The Complete List of Why Companies Are Pursuing Digital Transformation
Digital transformation (DX) is unlocking significant strategic, operational, and financial benefits for industrial companies worldwide. These tangible benefits are rapidly pushing the mass adoption of DX: PTC’s State of Industrial Digital Transformation found that 92% of manufacturers are engaged with a DX program.
These projects are real-world examples of digital transforming physical. Specifically, digital technologies have the power to transform the physical aspects of a business and offer new dimensions to support innovation. Digital technologies are enhancing physical industrial environments giving businesses greater insight than ever before to their workforce, processes, products, and workplaces.
Why Digital Transformation?
Now that we know companies are recognizing the opportunities of digital transformation, the obvious question is why? Why digital transformation? The answer is as nuanced as each unique program, but our analysis shows there are 12 primary, tangible goals for DX – all with identifiable metrics.
These goals are spread evenly in adoption across three critical business areas: reduce operational costs, achieve revenue growth, and improve efficiency and experiences.
Below we’ll dive into this list of benefits and goals to give a complete collection of why industrial companies are pursing digital transformation in 2021.
DX Connects to the Bottom Line with Cost Reductions
Many manufacturers initially look internally to identify how they can use digital capabilities to improve their operations. They opt to trial and prove the value of the technologies before infusing it in customer-facing operations. This puts them in a more advantageous financial position to subsequently focus on growth and experience focused goals. Unsurprisingly, 62% of companies have adopted this ‘cost-first’ mindset due to COVID-19.
There are five main cost-focused goals manufacturers cite as critical to their DX program.
1. Asset efficiency Improving the availability, reliability, and performance of machines, equipment, and other industrial assets.
Manufacturers have myriad assets across production facilities and industrial environments. They operate in fragmented and unpredictable processes that largely limit the opportunity to better optimize their performance. Even gaining minor preventative insights into a single machine can drastically improve OEE (by between 11-30%), reduce downtime (by up to 30%), and improve the overall resiliency of the entire production line. Tackling these operational costs through more efficient use of existing assets is increasingly pervasive with the Industrial Internet of Things (IIoT) embedding connectivity and correlating intelligence into these legacy machines.
2. Workforce productivity: More effective onboarding, streamlining, optimizing and empowering frontline workers with their tasks.
With a looming skills gap, manufacturers are looking to better optimize their workforce to improve their time to impact, overall labor effectiveness and other productivity metrics. Empowering them with digital insights can help them with their physical tasks including assembly, maintenance, and quality inspection, among several others. Leveraging IIoT to deliver real-time and accurate work instructions and augmented reality as the worker’s immersive lens into their physical environment are two increasingly predominant technologies unlocking workforce productivity gains.
3. Cost of goods sold (COGS): Reducing direct costs including materials and labor required to produce the goods sold by the company.
COGS is an identifiable line on manufacturer’s income statements and with CxOs being increasingly responsible for DX programs (90% of manufacturers cite CxOs as DX strategic leaders) and their impact on these statements, it isn’t a surprise to see reducing cost of goods sold as a DX goal. Using digital to optimize inventory, reduce scrap from making products, and leverage labor can directly improve this financial impact for manufacturers. Artificial intelligence can identify supply chain areas to optimize costs and SaaS provides a platform to link these the typically disconnected supply chain processes.
4. Operational and manufacturing costs: Reducing overhead and production costs associated with maintaining operational continuity or expenses with manufacturing a product.
This catch-all cost category can include reducing labor, materials, energy, supplies, and capital expenditures. Digital-driven insights can better balance factory power usage across assets and lower energy costs. The need to make significant greenfield capital expenditures can be subdued through DX programs optimizing existing production capacity.
5. Service costs: Cutting labor, asset, part, and customer costs across the service lifecycle.
There are extensive costs associated with servicing a deployed product and improving service team metrics, including truck rolls, first-time fix rates, and asset downtime, greatly reduces them. Optimization opportunities for the technician are possible through matching skillsets and proximity to service issues in the field as well as remotely resolving issues through smart connected products can improve metrics across the service lifecycle.
Manufacturing production presents a massive canvas to cut costs via a DX program. Identifying which area is most pressing and achievable is usually the best place to start.
Drive Compounding Growth through Digital Innovation
Manufacturers are challenged with achieving lofty growth metrics yet have limited resources to do so. The incorporation of digital into product development has spurred innovation and provided a path to attaining compounding growth.
1. Time-to-market: Reducing the amount of time to get new and existing products to customers.
This includes both improvements in product development (design iteration time reduction) and manufacturing (throughput, cycle time) metrics. Increasingly a digital thread creates continuity between these functions for manufacturers to ship products quicker.
2. Introduce new products: Reducing allocated time in product development processes including new product introduction and development rates.
New technologies are equipping engineering teams with the means to rapidly form innovative product designs. Generative designautonomously creates thousands of design variants based on requirements and goals. Manufacturers require these modern methods of innovation to introduce new products to market at unimaginable speeds.
3. Introduce new business models/revenue streams: Forming alternative methods to drive new revenue streams such as products-as-a-service.
While digital provides manufacturers with opportunities to optimize in-place processes, it also provides a method to establish new strategies and methods. Through products-as-a-service, manufacturers are mirroring the software subscription model and selling product usage and business outcomes. These DX programs rejuvenate traditional manufacturers business models to recognize reoccurring revenue streams and sizeable service margins.
4. Throughput & yield: Reducing the amount of time for a product to travel through a manufacturing process.
For some markets, growth means rapidly producing massive amounts of products (speed times volume). Manufacturers increasingly turn to IIoT-driven DX solutions in their factories to bolster these production processes and rates, while minimizing the number of defects (yield).
Manufacturers will identify with one or more of these growth levers and leverage digital transformation to unlock their benefits.
Transform Customer Experience and Engagement
Becoming a customer-centric organization is a long-standing desirable goal for many manufacturers but achieving it has been challenging for many. Here are a few ways digital transformation is being leveraged to delight existing customers and attract new ones.
1. Product quality: Consistently creating high-quality customized products with conformity for performance.
Shipping a product that doesn’t operate as intended will surely not win over customers. Fixating internally on quality metrics (yield) bodes well for ensuring the product’s resiliency in the customers operating environment. Mass customization and product complexity are pushing the need for digital threads to manage the massive amounts of information and maintain the highest levels of product quality across its lifecycle.
2. Customer experience & engagement: New or added products, features, or services to customer delivery models.
Digital transformation provides manufacturers a lens into their products’ actual deployment and importantly, the customer’s usage of this product. These data-driven insights provide a closed-feedback loop with feature usage rates for product designers working on the next iteration. Digital-native experiences have also proven to better engage with customers, such as 19 Crimes’ AR brand experience.
3. Service quality: More reliable, responsive, and empathetic service operations.
Digital transformation can drive direct costs savings across the service lifecycle (as described previously), but also ensure reliability and trust with the customer. Manufacturers who can achieve this level of trust when servicing products or ensuring uptime in customer’s operations, will become a powerful digital ally of the customer and recognize the financial benefits.
Many have identified with the ‘customer-first’ mindset to only realize most of their engagement or experience ambitions were unattainable through traditional methods. Thinking ‘digital-first’ provides a new platform to engagement with customers and offer them tailored experiences.
Final Thoughts
Digital transformation is continuously evolving and the strategic company goals it supports will expand accordingly. The point still stands that when implementing a well-structured digital transformation program, the valuable attainable is achievable and significant. Digital will continue to transform physical and their convergence will create enterprise-wide synergies driving revenue growth, decreasing operational costs, and improving efficiencies.
Having understood the tremendous value of this convergence, the industrial world has already begun the shift away from asking ‘why digital transformation’ to when and with whom.