How manufacturing organisations can make and measure a successful digital transformation

6 mins read

By Ross Timms, Head of Strategy, Rufus Leonard

For many businesses, digital transformation is now a key business priority that requires immediate resolution. With 85% of enterprise decision-makers stating they have a two-year period to make significant inroads into digital transformation or they will fall behind their competitors and suffer financially[1].

For manufacturing specifically, 72% of companies are increasing the speed of their digital transformation efforts and expect to be ‘digitally advanced’ by 2020 – that figure was only 33% in 2018[2]. Furthermore, $1.18 trillion is predicted to be spent globally on digital transformation technology and services in 2019[3], with manufacturing being one of the industries with the largest spend on digital transformation[4].

Ross Timms, Head of Strategy at Rufus Leonard, shares how manufacturing organisations can overcome the two main barriers to successful digital transformation: definition and impact.

Unlocking the opportunity

The reality is that transformation is unique to each individual business, and often fraught with challenges. It’s expensive, time consuming, and changes may need to operate alongside existing legacy systems and BAU governance as they’re being introduced. With less than one in six organisations delivering successful digital transformation programmes[5], it’s clear that many companies struggle to get it right.

With specific initiatives like Industry 4.0 or the Industrial Internet, there’s increasing pressure on manufacturing companies to transform themselves through a digital agenda. However, with that pressure comes great opportunity. The IDC found that 60% of large manufacturers will create new revenue through information-based products and services and embedded intelligence will drive the highest possible profitability levels[6]. Additionally, the manufacturing industry has one of the largest breadths of relevant, impactful disruptive technology, from IoT, to AI, to autonomous robots and cloud and edge computing.

Making the right transformation

To be successful, you need to know why you want to transform, and therefore what kind of transformation your business needs. Following 30 years of helping business leaders transform their organisations – from BT’s first website in 1994 to BBC’s future of voice strategy in 2019 – we typically see three distinct types of transformation, each with their own characteristics:

  • Operations: responding to changing consumer demands, running the same fundamental business but delivering it in new ways, with new processes and through new technology.
  • Offering: changing your business offering and responding to evolving needs and behaviours by solving problems in new ways.
  • Market: understanding how changing behaviours will create new markets and being there to meet that demand first.

Example: Deere & Company has been on a digital transformation journey, changing how its manufactured equipment is designed and used, directly in response to customer needs. They developed a data-driven model, through smart, connected products such as satellite guidance and live data monitoring, which gives deep insights to farmers. An example of this is which uses sensors on the equipment to analyse and share how individual farmers had farmed in the previous year. It then uses this information and data on historical yields and soil conditions to set optimal seeding and farming for the current or upcoming year.

This digital transformation journey is already having a turnaround effect for the business. After a few down years and starting to implement this strategy, things started to improve. Worldwide net sales for 2018 were up 26% from 2017, and in the first half of 2019, net income hit $1.633 billion, compared with $673.2 million for the same period in 2018. Worldwide sales hit $19.326 billion in the first half of 2019, up 10% from 2018’s first half.

Example: Fujitsu, known for its past repositioning from a telecoms company to a hardware manufacturing company, has once again chosen to go through a transformation to become a software services-orientated company. They’re particularly looking at AI and IoT as major focuses of change (e.g. the new Fujitsu Intelligence Technology Group which will lead the company’s AI effort), but also have a very strong people focus. Fujitsu’s president Tatsuya Tanaka spoke about co-creation being the key to their digital transformation efforts – with its own people and with other businesses. Fujitsu is currently working with companies like NatWest, Securitas and Microsoft, the latter of whom, they have co-developed biometric security solutions for laptops, creating a modern workplace where top-level security is maintained while allowing mobile, remote workforces.

Example: Covestro, the high-tech polymer manufacturer spun off from Bayer in 2015 , has been on a digital transformation journey. By looking at some of the world’s greatest global challenges, like climate change, urbanisation and demographic growth, they have asked, and started to answer, what role a company like Covestro should play in this sphere of issues. Through an advanced digital framework, people and machines easily connect and exchange information, which senior leaders believe allows their employees to easily create new ways of working and new business models. This has created a number of unique projects, including the Solar Impulse project. They’re also working with the automotive industry to deliver lighter, safer and more efficient cars and converting their own CO2 emissions into raw materials for their other products.

All of this has resulted in a reimagining of what Covestro, and other companies like them, can truly offer and what their role is in wider society. And it doesn’t stop there, with a continual focus on innovating into new business models to generate more revenue. They do all of this without a Chief Digital Officer, but instead through wide engagement of their people and a guiding coalition group at the top to steer the company through this journey.

In 2018, Covestro became an officially traded DAX company (blue chip stock market for the biggest German companies on the Frankfurt Stock Exchange), which is almost unheard of for a spin-off company from another major DAX member. And sales have been growing every year since 2016.

The drive to digital transformation needs to balance two things: the practical need and the requirement for a north star. The former is driven by pressure on profit and the need to move at the speed of the consumer. The latter is driven by your company’s mission, purpose or vision. Aligning your brand to your technology gives your platform a purpose, a role beyond the practical and a clear point of focus which drives transformation efforts.

Finding a focus

Defining the purpose of your transformation programme is integral to measuring its impact and success. Once you’ve defined your ‘why?’ you can distil this into a single point of focus that explicitly meets top-line commercial objectives.

Looking back at our three brand examples, all of them can demonstrate this single point of focus. Deere & Company’s is putting data and insights into the hands of farmers with technology-led solutions to improve customer experience. Fujitsu is transforming its business into a software/technology services company by focusing on co-creation of digital agendas and products. Covestro is focused on carving a new role and purpose for a chemical manufacturing company, specifically in helping solve global issues. These single points of focus gave each of these businesses a clear steer on how to define both growth and performance objectives.

In turn, this single point of focus acts as a guiding star for how to leverage your brand, how to shape your customer experiences, understand what’s required of the organisation and your technology platforms. Ask yourselves, ‘how might we defend or improve our brand market position/ensure ongoing user relevance/create internal alignment/maximise platform performance?’.

In turn, this single point of focus acts as a guiding star for how to leverage your brand, how to shape your customer experiences, understand what’s required of the organisation and your technology platforms. Ask yourselves, ‘how might we defend or improve our brand market position/ensure ongoing user relevance/create internal alignment/maximise platform performance?’.

Measuring the impact of transformation

Understanding this creates a clear platform to identify and align KPIs across the organisation. Do you need to increase brand value/equity or increase EBIDTA? Do you need to create greater efficiencies in schedule attainment or total cycle time? Do you need to reduce employee churn or improve workforce utilisation? Or, finally, do you need to increase platform utilisation or ensure security of data and information?

This approach makes sure that a micro view on performance aligns back to the macro measurement of impact and progress. It gives the business the levers it needs to keep everyone on course over a multi-year programme of significant change. And, crucially, it provides a clear goal to galvanise everyone in the business.

In recent years, we’ve helped brands like Lloyd’s Register, Aggreko and Rio Tinto tackle large-scale digital transformation. As a result of facing off the challenge of delivering successful transformation, we’ve created the Business Impact Matrix. Built on the principles explored here, the tool establishes a clear point of focus for all business units, aligning growth and performance activities. It ensures that all customer-facing and colleague-facing activities align to a shared goal and clear objectives. The tool drives a process of prioritisation, helping to align separate agendas and providing a clear framework to decide what to do first, second and so on.

However, you choose to define success, bringing both vision and impact into a single tool is the biggest single step any organisation can take to make sure they are part of the 15% of companies that are successful with their transformation ambitions.

[1] Forbes

[2] PwC Global Digital Operations Study

[3] IDC - Worldwide Semiannual Digital Transformation Spending Guide

[4] IDC - Worldwide Semiannual Digital Transformation Spending Guide

[5] The Digital Helix

[6] IDC Manufacturing Insights