Building A Digital Industrial Ecosystem

Industry and manufacturing leaders recognize the trend to the next step in the evolution of enterprise effectiveness and success. The industrial digital revolution is an overnight sensation that has been 30 years in the making. We began with digital controls then adding human interface and then information handling.

Internet of Things with its proliferation of sensors and other smart edge devices, IP networking, data science, and advanced analytics (business intelligence) combined take us to a whole new level of enterprise effectiveness.

The trite question from marketing people often goes, “What’s keeping our customers awake at night?”

Well, are executive worried about the capability of technology?

Two research reports just came my direction recently from a couple of my go-to sources for what’s happening with the thinking in the industrial/manufacturing executive suite. One is from PwC, What’s Next in Manufacturing: Building an Industrial Digital Ecosystem, and the other from Accenture Digital Skills Gap Slows Manufacturers’ Push to Build Digital Factories.

No, it’s not technology that worries them. First it’s people and culture. Are there sufficient people with digital skills? Will the culture make the transition? Then, of course, they worry about how large the investment might become and what the return will be. It’s people and economics.

PwC Digital Industrial Survey

In this report, PwC shares results from a survey of global industrial products companies, shedding light on what manufacturers are doing now to build out their digital operations and what bottom-line benefits they expect to yield through those efforts.

Buying into digital: manufacturers plan to ramp up investments

In the last two years, US manufacturers invested an average 2.6% of their annual revenue in digital technologies. In the next five years, they expect to lift that investment to 4.7% of revenue—for an estimated $350 billion in investments in digital operation technologies across automotive, industrial production and manufacturing industries alone.

Venture capital funds flowing, too

Since 2011, some $3.6 billion has poured into VC-backed start-ups across a selection of digital technology sub-sectors, with investment rising at a 47% clip–more than double the annual growth of total VC funding (18%) in all sectors over the same period.

“Digital deals” have comprised 15% of all US M&A activity since 2012

According to a PwC/Strategy& analysis, more than $6.0 billion has been invested on “digital deals” in North America alone since 2012, comprising some 15% of all M&A deals over that period.

The greatest challenge to a “digital vision” is cultural

In the context of embracing digital operations technology, three of the top 10 challenge areas identified by surveyed companies relate to organizational readiness and financial concerns. Some companies anticipate high investment requirements with unclear return on investment, and lack of digital standards and issues related to data security and intellectual property are also noted.

PwC Mfg Research 1 May 2016

Monetizing digital operations sought through cost reductions, revenue generation

Nearly two-thirds of manufacturers expect that adopting digital manufacturing technologies will translate into lowering operating costs by at least 11% mostly via efficiencies through automating processes and production.  Meanwhile, over half of these manufacturers expect such adoption to boost revenues by at least 11%.

How digital technologies drive bottom-line results   Manufacturers are just scratching the surface of monetizing digital manufacturing.  Some key drivers to achieving cost-cutting and revenue uplift from digitization with the introduction of smart, connected manufacturing technologies and products and services include:

  • Lowered “price of variability” across production and processes
  • Moving from analogue products to  “connected, digital products”
  • Manufacturing data…and  new business models
  • Software-enabled upgrades to products
  • Pay-as-you-go model

Building a digital manufacturing strategy

Building a digital strategy requires a thorough self-assessment to determine a company’s “current state” of its digital evolution—and, just important, defining its “target state”.  This means tailoring digital operations solutions to a business’ assets and making the right moves at the right time—from ramping up data analytics capabilities, to monetizing product data to considering a “digital deal”.

PwC Digital Mfg Research 2 May 2016

PwC concludes, “The future of digital manufacturing holds many “what-ifs”.  But, if it unfolds as dramatically as our survey indicates, most all manufacturers will be altered to some degree.  And, for every “what if”, there are choices manufacturers ought to consider.”

Accenture Researches Industrial Digital

Take a look at some of the results of Accenture’s research. Although the majority ofmanufacturers have implemented digital platforms, more than half (51 percent) lack the skills to operate digital factories. The more successful manufacturers have advanced talent strategies in place to digitally enable the workforce of the future.

Cracking the Code on the Digital Factory, a report based on a global study of 450 manufacturers, found that a growing skills gap is one of their biggest concerns – a situation that has worsened in recent years as manufacturers have transformed their operations using new technology, analytics and mobility capabilities.

Accenture May 2016

Fifty-five percent of manufacturers, up from 38 percent in 2013, reported a skills gap among skilled trades laborers, who need to operate increasingly advanced digital machinery and equipment, such as 3D printers or modeling and simulation tools on the plant floor. Likewise, 60 percent of manufacturers, up from 31 percent in 2013, cited a shortage of maintenance workers skilled in the use of predictive maintenance analytics that leverage data from embedded sensors in a machine-to-machine environment.

“For manufacturers to realize the full potential value of digital factories, they need to redesign their workforce to include new manufacturing skills, such as analytical reasoning and data-driven decision support,” said Russ Rasmus, managing director, Accenture Strategy. “Developing a comprehensive talent strategy inclusive of new digital skills is an imperative for today’s manufacturers.”

Digital Factory Leaders

The research identified a small group of manufacturers (8 percent) that outperformed their peers by increasing production and profitability by more than 10 percent since 2013. These “leaders” are more likely than their peers to understand which new skills they need for future growth and success, and have a more effective strategy to attract, develop and retain this new breed of manufacturing talent.

A majority of these leaders (73 percent) more frequently reported already having the requisite digital skills, as compared to 49 percent of other manufacturers, and they were nearly 50 percent more likely to report a higher degree of visibility into what skills they needed. That has allowed most of the leaders (81 percent) to achieve greater internal workforce mobility in roles involving digital, enabling them to match employees with managers who need those skills.

Barriers to Success

While these digital factories are enabled with rapidly developing technology innovations, the technological aspect of their implementation is not the top barrier to success. Seventy-five percent of the deployment challenges cited by survey respondents are related to skills, organizational change or structure, and the talent within the organization.
Chief obstacles that hinder manufacturers’ digital adoption.

“Manufacturers must aggressively manage these non-technical barriers as they deploy their digital factory capabilities. These include the ability to create new processes, lead teams made up of workers and machines, and constantly update training programs,” said Rasmus.

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