Stuck in the Starting Gate

Only 10% of global manufacturing companies are “Digital Champions” while nearly two-thirds have barely begun their digital transformation, or not done so at all, according to a 2018 PwC/Strategy& survey.

We are two decades into the 21^st century and the industrial world seems immune to the digital tidal wave sweeping over most other industries. Brick and mortar retailers are reeling because of Amazon and other online retailers. Traditional media companies are fighting a rear-guard action against the likes of Netflix and YouTube (Google). Even major technology powerhouses, such as IBM and Oracle, find themselves scrambling to fend off the new wave led by Salesforce and Amazon Web Services (AWS). Meanwhile for the industrial world its business as usual; or is it?

Over the last two decades, a great deal of hype has surrounded the Industrial Internet of Things (IIoT) and Industry 4.0. However, to seasoned industry practitioners like me, it seems like any developments have been no more than a variation of what’s been done for the past 30+ years. We collect data from sensors in the field and use it for control and/or making longer term decisions. This has gotten less expensive as SCADA technology has commoditized and low-cost data communication options have proliferated, but this is hardly the kind of drastic change many envisioned.

It’s difficult for digital technology to disrupt a sector that is based on the operation and maintenance of large, complex, and capital-intensive assets. There are significant cost advantages to replacing physical retail stores with online shopping, but capital-intensive businesses typically benefit from economies of scale. Imagine trying to manufacture and sell cars, gas compressors, or aircraft engines out of your own garage! In addition, there are significant safety and environmental considerations associated with the production and use of industrial goods, which means there are often costly regulatory compliance processes that require managing. It all points to a great deal of inertia regardless of the outside forces involved.

But past is not prologue and the current wave of digital technology will upend this historical narrative. In particular, the ability to securely put operational, condition, and maintenance data in the cloud and share it widely engenders new ways of working. In reference to a 2019 Deloitte report, the Wall Street Journal wrote: “The Industry 4.0 readiness report noted one set of leaders who are more likely to overcome the top challenges to strategy development. These leaders, identified as “Data-Driven Decisives,” take a methodical, disciplined approach to strategy development in the Industry 4.0 era, using data to support decisions. Sixty-two percent of the CXOs in this group strongly agree that they are prepared to lead their organizations in capitalizing on the opportunities associated with Industry 4.0—almost twice as many as other leaders (32 percent) surveyed.”

By becoming data-driven, product companies become service companies, asset managers become asset owners, and engineering companies become asset lifecycle managers. The actual permutations and combinations will take time to work out, but value chains across the industrial world are on the verge of being largely reconfigured. The only certainty is that industrial processes will become much leaner as decision making becomes data-oriented and distributed, remote expertise is accessed, and AI/ML begins carrying more of the mental load. This is Digital Industry. Harold Goddijin, CEO of TomTom NV, remarked to Deloitte: “We have pivoted from a product-oriented organization to a services-oriented organization, which requires different people, different skill sets, and, at times, painful transitions.”

Who will be the Digital Industry winners? Organizations with strong and visionary leadership that embrace the need for change while developing an agile strategy capable of responding to rapidly changing realities. It’s not simply about accelerating investment in digital technology, although that is certainly important. It’s about imagining a future where how you make money – and even who you compete with – changes. It’s about recognizing that the expertise you have today is insufficient. It’s about understanding that your team – the people you depend on – will extend outside your company boundaries. Digital Industry winners will be those companies and leaders that begin the process of realigning and restructuring their organizations proactively, not waiting until their competitors – both old and new – are already well out of the starting gate.

In next week’s Digital Industry Insight we will explore the Digital Industry journey – a roadmap for transformation.

Digital Industry is the end result of the business transformation of the energy, manufacturing, transportation, and infrastructure sectors by the use of IIoT, cloud, AI/ML, mobile technology and wireless communication.

To learn more about Digital Industry and other key topics heading into the New Year, save the date for our upcoming webinar to discuss our predictions for 2020. The webinar will provide an insightful assessment of the issues and trends set to shape Digital Industry in 2020 while helping you discern their prospective impact on your business.

Momenta Partners encompasses leading Strategic Advisory, Talent, and Venture practices. We’re the guiding hand behind leading industrials’ IoT strategies, over 200 IoT leadership placements, and 25+ young IoT disruptors.  Schedule  a free consultation to learn more about our Connected Industry practice.