Deloitte studies distinctive traits of digital frontrunners in manufacturing

A new study from Deloitte identifies the distinctive traits of manufacturing frontrunners that are leading on the path toward digital maturity. Despite their early lead implementing automation and using technology to optimize supply chains, Deloitte’s study suggests many manufacturers are falling behind in adopting broader digital transformation initiatives that span the entire enterprise.

“There is a general sense of optimism in Industry 4.0’s ability to positively transform economies, business, and society,” the study’s authors wrote, “but along with this optimism comes a reality that most organizations are far from reaching this stage.”

Manufacturers spearheaded the fourth industrial revolution, or Industry 4.0, by marrying computer-programmed automation with digital technologies on the production line. The transformation has now spread from the factory across processes in virtually all industries. In its survey of 193 C-level executives around the globe, Deloitte identified four key traits of digitally mature companies:

• Adopting a long-term, dynamic approach to digital strategy
• Using the power of the ecosystem
• Confidence in leadership and workforce talent
• Customer-centric innovation powered by technology

(Further insight into each trait is at the bottom of this story.)

Stephen Laaper, principal and digital supply networks leader at Deloitte Consulting and co-author of the study, said the focus of developing digital capabilities has traditionally centered around improvements to services for customers, consumers, and patients.

“We’re now seeing a distinct shift toward digital initiatives in operations, and more people in the supply chain understand digital transformation in their context,” he said. “They’re starting to make those moves beyond having a vision and getting educated and toward implementation.”

For all the hype, Laaper said there are now some very clear digital capabilities with demonstrable value. This is important because when companies continue to move to a wider digital dialog with more specifics, they can expect to see even more value. Organizations that are most successful, he said, are very intentional around their digital innovation. A “digital foundry” model, for example, is a purpose-built governance mechanism to help companies manage digital initiatives in an agile fashion.

“This avoids the trap of ‘random acts of digital,’ or a series of disconnected, disparate innovation exercises that don’t bring value in a clear and consistent way,” he said. “You can manage innovation in many initiatives by sub-optimizing the value to ensure that at the holistic level they drive value.”

Laaper said organizations frequently tell Deloitte they operate in a highly digitized and agile way. When asked after eight months how many individual initiatives they discontinued because they didn’t provide value, “the room gets quiet.”

The traditional model of innovation starts with a good idea, building a business case that’s not necessarily fully fleshed out, sending out RFPs, and aiming to prove value down the road. In the new foundry model, he said it’s possible to test value, prove it, grow and expand while testing and adjusting along the way.

Capabilities used to be built in a vertical fashion, Laaper said, in planning, sourcing, manufacturing and customer service. That’s all well and good, but he expects it will pivot to horizontal building of capabilities throughout the value stream.

“What does that mean for the plant or warehouse? I would characterize it as walls coming down,” he said. “They’re now building increased visibility and exchanging granular data with high frequency. We used to think of manufacturing and warehouses in a fairly static way. No longer.”

Then there’s the matter of building capabilities not only within an organization, but in concert with trading partners.

“How do you integrate with them and leverage what capabilities you’re building?” Laaper asked. “It’s a critical focus of many solutions. How do I develop and offer services that add value to the value chain? How do I monetize my data from my operations that might be valuable to someone else, and conversely take in more data as it becomes available across the supply chain? This is not a homogeneous process, and is evolving in many places where they see value.”

More insight into each trait from the study’s authors:

Adopting a long-term, dynamic approach to digital strategy. Digital transformation requires organizations to create a digital strategy that is both incremental and dynamic. Frontrunners were nearly two times more likely to connect investments in advanced technologies to increasing customer engagement than stragglers.

Using the power of the ecosystem. The combination of advanced manufacturing with increased connectivity and the shift toward an information-based economy create the imperative for manufacturers to identify how they will expand their ecosystems to thrive. Frontrunners are 2-3 times more likely than stragglers to seek out ecosystem relationships that create new value for customers.

Confidence in leadership and workforce talent. The fourth industrial revolution is also having an immense impact on the workforce, which must adapt in the face of advanced technologies, shifting business models, and digital transformation. Frontrunner manufacturers seem to have higher confidence in their ability to address these changes than overall respondents.

Customer-centric innovation powered by technology. Part of the urgency surrounding the move toward digital enterprises is the tangible fear of being disrupted in the market by both traditional competitors as well as new entrants from other industries. Our study found that frontrunners are more likely to be adept at translating technology into innovation that delivers customer value.