How industrial organizations are leading the digital transformation

The ongoing digital transformation of business continues to accelerate. While many leaders look to Silicon Valley and tech start-ups for disruptive developments in the digital landscape, a new source of inspiration for successful initiatives is being found in an unlikely place. 

Although a relative latecomer to the digital party, the industrial sector is quietly implementing evolutionary approaches that are leading the way for businesses of every kind. 

Evolutionary rather than disruptive approach has allowed industries to assess the best digital approach for their business

Analysis of the digitalization strategies adopted by complex manufacturing industries, which was carried out by Ivanka Visnjic (Esade), Julian Birkenshaw (London Business School) and Carsten Linz (investor, board director, and member of the World Economic Forum’s Expert Network), has revealed important insights into successful implementation. It has been published in the MIT Sloan Management Review.

The research — conducted in conjunction with key global players in the manufacturing industry including Atlas Copco, Enel, BAE Systems, Bayer, Gree, Lanxess, Mölnlycke, Rio Tinto, Sandvik, Schneider, Siemens and Stellantis — has been used to develop an approach to digitalization that will benefit organizations in all sectors. 

The three stages of digital evolution 

The initial choices companies make in response to new technologies, how digital initiatives are scaled up, and the decision on whether to appoint a chief digital officer are all critical aspects to consider as part of a digital strategy. 

1. Let the business lead the way

While many consumer-facing organizations rushed to deploy innovations and the latest technologies, the industrial sector was slow to adapt. But, rather than resulting in the sector lagging behind, this has allowed industries to assess the best digital approach for their business. 

Piloting small, line manager-led projects leads to success in real terms. By identifying the use cases where new technology cuts costs and enables growth, managers can methodically quantify its value. 

Small-scale pilots also allow organizations to build the capability of internal teams. When line managers and engineers are involved in digital projects, they can refine processes and interfaces in real-time to ensure they are user-appropriate and meet the required objectives.  

2. A new approach to scalability 

While consumer-facing businesses tend to integrate projects at the scale up stage into a mainstream business unit, industrial organizations gain greater success by giving more autonomy to project delivery teams. 

Industry players necessitate a collaborative approach to technology. For digital platforms in industry to gain widespread use, teams at industrial companies should have the freedom to collaborate with technology partners such as IBM, Google and Amazon. 

This requires project autonomy that may come up against resistance from leaders unaccustomed to a collaborative approach. The successful cases of digital implementation observed in the research were supported by strong leaders who were able to persuade peers of the benefits of embedding and then scaling out industrial technology in collaboration with partners and even competitors.  

3. The role of the chief digital officer 

The lateness of the industrial sector to embrace digitalization means many of its Chief Digital Officers (CDOs) have been appointed within the last five years. At the same time, as the technology becomes embedded within the business operations, the role of the CDO in driving the digital agenda has become more of a facilitation. 

Will this make the role of the CDO obsolete? Not necessarily. The way user-driven information processes drive business objectives is an increasing priority, and the CDO has a key role to play in enabling this area of growth. 

Putting it into practice 

The researchers have come up with five key questions to help executives decide whether the approach outlined above will be helpful for them: 

1. In what form will the technology be delivered? If the digital element is the complement to the physical products, the embedded approach outlined above would be preferable. If the digital element replaces the physical component, a separate unit may produce better results. 
2. What are the implications for company assets and capabilities? If assets and capabilities retain their value as digital technology is implemented, an embedded approach would work. If they’re to become obsolete, manage digital technology in a separate unit. 
3. How much does the technology depend on the buyer relationship? Many companies deliver products and services tailored to the needs of the client. In these cases, integrating digital technologies with existing lines of business would be a beneficial approach. 
4. Does the technology meet a new need or satisfy an old one? If the technology delivers new benefits to previously unrecognized needs, it’s best managed through a new unit. If it’s meeting existing needs more efficiently, integrate it within an existing unit. 
5. What level of integration is there between digital technology and company activities? This final question is slightly more complex and requires some thought about the use of the technology. If digital technology is being used to predict equipment failure, for example, there are benefits to both implementation within an existing business line and working through a separate unit with dedicated capabilities. Specific case use should be considered, and adjustments made accordingly. 

The industrial sector may have been a late adopter, but its steady progression of evolutionary steps illustrates how companies in all sectors can find new ways to create, deliver and capture value through digital technologies.