By Charlotte Fuller digital transformation consultant
Digital transformation in manufacturing has numerous advantages. Better data usage, improved processes, customer-centricity, and increased innovation are just the beginning. The industry has seen incredible advancements in the adoption of new digital technologies throughout late 2020 and into 2021, yet according to the updated MIT Sloan article, The New Elements of Digital Transformation, 2021, although executive awareness of the powerful and ever-evolving ways in which digital technology can create competitive advantage has become pervasive, the number of executives executing on this information remains minimal, largely due to the fact that the benefits of digital transformation are understood at a theoretical, but not necessarily practical or value-driven level.
Research from the McKinsey Global Institute suggests that front runners who begin implementing digital technologies such as AI today, can anticipate a cumulative 122 percent cash-flow increase within the next five to seven years, compared to just a 10 percent cash-flow bump for AI followers, demonstrating the importance of introducing such capabilities sooner rather than later.
The 4S’s of Manufacturing Digital Transformation Maturity Framework provides leaders with an understanding of the typical stages of digital transformation so that they can begin to draw a parallel between the stages within this model and their own organisation, and understand the type of digital transformation initiatives that they should be considering relevant to their own level of digital transformation maturity.
Stage 1 - Scattered
At this stage, the organisation is for the most part operating as usual. There will generally be ad-hoc, unorganised pockets of low-level improvement activity surrounding very basic processes and technologies. Often siloed, unstructured and conducted by different departments that are approaching the problem in a myriad of different ways, likely resulting in a lot of relatively unsuccessful initiatives lacking real organisational impact.
Characteristics of a manufacturing organisation at the scattered stage are large amounts of paper-based documents, disparate spreadsheets, and unconnected data sources and systems such as ERP, CRM, finance, warehousing systems, and more. There is generally no clear view of customer data and processes, and a general lack of awareness from leadership about the benefits of digital technology.
Often, leadership will understand that digitising the organisation is crucial to ongoing success, but there is a sense of denial or perhaps blissful ignorance within the organisation surrounding the need to adopt digital technology, driven by fear of the unknown or due to concerns around financial investment, talent and business resources.
Executive focus at this stage of transformation should be around problem definition. The priority should be to understand what the main problems are within your organisation, operationally and from the perspective of your customers. Clearly define and understand the business problems that you want to solve in addition to the key drivers and objectives for digital transformation, so not to waste time, effort and valuable resources further down the line.
Stage 2 - Siloed
The siloed stage of digital transformation tends to see the key visionaries and change agents within the business intentionally experiment with new more innovative digital technologies. Frequently however, these siloed initiatives fail to make it past the initial proof-of-concept stages as there is no real executive buy-in, and there is often wasted effort and resources between departments, also known as “pilot purgatory” in which organisations have significant activity underway, but are not yet seeing meaningful bottom-line benefits from this. Notably, only 30% of organisations successfully rollout pilot solutions company wide.
At this stage, there is still no cohesive vision for digital transformation across the organisation. Leadership now understands the value of disruptive digital technology adoption on a project by project basis, but does not have a clear understanding of the business case for digital pilots, how to scale or what is required from an operating model to support transformation.
At this point leadership must recognise the need for a holistic strategic digital vision, which acknowledges the future needs of the organisation across the entire business strategy, customer experience, technology and platform requirements, operations and organisational culture. Key strategic decisions must be made. Leadership must now take stock of all ongoing initiatives and determine relative strategic importance.
To achieve the greatest scaling benefits, the complexities of the technology and use cases, the level of process and cultural change needed, and the sizable investment required must be carefully managed. Based on such an assessment, leadership should form a vision for a future digital state, which includes a comprehensive target-state technology stack that is scalable and should then determine a transformation roadmap for implementation.
Additional emphasis should be placed upon understanding the wider effects that the new digital technology will have on the people in the organisation. There is a risk that not doing so will lead to a negative employee attitude towards digital transformation initiatives, causing the risk of poor technology adoption rates and low organisational buy-in. This can mean the difference between digital transformation success and failure.
Stage 3 - Strategic
Once an organisation has reached the strategic stage of transformation, the organisation has defined a clear vision for the digital future state, driven from a leadership level and where the value drivers for digital transformation are clearly understood and metrics for success are defined and measured. An operating model is being put in place to support transformation towards becoming a digitally transformed organisation. The cultural aspects of digital transformation and technology adoption within the confines of the organisation are understood. A plan for change has been developed in line with the organisation's cultural constraints.
Executive focus at this stage must be placed upon driving the organisation to realise the holistic digital visionand roadmap for implementation. Initiatives should be closely monitored as per pre-defined KPIs and metrics, set out within the roadmap development. Digital transformation programmes can be complicated, disruptive and often span multiple employee groups and geographies. Transformation success now predominantly lies in leadership's ability to continually and consistently drive and govern transformation initiatives, in addition to the organisation's ability to implement a structured digital enablement, change management approach which fosters an inherent digital culture.
Stage 4 - Sustainable
At this stage, the organisation has achieved one-time digital transformation and relates to being a digital-first business, striving for continuous improvement. The organisation is now able to constantly innovate and adapt and is a recognised market leader due to its ability to rapidly deploy digital initiatives. The organisation is operating fully digitally, with a digitally savvy workforce, and now has the ability to rapidly deploy digital initiatives in line with industry trends and has the ability to provide hugely personalised creative value to customers on a regular basis.
At this stage, leadership must continue to foster a culture of continuous improvement throughout the organisation. If not already established, consideration should be placed on building out a function dedicated to digital transformation. Potentially developing a centralised team or centre of excellence (COE), allowing the organisation to stay up to date with key trends, identify and recommend areas where digital technology can provide the most value and providing subject-matter expertise to business stakeholders.
Charlotte Fuller is an award-winning digital transformation consultant. She helps manufacturing SMEs get to the heart of what their customers want, so they can create competitive, customer-led digital strategies to grow their business. Take her FREE QUIZ to find out what digital technology is right for your manufacturing SME here.