75% of IX Programs are not yet seeing ANY value
Transformation is all the rage. Everybody is talking about it. Everybody is doing it. But the stark reality is that only a fraction of participants are doing it right. Only a select set of industrial companies are realizing meaningful business improvement. Let’s look at the data and some high-level causes for the failure to launch.
IX defined and a look at the returns
Industrial Transformation (IX) is the proactive and coordinated approach to leveraging digital technologies to create step change improvement across the value chain. The select few – the IX Leaders – are realizing significant benefits from their IX Programs, while most programs have not yet delivered any value. As detailed in an LNS Research eBook, IX Leaders are:
Delivering significant improvement in key operational metrics including improving Overall Equipment Effectiveness (OEE) by 20%, New Product Introduction by 17%, and reducing defects per million by 67%.
Realizing dramatic improvements to the financial performance of the company as they are 72% more likely to have grown revenues by more than 10% and 57% more likely to have reduced Cost of Goods Sold (COGS) by more than 10% as a result of their IX Program.
So, getting IX right is becoming a critical competitive advantage for IX Leaders.
Many companies are only dabbling at Transformation
In 2019 we identified four organizational disconnects in IX that led us to conclude that many programs were being established without a real commitment to their success and were headed for stagnation or outright failure. At our annual The Industrial Transformation (IX) Event a large, global manufacturer argued that it was all too common to simply play with “flashy” technology and declare success even without making meaningful business improvements. In looking deeper, one must wonder about the “real commitment” many industrials have to IX. Unempowered Chief Digital Officers, a budget unaligned with goals, and a lack of plant engagement are all signs that the “C-suite” may be “talking the talk but not walking the walk” around IX. So, for LNS Research, the evidence is clear. A “real commitment” is critical for long-term success. Many industrials are pretending to be committed while keeping their options open.
Early success becomes a barrier to long-term success
When companies finally “get real” about IX and commit to their transformation program they often find success quickly. However, those early successes become a barrier to sustainable and meaningful business improvement over time.
It is common to hear about the IX Journey. At LNS Research we see it as five stages of maturity. The challenge for manufacturers is that going through these stages is not an evolutionary stair step. To achieve the type of business benefit realized by early IX Leaders, companies must change how they are executing their program in mid-flight. LNS Research believes there is a “Transformation Chasm for manufacturers to cross while executing their strategies. The staffing, processes, strategies, and methodologies that are needed to get an IX Program going become a burden to long-term success. Manufacturers cannot just refine the structure of the IX Program as it matures. In a number of instances, manufacturers must rearchitect that structure. The gap between what is required to initiate a program and what is required to sustain transformation is the Transformation Chasm.
The importance of the Transformation Chasm is that it is the fundamental barrier to meaningful long-term business impact. LNS Research has found that the benefits of Transformation begin to accrue quickly as the IX Programs ramp up in the Vision Stages, but unless the organization Pivots dramatically those benefits will not grow or even be sustained over time. Businesses tend to revert to the mean unless the program is restructured. For manufacturers to succeed in IX, they need to initiate their program with one set of processes, structures, and teams and then readjust many of those factors to succeed in the long run. IX Programs must execute discontinuous change across a number of dimensions as they move through the stages of Transformation. This discontinuous change is what LNS Research calls the “Pivot to Value.”
A real commitment and a living, breathing program are necessary for success but insufficient.
A Pivot to Value is required because certain practices that are effective in building momentum hinder the realization of meaningful business benefits over the long term. IX Programs must change the way they execute to realize the full benefits of transformation.
For the “C Suite”
Go big or go home. Clearly, IX is no longer a bleeding-edge initiative. These programs are moving forward, and a small percentage of companies are already reporting a “dramatic impact”. The technology and market are maturing. LNS Research now believes that even the most risk-averse companies should be planning for and embarking on their Industrial Transformation journey.
That does not mean that any specific organization should start and/or scale up its IX Program. A real commitment to transformation is critical for program success. If executive management is not on board in terms of a willingness to invest a serious budget and some of the best and brightest across the corporation, wait until they are.
Then, when engaged in IX, be sure to understand the dynamics of IX. Be sure to demand business impact from your IX Team but also give them the breathing room to “lean in early” around the Pivot to Value that is fundamental to driving meaningful business improvement. It might make sense to hold the IX program accountable around two tracks:
Proving the value of IX with quick wins
And building the infrastructure for success in the background or in parallel.
For a CDO (or CDO candidates) and/or other lX Program Lead
LNS Research has three recommendations:
Make sure you understand the REAL commitment to IX in your organization. Focus on understanding the “C-suite” views and if there are issues, work them hard.
In our Research Spotlight specifically on the Transformation Chasm, we detail how companies can do a number of things in the “Prove” stage of IX to help prepare to cross the Transformation Chasm. We recommended programs “lean in early”. Executing those recommendations can smooth your transition.
Don’t surprise anyone with your team’s Pivot. Communicate the forthcoming Pivot to Value to your team, executives, and the company well before you execute the Pivot. This may give you “breathing room” and even allow you to “lean in” earlier.
Build your sales strategy understanding that not all IX Programs are equal. Qualify around a “real commitment” to IX or understand that pilots may be all the prospective company ever purchases. Additionally, qualify for the maturity of the IX Program and understand that enterprise deals are most likely only coming after the prospect has crossed the Transformation Chasm.
The industry is transforming. Transformation is hard. Success requires real commitment and a willingness to change what is working from the top and from the plants. Stay tuned as LNS Research continues to drill into the best practices around Industrial Transformation.
All entries in this Industrial Transformation blog represent the opinions of the authors based on their industry experience and their view of the information collected using the methods described in our Research Integrity. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.