Industrial companies have been on a digital transformation journey for some years now, but many are facing some challenges and are questioning how to proceed. Perhaps they conducted a series of technology pilots that failed or yielded unremarkable results. Maybe cost and ROI concerns are being raised, or for public companies, quarterly stock market pressures conflict with longer-term investments. Perhaps the pilots showed promise, but there’s no clear roadmap to follow and no clear vision to guide the way. Perhaps cultural norms are asserting themselves, with various organizations pushing back against innovation and change. Perhaps there’s a reaction to pandemic-forced changes that wants to see a return to normal. Or maybe directives from top management seem to require moving on to the next big topic, sustainability. Was digital transformation just so much hype, or should digital transformation still be a top priority for industrial companies?
With one exception – the increased need for sustainability and energy transition improvements - the fundamental drivers for embracing digital transformation haven’t changed. The basic idea underlying industrial digital transformation is to use data and technology to increase flexibility in production processes, enhance the organization’s ability to address customer needs, and improve competitive positioning. Industrial companies still need to modernize their operating practices and technologies to compete successfully in today’s more dynamic and continuously evolving marketplace. Some companies are already succeeding in their transformation. ARC knows a handful of companies that have made enormous strides and are confident that their transformation programs will continue to pay off. So there’s a good reason to pursue transformation and other companies have demonstrated that it is doable. Why, then, has transformation fatigue set in?
Given the broad scope of what can be included in “digital transformation,” the vagaries of organizational change dynamics, the inherent but not always obvious difficulties encountered, the confusing messaging from suppliers and the media, and the often misguided expectations associated with digital transformation initiatives, it’s no surprise that many companies – and individual participants – feel that progress has stalled and wonder how to proceed. This paper will explain why it would be a mistake to press the brakes now, and suggest ways to proceed effectively. A wide-ranging industrial transformation is well underway, and there’s no going back. It’s okay to pause briefly to regroup and plan to overcome the immediate hurdles, but pursuing digital transformation remains a necessity, and today’s emphasis on sustainability and energy transition only strengthens that argument.
Digital Transformation Challenges for Industrial Companies
Transformation is difficult, there are many avenues to pursue, and in many cases progress has stalled after some initial projects were completed – with modest results. Many top executives are now prioritizing sustainability and many companies are asking themselves “What to do next?”
There Will Be Setbacks
We hear the story repeatedly from clients: We’re running into obstacles in our digital transformation journey. Our executives are questioning investments in digital transformation because we don’t have much to show to date. There are organizational and cultural obstacles. We’re getting pushback about resourcing transformation initiatives. There hasn’t been enough success with our initial digital transformation projects. Maybe we need to focus on sustainability instead.
Some of our clients talk about their digital transformation journey as a series of plateaus. An innovation program is undertaken, and though certain benefits and learnings may be obtained, things stall for one reason or an-other – maybe the payback isn’t what was anticipated, for example. Companies must somehow anticipate and work through these temporary setbacks and learn how to keep executives on board as they move from one plateau to the next one. When does it make sense to scale a trial? When to abandon it? When should the next technology be considered? How far should we go without a comprehensive strategy and roadmap? Does that strategy need to include cognitive systems or other lynchpin technologies?
Culture and Change Issues Will Get in the Way
It can be difficult for an organization to fully embrace a culture of innovation and willingness to change. Many companies exhibit a tendency to re-vert to old established norms and ways of doing things after trying some-thing new and challenging – especially if they aren’t resourced for change. For example, some companies discovered during the pandemic that having workers work remotely can be very effective, but now face internal pressure to return everyone to the workplace.
Because effective transformation programs are large-scale, involving multiple departments and fiefdoms, leaders often struggle to maintain momentum. They can get stuck playing a kind of whack-a-mole, overcoming objections, and knocking down hurdles that keep popping up throughout the organization. It takes time for an organization to learn to rely on data-based decision making at all levels and throughout the organization.
Data from a recent ARC poll identifies, in broad groupings, the technologies industrial companies are prioritizing today. The results reflect the opinions of a geographically, industry, and role balanced set of over 1,000 respondents. More than half of the respondents prioritize technology strategies for AI, factory data, and smart factory. Between a third and half of the respondents prioritize smart connected products, IoT, edge computing, digital twin, and industrial metaverse strategies. The challenge for these companies is how to introduce and scale the underlying technologies.
The Technologies and Innovation Roadmap Will Evolve
Digital transformation necessarily involves a set of technologies, but because this can be a diverse group, it can be difficult to see how they all should fit together. This problem can be exacerbated as some pilots begin to show promise while others appear to falter.
Data from a recent ARC poll identifies, in broad groupings, the technologies industrial companies are prioritizing today. The results reflect the opinions of a geographically, industry, and role balanced set of over 1,000 respondents. More than half of the respondents prioritize technology strat-egies for AI, factory data, and smart factory. Between a third and half of the respondents prioritize smart connected products, IoT, edge computing, digital twin, and industrial metaverse strategies.
Industrial companies are under pressure to achieve high levels of performance and to compete effectively in the marketplace. This translates to goals such as increasing revenue, decreasing energy use and carbon footprint, or decreasing time to market. To meet these goals, digitalization and technology modernization programs are often necessary. The challenge for companies is to keep the business goals in mind, and not let obstacles encountered on the digital transformation journey derail needed progress towards the goals. Data from a recent ARC poll identifies the digitalization business objectives of industrial companies today. The results reflect the opinions of a geographically, industry, and role balanced set of over 1,000 respondents.