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Digital Transformation: Past the Tipping Point

It's only been two years since the seminal McKinsey column that called out loudly that digital transformation was now "a requirement" for manufacturers moving forward. At that time, they noted, few manufacturers were responding to the opportunities and threats of the digital revolution in a comprehensive way; but they could see the writing clearly on the wall:

The digital revolution is now breaching the walls of manufacturing as it continues to disrupt media, finance, consumer products, health care, and other sectors. Indeed, the explosion in data and new computing capabilities-along with advances in other areas such as artificial intelligence, automation and robotics, additive technology, and human-machine interaction-are unleashing innovations that will change the nature of manufacturing itself. Industry and academic leaders agree that digital-manufacturing technologies will transform every link in the manufacturing value chain, from research and development, supply chain, and factory operations to marketing, sales, and service.

In the short time since that article was published, much has changed in terms of how the sector is responding. Gartner, for example, cites the increasing understanding by CEOs of the digital imperative: "While the idea of shifting towards digital business was speculative for most CEOs a few years ago, it has become reality for many in 2017." Among these leaders, more are seeing digital transformation aligned to advanced business ideas, like digital product and service innovation, the internet of things (IoT), and digital platforms and ecosystems.

It's fair to say a tipping point has been reached. Digital transformation is no longer hesitating, but is rather sweeping through the manufacturing sector as companies look to capitalize on the IoT, advanced analytics, cloud technologies, artificial intelligence (AI), and much more. Leading manufacturers-as well as the small and mid-sized companies that form a substantial part of their supply chains-see these emerging technologies as game changers, enabling them to:

  • Redefine business models
  • Revolutionize internal operations
  • Improve customer service

This is indicative of a significant change in orientation. For decades manufacturers looked to cut costs as a primary driver for growth; but increasingly they look to digital transformation to play this role. The reason is straightforward: when effectively integrated throughout every part of a business' operations, digital transformation positions companies for sustained growth by connecting their extended ecosystem of partners, suppliers, and customers. Establishing this "digital thread" sets up the business for growth.

What Is Digital Transformation?
To understand the essence of digital transformation, manufacturers need to grasp that it doesn't exist in its own discrete context, but rather is a response to constantly changing issues with a global economy that is faster, more connected, and increasingly competitive. It is not an "end destination" or "state of being"; it is a combination of applied digital technologies and processes that accelerate companies toward achieving strategic objectives and evolving into Industry 4.0.

Indeed, manufacturers are in the midst of this fourth industrial revolution right now. It represents the current trend of automation and data exchange in manufacturing technologies, and includes cyber-physical systems, the IoT, cloud computing, and artificial intelligence. For manufacturers, it enables the development of smart factories, within which cyber-physical systems monitor physical processes, create a virtual copy of the physical world, and make decentralized decisions. Over the internet of things, cyber-physical systems communicate and cooperate with each other and with humans in real time, while via the internet of services, both internal and cross-organizational services are offered and used by participants of an organization's value chain.

To participate fully in this brave new manufacturing world, manufacturers must break from traditional methods and models and transform themselves into digital organizations. Of course, this doesn't happen overnight, and how it happens will differ from company to company. New technology shouldn't be deployed for its own sake, bur rather guided by an overall growth strategy that leads the digital transformation for each manufacturer.

But make no mistake-the transformation process is underway, facilitated by the growing recognition that products, operations, employees, and insights are now firmly digital. "In today's world of exponential change, organizations that get too comfortable with the status quo are at major risk of disruption," cautions Andrew Vaz, global chief innovation officer at Deloitte. That's a risk today's manufacturers cannot afford to take, especially as the tipping point to digital transformation has been reached.

For more details on why to make and how to approach digital transformation efforts at your manufacturing organization, download the e-book, "Building a Better Tomorrow," here.

Industry 4.0 and the IIOT


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