The world is changing more unpredictably than ever. Disruptions are intensifying, occurring faster and with greater impact, and no event is the same as the one preceding it. Welcome to the “next” reality.
A few weeks ago at our IFS Connect event in Stuttgart, my colleague Maggie Slowik and I had the pleasure of looking into the future of two key industries/functions which touch us all daily: Manufacturing and Service. It is no surprise that technology solutions in these areas are advancing at an incredible pace.
We believe there are five Megatrends that will drive change and challenge traditional ways of working/operating models.
Megatrend 1: The Re-Set of Digital Transformation
A recent ‘Future of Manufacturing Survey’ that IFS conducted with IDC highlights that digital maturity has a positive impact on profits and growth in uncertain times. The survey shows that manufacturers reporting an optimized level of digital transformation saw profits increase, while those with less advanced digital maturity suffered bigger reductions in profit in the last fiscal year. This is yet another reminder of how digital maturity not only drives positive company performance, but also creates resilience in volatile times. Hence companies need to get over their pilot purgatories and move to the next digital stage.
We are seeing that Digital Transformation is an evolution: it comes in phases or waves, increasing the digital maturity. Technology & Services Industry Association (TISA) released a fascinating book about Digital Hesitation, describing Digital Transformation in two waves. Wave 1 focusses more on new business models, connectivity of products and use of technology. Many companies are still working on Wave 1 projects. Wave 2 of Digital Transformation rather focusses on the value realization by the customer, and on simplification of the whole digital customer journey and experience. TSIA is very clear that this requires a cross-functional and more holistic approach.
Megatrend 2: Data Monetization
In today’s digital economy, the ability to create business value from data makes it one of the most valued assets of any organization. With the right data, businesses can advance and accelerate their decision making, improve their operations and gain a competitive advantage (see megatrend 3 and 4).
McKinsey describes pointedly how data analytics are changing the way business is done, as well as the nature of competition. Differentiators are data analytics strategy, organization structures, and leadership. Attention on this strategic topic includes talent management for technical and domain expertise.
However, one of the key challenges we (still) see is the inability to deal with the large volumes of data that our digital investments have created. There’s a lack of integration capability with operational and business systems, and poor data quality. Having a single source of truth has become a gamechanger for those companies who want to make the most of their digital investments, empowering data-driven decision-making across the organization.
A comprehensive data monetization strategy leads as well to new business models and our megatrend 3. For example, Philips describes four different types: Data-as-a-service, Insights-as-a-service, Ecosystems-as-a-Service, Analytics-as-a-service.
Megatrend 3: Servitization and New Business Models
Services play an increasingly important role of companies’ success. On the one hand, the full and “early” integration of service innovation in the development process of a new solution, product, system, software is essential with the “later” delivery to the customer. Mary Ellen Skeens and I describe in Harold Kerzner’s “Innovation Project Management 2nd Edition” book Philips is enabling Solution Innovation Development and Commercialization The tight teamwork between R&D, Services, Product Marketing and other functions here is essential to determine what new capabilities (process, tool, content), roles/skills, and E2E systems approaches are needed to finally succeed with a great Moment of Service for the customer.
On the other hand, we see a significant increase of outcome-based services and new business model innovation: a majority of products will no longer be owned, but rather accessed and consumed. We see demand on both the B2C and B2B side, driven by a mindset shift. Organizations don’t want to own products any longer, preferring the freedom to access the latest version of the product as-a-service based on needs at any given point in time. For the user or consumer, it will become a service which could be used, bought, or terminated at almost any time. For a company this is not something the Services function can determine “alone”. It rather requires a “horizontal” approach across all functions – a siloed approach is not feasible anymore.
Megatrend 4: Circularity
There has certainly been a lot of hype about the Circular Economy lately, and those who think it’s not relevant or too far away should start investigating the topic with their stakeholders and ecosystem. According to a recent Bain & Consulting study, approximately 33% of executives expect their industry to be disrupted by circularity start-ups that put products or materials back into the supply chain.
Circularity – finding ways to put products, components, and materials back into the supply chain – is not only a way towards decarbonization and reducing the dependence on finite raw materials, but also a tremendous opportunity for business growth, innovation and the creation of new jobs and business opportunity. We must consider as well that 80% of all product-related environmental impacts are determined during the design phase of a product.
Interesting as well to see how IFS partner MHP describes an assessment approach to evaluate the circularity of products. From our perspective, it is Important that circularity needs to cover the full lifecycle of the products, including both the services but also aspects of new business models.
Megatrend 5: Talent
As we know, manufacturing and services have been suffering a chronic talent problem affecting organizations worldwide. And one thing is for sure: without the right talent, companies cannot succeed in driving their business transformations. According to our study with IDC, 80% of manufacturing organizations are lacking digital skills, which is preventing companies from advancing their digital initiatives and driving business transformation.1 This is why companies need to become more involved in solving the talent issue. As we said upfront, technology is advancing at a phenomenal rate, and because of that, the types of skills companies need will evolve as a result. Talent strategies and job profiles need an overhaul. McKinsey recently provided a holistic approach in Digital Transformations: The five talent factors that matter most.
Another key aspect of talent management is the identification and development of talents that are sufficiently cross-functional and holistic enough to enable the Megatrends we mentioned so far.
As shown above we see 5 Megatrends that will drive change and challenge traditional ways of working/operating models.
None of these Megatrends is distinct from another, but rather connected with each other. Megatrend 5 around talent could be seen as the glue to enable all these trends. We need talent that thinks, acts, and works “horizontally” and cross-functionally in the organization.
From our perspective, these highly skilled talents are rare in most companies. Therefore identification, development and support is particularly important. Another aspect is cross-functional governance and steering within organizations, in combination with superb Change Management to take everyone on the organization along on the Business Transformation journey(s). Finally, transformations that leverage these Megatrends take time. It is important to determine small, iterative steps for customer value and enable a great Moment of Service.
Find out more here:https://www.ifs.com/industries/manufacturing