April 26, 2015 Drivers Behind Manufacturers’ IT Investments & Two Priorities for 2015

Volume 18 | Issue 2

In our IDC Manufacturing Predictions for 2015, we identified seven essential drivers that shape the IT investments manufacturers are making.

Click here to read the complete illustrated article as originally published or scroll down to read the text article.

We believe they represent the current situation – the reality – for manufacturers today. These drivers are the keys to making short-term as well as long-term strategic decisions. Some drivers are naturally more impactful on investments and are likely to add the most complexity and cost in implementation, but all are relevant.

Seven Key Drivers

• Complex, dynamic value chains:

Manufacturers participate in complex, overlapping value chains, with dynamic change, and an ongoing search for business improvement and new opportunities.

• Emerging market-emerging-market growth:

Manufacturers continue to reshape supply chains and product strategies to support emerging market growth sourced from and manufactured in emerging regions.

• Traceability and transparency, brand and reputation:

Manufacturers must take a stand on product quality and build up their reputations, and increased traceability and transparency are critical components.

• Demanding customers:

Consumers and customers expect and dictate increasing levels of service, forcing business cycles to compress to meet customers’ requirements.

• Converging technologies for manufacturing:

Technologies – Operational Technology (OT), Information Technology (IT), and Communications Technology (CT) – are mandatory for manufacturers to design, manufacture, and deliver their product.

• Ubiquitous connectivity:

Connectivity is ubiquitous, in devices, interfaces, and processes, and extends to the edge, with manufacturers assuming the communication infrastructure will keep up.

• Truth in data:

Manufacturers are looking for the truth in data as they seek more valuable analysis of greater volumes and varieties of data and the information that will bring them closer to digital execution.

Most of these drivers represent conditions that have been building in the industry over the last decade but have become particularly critical in just the last few years.

Two Underlying Issues – Security and Employee Skills
We also believe security and employee skills represent two issues that manufacturers must address or acknowledge in everything they do. For security, we’re referring to physical security as well as cyber security. And in the workforce, manufacturers continue to face two basic challenges:

• • Shortage of expertise: an aging workforce, with a significant amount of expertise at or reaching retirement age, as well as stagnant or declining numbers of new graduates in manufacturing and engineering-related disciplines.
  • Technology-savvy: an incoming workforce that treats technology of all kinds as a natural component of the work process.

These issues, security and the changing workforce, as well as the seven drivers, can become stumbling blocks or opportunities for manufacturers to distinguish their organizations. We think that manufacturers are rallying around two priorities that cut across (and must consider) all of these – product quality and customer centricity. They impact the corporate goals, KPIs at all levels of the organization, how manufacturers judge their suppliers, and how they achieve their financial objectives. As a result, we know product quality and customer centricity will have and already are having a direct impact on manufacturers’ IT investments in 2015. Here are our two predictions for 2015, regarding product quality and customer centricity:

Product Quality and Customer Centricity Impacting IT Investments in 2015

• Product Quality:

In 2015, product quality, including compliance, will underpin two thirds of all IT application investments across the manufacturing organization.

You probably remember the big news story from 2014 about the wide scale recall of potentially defective air bags in more than 10 million passenger vehicles. Despite the time and attention given to this issue, the root cause is still unclear. One major automotive OEM already plans to work with an alternative parts supplier to meet the demand for replacement air bags. This is the sort of crisis that can and will ruin partnerships and reputations.

Of course, the automotive industry is not the only one that has been the subject of a recall. As products and supply chains get more complex, and companies scale up to serve more markets, there’s no way around the fact that product quality is hard to guarantee. This comes down to traceability, transparency, brand, and reputation, with people, process, and technology implications, including the need for a corporate culture that promotes individual and corporate responsibility.

Enterprise quality can be improved by monitoring, measuring, and managing data and processes. Manufacturers must be able to identify root causes, improve communication, and learn from past mistakes, as well as build in processes and workflows that enable corrections before they become another crisis. We think that C-level executives are willing to put some money into improving product quality and product compliance. According to IDC surveys, manufacturers in every region and role across the manufacturing organization — in engineering, in the supply chain, and in manufacturing — indicate that quality is a top priority.

What type of investments will be justified by the benefits they provide to product quality? As you might imagine, it will be all over the map. Two of the most impactful will be PLM or product analytics and digital manufacturing. We also think this is an opportunity for manufacturers to recognize that product quality is often about lifetime performance from the customer perspective, so service-related investments are also relevant here.

• Customer Centricity:

In 2015, the importance of customer centricity and its impact on service, innovation, and manufacturing will lead 75 percent of manufacturers to invest in customer-facing technologies.

The majority of manufacturers we speak with believe that being more customer focused is the key to their future business growth, both in sales and profits. In a recent survey conducted by IDC Manufacturing Insights, customer centricity has grown in importance dramatically, not just in terms of classic customer service in the supply chain (on time delivery in full) but also in terms of the role of product quality, from the perspective of both product reliability and performance and also the pace and relevance of innovation. Being customer centric means enabling functional capabilities to support customer and consumer needs, but it also requires that companies be efficient and effective. Customer centricity does not abandon obligations to cost savings and waste elimination; but it does mean that when trade-offs need to be made, they favor the customer.

What types of investments will manufacturers make on the customer facing side? Many of these will be related to improving the customer experience and relationship, with examples such as upgrading the touchpoint to the customer with more self-service capabilities or more relevant information, such as better access to account information, order status, or even equipment and asset monitoring (think connected products). We also expect more proactive touchpoints, in the form of mobile messaging shipment notification or more critical information or even remote software updates to connected products.

Recommendations
We recommend that manufacturers take the following approach to ensure they are maximizing the value they derive from technologies:

• Adopt modern IT infrastructures and applications, and mature your use of 3rd platform technologies, as well as in the way your organization builds upon the combination of IT, OT, and CT (information, operation, and communications technology).
• Put in place a group focused on process innovation, where newer 3rd platform technologies can be reviewed, incubated, and rolled out in the organization; where skills can be developed, and the organization educated on what the technologies can and can’t do. Keep evaluating innovation accelerators, such as 3D printing, robotics, and cognitive computing in this group as well.
• Work with partners to accelerate your IT capabilities and serve the line of business. Although we expect manufacturers to embed and apply more technology to how they operate, manufacturers must recognize that they need external resources and expertise, especially if they are going to move quickly.

Quite a few manufacturers have already achieved moderate success with 3rd platform technologies – including mobile applications, mobile devices, social tools, cloud, big data and analytics, and even IoT (Internet of Things). We expect leading manufacturers to be able to embed IT into the way they do business and into their products. This year, more companies will also focus on combining newer technologies, because of the drivers we’ve listed above, and to renew their focus on product quality and customer centricity. Essentially, it’s all about digital transformation – using technology for business innovation and transforming business models.

Kimberly Knickle, Program Director, IDC Manufacturing Insights
As a Practice Director, Kimberly Knickle is responsible for research and analysis of business and IT issues for manufacturers. She leads the IT Priorities & Strategies program, which focuses on hot topics that are changing the way manufacturers buy and use IT, such as big data and analytics, cloud, IoT, mobility, social, and sustainability. The program also includes research based on IDC survey data related to manufacturers’ IT investment priorities and plans. Knickle also manages the Product Innovation, Service Innovation, and Connected Products research.

EDUCATION/INDUSTRY ACCOMPLISHMENTS
She received the Executive Certificate in Technology, Operations, and Value Chain Management from the MIT Sloan School of Management, and is a graduate of Boston University’s School of Management, where she earned her MBA degree. Knickle also holds a bachelor’s of science degree in electrical engineering from Cornell University.

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