August 29, 2018 Are manufacturers becoming digital businesses?

New approaches to learning and leadership can create an environment that supports digital progress.

By Gerald C. Kane, Professor, Boston College and Doug Palmer, Principal, Deloitte Digital, Deloitte Consulting LLP

The rate of change and disruption in today’s digital environment are constantly evident to manufacturers. Digital business moves much more quickly, requiring new levels of innovation, agility, and collaboration. Digitally maturing organizations recognize this and are changing in response. But are manufacturers doing the same?

Our research indicates that organizations are making greater progress than ever before toward digital maturity. More than 30 percent of respondents to the MIT Sloan Management Review and Deloitte 2018 global study on digital trends indicate their companies are at a digitally maturing level, the highest we’ve observed in the four years we’ve been tracking digital maturity. Despite this, only 18% of respondents in manufacturing rate their organizations this high.[1] Respondents from related sectors including aerospace and defense, auto, and chemicals rate their organizations at a below-average digital maturity level.

Manufacturers traditionally leverage the latest technologies to drive a competitive advantage. Yet, becoming a digital business involves more than investing in new technology. It requires a fundamental change in the organization, its strategy, culture and talent. Our research this year shows two areas manufacturers can focus on to increase digital maturity in their organization: learning and leadership.

Learning takes on a greater priority in a digital world

Employees want to learn but may not be receiving the opportunities

The pace of change in today’s digital business environment is fundamentally different than the traditional one. Employees believe they need to learn more frequently to keep up. 44% of respondents say they need to update their skills continuously to succeed in a digital environment and 90% at least annually.

Yet, employees aren’t happy with the digital development they are receiving. Less than a quarter of manufacturing employees say they are satisfied with how their organization is helping them prepare for working in a digital environment. Furthermore, most organizations including manufacturers continue to rely on formal training for developing digital skills, but on-the-job learning may be more effective when technological change is so rapid.

Organizations should create an environment that supports continuous learning

A fast-changing digital environment also requires that organizations learn more quickly. This means driving more organizational experimentation, but manufacturers indicate their biggest challenge competing in a digital environment is just that – experimentation and getting people to take risks and work in a more agile way.

One reason why experimentation may be lacking among manufacturers is due to what we call ‘competency traps’ – the assumption that what led to past success will drive future success. This can be challenging for ‘legacy’ manufacturers – those who have been successfully competing in their markets for more than 10, 25 and even 50 years. Competency traps limit a company’s focus on learning as organizations have less incentive to experiment and embrace risk if they believe they’ve already figured out how to succeed.

Leadership is becoming everyone’s job

…but are employees up to the task?

As companies digitally mature they are distributing decision-making further into the organization. In this environment, employees are expected to make strategic, real-time decisions. However, our research suggests employees are more resistant to change than managers or leaders. Slightly more than a third of manufacturing respondents say their employees facilitate change more than hinder it, well below the average for managers and leaders.

The competency traps noted above can help explain why employees are more resistant to change. Employees who have had success working a certain way in the past may be reluctant to change. Another explanation may be the lack of confidence employees have in their digital capabilities. If they don’t believe they are equipped to thrive in a digital environment, employees may be reluctant to try new ways of working.

Leaders also need to change how they lead in a digital business environment

In a fast-paced environment where employees take on greater responsibilities, leaders become more effective by leading through influence rather than by dictating. But successful digital leadership appears to be lacking even for digitally maturing companies, and particularly for manufacturers. Nearly 80% in manufacturing say their organization needs new leaders to compete in the digital age.

Leadership development is one way to address this gap. Unfortunately, only digitally maturing companies appear to be making strides – their employees are nearly twice as likely to say their companies develop leaders with the necessary capabilities compared to those in manufacturing.

Manufacturers can shift their mindset to better learn and lead

Adapting to a digital world involves more than investing in technology. It requires organizations to adopt new ways of thinking and working, and a new approach to learning and leading. Today’s fast changing manufacturing marketplace demands that we all learn and lead differently to keep up. As the mindset toward learning and leading shifts, manufacturing leaders and employees will gain confidence in their own development and that of the organization. Supported by a more confident and eager workforce, manufacturers are better positioned to advance their digital transformation.

Explore the interactive maturity dashboard (link here) to see how manufacturing industries are progressing in their digital maturity.

About the authors
Dr. Doug Palmer is a principal in Deloitte Digital, Deloitte Consulting LLP, working globally with leading firms to establish digital strategies and to implement digital experience platforms that give them competitive advantage in their engagements with customers, business partners, and employees. Doug leads Deloitte’s research on Digital Business with MIT Sloan Management Review which is focused on understanding how businesses advance and mature in a digital world. He can be reached at dpalmer@deloitte.com.

Gerald C. (Jerry) Kane is a Professor of Information Systems at Boston College’s Carroll School of Management. He is also the Guest Editor for Digital Business at MIT-Sloan Management Review, where he researches and writes regularly on how digital technologies are changing organizations and business strategy, and a Senior Editor at MIS Quarterly, widely regarded as the top academic journal in Information Systems. He teaches on emerging technology and digital business to undergraduate, graduate, and executive education students worldwide. He can be reached at gckane@mit.edu or kane@bc.edu. He is active on Twitter as @profkane.

[1] To measure digital maturity, we asked respondents to “imagine an ideal organization utilizing digital technologies and capabilities to improve processes, engage talent across the organization, and drive new value-generating business models.” We then asked respondents to rate their company against that idea on a scale of 1 to 10. Three maturity groups were observed: early (1-3), developing (4-6), and maturing (7-10).

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