A pause to evaluate how the manufacturing industry is faring in the digital journey.
July 19, 2019
By Nick Castellina, Director of Industry and Product Strategy, Infor
Hitting the highway is a summer tradition for many. And just as construction detours, kitschy roadside diners, and backseat sibling squabbles are inevitable parts of the rite, so is the familiar road trip refrain: “Are we there yet?”
Some manufacturing executives may have that same thought as they reflect on their companies’ winding and sometimes bumpy journey to digitalization. It can seem like a long haul, with more obstacles than expected. In the years since this buzz phrase first entered our vocabulary, some C-level executives have been weary of the digitalization drive and the continuous pressure to modernize and transform. The fast pace of change can be exhausting — and expensive. When will it end?
Not anytime soon, trends indicate. Innovation is just heating up. Artificial intelligence (AI) and Machine Learning (ML), for example, are in early stages of deployment and as research and development continue, the pressure to adopt AI strategies will only intensify.
Some Early-stage Results Point to Encouraging Gains
It is reported that digital transformation is a major undertaking for several companies, with many optimistic about transforming their operations and processes. “More than two-thirds of respondents in our IT Priorities Survey indicated that their companies were active in some phase of transformation. Nearly half – 46 percent – have formal projects underway,” the report says.
It goes on to show that the two most often cited drivers of digital transformation are focused on internal processes, with 47 percent indicating that streamlining operations and improving internal efficiency as the objective, and 46 percent saying improving employee performance and productivity is the driving force.
Manufacturers have a wide range of solutions they can deploy to transform their go-to-market strategies, as well internal processes from 3D printing to Internet of Things (IoT) and AI. This vast and varied landscape is part of the challenge, though. How do companies decide where to start? When to invest with bold confidence and when to take cautious small steps? These questions are not easy.
However, an objective review of the digital journey so far reveals many inspiring success stories and achievements. Several technologies point to exponential growth in the future, as technologies gather acceptance, momentum, and trigger widespread adoption. Digital commerce is one such industry, making up only .3 percent of retail sales in 1998. Growth was slow in the beginning, taking 10 years to reach 3.6 percent. However, today’s growth rate indicates a much steeper upward curve, and it is projected that ecommerce may reach 22.5 percent of retail sales by 2024.
Where Are the Challenges?
As would be expected in any complex transition, there are some disappointments. Some technologies have not reached full potential, and the maturity cycle is still evolving. Several industries have transitioned from experimentation and proof-of-concept stages to practical use-cases and standardization of best practices. Still, there is no single roadmap. Every organization has a different view of what modern technology can do for them — and a different timetable.
A McKinsey 2018 survey indicated that transformation results were disappointing to some IT professionals. Fewer than one-third of survey participants said their transformations succeeded at improving their company’s performance and sustaining those gains. Delving further into the responses, though, uncovers some common obstacles — all of which can be rectified. For example, the companies that fell short of their expectations acknowledged their original goals were too vague, ambitious, and lacked a clear strategy.
At the same time, the companies reporting success took a holistic, broad view, deploying as many as 10 or more solutions at once. “The organizations with successful transformations are likelier than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine-learning techniques,” McKinsey reported.
So, digitalization is not going to wind down anytime soon. And as digital strategies will continue to evolve, some companies will still be slow to get on board. As innovation multiplies exponentially, some experts predict there will be a greater chasm between the aggressive innovators and the resistant laggards. Those that are mired in indecision, held back by fear of risk or restricted by lack of available capital, are likely to fall further behind.
What Industries Lead the Way?
As each company’s vision of a digital strategy is distinct, making industry-wide conclusions is difficult. One company may opt to focus on automation and robotics, while another chooses to focus on product innovation and ecommerce. So, how can analysts compare progress among companies to identify the ones that are truly best-in-class?
Different industries may place different emphasis on digital technologies, as well. Investment levels vary greatly across industries. Here are some estimates for expected spending:
-The healthcare industry will invest $4 Billion in remote health monitoring.
-The retail industry will invest $8.48 Billion in omnichannel order orchestration and fulfillment.
-Discrete manufacturing will invest $37 Billion in autonomic operations, $33.2 Billion in robotics, and $23.9 in root-cause analytics.
This spending emphasis among discrete manufacturers, compared to other industries, indicates a high level of confidence and optimism.
Judging where we are in the digitalization process is a challenge. No two destinations are the same; no two routes are the same. Comparing results among different industries and technologies succeeds only in drawing attention to the many differences. As companies are trying to differentiate themselves, it is logical to see this vast array of strategies, solutions, and use-cases.
Hundreds of surveys attempt to quantify results and provide some ballpark estimates of when Return on Investment (ROI) might be achieved. Benchmark studies also try to help set standards and set realistic expectations among the manufacturers that are planning projects. But, each approach has its benefits. Major results are on the horizon. So, the main conclusion that we can draw now is that jumping in and modernizing IT systems is essential. Doing something will at least get the organization thinking, experimenting, and experiencing early successes. This will inspire further efforts and a more confident journey.
Nick Castellina is the Director of Industry and Solution Strategy responsible for Infor manufacturing.
Prior to Infor, Nick was Vice President and Research Group Director of the Aberdeen Group’s Business Planning and Execution research practice. There he worked with software vendors and end users to analyse trends and produce industry-leading content in topics related to Enterprise Resource Planning, Enterprise Performance Management, Project Portfolio Management, and Business Process Management. He was also responsible for managing a team of analysts dedicated to manufacturing, product innovation and engineering, supply chain management, and financial management and GRC.
Castellina earned a bachelor’s degree in marketing from Bentley University and a Masters in Business Administration with specializations in marketing and finance at the University of Massachusetts – Boston.