Microsoft: manufacturing a smooth digital transformation

Digital transformation is not simply about technology, and It can mean many things to different people. The arrival of new disruptors entering new markets and reshaping entire industries is a reality. With more than half of all organisations expecting disruption to impact their industries within the next two years, businesses and organisations must see digital transformation as a key phenomenon to innovation and growth.

But seeing it as simply the industrial era – only faster and more efficient – is to miss what is happening and the profound impact it is already having on UK businesses, in particular, manufacturers. Digital transformation in manufacturing is bringing the intersection of manufacturing and technology even closer. This is enabling organisations to help companies gain insight and take action from big data, optimise their operations and change the very nature of the business models around their industrial products.

In an age where uncertainty has replaced ‘business-as-usual’ and competitive advantage is fleeting, a fundamentally new approach is required to run businesses. Digital transformation is not simply an IT department initiative reinventing services for a mobile world. Everybody is in the digital transformation team, and the quality of the leadership is paramount, so if done right, digital transformation permeates the very fabric of an organisation.

Where are manufacturers on the transformation journey?

In a recent survey conducted by Microsoft amongst UK public and private organisations with 500 or more employees, just 41 percent of manufacturers agreed they had a clear or formal digital transformation strategy in place, and nearly a third believed their business model would be significantly disrupted within the next 2-5 years. 44 percent also stated that over the same period, their current business model will have run its course. These are startling figures. Consequently, UK manufacturers must start thinking seriously about how they will adapt in this new environment being dubbed the ‘fourth industrial revolution’, in which digital transformation is a key component.

The same report also found that a third of manufacturers (33 percent) believe that the biggest disruption impact in their organisation will come from established companies from their own sector. However, and more surprisingly, only 6 percent of the manufacturers surveyed described themselves as disruptors. Given the previous finding that a large proportion of organisation’s business models will cease to exist in 5 years, this suggests an acceptance of their own fate.

Changing the approach

A big focus on budgets is indicative of a failing business model, and when businesses come to a close, their margins tend to gravitate to zero. A way to prop up the business is to focus on driving out costs to re-engineer the margin – a focus on cost savings rather than innovation is an indicator that the game is coming to an end.

Digital economy players are ruthlessly cost sensitive. But they are also ruthlessly curious and innovative. They are quick to establish what the market wants, and are quick to modify or kill off a service or other initiative where required. This real-time dynamic simply serves to make the industrial era players sloth-like in their behaviour.

But the game is not over, we see many digital economy players in the manufacturing sector encouraging signs of innovation. However, the indicators are that organisations are not necessarily in a hurry to upskill and empower their people, so that innovation is woven into the fabric of their organisations.

Considerations for effective digital transformation

The bottom line is that the current focus on process refinement needs to be replaced with a strong emphasis on innovation if UK manufacturers are to truly embrace digital transformation, and reap its benefits across their operations. Despite the challenging times ahead for UK manufacturing, digital transformation will, without question, be a key factor for success alongside engineering excellence.

Below are some areas to consider if your organisation is going to give its digital transformation journey the best possible chance of success:

Understand what is driving the need for change – There are certain macroeconomic trends that are impacting the world we live in. Hyper-connectivity brought about by new technology has a role to play. As does globalisation, changing demographics, energy security, and talent scarcity. The point is to identify what factors affect your market most.

Empower your people – As more people start to align their work with their passions (and of course market demand), they will not need micro-management. They should be given the latitude to be curious, to experiment, to fail, and to thus learn both personally and on behalf of the organisation.

Become data-driven – The majority of the most successful organisations within the digital economy are data-obsessive. They will push products and services into the market and study the associated data very carefully. The data will tell them whether they have a winner, where to develop or innovate further, or whether to drop the new proposition altogether.

Embrace the cloud – Embracing the cloud is not the risk it once was. Many established organisations have been running their business on it for years. By doing so they can free up the cognitive capacity of their IT function to focus on matters of higher value. It is sometimes said that all companies are in the technology business in the fourth industrial revolution. This is not necessarily true. All companies are in the information and insight business. Let someone else worry about the technology infrastructure.

Experiment with new business models – Nobody can safely say that their existing business model is futureproofed. Therefore, organisations should always be experimenting with new business models. This needs to be a parallel exercise. It’s a little too late to start exploring new business models when the current one has bitten the dust.

UK manufacturers are made of stern stuff. For generations, they have been at the forefront of developing new ideas, and raising the standards by which manufacturers across the globe are measured.  It’s now time to roll-up the shirt sleeves and apply that same vigour to the digital transformation journey. That effort needs to be wholesale and woven in to the fabric of every manufacturer.

By Peter Mellish, Chief Technology Officer, Manufacturing, Utilities and Services at Microsoft UK

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