Part 1 of the “Digitalization of the IM&C Industry” series
Digitalization is an ongoing journey. As innovative technologies become more mainstream, the pace of innovation and transformation continues to increase. This is a journey that all companies are embracing in one way or another.
Take it from Georg Kube, global vice president of Industrial Machinery and Components (IM&C) at SAP:
“Companies are looking for new ways to deliver value to their customers using digital channels and creating personalized, digitally enabled products across all sectors, from consumer products to heavy equipment and machinery.”
This is fundamental for industrial machinery and components companies, as they need to not only innovate their business processes but also provide intelligent machines and equipment to help their customers innovate their businesses.
A July 2018 commissioned study conducted by Forrester Consulting on behalf of SAP found that 88% of innovative manufacturers have started or completed their digital transformation, compared to 54% of other companies. Those manufacturers that considered themselves to be innovative rated themselves highly across the board for innovation in strategy, technology, people, process, and culture.
Digital transformation is achieving real business value for manufacturing companies:
“Companies with 50% or more of their revenues from digital ecosystems achieve 32% higher revenue growth and 27% higher profit margin.”
– MIT Sloan Management Review, Thriving in an Increasingly Digital Ecosystem.
Industrial manufacturers can realize opportunity in two areas: Top-line revenue growth through better and more intelligent and differentiated products, and bottom-line cost savings through more efficient and more effective innovative processes using the digital capabilities of the equipment they use.
Transformation is not new to industrial machinery and component companies. Since the 1990s, manufacturers have been looking at process automation and techniques such as lean manufacturing. In the early 2000s, their focus shifted to becoming more responsive, and they started looking at flexible manufacturing processes, integrating the supply chain, and of course, further automation.
The current evolution is to build intelligence into the processes so each industrial manufacturer becomes more event- or insight-driven. This means using sensor data from all parts of the process and external data to drive operational decisions. It also means ensuring that the customer experience is more digital and consistent across any channel and that you have a complete understanding and visibility of your customer—finally going beyond basic automation by applying machine learning algorithms to improve performance and efficiency.
But manufacturers need to be vigilant as digitalization opens the playing field for companies that are not traditional manufacturers but that have expertise in these technologies from other industries. To be ready for these challenges it is essential for industrial manufacturers to focus on the right strategic priorities to drive digitalization. In conjunction with our customers, SAP has identified 5 key digital priorities:
1. Customer-centricity
Putting the end customers’ point of view at the center of every decision is essential for success in the digital age. This does not only apply to the sales department; it should also apply to what products are built and what services are offered.
2. Serving the segment of one
Providing solutions that precisely fit the needs of one single customer has been commonplace in traditional engineer-to-order environments. Now that same level of personalization must be applied to everyone in a cost-effective way. This requires the ability to capture customer requirements effectively and enable mass customization to give customers exactly what they want.
3. Digital smart products
Product differentiation and specificity stems from the digital capabilities and value-added services that are bundled with physical products. Delivering and using digital capabilities like self-awareness of technical health and operational status or business system connectivity helps industrial manufacturers differentiate themselves.
4. Digital supply chain and smart factory
Digital technology on the shop floor and in the supply chain is not new. What is new is the way that production and logistics can be intelligently connected to the rest of the business and to handle external impulses like short-term demand and supply fluctuations or changes in the configuration of a customer order on the fly.
5. Servitization and new business models
As traditional products are commoditized, IM&C companies are shifting from selling products to providing complete solutions, charging for outcomes, or even monetizing asset data. Generating more revenue from services is a goal for manufacturers who are looking for higher profit margins and increased customer intimacy.
These priorities impact every line of business across the value chain. The digital poster shows how each line of business will need different capabilities to achieve these priorities.
The commissioned study by Forrester Consulting on behalf of SAP showed that these digital priorities resonated well with manufacturers, which felt that these digital priorities were important for their business. Interestingly, those manufacturers that considered themselves innovative as had a much higher focus on those digital priorities than did other companies.
In my next blog, I will cover how innovative manufacturers see the cloud as a key foundation for digital transformation.