures can yield disappointing results and cause skepticism for any further plans. Nothing will kill a new IT proposal faster than so-so results on a trial project. Common complications range from “too much data”, to lack of visibility into new systems, or multiple versions of data can cause a general lack of confidence in reporting.
These issues can all be avoided in this year’s budget planning by taking a more holistic approach and considering these eight guidelines:
1. Start Smart. Begin with a business case and overarching strategy. Creating cross-functional teams between the C-suite, line of business leads, and the IT team, will help ensure practical business needs are driving budget planning and investment in new solutions. In addition to setting goals, this team can agree on benchmarks and methodology for measuring success. This becomes the blueprint for moving forward.
2. Think in Broad Brushstrokes. Taking a holistic approach to modernization is essential. This means starting with the Enterprise Resource Planning (ERP) solution and making sure the back-end financials and shop floor operational solutions are up to date with the latest version. Attempting to build new initiatives on top of outdated legacy systems likely will backfire, causing extra work when trying to integrate point solutions and map automation, workflows and contextual data consumption. Old technology with rigid structures will also cause numerous obstacles when trying to apply data derived from assets, connected machines, robotics, or digital supply chain networks. Heavily modified legacy solutions will prove to be especially cumbersome and difficult to upgrade to new capabilities. Budgeting for a modern ERP solution should be the first step in the budget planning process.
3. Move to the Cloud. In budget planning for digital initiatives, cloud deployment is one of the essential tactics for any manufacturer. The vast storage ability of cloud computing is a necessity for initiatives involving IoT data, predictive analytics, machine learning, or other data-centric services. Storing such volumes on premises is not practical. Since cloud solutions are continually updated, the always-modern feature means no more worrying about IT obsolescence.
4. Acknowledge Risk and Plan for Setbacks. Innovation always involves a degree of risk. Forward-thinking companies strive to create a company culture which encourages risk-taking and exploration of new concepts. Not every trial will be successful; this is something to acknowledge and embrace during the planning and budgeting stages. However, to minimize risks companies can plan for check-points and a phased approach with series of milestones leading up to the final objective. Keeping an agile framework that can be adjusted—if needed—will help keep the project moving while building on past accomplishments. Budget allocation should also match this approach, providing additional funds for next phases only when the prerequisite milestones are met.
5. Avoid Data Overload. Investing in business intelligence solutions, predictive analytics, and reporting tools is essential for manufactures. Without such solutions, it is easy to fall into the messy quagmire of too much data and no way to consume it or derive meaningful insights from it. Even worse, confusion about the mass amounts of data can cause executives to lose confidence in any data and be hesitant to make bold moves based on reporting that is considered unreliable. Data management is not the place to skimp when planning 2019 budgets.
6. Build Teams and Consensus. One area often overlooked in planning digital initiatives is the time and resources needed to bring internal teams up to speed on new processes. Training or recruitment of new personnel with specialized skills may be needed. Keep in mind that highly skilled IT technicians are in high demand. Up-skilling existing employees may be the best option. Even if the existing workforce can absorb the new roles, allow time for consensus building, gathering feedback, and encouraging employees to embrace the process. Set aside funds for ongoing education.
7. Deliver on the Promise. Generously invest in solutions that will yield concrete deliverables for customers, whether it is new product launches, new service offerings, or improvements in processes, like speeding order delivery. Customers today expect value-add benefits. Make sure investment levels are sufficient to support ideas past drawing board stages. Customer do not want vague promises and drawn out development stages. Product Lifecycle Management (PLM) solutions can help expedite new product development. Mergers and acquisitions provide another way to catch-up on products trends, extend the product portfolio, while passing up lengthy and costly Research & Development (R&D) processes. Cloud solutions will help bring new divisions or business units on board quickly.
8. Find ROI in New Opportunities and Existing Customers. In digital initiatives, the ROI is likely to come from some unexpected places. Once data-intensive projects, like IoT, are in place, vast amounts of data will start pouring in. Be alert for ways to package and market that information. Potential applications may present sizable revenue streams—for little investment of time. Emerging markets and niche targets may also provide new opportunities if the organization is nimble enough to deviate from the original business model and venture down new paths. Maintaining relationships with existing customers is also a benefit that cannot be overlooked. The manufacturer who invests in advanced software solutions will be better able to hone in on opportunities for upselling and cross-selling to customers. Servitization, which offers products as a service, is another way investment in data solutions may pay off.
Ultimately, budget planning amid today’s digital evolution requires a new mindset and new guidelines for spending. The traditional tactics for taking last year’s budget and simply shifting funds is no longer sufficient. Now is the time for reimagining processes, targeting new markets, and building new business models. Outdated legacy solutions will not adequately support such paradigm changes. On the other hand, starting with a data-centric, flexible foundation will help drive digital initiatives. Rewards are within reach for the company willing to stretch beyond the current boundaries.
Nick Castellina is Director of Industry and Product Strategy, Manufacturing, Infor.