Six Principles to Guide your Digital Transformation

Stephen Engel, Senior Vice President, Hitachi Consulting
Stephen Engel, Senior Vice President, Hitachi Consulting

Stephen Engel, Senior Vice President, Hitachi Consulting

If the impact of digital transformation in your industry isn’t already keeping you up at night, consider this:

• 60 percent of Global 2000 companies will have doubled their productivity by digitally transforming many processes from human-based to software-based delivery by 2020, according to IDC. Are you keeping up with this remarkable pace?

• Only 26 percent of CEOs have set a clear vision for digital for their businesses, according to Forrester/Odgers. Are you helping guide the rest of management team toward a digital transformation?

• More than 8.4 billion “things” are on the Internet today, up more than 30 percent from just one year ago, reports Gartner. Are innovations like the Internet of Things (IoT) passing you by?

Sharp CIOs see the digital disruption adoption rate soaring, not just in the U.S. but globally. We recently visited a manufacturer in Mexico that is aggressively working onoutpacing many of its competitors in using operational and information technologies. Why? Powerful forces are disrupting every market: higher customer expectations, more nimble competitors, emerging new opportunities, not to mention pressure on profitability. A variety of digital technologies are contributing to this disruption: 3-D printing, predictive analytics, machine learning, blockchain, AI, sensors, and algorithmic modeling, among others.

  A digital transformation isn’t a boil-the-ocean exercise​  

Less clear, however, is the way forward in responding to these forces. Unfortunately, some CIOs get hung up on the technologies — the “things” that are expected to empower a digital transformation. But in my experience, the CIOs who earn buy-in from their colleagues present digital transformation not as a thing but as a way of doing things.

For example, a global food processor wasn’t satisfied with their current yields. The frequency of reworking products was adding cost. Production yield levels had flat lined. Manual QA processes weren’t reliable. Profitability was sagging. But the company is turning things around and their approach illustrates a productive path forward in undergoing a digital transformation.

The CEO there understood that digital transformation isn’t just about technology, it’s about more profitable customer outcomes and relationships. The head of manufacturing saw that new technologies could enable operations to be more predictive and less reactive. The CFO was relieved to find that transformation didn’t require huge capital outlays and could even convert the latent value in its existing manufacturing infrastructure to generate even greater ROI.

As we engage this company and other leaders we’ve found a transformation anchored to six specific principles can be valuable in creating alignment and actually driving results. The process doesn’t have to be long; in fact, it shouldn’t. A digital transformation isn’t a boil-the-ocean exercise. Rather it’s a series of integrated, incremental improvements, each of which contribute to greater profitability and competitiveness.

Here are the six principles of a successful digital transformation:

1. Set measurable objectives. Pick a couple of opportunities to test proof of value. Be able to describe pilot projects in a few bullets. You’ll want to test more than one hypothesis and avoid falling in love with one pet project.

For example, one of the food processor’s objectives was consistently storing and handling raw materials within precise temperature variances. Everyone understood the risks of operating outside those variances.

2. Validate hypotheses with data. For example, if one potential project is to improve the performance of a line that relies on a machine that is experiencing unplanned downtime, collect data over a fixed period of time — your manufacturing load, staff load, labor, raw material load, planned orders, all of the key metrics that you gather today specifically to that work cell or that line.

The food processor collected real-time data on equipment performance to validate the value of preventive maintenance.

3. Build a financial business case. Is there a dollar value that makes sense in investing in fixing or replacing that machine? If the data shows that downtime costs thousands with each occurrence, and puts customer relationships at risk, the business case is there. Also, explore ways of minimizing capital investments. One helpful rule of thumb is that digital transformation investments should break even in the same year and generate significant ROI within 18 months.

Adding sensors to current equipment, the food processor concluded, could be done at a fraction of the cost of new capital expenditures.

4. Engage to create executive alignment. The traditional lecture-style monthly meetings and status reports don’t work in driving digital transformation. Instead, create an advisory board as a forum for education and foster a roll-up-the-sleeves attitude about possibilities and approaches where everyone is engaged as a team.

Senior management atthe food processor were aligned about the value of making real-time shop floor decisions. They met at the intersection of operational technology (OT) and information technology (IT) and worked together on implementing solutions and ensuring that employees on the shop floor adopted new processes.

5. Only execution and results really matter. Take on pilot projects with a strong business case and zero in on the barriers to execution. Perhaps your data repository lacks the capacity for relevant real-time information or your sensor data is inadequate. Addressing those interim issues will help ensure that you create the value you’re looking for and keep the energy up during the digital transformation.

Consistency of product quality was a critical success factor for the food processor. By collecting real-time data at key points across the production process — ovens, broilers, conveyors, etc. — and doing preventive maintenance, the food processor validated the ROI of having earlier awareness of potential production problems.

6. Look outside your own organization. Look to leaders from outside your industry. Often what you thought was merely a distant possibility is actually standard operating procedure in another industry. Your team will start to get excited when they see the success of others on similar digital transformation journeys and have a deeper appreciation of the importance of their efforts.

In working with the food processor, we introduced him to initiatives undertaken by other process and discrete manufacturers so that the company could approach their own digital transformation with greater confidence.

For most CIOs digital transformation represents the “new normal” to positively impact the balance sheet. Having that kind of impact is certainly a challenge, but the results will have any CIO sleeping better at night.

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