DIGITAL
CHAMPIONS part iI
Operations: Rapid, Relevant Response
The operations ecosystem is the workhorse for Industry 4.0
activity. It includes the day-to-day inputs and outputs that support a Digital
Champion in delivering value to customers. Among its functions are the supply
chain, product development, innovation, production, logistics, distribution,
and post-sales customer interaction. A highly functioning operations ecosystem
can create benefits that have previously eluded manufacturers. For supply chain
planning and execution, it can greatly improve efficiency and product
customization by adjusting the pace of production to match real-time customer
demand. For research and development, it coordinates a network of internal
functions, suppliers, academia, researchers, and sourcing and logistics
specialists. For manufacturing, this ecosystem vertically links
and automates factories (owned by the Digital Champion or contracted
out) and connects the shop floor directly to supply chain and customer demand
activities.
Companies with a high level of digital maturity can design their
operations ecosystem to respond more rapidly and interactively to the customer
solutions ecosystem. As demand changes for products or services, the operations
ecosystem continually adjusts. Suppliers or factories may be needed in new
regions; warehouses and parts management may require more flexibility to
deliver on accelerated just-in-time schedules; and innovative logistics
partners may be added. Even if much of this happens automatically, it is
critical to regularly reevaluate the operations ecosystem against performance
metrics and capability requirements, drawn from the customer solutions part of
the business model.
The Digital Champion Bosch Rexroth has mastered the operations
ecosystem for, among other product lines, its hydraulic valves used in
agricultural equipment. In one of the company’s most advanced plants, in
Homburg, Germany, customized orders are assigned to a manufacturing line with a
special feature: Products guide themselves through the assembly stations with
the help of RFID chips. The nine intelligent stations on the line recognize how
the finished product has to be assembled and thus which operational steps are
necessary. Displays show workers the corresponding instructions for any of the
more than 200 versions of the component that is to be processed. The assembly
line integrates the human, the product, and the machine in a system of flexible
mass production.
An interactive cockpit oversees the Bosch Rexroth effort, tracking
key performance indicators related to the manufacturing process, along with the
quality of the assembly. The cockpit collects all relevant data from the
connected production facilities, updates them dynamically, and makes them
available in real time.
This approach allows the company to match products to customer
specifications so that the products are tailored for use in particular
agricultural environments, while maintaining the speed, scale, and cost
efficiency of mass manufacturing.
With the launch of its Nexeed software and service portfolio for
industrial Internet applications, Bosch has pooled all its Industry 4.0
activities to support customers in connecting the value chain from end to end
and integrating it into an operations ecosystem. Nexeed represents an entry
point into the connected factory, tailored to customers’ needs. It allows
individual lines to be combined, and interconnects factories and plant
networks, including their internal and external logistics. A variety of apps
and software solutions support workers in their daily tasks. Relevant
manufacturing data is more quickly accessible to employees through their mobile
devices; this ultimately leads to greater machine availability in production.
Internal transport processes and flows of goods outside the company can be
seamlessly monitored and traced back. Workers are kept informed of the
location, condition, and delivery time of goods. The result is increased
productivity and agility, which boosts competitiveness.
With an operations ecosystem of this sort, a company can gain at
least five significant benefits.
• Transparency: It
has a complete end-to-end view of the value chain.
• Real-time data sharing: All
the participating departments and companies can see the same information
simultaneously.
• Extended collaboration: Operational
links develop organically with trusted partners (such as suppliers), becoming
deeper and more synergistic over time.
• Responsiveness and
flexibility: Companies can respond instantly to changes in end-user
demand; they can shift plans easily and execute those changes promptly.
• Connectivity: Product
life-cycle management, supply chain management, and customer information are
all integrated seamlessly.
We analyze how advanced a company’s operations ecosystem is in two
ways. First, we assess the manufacturing process, emphasizing the degree to
which production is automated and transparently connected across the company’s
own plants, along with partnering manufacturers, suppliers, and logistics
channels. Ideally, all of the ecosystem’s elements are exchanging data
continually and acting on it in real time. This approach is so advanced that
only 5 percent of the companies we interviewed, including only 33 percent of
Digital Champions, had adopted it. Digital Champions score better when it comes
to linking their factories with some form of integrated digital connection;
almost half of them have done this, whereas most of the companies we
interviewed — about two-thirds — have just selectively automated single
factories.
The second way to assess operations ecosystem capabilities is by
measuring supply chain integration. Digital Champions are well ahead of other
companies in this respect. More than 80 percent of Digital Champions have at
least near-real-time, end-to-end integrated networks with supply chain partners
that offer full collaboration and visibility among the companies involved. This
customer-driven supply chain lets participating companies quickly assess the
impact of potential changes in demand and resolve any constraints that would
hinder a rapid shift in production and distribution schedules. Among the
companies surveyed, only 27 percent have reached this high level of digital
supply chain mastery.
Technology: Incessant Innovation
Because the customer solutions ecosystem determines the company’s
business model, and the operations ecosystem organizes its most complex
capabilities, many business strategists seem to feel they have their hands full
with just those two clusters. They tend to regard the technology ecosystem as
being made up of more routine functions, to be delegated to service
bureau–style departments. But that is a mistake. The technology ecosystem
consists of activities embedded throughout the organization in every business
entity, all linked together. They include established enterprise applications
such as resource planning, customer relationship management, financial
analytics, and cybersecurity, along with applications tailored to new platforms
and revenue streams. Digital Champions gain a back-office performance edge from
this ecosystem because they incorporate latest-generation technology: advances
in cloud storage and collaboration, data analytics, human–machine interfaces,
customer and employee experience, and hardware and software integration.
In designing and implementing this ecosystem, Digital Champions
are risk takers with discipline. They insist that their business strategy
should determine which technology they adopt, while continually keeping up with
digital advances that have the potential to enhance strategy, particularly
involving speed, flexibility, customization, and efficiency.
Rather than having a “not-invented-here” bias toward homegrown and
stand-alone systems, Digital Champions readily form partnerships with outside
companies, including vendors and other users of platforms, hardware, and
software, to more quickly implement new digital applications without
redesigning the wheel. These attributes undoubtedly play a role in their
impressive track record as innovators: More than 90 percent of the Digital
Champions among our survey respondents said they were planning, prototyping, or
already implementing advanced technologies such as robotics, digital twins
(real-time simulations of on-the-ground operations), and the industrial IoT.
The comparative figures among Digital Novices were below 40 percent.
Intriguingly, Digital Innovators, the group just below Digital
Champions on the digital maturity scale, foresee revenue gains of nearly 20
percent, outpacing Digital Champions. We suspect that this figure reflects the
fact that Digital Champions have already enjoyed initial revenue bumps from
technology investments, whereas Digital Innovators are a step behind and will
probably reap these benefits over the next few years if they adopt Digital
Champion strategies soon.
One company that has made its technology ecosystem a centerpiece
of its business model is Austria’s Magna Steyr, which manufactures vehicles for
other automakers, often when sales fluctuate and flexible manufacturing is
needed. Its portfolio has included Mercedes G-Class, BMW 5 series, and the
Jaguar E-PACE and I-PACE. With this product mix, Magna Steyr is the only
vehicle contract manufacturer to produce the whole band of powertrain
technologies — from the internal combustion engine to plug-in hybrids to pure
electric vehicles. Because Magna essentially operates a dozen or so assembly
schemes for different vehicles on a single line — an approach that many
automakers are still struggling to perfect — the company has had to develop
factories that are completely agile. Otherwise, profitability would be
impossible, as some original OEMs have discovered with their low-volume models.
Magna has overcome this agility hurdle by introducing a steady
stream of Industry 4.0 digital innovations, combining them to continuously
upgrade the performance of its plants. Among the technologies is a digital
cockpit that produces a digital twin simulation and monitors assembly-line
performance for each vehicle. Adaptable robots with AI that can recognize each
vehicle and determine assembly steps instantaneously guide the cars through the
manufacturing lines. An in-line quality control function checks the assembly
operations against real-world expectations in each step of the process so that
quality isn’t weighed only at completion, when a great deal of time tends to be
wasted in the auto manufacturing process. And manufacturing data analytics are
adjudged by learning machines that can alter the assembly process on the basis of
new conclusions culled from prior vehicle builds.
People: Culture of Competence
As the latest industrial renaissance unfolds, there will be an
increasing need for skilled workers. Some will need to configure and operate
complex equipment and others to program it. All will need to make quick
decisions in response to shifts in product lines, designs, and input from a
range of partners. Digital Champions thus invest heavily in training and
on-the-job skill development. They have also succeeded in (or at least are
moving toward) building a digital culture in which people throughout the
hierarchy have a high level of competence. They have mastered not just the
tools of Industry 4.0, but the judgment needed to deploy those tools
effectively in the service of strategic business goals. They understand the
ways in which their own efforts fit into the overarching goals of the customer
solutions and operations ecosystems, and thus into the organization’s rapidly
evolving strategy.
These facets of the business, involving recruitment, training,
workplace design, incentives, and a context for collaborative effort, represent
the core of the people ecosystem, which is essential to making sure that the
other three ecosystems operate at peak levels. Organizations that employ their
people ecosystem to the greatest benefit have traits in common in four key
categories.
• Skills: Workers
can handle diverse challenges. They can turn rapidly to new tasks, learning on
the job. The organization has strong capabilities in data analytics,
human–machine interaction, and technology-supported decision making. There are
formal pathways for increasing the workforce’s digital IQ.
• Mind-set and behavior: The
organization has a digital mind-set and vision; it welcomes entrepreneurship
and new leadership styles; it is open to new technology; it learns from
failure; it is creative, innovative, and generally curious; it embraces a
nonhierarchical, “best idea counts” mentality; and it puts a premium on rapid
decision making.
• Talent sources: The
company relies on cross-functional teams to drive digitization and
eliminate silos. These teams are highly integrated, made up of people who
work for the company mixed with employees at partnering companies; with
freelancers from hackathons and accelerators; and with people from digital
agencies, research institutes, and universities.
• Career development: The
organization supports its people ecosystem with a variety of unorthodox
appraisal, incentive, and compensation schemes that reward innovative and smart
digital ideas; flexible work arrangements and telecommuting when appropriate;
free time to support continuous improvement of company operations; career
models that reflect the value of digital expertise; and real-time employee
feedback.
As the need for skilled labor increases, it will be crucial to
develop new ways of acquiring talent — often individuals educated in science,
technology, engineering, and math — as well as tailored training programs in
digital concepts and capabilities. To some degree, this will result in higher
salaries for people with the right skills; high pay provides an incentive for
employees to continually refine and improve their skills throughout their
career, taking advantage of Digital Champions’ strong support for lifelong learning.
Companies with effective people ecosystems embed the IT workforce
into the customer solutions and operations ecosystems. This is a sharp
departure from the traditional approach, in which IT is made up of a group of
isolated specialists, separately owning all technology assets and delivering
services, often inefficiently, to line businesses. The people ecosystem model
enables the technology ecosystem to deliver IT solutions that address precisely
what the business needs when it needs it. It also fosters data-driven decision
making on all levels, because people understand how to incorporate
sophisticated tools into their work practices.
In our survey, Digital Champions excelled at developing digital
culture. Of the Champion respondents, 59 percent have invested heavily in
training to upgrade staff for digital transformation; 52 percent regard
failures as an accepted part of the development process (an attitude that
encourages experimentation with new ideas); and 52 percent have flat
hierarchies and quick decision-making processes.
Becoming a Digital Champion
The relatively small number of Digital Champions suggests how
difficult it can be to master the four ecosystems, especially for an incumbent
company without a digitally oriented culture. Start by moving in several
directions at once: developing ecosystem-specific capabilities while driving
integration across all four ecosystems. Here are six proven steps to accelerate
your efforts.
1.Conduct an ecosystem
assessment.
This should look closely at
the state of the company’s products and services, its customer satisfaction
levels, its operational capabilities, the relative value of its technology, and
the skills of its people. Assess each as if you were studying a competitor,
which can help shine a light on your organization’s shortcomings. Consider your
external challenges. How equipped are you to meet new market developments,
competitors’ moves, shifting customer expectations, regulatory changes, and
technological advances? Think about the art of the possible: digital strategies
based not on past constraints but on new capabilities. What can you offer now
that you couldn’t before, thanks to changes in technology, better understanding
of consumer behavior, and opportunities for collaboration with external partners?
2. Define a vision of what
the organization can become in this new world of Industry 4.0.
Using the results of the
first step, decide where to position your business, which value propositions to
present to customers, and how to deliver your individualized products and
services. What can you offer that can be tailored to individuals, or that
competitors can’t match?
3. Develop an integrated
operations model. It should span all four ecosystems and enable you to work
effectively with external strategic partners.
Focus first on the customer
solutions ecosystem, identifying the best potential partners and the
capabilities you will need (for example, in marketing analytics or product
research and development). Determine which are already available internally,
which to develop through partnerships, and whether to make or buy the rest.
With these choices made, design the operations ecosystem. Then, build out your
technology and people ecosystems to enable the first two ecosystems. In your
design, specify the interfaces, interdependencies, connections, technology, and
data links that will ensure seamless interaction among all the ecosystems.
4. Establish an ecosystem
governance, investment, and decision board.
This board should set
priorities and key milestones, review and approve design and implementation
outcomes, make investment decisions, and oversee results.
5. Continue to build out
the ecosystems, starting with the strengths you already have.
Design and implement
ecosystem capabilities through rapid, fluid, project-based team efforts —
similar to those used in agile software development. This step should include
creating collaboration models for connecting and sharing operations among
partners; vendors; organizations such as factories, logistics providers, or
contract manufacturers; advisors; ad hoc workforces; permanent employees; and
short-term and long-term relationships. These models can be implemented as
prototypes and pilots, then adjusted before subsequent ecosystem elements are
rolled out. After each successful rollout, link the element to relevant aspects
of the other ecosystems.
6. Take full advantage of
the new value chain.
After the four ecosystems
are in place, implement practices to make the most of the changes. These
include close monitoring of the new approaches, focusing on the levels of
growth, performance, productivity, and continuous improvement. As the
ecosystems evolve, reinvest in the continued growth of the four ecosystems
model.
These steps can represent a few years’ worth of activity in some
companies. Even a Digital Champion typically has a lot of distance left to
travel before the company can claim to be an Industry 4.0 leader. Indeed, only
about half of the Digital Champions we surveyed said they had effective
strategies for the full range of fundamental Industry 4.0–related activity. The
depth of commitment required to become a Digital Champion can be daunting. But
the consequent improvements in efficiency, speed, product development,
creativity, customer response, and revenue show that achieving higher levels of
digital maturity is worth it.
https://www.strategy-business.com/feature/Digital-Champions?gko=a2e15&utm_source=itw&utm_medium=20180731&utm_campaign=resp
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