Manufacturing companies have an opportunity ahead of them – thanks in large part to information technology advances. These advances are increasing the rate of product innovation, improving cost and quality, enabling planned and predictive maintenance, and launching new business platforms. Unfortunately, many are slow to adopt and therefore risk disruption from more innovative and agile competitors.
As the Executive VP of Core BTS (an IT consultancy and Managed Services Provider with many manufacturing clients), I see firsthand five common barriers to innovation and have a few recommendations on how winners are changing the game.
Barrier #1: Disparate Systems that Prevent Using Data as an Asset
Manufacturing companies often start with an ERP system, followed by a CRM, followed by payroll, etc. Now they have several pieces of software that (individually) were great choices. But today these disconnected systems are a hindrance because they don’t have one view of their customer, create multiple versions of the truth, and take a tremendous amount of resources to get insight into their own business. This complexity takes a lot of energy to run the day-to-day business, sapping resources from making progress in other areas like Industry 4.0.
Large enterprises are solving this problem by purchasing a prospecting-to-cash system from large providers like SAP and Oracle. For some, this is a fine solution. For most, the cost, resource drain, speed to solution, and risk make it prohibitive.
Actions we see that can remove this barrier include:
Simplification of the Business
The winners are examining every portion of their operation and asking, “how can we simplify?” Common solutions include fewer SKUs, a reduction in geographies, flatter organizations, and a clear understanding of metrics that matter.
Using Software Accelerators to Integrate Their Existing Systems
Data accelerators pull information from these numerous, best-of breed systems without changing the underlying platform. By dumping cleansed data into a data warehouse or data lake, companies can now report, analyze, predict, and prescribe solutions based upon one view of their stakeholders. There is no need to rip out the underlying systems – which reduces risk and accelerates solutions. These accelerators can be implemented in weeks (not years), and their ROI is typically less than a year.
Barrier #2: We Don’t Know How to Get Started
Organizations are often consumed with today’s business. Managing customer, personnel, and equipment challenges can become a daily treadmill that is difficult to step away from. As a result, looking for solutions and ideas never becomes a priority. Therefore, we hear “we don’t know what we don’t know” too often.
To address this universal challenge, we see the best doing the following:
Make Digital Transformation Part of the Business Strategy
Make technical discovery a priority and carve out resource time to learn. Just like we have all learned to manage safety by making it a priority and investing resources to improve, the best do the same for technology.
Capitalize on Your Vendor / Partner Base
There is a wealth of knowledge in your partner base – take advantage of it. Winners are holding annual conferences with their Legal, OEM, Information Technology, Financial, Healthcare, and Energy suppliers. Winners share their strategy and challenges and then ask for advice from their partners:
- These partners are managing security – what can you reapply?
- These partners have an innovation process – what can you learn?
- These partners blog, hold webinars, host conventions, and will give you access to some of their best minds – what do they know that you don’t?
Take advantage of all these resources that already understand your business.
Digital Transformation is a Journey, Not a Project
Industry 4.0 has many potential technologies that may or may not give you a ROI. The tech industry has done a huge disservice to our customer base – often over-hyping technology and declaring Armageddon if not implemented. Gartner has developed a “hype cycle” to assist people with the technology that is being adopted versus the shiny object. Researching options, integrating with the strategy, and implementing only those technologies that fit is the best way to ensure the best use of resources.
Barrier #3: We Don’t Have the Internal Resources to Execute the Work
Historically, manufacturing organizations have invested (people, time, and money) in tangible assets like equipment, buildings, and lean processes. Digital technology is less tangible, and it is common to see very few people in an organization with skills and experience in this area.
When digital technology is viewed as a cost – and not a competitive advantage – there is a problem. Therefore, many want to invest as little as possible in the digital area so they can invest in areas that have historically made the money. The consequence of this choice is that digital thought leadership and execution capability is in short supply internally.
Winners are overcoming this barrier by:
Intentionally Shifting Resource Investments
This can include hiring digital natives and stopping brick-and-mortar capital (converting infrastructure to the cloud, which reduces capital spending). The reallocation of capital is one of the most important roles leaders can play during times of change.
Increasing Their Ability to Partner with People Who Bring Thought Leadership and Resources
The word “partner” is overused – too often used to describe all business relationships. Winners know that some relationships are transactional, and others are truly a partnership. The best organizations are selective and invest in their partners who (in return) help them with thought leadership and resources to execute the work.
Barrier #4: We Don’t Know How to Get ROI
A manufacturing CEO once described a technology investment to me as “a black hole” that he didn’t comprehend. His lack of understanding was holding the organization back from investing in robotics – despite a resource constraint that was limiting business. Unfortunately, this is a common point-of-view across manufacturing and another reason for slow adoption.
The best address this barrier in a couple ways:
Digital Winners Have Improved Their Financial Models
Most have developed a Financial Impact Template that forces their organization to commit to business improvements that will occur because of the investment. Some of the improvements are traditional like improved productivity, lower cost, improved customer service, out-of-stock elimination, and lower inventories. Additional business outcomes include increased revenue, improved customer experience, and increased retention of valued associates. Leaders should not allow an initiative to be sold as the “price of doing business.”
Innovative Companies Have Learned it’s Easier in a Digital World to Verify Assumptions
Whether purchasing equipment (tangible) or investing in a customer portal (intangible), most ROI models operate from a set of assumptions. Every assumption has a probability of success and can have different sensitives to the ROI. In the technology world, it can be easy and inexpensive to verify the assumptions before making the big investment.
For example, an inexpensive proof-of-concept can verify if a robot will save labor dollars or improve quality, and therefore pay for itself in a short period of time. Agile development processes use the concept of minimum viable product. Building a “good enough to try it” piece of software lets you verify your assumptions before building out the entire system. For example, Cars.com built their business on the assumption that people would buy a car over the Internet. They built a minimal viable product backed by manual processes to verify the assumption. Once proven, they then expanded their investment.
Barrier #5: We Have No Burning Platform
We often encounter a common thought that goes like this, “A decade of improving revenue and profitability has re-enforced that the current business model is working, so there is no need to transform how we work.” This similar view was once held by Sears, Blockbuster, Borders, Kodak, Compaq, Palm, Yellow Cab, etc.
To avoid the inevitable outcome of complacency, we see the best doing a couple things:
Create Your Own Burning Platform
Forming teams whose goal is to disrupt your own business is a process that can identify what your customer is thinking about – and what you should do before your competition does.
Benchmark in Alternative Locations
Leaving your home turf and looking at how others are inventing new business models around your industry can identify disruptive practices that you may not see in your current echo chamber.
Leadership’s role has always been to see the future, and then to point the organization at the goal. Getting started, figuring out resources, developing an investment strategy, using data as an asset, and creating your own burning platform are the barriers we see winners overcoming – and they are getting an ROI from that work.
If you’d like to talk about what you’re facing and brainstorm ways to overcome them, I invite you to connect with me on LinkedIn.