Digital transformation needed to preserve a competitive edge

Software company IFS has announced the results of an IDC InfoBrief, sponsored by IFS, Shaping the Future of Manufacturing, which reveals the level of digital transformation in manufacturing. The study, polling 160 senior decision-makers within manufacturing companies across Europe, the Americas and Asia, identifies the areas in which manufacturers can maximise growth by observing their future investment plans, IT strategy and related challenges.

Manufacturers’ main obstacles — increasing labour costs (61%), growing costs for raw materials (42%) and supply chain issues (42%) — continue to be prioritised. However, firefighting against these immediate challenges has distracted manufacturers from differentiating their operations. With no immediate signs of relief from disruption, manufacturers must adapt their business models and focus on areas beyond their typical core domains.

Digital transformation remains firmly on manufacturers’ strategic roadmaps, as the study reveals encouraging signs that more than half (53%) of manufacturers are continuing to invest in digital initiatives to support their core business operations. Those that have successfully moved beyond the pilot stages of their digital transformation journey and are actively pursuing digital maturity are already experiencing increases in profit. The survey shows that manufacturers reporting an optimised level of digital transformation saw profits increase (40%); while those with less advanced digital transformation maturity suffered bigger reductions in profit in the last fiscal year.

It is crucial that manufacturers continue to acknowledge the importance of advancing their digital initiatives. However, to ensure success, they must strike a balance between their digital transformation investments and critical business priorities. Alarmingly, (62%) of respondents lack clarity on the ROI from their digital transformation initiatives. If this continues, manufacturers risk losing competitive advantage and jeopardising the scale and deployment of future initiatives.

In line with this, recent IFS results have shown that CIOs are increasingly moving towards prioritising technology investments that help build resilience in their business and generate value through digital technologies. However, without clear evidence of ROI, manufacturers will find it challenging to convince senior management to allocate budget towards digital initiatives.

To truly thrive, organisations must follow the lead of manufacturers who are actively engaging with new ecosystems (28%), creating new revenue streams (26%) and exploring new markets (25%) to gain advantage over competitors. Positive indicators from the survey show that manufacturers are seeing the biggest ROI gains through scaling initiatives beyond pilots and deploying a mature digital transformation strategy to address processes and people. The research also reveals that ROI benefits are being met or exceeded through mature digital initiatives targeted at developing new business models (51%) and engaging with new ecosystems (37%).

“Manufacturers are under increasing pressure to differentiate in a landscape characterised by volatility while retaining the agility which is essential for building operational resilience. We know that digital maturity impacts profit,” said Maggie Slowik, Global Industry Director for Manufacturing at IFS. “However, without transparency and measurable ROI it will become increasingly difficult for manufacturers to scale and deliver tangible benefits from their investments.

“The more digital initiatives deliver ROI, the easier it is for organisations to make a case for further digital investments,” she added. “These must be enabled by scalable, cloud-based solutions to deliver long-term revenue and profit growth.

“We see that manufacturers who have broken through the pilot phases of their digital transformation journey, and continue to push for digital maturity, are already reaping the benefits of ROI as a means to generate long-term value and remain competitive. In the future, successful organisations will implement an advanced approach to digital transformation that considers the ‘impact-scale-trust’ dimensions of digital initiatives, continuously using digital technology not only to optimise operations but also to achieve advantage and create value with digital technology."

A complimentary copy of the IDC InfoBrief, The Future of Manufacturing, can be found here.

Image: iStock.com/MAGNIFIER