The Only Way Manufacturers Can Survive
Leading a corporate transformation of any kind is difficult, and it hasn’t become any easier over time. But starting and sustaining a digital transformation in a manufacturing company? That’s tougher than managing any other change initiative — from total quality management to Six Sigma to lean manufacturing — and, believe us, we’ve lived through, or seen, them all over the last three decades.
Becoming digital is a requisite for survival today. However, while waves of technology — automation, additive manufacturing, AI — are washing over the corporate world, redefining the nature of work and productivity, there are no playbooks and few best practices for manufacturers’ digital transformation. Few industrial companies even paid attention to digital technologies until recently. Just nine years ago, for instance, General Electric didn’t track them closely, never thought about how they could fit in with the machines it manufactured, and, above all, didn’t realize it could make money from them. Digitalization was far removed from GE’s industrial reality.
Even today, although most manufacturers are beginning to flirt with digital technologies, not one has successfully pulled off a digital transformation. CEOs still have to figure out its art — and science — forcing them to draw up their game plans on the fly, which inevitably leads to tension and trauma. Some business leaders have been criticized for kicking off digital transformations prematurely; others for delaying them; and still others have been sacked for not sustaining them.
One of us spearheaded several transformations between 2001 and 2017 — including a digital transformation — at GE, a well-established global corporation. The other has been studying innovation and change in large companies, including GE, for decades. We’re both convinced that executing a digital transformation is not only the most complex but also the most critical challenge that any manufacturer faces today. That’s why we came together to coauthor this article, which illuminates why digital transformation is so tough for manufacturers and shares some key learnings from our experience.
GE was probably the first manufacturer to internalize that digital technologies could disrupt its businesses. However, that happened only after a GE scouting team searching for megatrends serendipitously figured out through its online research that some incumbents, such as IBM, and several high-tech startups were gathering data from GE’s customers to develop novel data-based services in sectors such as aviation and power.
Despite its newfound awareness of this existential threat, GE still faced uphill battles in its efforts to start and sustain its digital transformation. GE’s experiences, as well as those of other manufacturers we’ve studied, can provide useful ideas and insights for executives wrestling with the challenge.
Many CEOs miss the fact that a digital transformation isn’t the same as the digitalization of an existing business. It isn’t about creating websites, mobile apps, social media campaigns, and online sales channels. It isn’t about infusing information technology into the organization — which may improve efficiency but will not fundamentally alter strategy. A digital transformation entails reimagining products and services as digitally enabled assets; generating new value from the interconnection of physical and digital assets through data; and creating ecosystems to make that possible. And it results in a fundamental change in business and organizational activities, processes, competencies, and business models, enabling greater productivity.
Most of the business leaders we talk to can sense, but don’t fully realize, just how big a threat digitalization poses for manufacturers. Worse, they don’t see the opportunity it offers. Manufacturers such as GE, Siemens, and Honeywell International already depend heavily on after-sales services for more than half their revenues and even more for profits.
