March 21, 2024 Future-Back Approaches in Manufacturing Transformation

How can we make smart and connected products, digitize operations and create automated, reliable supply chains in the face of disruption?

This is the pressing question manufacturing executives the world over are asking as they try to deliver the growth needed to succeed in an era of evolving and rising customer expectations. No wonder then that virtually all (97%) of industrial manufacturing CEOs believe digital and technology transformation is a key near-term priority, according to EY 2023 CEO Survey.

Yet despite this commitment, many manufacturers’ current approaches continue to be held back by a lack of strategy, siloed teams who fail to share best practice and a blinkered view of the competitive landscapes they must navigate.

In the  recent EY report, How can manufacturers put innovation at the heart of transformation, we outline two connected approaches to help executives embrace a hybrid, innovation- led approach that incubates future businesses while simultaneously optimizing today’s products and operations.

Learn from the future

The first is what we call a future-back approach to explore potential opportunities. As implied, this approach involves starting with the end in mind It involves rapidly defining and assessing the business of tomorrow from the outside-in, and predicting how these issues may shape future customer needs, market conditions and value pools. At the same time, executives must conduct a thorough review of their current capabilities, particularly those that will have an outsized role in the future competitiveness of their business.

Armed with this current and future vision, executives can shape a new strategy that will act as the transformation’s “north star” – guiding it relative to the level of ambition, while optimizing development speed and investment spending. It will also provide a framework for cross- enterprise transparency and engagement.

One good example of this practice comes from a leading legacy HVAC company whose future growth depended on being a leader in smart, connected products. By adopting a future back approach this traditional B2B business realized the need to embrace a digitally-led direct to consumer (D2C) strategy. It built an omnichannel digital platform that increased the company’s sales by 25% in its first three months while reducing lead times. More important, the new platform represented a first step in building a D2C platform with a dramatically improved user experience.

Embrace your inner start up

The second connected approach is to prioritize small-scale internal experimentation by applying a start-up style strategy (whatever the size of your organization) that involves rapid prototyping and testing to substantiate future views and refine perspectives on must-have innovations.

So many of the challenges around future growth will depend on technologies and customer expectations that are not addressed by a manufacturer’s current core competencies. Successfully assessing and addressing these new variables could enable manufacturers to leapfrog the competition but implementing radical change at scale could also have major implications for the entire business model.

A start-up style internal strategy can mitigate that risk. It involves investing both in physical and digital product innovation and the people who can assess and plan the infrastructure and capabilities required for its entire lifecycle – both internally and externally. This approach can be particularly beneficial for evaluating the technology infrastructure required for a potential new business model. By using focused, lean teams, manufacturers can leverage agile sprints to further define capabilities and architectural requirements as the transformation progresses.

One good example of this approach involves a global agricultural chemicals company that faced disruption due to changing customer expectations and pricing pressures. The agriculture sector’s rapid adoption of digitization in the form of data analytics and new precision equipment posed both a challenge and opportunity. So, the company set about incubating and launching internally a new business model that enabled sales of product yield rather than volume. This required a major evolution beyond existing processes, capabilities and the company’s role in the value chain.

By experimenting and prototyping internally first, the company was able to innovate, test and implement new enabling technologies, including standalone customer relationship management, enterprise resource planning and ecommerce solutions, allowing it to move quickly and minimize impacts on existing business operations.

Plan your future now

Making the future tangible now will pay dividends in the design phase of the transformation. It will help your organization set the future growth agenda with an understanding of tomorrow’s potential scenarios. It will orient your strategy and operations to evolving customer needs and market conditions so you can reimagine the business across many horizons. It will help you design future capabilities and operational models within an integrated transformation plan. And it will help you launch market pilots and put the transformation system into motion with success metrics that are relevant to your future direction, not based on legacy expectations. The end result will be an ability to realize full transformation value throughout the business.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

About the Author:
David Takeuchi leads EY’s Strategy and Transformation for the Advanced Manufacturing and Mobility sector. He understands a client’s business and brand objectives from a customer’s view, a thought-leader in transforming and innovating customer experiences while redefining new business, operating and service models. He works with design thinking, agile innovation, digital engagement, and immersive experiences providing insights to disruptive opportunities.

David was a founding partner of Bedrock Consultants, a group of design and management consultants focusing on the power of innovation, strategy, and digital transformation.

Prior to innovation, he began his career focus on retail and customer experience. He furthered his profession out of San Francisco to develop how brands work to engage customers. There, he led major fortune 500 client programs that continued to shape the innovation process.

David is an active leader in the design community and served on the international board as Vice President of the Retail Design Institute.

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