The Year Ahead: 2021 Predictions

Every year, LNS Research puts forth predictions around the key trends around the Industrial Transformation (IX) topics on which we focus our research. As the IX Readiness, IX Platform, and Quality specialist at LNS, I have the opportunity to make predictions across a range of topics. Luckily for you, I am only going to make five!

1. We will continue to hear about “Pilot Purgatory” even though the phenomena is not real from the industrial’s perspective.

McKinsey & Company regularly writes about Pilot Purgatory: the stagnation of digital technology pilots that fail to roll out and positively impact the organization. Technology vendors regularly report frustrations in getting the rollout orders they anticipate. And manufacturers early in IX and/or IX Maturity are often challenged in getting plant buy-in to their technology recommendations.

My prediction is we will continue to hear about these challenges even though it is Fake News. Only 13% of industrials see themselves as “stuck in pilot” (most likely those manufacturers we noted above). The gap is in the expectations of vendors and consulting firms. Many view transformation like the ERP rollouts of the last few decades: “must-have” projects, financed centrally that are mandated for all plants worldwide over time. The reality, as evidenced by our global survey data, clearly indicates that is not the model. Fifty-eight percent of companies expect the plants to fund the roll-out themselves. Further, industrials are deliberately trying lots of different technologies to determine which have the most impact – they have no expectation's of rolling them all out. In fact, IX Leaders are engaged in more than twice as many technologies as followers. Almost every manufacturer we talk with has an IX mantra that is something like: “try a lot, fail fast, find the winners.” They do not see it as pilot purgatory if anyone or any set of technologies do not roll out.

But we are going to keep hearing about “Pilot Purgatory” because vendors and consulting organizations are going to be disappointed because they failed to qualify the account and their role within the account correctly.

2. We may see, for the first time, a dip in the number of companies committed to IX

We have been surveying the market for a number of years. Each year we see more and more companies engaging in IX. In early 2020 we found that 67% of companies are now actively engaged in or are planning to kick off an industrial transformation project within one year. And in June, we found that 78% of companies planned to accelerate or at least maintain their IX Program in the face of COVID-19. Even this month we saw a small uptick from our June numbers!

We will be surveying again in early 2021. I suspect we may see a downturn in the number of companies engaged for the first time. While the business impact of IX is real, and benefits in terms of agility and resiliency in the face of COVID-19 are profound, I still believe we will see a small downturn in the percentage of companies engaged. Three reasons for my prediction: 1) We have noted the “Zombie Program” phenomena – programs kicked off without a real commitment behind them. Zombie Programs are hard to finance during an economic downturn. 2) The number of companies engaged is already a significant portion of all companies. 3) More companies will understand that their market economics will be tougher than they had anticipated in June and survival will become their dominant goal. If your company/business/industry is on the bottom leg of a “K” recovery, you may need to stop everything that does not support survival.

The scary thing about this prediction for me as an analyst is that it is imminently measurable and LNS will have the answer in Q1 2021. Even if I am clairvoyant with this prediction, a significant portion of the market will be maintaining and/or accelerating their IX program to realize the significant business improvement benefits found by early IX Leaders.

3. SAP will make an acquisition in the IIoT or AI space.

I may be the only person that reads the “About…” section of press releases. As a former Marketing Executive, I know how much work goes into parsing those words and getting stakeholder buy-in to the paragraph about each company involved in a press release. So, I have to view the third and fourth sentences in “About SAP” in SAP press releases as aspirational:

“Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers’ businesses into intelligent enterprises. SAP helps give people and organizations deep business insight and fosters collaboration that helps them stay ahead of their competition.”

Few industrials are actively considering SAP for machine learning, IoT, or advanced analytics (especially if Artificial Intelligence is a critical requirement). While we will be including SAP in our forthcoming IX Platform Solution Selection Matrix, SAP’s market penetration in these markets is still small and geographically limited relative to SAP’s size. The only way for SAP to actualize their self-declaration is to acquire one or more of the leading companies in the space.

Of course, they could always change their “About SAP” verbiage...

4. The Quality Function will become more engaged in IX

Quality is the number one focus on IX Programs generally. 23% of IX Initiatives are aimed at improving quality. 43% of IX Programs have a goal of improving product quality, making it the most common goal for Industrial Transformation.

But and it is a big but, the quality function is not typically engaged. For example, Quality is engaged only 5-6% of the time as companies are deploying IIoT to monitor and improve quality. Survey data shows that the quality organization is often not even aware that the IX program is active.

LNS Research believes this needs to and will change. More and more companies are specifically initiating Quality Transformation initiatives linked to their overall transformation program. In those programs, teams are going beyond traditional quality to embrace Quality 4.0 Use Cases. The impact of EQMS and other Quality software solutions is significant. Quality 4.0 technologies deliver very real payback in the terms of improved manufacturing, quality, and New Product Introduction metrics. These technologies are relatively easy to deploy and roll out across the enterprise (please note the word relatively). But all require the engagement of Quality professionals for success.

5. Second Generation Leaders of IX Programs will become even more common

A little-known fact about IX Programs is that Chief Digital Officers leading the IX Program (presumably a core function justifying the creation of the role) is inversely correlated to success in the IX Program.

LNS’ hypotheses for why are highly correlated to the Zombie Programs mentioned above: when executives feel they “have to” initiate an IX Program even when they don’t believe it to be critical, the outcome is likely to be a stagnant program with little impact. A Zombie Program. A feature of these programs is a high profile CDO hire, generally from the outside of the organization and often from a technology company. The challenge is these outsiders do not know the issues in the organization nor how to make an impact across the organization. The outcome is little progress.

LNS has noted the increasing frequency of second-generation IX Leaders. Their profile usually includes long tenure with the organization, specifically including operational responsibilities, and a wide knowledge of the business. These leaders may or may not have a technology background at all but they know where the problems are and how to get the organization to buy into solutions. Given the importance of IX, LNS suspects this trend toward a different model of leader will intensify.

We will follow-up on our predictions next year.