Traditional Industries Need to Seize Digital Transformation Opportunities

Manufacturing, energy, and health care should do what tech, media, and retailers did: commit to fast, cheap, nimble, “always on” transformation, according to a new e-book from the Boston Consulting Group.

Digital disruption is reaching beyond technology to engulf a variety of industries, including manufacturing, transportation, energy, health care, and construction, that constitute a significant portion of the global economy. [Manufacturing directly and indirectly accounts for about 30% of economic output in Canada, according to Canadian Manufacturers and Exporters.]

The disruption represents opportunity as well as threat. But to seize this opportunity, companies in these industries will need to act as the technology, retail, and media industries already have: by embracing fast-moving change, creating multiple low-cost tech initiatives, killing lagging projects quickly, and committing to “always on” transformation—that is, profoundly changing their strategy, business model, and operating model on an ongoing basis in order to stay ahead.

These are among the insights in Transformation: Delivering and Sustaining Breakthrough Performance, a new e-book from The Boston Consulting Group (BCG) that draws on the firm’s work in more than 400 transformations that generated a median annual impact of approximately $340 million through the application of capital efficiency levers, cost cuts, revenue increases, and improvements in organizational performance.

Obstacles Include Legacy Systems and a Rigid, Process-Oriented Culture

“Digital technologies and approaches aren’t just for tech, media, and retailers anymore—they are infusing all aspects of the business world,” says Lars Fæste, a senior partner at BCG and one of the editors of the e-book“Through artificial intelligence, advanced data analytics, and 3D printing, to name just a few emerging digital innovations, companies in many industries can do great things for customers and create new levels of value.”

But many companies in industries such as energy, transportation, and health care are accustomed to a methodical approach to technology—one that risks putting them at a disadvantage.

“It’s understandable. These industries are rigid and process oriented and for many, the frame of reference is an enterprise-resource-planning migration that takes five years from start to finish,” says BCG senior partner and e-book editor Jim Hemerling. “But any company that takes that long on its digital transformation risks wasting immense amounts of time and money.”

The Most Successful Companies Take Four Critical Steps to “Get Digital”

Industry leaders are advised instead to act now to launch digital products and services and to digitize internal processes, even if they don’t feel ready. “Savvy companies get comfortable making decisions amid uncertainty. They launch projects even when they don’t know what the outcome is going to be,” says Fæste. “They embrace the concept of ‘fail fast and fail cheap,’ focusing on quick pilot tests and prototypes that they can roll out and evaluate quickly and then scale up or shut down.”

According to Fæste and Hemerling, companies that succeed with this trial-and-error approach to digital transformation take four steps. They:

  • Educate themselves and establish a baseline on their current use of digital technologies.
  • Create quick-and-dirty plans—lots of them—for technology projects. This isn’t and shouldn’t be a long, drawn-out effort. Successful companies move quickly to create project “portfolios” focused on just a few key areas where technology can make a difference: customer experience; reimagined products, services, and business models; and reengineered business processes.
  • Get agile to accelerate the transformation. Successful digital transformers launch multiple pilot projects at once. The goal isn’t perfection but a “good enough” product, with just enough features to make it functional. Apps are often basic at launch. New features are added over time depending on what customers want.
  • Transform the organization. They add capabilities, sometimes with the help of an ecosystem of partners, or they create external incubators through joint ventures or acquisitions.

Organizational transformation is often central to digital success. The e-book reports on a global bank that reorganized into mini startups to launch an array of highly targeted digital customer services, and an auto manufacturer that split its IT in two: a traditional unit to support legacy computing, and a faster-moving platform that used digital tools to support new initiatives for customers.

Digital Transformation—Like All Transformation—Should Be “Always On”

According to the editors, all transformation, not just digital, should be “always on.” And all industries—including those like technology, retail, and media that seem to have a digital advantage—should continue to press ahead with digital transformation. “The days are over when transformation could be approached as a one-time, cost-cutting project,” says Hemerling. “Today the pace of change and the severity of disruption mean that to stay competitive, companies need to make transformation a part of their culture. They also need to put as much emphasis on people as technology, ensuring that their people are always learning and developing the skills and behaviors they need to be effective in a digital environment. Successful companies have several transformations underway at once, each building on the others. Digital transformation is one of many important aspects of the transformations that leaders are engaged in all the time.”

>> Source: BCG Press Release, January 31, 2017

Transformation: Delivering and Sustaining Breakthrough Performance is available for download at https://www.bcgperspectives.com/transformation-breakthrough-performance.