Elements of Successful Digital Transformation

Executive Overview

Propelled by recent global health and economic crises, pressure is mounting for industrial companies to increase their pace of  innovation.  Digital change agents in leading companies now have a mandate, supported by investment, to accelerate transformation of their businesses. Why now? Companies that had progressed along their digital transformation journey were able to more quickly adapt to the changed business reality presented by the pandemic.   They supported numbers of remote connected workers far earlier than expected, and leveraged wearables, artificial intelligence (AI) and other tech to support the remaining frontline workers in the plant.  With what they have learned, they are now re-thinking how to permanently change and manage operations using shared data, analytics, distributed work, and digital twins.

The industry has passed a tipping point, having glimpsed the power of disruptive technologies to transform business operations and competitive strategies, keep workers safe, improve resilience, reduce costs, and better serve customers. 

Industry trends related to the current pandemic, re-shoring, sustainability, and upskilling are driving accelerated change, while technologies like cloud, machine learning, edge computing, IoT, cybersecurity technology, additive manufacturing, augmented reality, autonomous assets, and more are enabling new business processes and opportunities and obscuring traditional functional boundaries.  OT, IT, and ET teams are growing, and often blending,  their skills and capabilities and transforming real-time operations.  Seeking to be among the winners in the new normal, executives charged with driving transformation are seizing this moment to innovate and deliver real value. 

In practice, industrial digital transformation is complex, disruptive, and multi-dimensional.  It spans multiple internal departments and processes,  and also extends throughout the value chain and to the customers.  Technology, partner, and process decisions must be made, and even the smallest of these can potentially impact – or even derail – transformation initiatives.  Is it still a good idea to pursue pilots?  Should we be scaling this up?  Is it even capable of scaling? Do we need to bring in experts, or can we train our current team?  Does this supplier’s offering really perform as they claim? 

To help answer these questions, it’s a good practice for industrial digital change agents to tap into a wide network of peers from within their company, their industry, and industrial companies in other sectors.  Doing so can not only save time and help change agents reach better decisions at various points on the journey, it can also help validate and justify transformation initiatives that may not fit neatly into your company’s established ROI and project justification methodologies and metrics.  This is often critically important, because the nature of trans-formational projects is that they can be pioneering efforts, with nothing in the corporate experience to compare them to, even though they may be potentially very beneficial to the organization and ultimately in line with the overarching goals and objectives.

This report identifies key elements of a successful digital transformation from the perspective of a digital change agent.  It offers insight about business justification and overcoming objections to change, workforce issues, maturing the organization, the new digital ecosystem, and other elements of success.

Start by Identifying Key Business Measures

 successful digital transformation program will support the organization’s overarching goals and metrics.  In addition to financial measures such as growth, return on investment, margin, and cash flow, these typically include real and aspirational goals in the environmental, social, and governance sphere.  Examples include reduced energy usage, water consumption, and emissions or goals related to human rights and diversity, raw materials sourcing, and risk management and transparency.  It may seem obvious, but it’s important to understand the existing targets, even if they seem to stand in the way of change.

As we will see, these goals and metrics should be seen as a starting point.  In some cases, innovation and transformation journeys will expand the organization’s vision and goals.  In other cases, existing metrics and incentive structures will have to be changed or overcome for important transformations to take place.  Navigating this arena is an important part of any digital transformation program.

Select and prioritize Transformation Targets

Digital transformation involves a host of interrelated things that need to be considered.  It involves disruptive/transformational technologies, but also affects how products are designed, sourced, manufactured, sold, delivered, and serviced.  New business processes, value chains, management practices, information systems, and customer relationships will have to be cultivated, implemented, and optimized.  Unlike many other recent technology trends, digital transformation could have “life or death” implications for companies that fail to address it successfully in time.  It is not sufficient to pay lip service and wait for a solution to manifest itself.  It’s time to act. 

Six functional areas are likely to be candidates for transformation; all are subject to disruption or transformation from technologies such as IoT platforms and IoT edge, AI and analytics, and cybersecurity:

• Products
• Services
• Operations (both operate and maintain)
• Design and construct
• Supply chain
• Business processes

The need to focus on transforming the industrial customer experience ties these all together.  This is particularly true for industrial equipment manufacturers.  Industrial equipment companies are adopting new business models built on much closer customer relationships because they know it will be key to their continued success.  This is due to the catalyzing effect of disruptive technologies that enable products to be both smart and connected.

Optimizing the experience of your customers - in their interactions with your company, its supportive ecosystem, and your products and services – is now critically important.  The modern customer experience is one based on shared responsibilities for designing, operating, and maintaining products, shared data, and innovative business practices.  Creating a robust, ongoing relationship is the goal, but in practice, building this relationship often means executing a series of quick turnaround collaborations in which the supplier works closely with its customer to introduce a new product to meet a developing market opportunity.   Where possible, cultivating a supplier-customer relationship that is marked by cooperation and mutual gains, rather than a series of transactions, has many benefits.   Achieving this with the bulk of your customers, however, is no small undertaking and is likely to involve changes impacting people, processes, and systems, both within your company and externally. 

The new industrial customer experience (ICX) warrants becoming a cornerstone of any industrial company’s digital transformation program.  It requires supporting a dynamic, innovative, and mutually beneficial coalition with each customer.  In return, it provides a business outcome-driven differentiator to guide internal programs, projects, and allocations. 

Smart products, or smart, connected “things,” are often the first thing that come to mind.  These products typically have onboard sensors and embedded compute and communications capabilities.  They can run analytics and other applications.  Designing the smart product demands knowledge of these new capabilities and an understanding of how the products, ecosystem, and surrounding business models will operate.  Who will own the product?  Who will have access to the machine health data generated?  How will it be operated and serviced?  How will parts and supplies be sourced?  What’s the expected lifetime?  All may impact the design, materials, process, and production equipment; but they also have organizational implications.

New business models, service organizations, monitoring teams, pricing models, and financing and warranty support may be required.  Some might warrant being finalized before design commitments are made. 

Adding a smart, connected product to your portfolio can be an important step on the path to digital transformation – but it is not a trivial one. 

Many organizations will target production operations, rather than products, for their initial digital transformation plans.  These organizations can choose to focus on asset performance (improving uptime and reducing risk to optimize the asset value over its lifecycle), operations performance (improving responsiveness, changeovers, throughput, quality, safety, sustainability, etc.), or both.

Other organizations will first focus primarily on transforming their supply chains or service offerings.  Innovations in service offerings could be based on enhanced connectivity and monitoring machine health data or could represent a new class of service offering centered around the customer’s use of the products.  For example, monitoring a farmer’s field conditions and recommending which crops to plant or which fertilizers to apply and when.  These digitally enabled services bring the company much closer to the customer, while improving the customer’s results.

This improved customer relationship can lead to additional innovations and business opportunities and encourage an ongoing business relationship instead of a series of one-off sales. 

Empower Change Agents

Perhaps the biggest challenge relative to digital transformation is the management challenge.  In addition to finding new solutions to known problems, transformation may also involve finding new problems to solve and then solving them in a strategic way.  For example, your organization may already place a premium on satisfying the customer.  But how could you take that to the next level by changing existing business processes?  And if you could imagine such a change, how could it be achieved? 

This is where a role such as Chief Digital Officer, Digital Transformation Lead, or other change agent comes to the fore.  A change agent can take the lead in identifying, validating, piloting, and scaling transformational change initiatives throughout the organization.  Properly tasked and supported by executive management, this role can be instrumental in driving successful transformation programs that step the organization along the journey to competitive excellence. 

Organization

Enhanced collaboration among disciplines may also require new organizational forms.  Departments may have to be merged and/or collaborative “labs” created.  Often, in situations where innovation or intense collaboration is required, it can be helpful to detach people or change from a hierarchical, technical or support organization to small units within development or operations, supported by a centralized pool of experts.  More important than formal organizational structure is that people understand their roles and that business processes perform well.

Skills

Worker skill profiles will likely need to be redefined to include improving interpersonal skills and developing more IT and IoT skills for all trades.  What’s more, chances are the OT groups will need to develop more IT skills and IT groups will have to gain a better understanding of what goes on in OT.   This could help facilitate a fast-track approach to application and service development, with successive adaptation cycles following the changes in economics, raw material prices, and consumer trends.   Not everyone can diversify his or her skills, so there is room for different, more-or-less focused skills profiles.  Lifelong learning and development will not only be desirable, but necessary.

Secure External Insights, Validation, and Education

Digital transformation is complex and multi-dimensional, spanning multiple internal departments and processes and extending throughout the value chain and to the customers.  Technology and partner decisions will need to be made, and even the smallest of these can impact – or even potentially derail – transformation initiatives.  Is it still a good idea to pursue pilots?  Should we be scaling this up?  Do we need to bring in experts or can we train our current team?  Does this supplier’s offering really perform as they claim? 

It’s a good practice for industrial digital change agents to tap into a wide network of peers from within their company, their industry, and industrial companies in other sectors.  Doing so not only saves time and helps you reach better decisions at various points on your journey, it can also help you validate and justify transformation initiatives that may not fit neatly into your company’s established ROI and project justification methodologies and metrics.  This is often critally important, because the nature of transformational projects is that they can be pioneering efforts, with nothing in the corporate experience to compare them to, even though they may be potentially very beneficial to the organization and ultimately in line with the overarching goals and objectives.

 

Table of Contents

• Executive Overview
• Start by Identifying Key Business Measures
• Select and Prioritize Transformation Targets
• Empower Change Agents
• Secure External Insight, Validation, and Education
• Expand Your Peer Network
• Craft a Digital Innovation Strategy
• Plan to Mature the Organization
• Anticipate the 21st Century Industrial Digital Ecosystem
• Expect Implementation Complexity
• Execute Adaptively
• Recommendations

 

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