Missing the Mark: 95 Percent of Industrial Firms Are Failing to Meet Their Digital Targets
For most industrial firms, digitization is at the very top of the agenda, and yet only five percent of them manage to achieve their digital objectives. Why are so many companies coming up short? According to Bain & Company’s recent study, “From Vision to Transformation: Digitization is a Top Priority,” there are four principle reasons for this trend.
The Importance of Digitization Is Underestimated
Digitization is, ultimately, inevitable. And only those who can keep up with the ever-changing digital landscape of their industry have a future. Digitization allows products, services and processes to be better tailored to customers’ needs. Furthermore, it boosts the efficiency of a company’s entire value chain and ultimately makes possible the development of entirely new business models. As a result, digitization doesn’t just determine the strength and competitiveness of companies going forward, but also opens the market to entirely new players.
The changes brought by digitization are multifaceted and complex:
- Products are becoming increasingly digital. Industrial firms must therefore expand their core competencies of engineering and production to include software development.
- Digital disruption will jeopardize what are now major sources of revenue. Software providers and internet service providers now have an opportunity to attract revenue from product-based services. The result: Manufacturers of industrial goods could be left with only the hardware market — and significantly lower value added.
- Big data provides new opportunities. Using the information provided by customers, products can be improved and new services developed.
- Digital channels make customers more accessible than ever. Customer contact is becoming not only easier and cheaper, but also increasingly personal and, as such, more valuable. In conjunction with big data analyses, more precise customer segmentation is possible; new combinations of products and services are emerging as a result of the growing number of partnerships in the digital world.
- Digital services often require new business models. A producer of internet-connected fridges, for example, could offer a refill service — or a subscription for software updates, advice on saving energy, etc.
- Digital work is changing industrial firms from the ground up. Self-organized forms of work will become increasingly prevalent in much the same way as cloud-based collaboration. Partnerships with other companies will increase. Sales, service, logistics and spare parts business will reinvent themselves.
Flagship Projects Instead of Systematic Digital Transformation
There is no shortage of digital initiatives in companies. However, these activities are frequently limited to individual flagship projects rather than serving as elements of an overarching strategy. The problem is that there is often a failure to imagine how the company and the industry as a whole will look in ten or twenty years’ time. In order for the digital transformation to succeed, all stakeholders must first be given an appropriate outlook. Only then will it be possible to establish concrete priorities for action and investment.
Digitization ultimately means the use of digital technologies and tools in all company processes. A digital transformation must therefore involve the following key elements:
- Optimization of the internal value-added processes
- Restructuring of the customer-interaction processes and touchpoints (seamless integration of all communication channels)
- Expansion of the range of products and services with data-based applications
- New business models with software-based applications
The Digital Transformation Is Being Approached Half-Heartedly
Over the last year and a half, many companies have appointed a Chief Digital Officer or someone in a similar role. They have recognized, in other words, that digitization requires resources and processes on their part. But when digitization is “outsourced” to CDOs who have neither the authority to make the necessary decisions nor the necessary resources at their disposal, failure becomes a forgone conclusion.
The authors of Bain’s study emphasize that the entire company as a whole must rise to the challenges of digitization. The CDO is responsible for formulating and communicating digital strategy, but the overall responsibility for the digital transformation rests on the collective shoulders of the entire senior management. Management faces the task of implementing a major change, as comprehensive and systematic digitization constitutes a dramatic upheaval affecting all levels of a company. Openness, transparency and active communication are all important parts of keeping employees onboard throughout this journey.
Of course, IT plays an important role. Companies often have many different systems as well as antiquated applications that have arisen over the years in response to a variety of requirements. However, what’s needed are modern, global, scalable solutions that allow for flexibility and rapid implementation. A great deal can be outsourced or purchased and brought in step-by-step. After all, implementing a perfect, all-round solution from square one would take far too long.
Implementation and Development of Expertise Are Proceeding Too Slowly
Insufficient financing, slow development of the necessary skills, internal obstacles — these are all factors which, in many cases, act as a drag on the digital transformation or cause it to stagnate. At the same time, companies are increasingly competing with internet service providers or software suppliers, which have much shorter cycles of innovation and more streamlined cost structures. They must therefore significantly increase the pace of their digitization.
One solution to the problem of financing a digital transformation is self-financing: The systematic digitization of a company’s value chain and support procedures leads to considerable gains in efficiency and effectiveness. This frees up resources for use elsewhere. Digitization can partially or even fully pay for itself as a result of the savings it makes possible.
The organic development of the required know-how through training is a lengthy process. Only the skills that are important for strategic differentiation should be built up in the company over the longer term. Non-critical know-how can be acquired through partnerships, joint ventures or acquisitions. Competitors are also on the lookout for suitable experts, however — companies that are late to act will miss out.
Internal obstacles can be overcome with the help of focused and determined change management that inspires employees to fulfill the vision of digitization. It is important, too, that such management communicates clearly, personally and regularly. Furthermore, the outcomes of ongoing measures must be routinely monitored, and the desired changes in employee behavior must be rewarded.
Digitization transforms companies on all levels. It is thus a central element of corporate strategy, a program for increased efficiency and a driver for cultural change. “It’s time to act — right now,” write the authors of the Bain study. “Today’s decisions decide tomorrow’s winners and losers. The pioneers of digitization are growing 50 percent faster and are 30 percent more profitable than their competition.” In addition, they are enjoying increased customer loyalty, while costs fall and cycle times decrease.
The study “From Vision to Transformation: Digitization is a Top Priority” can be found here.
Author: Editorial team Future. Customer.
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