- March 17, 2017
By Rajiv Sivaraman, Siemens
Digitalization may find its way into the dictionary as a homonym, for all its multiple meanings, but it has already found its way into boardroom agenda. Are you on board with digitalization?
By Rajiv Sivaraman, VP Business Development - Data Services & Head- Plant Security Services, Siemens
Digitalization may find its way into the dictionary as a homonym, for all its multiple meanings, but it has already found its way into boardroom agenda! Simply put, digitalization is the work required to develop “agility” for an enterprise, in order to stay relevant and maintain competitive advantage in the emerging “digital world”. Digitalization is the “means” to achieve the desired “outcome”: An agile enterprise, with enhanced customer experience and higher profitablity. Digital transformation is the process of moving into this agile state from the enterprise’s current state.
An enterprise that has the digital edge, has the capability of leveraging the power of convergence, which data in digitized form can provide across the value chain from product design to service. This enables said enterprise to make better informed decisions, transform key levers for “faster execution” in time to market, flexibility, quality, safety & operational efficiency, while also creating new business opportunities. The Industrial Internet of Things (IIoT) and its related opportunities only amplify the need for such a digital “shift”. The German government initiative ‘Industrie-4.0’ has also risen to address the need for horizontal and vertical integration in manufacturing Industries, while also promoting the efficient use of information and data to enable end-to-end engineering along the value chain. The fact should be well established, that every progressive manufacturing enterprise needs to embrace the digital edge, by leveraging the digital thread. The simple choice, for today’s enterprise, is between being disruptive or being disrupted.
The term ‘digital’ is typically used to refer to the storage of data or information in the form of digital signals. These signals are represented using the states of positive and non-positive, or the numbers 1 and 0. In this sense, the term is commonly used in such areas that require this storage, such as digital music. Based on this, the term ‘digitize’ describes the process by which other forms of representation are converted into the digital format. In a business context, “analytics” can be considered as the further digitizing of relevant information, creating new insights from which to make a better decision.
Against this backdrop, ‘digitalization’ is used to describe a transformation that goes beyond simply substituting analog or physical resources for their digital or information counterparts. For example, books don’t just simply become eBooks but complete interactive and multi-media experiences. Relatedly, in the enterprise, processes might become online dialogues between parties that were not previously directly connected.
So in a business context, an organization that seeks to become ‘digital’ might focus on the automation of processes, with the objective of making them more efficient. By contrast, a company focusing on digitalization, might aim to realize more effective outcomes from those processes through the improvement of customer engagement.
Examining the U.S. market specifically, most American firms dream of growth, but will invest in efficiency! Matt Reilly made some interesting points about the U.S. market in his blog “CEO Briefing –The Global Agenda: Competing in a Digital World”. In the blog, Reilly stated that “87 percent of companies, represented in the study, plan to increase their investments in research and development – with a significant portion of this investment devoted to digital technologies such as mobile, cloud computing, analytics, social media, ecommerce, and machine-to-machine communication. Sounds good; “New investment in innovative technologies” makes a great headline for the next earnings call or annual report.”
However, Reilly also mentioned that most of the U.S. companies in the study generally do not view digital technologies as an engine for growth. He mentioned that, in fact, “68 percent said that their investments in digital technologies are primarily focused on process efficiencies and cost reduction, while just 25 percent said such investments were geared toward helping the company reach customers. The emphasis is on greater operational efficiency rather than on growing sales, opening new sales channels, or creating new products or services.”
Based on this view of the U.S. market, ‘digital’ is, at the moment, still a hotter term than ‘digitalization’. However, if you talk with many business executives today, they will more often tell you that they aim for digitalization. This is the outlook which is surely required, for enterprises to answer the question: “How to use customer engagement to transform my business and realize more effective outcomes of processes and growth?”
It is essential to accurately “discover” what enterprises actually want to achieve, in order to ensure these organizations can realize their dreams! Siemens highlights five distinct drivers that manufacturing sector needs to transform to be disruptive:
- Time to market
- Improved safety & reliability
- Enhanced flexibility
- Improved quality
- Increased efficiency.
These are tangible levers that can be the focus for transformation and enables better business outcomes & customer experience.
Where Does Today’s Enterprise Start?
Discovery is certainly a good place to start, as business owners need to be aware of the impacts of emerging concepts and technology on their business. This includes baselining current capabilities, defining the outcomes that need be addressed and setting a target state for those outcomes. The gap between the current capabilities and the target state translates to a roadmap that can be executed, based on the business’ and operations’ linked prioritization.
Manufacturing enterprises today are facing a lot of new and daunting questions that need to be answered in the digitalization process:
- Who in my organization initiates digital transformation?
- What can we achieve?
- What are the goals?
- Is it a technical project to digitize everything or something more?
- Where should one start?
- Who is responsible for its conceptualization & execution?
- Where are we today in regards to capabilities?
- What should I do myself and what should I acquire?
- How do I ensure flexibility of large ecosystems?
- How do I embrace the evolution of technological advancements, along the layers in the technical architecture, without falling into proprietary trap?
Further there are additional dimensions of decision-making surrounding ongoing investments (Do we need new ERP / MES system or an automation/network upgrade)? and how to link these in the context of the “digital transformation” exercise.
Every organization needs to go through this introspective process in order to define the desired business outcomes and key levers needed to stay relevant and succeed in the emerging environment. The organization then needs to link that process to their current state of “agility readiness” against the desired target state. The readiness is then ascertained by evaluating enterprise maturity in a series of foundational domains, establishing guidelines with which to achieve the transformation. These foundational domains, or enablers, can be identified from key elements of the business value chain such as:
- Product life cycle management
- Manufacturing & process control
- Business analytics,
- Connectivity & data management
- Company culture with the underlying people
- Process & technology dimensions.
This approach helps to link the digital transformation journey to the enterprise’s overall strategic blueprint, as it relates to core business outcomes, and assists in validating current investments (opex/capex) in the overall context of digital transformation. This way, it helps put every activity in perspective of the long term goal of a digitalized organization.
A digital transformation blueprint is best complemented by using a ‘digitalization maturity model’ as the basis to define both the current state and the desired state, with regard to the “foundational domains” required for a sustainable business.
 Gartner IT Glossary
 Siemens digital enterprise value chain
 Siemens digitalisation levers
 acatech, April 2013 “Umsetzungsempfehlung für das Zukunftsprojekt Industrie 4.0”
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