Digital transformation, according to Microsoft, is about reimagining how you bring together people, data and processes to create value for your customers and maintain a competitive advantage in a digital-first world.
For manufacturers, digital transformation involves understanding a range of new technologies and applying these to both create new business and to improve the current operation. Industry 4.0 provides us with some clues as to how technologies such as robotics, artificial intelligence, cloud computing and the internet of things will come together in the near future to transform the manufacturing sector.
Successfully navigating this complex landscape will require striking a balance between putting in place resilient and stable IT platforms that will last into the future, while also executing small tactical technology-based projects that can yield immediate value and help gain experience.
When considering the complexity, it is not surprising that many manufacturers who intend to embark on a digital transformation journey are still at the starting point. Short term business pressures make it difficult to know exactly how to move forward. Many people are simply too busy surviving to worry about Industry 4.0.
But the clock is ticking. For example, it is estimated (according to the US National Manufacturing Institute) that 78 million employees will retire from manufacturing in the USA in the next ten years. By extrapolation this will be a worldwide trend. This loss of skill and expertise will have to be replaced, and the next generation of talent will be looking for companies that are well advanced in their digital transformation effort and who have more ambitious digital strategies, according to Forrester.
Implementing technology for the sake of technology itself is never a good business decision. Technology investments must always be aligned to ultimately create value for customers. Technology enabled new business models must be found that generate additional revenue streams, protect competitive advantage and raise the barriers to entry for competitors.
In manufacturing it is likely that many of the fundamentals already exist and Industry 4.0 will simply continue to build on established concepts. One example is “servitization” which is the process of developing new capabilities in a manufacturing company that supplement traditional product offerings with value-added services.
Many years ago, our company was implementing “servitization” to grow our competitiveness in water treatment chemicals. Instead of simply offering the chemicals as stock items in containers and drums delivered to a warehouse, we offered a complete managed service to our customers. Customers bought a “solution” whereby their stock of treatment chemicals was monitored and replenished automatically by our system. This effectively provided them with an assurance that they would never have a problem with water treatment. We held stock of chemicals on their behalf and through a service-level agreement we ensured that they were always running. In today’s terms our technology was relatively antiquated, involving dial-up modems that could read stock levels on premise and automatically place an alert in our ERP system to replenish the stock.
With the industrial internet of things (IIoT) and the cloud the old concept of servitization is now given a new life. Cloud connected IoT devices can measure many different variables relating to the use of physical products by customers. A well understood example is the ability to measure machine vibration and allowing the vendor to automatically schedule preventative maintenance. The customer is buying more than a machine, they now buy a solution consisting of a machine that is kept running optimally and serviced. This solution in turn improves customer satisfaction. The value-added services are a new source of revenue to your business (above pure machine sales), and thereby change your business model.
There are many other examples of servitization in practice. One well known example is Rolls-Royce who sell power by the hour instead of traditional aircraft engines.
The concept of servitization is not new, it came to prominence in the late 1980’s. What has changed is that there are now many new digital technologies that make servitization a real possibility. The cloud for example makes connectivity to almost any place in the world a reality, something that back in the 1980’s when we were monitoring water treatment chemicals using dial up modems would have been prohibitively expensive. Mobile connected devices enable field service teams to optimally move between sites and react to breakdowns. And so on.
I think that Microsoft’s succinct definition of digital transformation quoted at the beginning of this article is a very good summary of what is involved. Reimagining what is possible with new technology does not always mean reinventing the wheel, but rather building on established principles of business using the new technologies available.
The need for manufacturers to be proactive in embracing Industry 4.0 is very important if they are to be successful into the future.
For those manufacturers that are wondering where to start, perhaps take a look at some of your established products and imagine how they could be made more valuable to your customers by adding services that are made possible by using some of the technologies now available.