“It’s different now” is a phrase we hear a lot these days when speaking with manufacturing leaders. Geopolitics, technological advances, the COVID-19 pandemic and the growing threat of climate change are all creating major challenges for most industrial manufacturing firms.
Virtually all executives surveyed (97% of the EY 2023 CEO Outlook survey) believe the only way their company can meet the challenges of the moment will be through innovation. Their company needs to build smarter and more connected products, take advantage of the possibilities opened up by supply chain automation and find ways to meet rising customer expectations.
Yet, for a variety of reasons, most companies have had a hard time making those changes. Their resources and talent remain stuck in siloed teams. Their employees still think in terms of function rather than strategy. Finally, their static views of their competitive and operational landscape ignore emerging threats — and overlook important opportunities. Although EY analysts estimate that a minimum of $4.1 trillion in value will be generated by smart connected products by 2030 (in cost savings, efficiencies and revenue), many firms keep behaving in ways that will leave money on the table.
Their core misunderstanding lies in how they view digital transformation. Digital transformation is often perceived as a technology challenge. This is not entirely wrong, but it is insufficient. As the limitations noted above suggest, it’s also a management challenge. You can’t become a 21st Century company without learning to operate and think in 21st Century ways.
5 New Habits
Where should you begin? Here are 5 steps to get started:
1. Start with the end in mind — but know where to begin. One of the most useful exercises is to take a future-back approach. Begin by developing several detailed scenarios of how the future might develop. Next, make an honest appraisal of current capabilities and what you would need to change to play a role in that future. This combination of knowing where you are going and who you are now can be a powerful navigational tool, a North Star to guide you as you take the sometimes difficult steps you need to transform.
2. Take a hands-on approach to innovation. To meet those goals, however, your company will need to become skilled at rapid prototyping. Prototyping is important in that it can be used to help clarify what features customers will value and what capabilities you will need to develop to deliver them. Being able to “show your work” by sharing the design brief behind the prototype can also help build the internal support needed to refine and launch the new product or service.
3. Accelerate results by incubating new business models. Successful innovation doesn’t just depend on building a product that will be valued by customers, but on finding a way to sell it profitably. Companies that incubate new business models tend to have a better time capturing value in the market than companies that focus only on what is coming out of the research lab. Particularly when it comes to products that are being enhanced by adding connectivity or intelligence, it will be crucial to build a business model to ensure the value can be captured profitably.
4. Identify infrastructure partners that can help fill critical gaps. Another key decision will be to decide which capacities are needed to develop internally and which will be better off finding a partner help you develop. Some of these will be technology partners that have a deeper grasp of an important emerging discipline, such as data analytics, while others may be part of an adjacent value stream in the technology you may want to develop, such as insurance and energy companies with personal mobility.
5. Ask the right questions. It’s easy to overlook important implications of a new product or a shift in customer attitudes. Simply responding to today’s challenges is often not that easy. An important part of making sure your company isn’t blindsided by the future is to keep asking questions, such as:
· How can our product portfolio be adjusted to address customer demands for smarter and more connected features?
· Which of our products should be connected? Which should be smart and connected?
· How would a shift in B2B to B2C or D2C affect how we operate today?
· What capabilities will we need to make manufacturing one of our competitive differentiators? What kind of incentives would help encourage them?
· How do we train our employees to be more innovative?
· How do we innovate to drive the current business to greater profitability while simultaneously promoting new growth engines?
New times demand a new approach
If your company is like most successful manufacturing companies, it came together gradually, over decades. Its products, infrastructure and culture all developed in the context of the times in which it operated. Now that those times have changed, your firm will need to change with them.
This article was adapted from the EY white paper, “How can manufacturers place innovation at the heart of transformation?” The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
