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Guest post by Michael Kinder, PwC’s Strategy&; and Bobby Bono, US Industrial Manufacturing Leader, PwC

Digital is dominating C-suite discussions of industrial manufacturers as management pushes to find new ways to grow revenue and disrupt markets. Our clients are rapidly turning to digital to redefine their business models. One client, a pump manufacturer, connects its products via the Internet of Things (IoT) to create new services like remote monitoring and control; collecting data to enhance pump design; and launching new businesses in pay-for-performance.

But industrial manufacturers that look at digital solely through the lens of new products and services are missing a major opportunity – and placing themselves at risk. Manufacturers that leverage digital technologies to transform their operations can increase speed, efficiency, reliability, and flexibility to address changing customer needs.

According to PwC’s 2015 Global Digital IQ Survey, 70% of industrial manufacturing respondents said that identifying ways to digitize their enterprises is critical, and forward-looking organizations are staking their claims. The same pump manufacturer is connecting its machines and suppliers to the internet to help optimize performance around machines, materials, flow and labor.

Digital Operations: less sexy but vital

As sexy innovations garner a great deal of attention, the question becomes: “How can we leverage digital to customize, produce, and deliver our products faster and more efficiently than our competitors?” In a digital economy where customers increasingly demand speed, flexibility, and customization, this view is now essential. Customer loyalty is waning, as technology companies raise the bar. Smart digital operations are requiring vastly different approaches. These key principles can help:

Know your customers: Many industrial manufacturers try to maximize production efficiency and minimize complexity to drive down product costs and improve margins – an approach that is no longer sufficient. The first step in transforming your operations is understanding what your customers want and what they will pay for. The pump manufacturer found a mismatch through market analysis: its ETO manufacturing model was underserving a specific customer segment that valued speed over customization.  At the same time, the manufacturer did not have the capabilities required to understand customer buying patterns and preferences around highly engineered products. This resulted in reactive responses to changing customer preferences. They found that digital solutions could help drive a more focused manufacturing strategy that targeted the needs of both customer segments.

Look through a capabilities lens: With a flood of innovations like robots, 3D printing, and machine learning, manufacturers can become overwhelmed like kids in a candy store. In fact, only 22% of Digital IQ industrial manufacturing respondents say they are business-driven in the adoption of emerging technologies, while 58% say they are technology-driven. As such, it’s important to evaluate customer needs within the contexts of business strategy and core capabilities and align executives around where to focus. You may want to consider a capabilities-based approach to operational planning, investments, and priorities. The pump manufacturer realized that top priorities around speed and agility were heavily reliant on fabrication machines and changeover times. They focused on digital and analytics solutions targeting machine learning, downtime reduction, and predictive maintenance to achieve those outcomes.

Engage the CIO: Our Digital IQ survey indicates that industrial manufacturing CIOs are more often responsible for digital investments than other respondents, who more often say that the CEO holds the purse strings. Manufacturing CIOs face growing pressure to drive competitive advantage from digital investments. As a result, CIOs should take an outside-in view to assess needs and understand business impacts. New capabilities provide unprecedented ways to collect and analyze data. Yet according to our survey, only 63% of industrial manufacturing respondents effectively utilize their data to drive business value. Before proposing a million dollar investment in machine intelligence or 3D printing, understand how the investment will meet customer needs and how it will pay off. Operations leadership needs to be the central driver behind the digital operations value proposition.

Reorient investments: Smart digital operations requires ample investment. According to PwC’s Industry 4.0: Building the Digital Enterprise, investments in Industry 4.0 capabilities are expected to reach around 5% of annual revenues. More than half of companies expect a return on investment within two years. Industrial manufacturers can often make big strides in smart digital operations by simply redirecting funds.

“Industrial companies need to act now to secure a leading position in tomorrow’s complex industrial ecosystems,” according to Industry 4.0. It will soon become a race to stake your claim. Are you setting your sights on digital operations? We’d like to hear from you around this topic.

Image shared by RICO24h

This post also appeared on the PwC Industrial Insights blog

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