While “may you live in interesting times” may be a curse of apocryphal Chinese origins, the COVID-19 pandemic is certainly not.
Pre-crisis, industrial digitalisation was an important subject on the strategic “to-do” list of many manufacturing companies. Increased productivity, lower production costs, faster time to market and the ability to quickly and profitably respond to changing consumer demands – the most-touted benefits of Industry 4.0 – were powerful arguments for its adoption. But equally, the very vagueness of the term “Industry 4.0” obfuscated the apparent value of industrial digital transformation. Many business managers simply couldn’t make a connection between the benefits of Industry 4.0 and the operations of their organisation.
In an attempt to bridge this gap many businesses attempted to base their approach to digitalisation on a credible cost analysis of the return on technology investment. However, traditional ROI calculation methods based on speculative business cases do not work well for investments in ‘soft’ propositions such as “increased productivity” or “faster time to market”. There is simply too much room for the inherent guesswork and opinion to be incessantly debated within an organisation, leading to digital transformation becoming bogged down.
This has been the status quo for many industrial companies, with market surveys indicating that while the majority recognise the potential of Industry 4.0, a small minority have actually been successful at doing anything about it. After all, in the old world everyone was busy with normal life and there was no particular urgency. But now the world has changed and for many businesses the situation has become nothing if not urgent. As is the nature of these things, at a time when business managers typically retreat from pursuing new initiatives, the benefits of Industry 4.0 have moved from “nice to have” to “essential for survival”. Realistically, there is no longer time to debate the assumptions underlying a speculative business case for digital transformation. An Industry 4.0 initiative can’t be treated as just another IT project or plant-level initiative. Furthermore, a vital part of Industry 4.0 is about achieving a continuous, flexible scalability towards changing circumstances and new business opportunities.
To deal with this the leadership of a company must adopt an entrepreneurial state of mind: recognise that the company’s frame of reference has changed, that uncertainty is the order of the day; believe that digitalisation offers the company a path through the chaos, a way of competing and prospering in unpredictable circumstances ahead of specific supporting evidence.
And yet, even in the new world, the company’s business management still may not be able to make a connection between the needs of their business, digital transformation, Industry 4.0 and its underlying technologies. However, that is a problem that can be solved by working with industry experts who can help analyse the objectives of a business and devise appropriate digital transformation initiatives. We’re not talking grand plans here, either. Successful digitalisation programs focus on addressing low hanging fruit and achieving short term wins: involve, pilot, evaluate, deploy, repeat.
“Business cases should be the consequence of industrial digitalisation and not a justification for it”
Attempting to use business cases and ROI calculations to justify digital transformation was always a time consuming work of fiction. In the new world there is no time for fiction. The fact is that industrial digitalisation breeds its own success. It gives birth to new and potentially surprising business opportunities. It is the gateway to surviving and competing in the new world. Therefore, business cases should be the consequence of industrial digitalisation and not a justification for it.
The full economic consequences of the coronavirus pandemic are far from being understood, but it is already clear that there will be lasting if not permanent changes to global trade. Industrial Digitalisation will play a key role in helping manufacturing companies survive the coming turmoil.
The strategic importance of digitalisation, Industry 4.0, amongst executive and senior management in many industrial companies is undervalued and poorly understood. The compound gains to be had from digitalisation will rapidly create a widening gap between the smart and the slow. There’s really only one way to address the challenge of digitalisation: act now, act fast.
Understanding the ability of software to generate value is utterly key to successful digitalisation and not a core competence widely present amongst the leaders of High-Tech industry.