Digital Transformation Mid-Life Crisis

Executive Overview

Industrial companies have been on a digital transformation journey for some years now, but some are questioning how to proceed. Perhaps they conducted a series of technology pilots that failed or yielded unremarkable results. Maybe cost and ROI concerns are being raised, or for public companies, quarterly stock market pressures conflict with longer-term investments. Perhaps the pilots showed promise, but there’s no clear roadmap to follow and no clear vision to guide the way. Perhaps cultural norms are asserting themselves, with various organizations pushing back against innovation and change. Perhaps there’s a reaction to pandemic-forced changes that wants to see a return to normal. Or maybe directives from top management seem to require moving on to the next big topic, sustainability. Was digital transformation just so much hype, or should digital transformation still be a top priority for industrial companies?

With one exception – the increased need for sustainability and energy transition improvements - the fundamental drivers for embracing digital transformation haven’t changed. The basic idea underlying industrial digital transformation is to use data and technology to increase flexibility in production processes, enhance the organization’s ability to address customer needs, and improve competitive positioning. Industrial companies still need to modernize their operating practices and technologies to compete successfully in today’s more dynamic and continuously evolving marketplace. Some companies are already succeeding in their transformation. ARC knows a handful of companies that have made enormous strides and are confident that their transformation programs will continue to pay off.  So there’s a good reason to pursue transformation and other companies have demonstrated that it is doable. Why, then, has transformation fatigue set in?

Given the broad scope of what can be included in “digital transformation,” the vagaries of organizational change dynamics, the inherent but not always obvious difficulties encountered, the confusing messaging from suppliers and the media, and the often misguided expectations associated with digital transformation initiatives, it’s no surprise that many companies – and individual participants – feel that progress has stalled and wonder how to proceed. This paper will explain why it would be a mistake to press the brakes now, and suggest ways to proceed effectively. A wide-ranging industrial transformation is well underway, and there’s no going back. It’s okay to pause briefly to regroup and plan to overcome the immediate hurdles, but pursuing digital transformation remains a necessity, and today’s emphasis on sustainability and energy transition only strengthens that argument.

Industrial Companies Are Modernizing, Including Your Competitors

As an industry, we have recognized the need for digital transformation and have been acting on it for several years now. Good progress has been made, but not universally.

We need only point to ARC’s inaugural Industrial Digital Transformation Top 25 report to see that many industrial companies are pursuing digital transformation. Companies in the pharmaceutical and biotech, automotive, high tech, consumer goods, machinery and aerospace, chemicals, energy, and mining sectors are among the leaders.

Leading companies take a strategic approach, integrating digital technology throughout their value chains. Design and engineering, production operations, maintenance, logistics, supply chain, business systems, customers, products, and organizational structure are subject to innovative change as companies examine and update processes and deploy new tools and technologies. With a digital transformation mindset, the core business model by which a company produces and/or offers services to the marketplace can be modified or replaced by new business models that more fully leverage cognitive analytics, digital twins, predictive technologies, or other technologies that enable the company to expand their worldview, embrace competitive excellence as a goal, and thereby move beyond production efficiency to a much more dynamic, responsive, and resilient business model.

These companies are leaders in the integration of digital technology into all areas of business, fundamentally changing the way companies operate and deliver value to customers. They try to innovate and improve across multiple dimensions such as: digital/disruptive technologies, culture and leadership, operational agility, workforce engagement, customer experience, environmental, social and governance, and competitive performance. All have made significant progress in this area – but none would claim to be done.

Recent ARC research has shown that digital transformation programs are delivering real results for industrial companies. They cite increased productivity, increased quality, safety, and revenue, among other things, as areas where they have been able to measure improvements. And roughly six out of ten companies report that they have partly or fully implemented technology strategies across a wide range of technologies, such as artificial intelligence, edge computing, and internet of things.

Table of Contents

• Executive Overview
• Industrial Companies Are Modernizing, Including Your Competitors
• Challenges for Industrial Companies
• Digital Transformation Building Blocks
• Recommendations

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