Gunther Rameseder asks: what’s tripping manufacturers up on the path to digital transformation?
Back in 1958, the average lifespan for a company stood at 61 years. But today, things couldn’t be more different. In the current landscape of rapid technological innovation, the average lifespan has shrunk to fewer than 18 years. Managing Director of McKinsey & Co., Dominic Barton, attributes this shift to the power of digital transformation. He ascertains that: ‘technology has led to fundamental business change for everyone’ going on to cite urbanisation, big data and significant improvements in computing power as contributing factors. And few industries have been transformed as significantly as manufacturing has.
Manufacturers globally have entered into a race to transform how they operate through the digitalisation of every business unit in the hopes of remaining competitive, but there are some common mistakes that are tripping up lots of digital transformation programmes.
Not knowing where to start
Recently commissioned research from Celonis of over 1000 C-suite executives and over 1000 business analysts found that manufacturing businesses lack a clear understanding when it comes to their transformation efforts, with half (49 per cent) of senior leaders admitting they don’t know where to start when developing their strategy.
Not setting clear goals to measure success
Perhaps more concerning is the lack of clear results and return on investment from implementing strategies, as 43 per cent of senior leaders in the industry believe their business transformation has been a waste of time. With over a third (36 per cent) of manufacturing firms having spent more than £500,000 on transformation strategies in the last 12 months, organisations run the risk of incurring huge costs with no return. This practice could result in projects that are likely to be dismissed before they have even taken off.
Not understanding as-is before leaping to what can be
Most organisations are struggling with transformation initiatives because they are diving into execution before understanding what to change first. Manufacturers need to set goals for business outcomes instead of simply prioritising technical results. C-suite executives should first understand business drivers and internal processes before delving into a transformation programme. In fact, more than eight out of ten (83 per cent) of executives in the sector admit they do not review their internal business processes to understand what needs to be prioritised when setting initial goals and KPIs for a transformation strategy. This might stem from the fact that they don’t know how to gain better visibility, since the majority of leadership (64 per cent) said they would feel more confident in their transformation strategy if they better understood how their business is being run.
This trend doesn’t only apply to manufacturing leaders, but also the wider organisation as a whole. Our research found that more than-a third (35 per cent) of analysts in the industry are not basing their work on internal processes when executing their company’s transformation strategy. This paints a larger picture, revealing that business leaders are investing in transformation initiatives without identifying a specific problem, going in blind with no clear path.
Racing to tactics before strategy is understood
Despite acknowledgements that an understanding of the here and now would be beneficial to inform transformation strategy, businesses are still jumping straight into tactics. As an example, only 36 per cent of C-suite executives in the manufacturing industry state that they plan to invest more in getting better visibility of their processes, a crucial step on the path to digital transformation.
Yet, more than eight in ten senior manufacturing leaders identify artificial intelligence/machine learning (83 per cent) and automation (83 per cent) as areas they want to maintain or increase investment in, without truly understanding the benefits and outcomes of these technologies. From the beginning to the end of any digital transformation strategy, organisations need to realise how internal processes shape their businesses in order to determine which technologies will work best. This is particularly pertinent for manufacturers, where the use of AI and automation within their factories could transform their entire workflows – but only if deployed strategically.
Transformation strategies will inevitably be part of every manufacturer’s operations, because no business can avoid adapting to the latest industry and technological trends without the risk of being left behind. However, transformation strategies should be founded in concrete insights derived from processes that are actually happening within a company. Manufacturing firms are rushing into costly initiatives and are falling at the first hurdle. But having a better understanding of inefficiencies in underlying business processes can help them to invest wisely to enable greater productivity and provide the best possible service for their customers.
Gunther Rameseder is Vice President Solutions Engineering at Celonis, is the New York- and Munich-based leader in business transformation software, turning process insights into action with the process mining technology it pioneered. Companies around the world including Siemens, GM, 3M, Airbus and Vodafone rely on Celonis technology to guide action and drive change to business processes, resulting in millions of dollars saved and an improved experience for their customers.